10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended:

December 31, 2004

Commission File Number: 1-10853

BB&T CORPORATION

(Exact name of Registrant as specified in its Charter)

North Carolina	56-0939887
(State of Incorporation)	(I.R.S. Employer Identification No.)

200 West Second Street Winston-Salem, North Carolina	27101
(Address of principal executive offices)	(Zip Code)

(336) 733-2000

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Name of each exchange on which registered
Common Stock, $5 par value	New York Stock Exchange

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES þ    NO ¨

At February 28, 2005, the Corporation had 548,455,745 shares of its Common Stock, $5 par value, outstanding. The aggregate market value of voting stock held by nonaffiliates of the Corporation is approximately $20.2 billion (based on the closing price of such stock as of June 30, 2004.)

Portions of the Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on April 26, 2005, are incorporated by reference in Part III of this report.

CROSS REFERENCE INDEX

			Page
PART I	Item 1	Business	4
	Item 2	Properties	16, 86
	Item 3	Legal Proceedings	105
	Item 4	Submission of Matters to a Vote of Security Holders None.
PART II	Item 5	Market for the Registrant’s Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	53
	Item 6	Selected Financial Data	60
	Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 7A	Quantitative and Qualitative Disclosures About Market Risk	45
	Item 8	Financial Statements and Supplementary Data
		Consolidated Balance Sheets at December 31, 2004 and 2003	65
		Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2004	66
		Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31, 2004	67
		Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2004	68
		Notes to Consolidated Financial Statements	69
		Report of Independent Registered Public Accounting Firm	63
		Quarterly Financial Summary for 2004 and 2003	59
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
	Item 9A	Controls and Procedures	62
	Item 9B	Other Information None.
PART III	Item 10	Directors and Executive Officers of the Registrant	*, 16
	Item 11	Executive Compensation	*
	Item 12	Security Ownership of Certain Beneficial Owners and Management	*
	Item 13	Certain Relationships and Related Transactions	*
	Item 14	Principal Accounting Fees and Services	*
PART IV	Item 15	Exhibits, Financial Statement Schedules
	(a)	Financial Statements—See Listing in Item 8 above.
	(b)	Exhibits
	(c)	Financial Statement Schedules—None required.

* The information required by Item 10 is incorporated herein by reference to the information that appears under the headings “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s Proxy Statement for the 2005 Annual Meeting of Shareholders.

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The information required by Item 11 is incorporated herein by reference to the information that appears under the headings “Compensation of Executive Officers”, “Retirement Plans” and “Compensation Committee Report on Executive Compensation” in the Registrant’s Proxy Statement for the 2005 Annual Meeting of Shareholders.

The information required by Item 12 is incorporated herein by reference to the information that appears under the headings “Security Ownership” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s Proxy Statement for the 2005 Annual Meeting of Shareholders.

The information required by Item 13 is incorporated herein by reference to the information that appears under the headings “Compensation Committee Interlocks and Insider Participation” and “Transactions with Executive Officers and Directors” in the Registrant’s Proxy Statement for the 2005 Annual Meeting of Shareholders.

The information required by Item 14 is incorporated herein by reference to the information that appears under the headings “Fees to Auditors” and “Corporate Governance Matters—Audit Committee Pre-Approval Policy” in the Registrant’s Proxy Statement for the 2005 Annual Meeting of Shareholders.

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OVERVIEW AND DESCRIPTION OF BUSINESS

General

BB&T Corporation (“BB&T”, “the Company” or “the Corporation”), headquartered in Winston-Salem, North Carolina, is a bank holding company and a financial holding company providing a wide variety of banking and financial services. BB&T conducts its business operations primarily through its commercial banking subsidiaries, which have offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama, Florida, Indiana and Washington, D.C. In addition, BB&T offers various lending products, insurance and other financial services products nationwide through other subsidiaries.

BB&T’s principal commercial bank subsidiaries are Branch Banking and Trust Company (“Branch Bank”), Branch Banking and Trust Company of South Carolina (“BB&T-SC”), Branch Banking and Trust Company of Virginia (“BB&T-VA”) collectively the (“Subsidiary Banks”), and BB&T Bankcard Corporation. Branch Bank, BB&T’s largest subsidiary, was chartered in 1872 and is the oldest bank headquartered in North Carolina.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements with respect to the financial condition, results of operations and business 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 on the information available to management at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce net interest margins and/or the volumes and values of loans made or held as well as the value of other financial assets held; (3) general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services; (4) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which BB&T is engaged; (5) costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected; (6) expected cost savings associated with recently completed mergers may not be fully realized or realized within the expected time frame; (7) deposit attrition, customer loss or revenue loss following recently completed mergers may be greater than expected; (8) competitors of BB&T may have greater financial resources and develop products that enable such competitors to compete more successfully than BB&T; and (9) adverse changes may occur in the securities markets.

Primary Subsidiaries of BB&T Corporation

At December 31, 2004, the principal operating subsidiaries of BB&T included the following:

· Branch Banking and Trust Company, Winston-Salem, North Carolina;

· Branch Banking and Trust Company of South Carolina, Greenville, South Carolina;

· Branch Banking and Trust Company of Virginia, Richmond, Virginia;

· Regional Acceptance Corporation, Greenville, North Carolina;

· Scott & Stringfellow, Inc., Richmond, Virginia;

· MidAmerica Gift Certificate Company, Louisville, Kentucky;

· Sheffield Financial Corporation, Clemmons, North Carolina;

· BB&T Factors Corporation, High Point, North Carolina; and

· BB&T Bankcard Corporation, Columbus, Georgia.

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Branch Bank, BB&T’s largest subsidiary, operated 905 banking offices at December 31, 2004, which were primarily located in North Carolina, Georgia, Kentucky, Maryland, Florida and West Virginia. Branch Bank is the largest bank in West Virginia and, excluding home office deposits, is the second largest bank in North Carolina in terms of deposit market share. Branch Bank’s principal operating subsidiaries include:

· BB&T Leasing Corporation, based in Charlotte, North Carolina, which provides lease financing to commercial businesses and municipal governments;

· BB&T Investment Services, Inc., located in Charlotte, North Carolina, which offers customers nondeposit investment alternatives, including discount brokerage services, fixed-rate and variable-rate annuities, mutual funds, and government and municipal bonds;

· BB&T Insurance Services, Inc., headquartered in Raleigh, North Carolina, offers property and casualty, life, health, employee benefits, commercial general liability, surety, title, and other insurance products through its agency network;

· Stanley, Hunt, DuPree & Rhine Inc., with dual headquarters in Greensboro, North Carolina and Greenville, South Carolina, which offers group medical plans, insurance and investment consulting, and actuarial services;

· Prime Rate Premium Finance Corporation, Inc., located in Florence, South Carolina, which provides insurance premium financing primarily to customers in BB&T’s principal market area;

· Laureate Capital, LLC, located in Charlotte, North Carolina, which specializes in arranging and servicing commercial mortgage loans;

· Lendmark Financial Services, Inc., located in Conyers, Georgia, which offers alternative consumer and mortgage loans to clients unable to meet BB&T’s normal consumer and mortgage loan underwriting guidelines;

· CRC Insurance Services, Inc., based in Birmingham, Alabama, which is authorized to do business nationwide and was the 2^nd largest wholesale insurance broker in the country with 23 offices in 14 states at December 31, 2004; and

· McGriff, Seibels & Williams, Inc., based in Birmingham, Alabama, which is authorized to do business nationwide and specializes in providing insurance products to large commercial and energy clients, including many Fortune 500 companies.

BB&T-SC operated 98 banking offices at December 31, 2004 and is the third largest bank in South Carolina in terms of deposit market share.

BB&T-VA operated 410 banking offices at December 31, 2004 and is the second largest bank in Virginia in terms of deposit market share.

Scott & Stringfellow, Inc. (“Scott & Stringfellow”) is an investment banking and full-service brokerage firm located in Richmond, Virginia. At December 31, 2004, Scott & Stringfellow operated 41 full-service retail brokerage offices; 21 in Virginia, 12 in North Carolina, 7 in South Carolina, and 1 office in West Virginia. Scott & Stringfellow specializes in the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. Scott & Stringfellow also has a public finance department that provides investment banking, financial advisory services and debt underwriting services to a variety of regional tax-exempt issuers. Scott & Stringfellow’s investment banking and corporate and public finance areas do business as BB&T Capital Markets.

The primary services offered by BB&T’s subsidiaries include:

· small business lending

· commercial middle market lending

· real estate lending

· retail lending

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· home equity lending

· sales finance

· home mortgage lending

· commercial mortgage lending

· leasing

· asset management

· retail and wholesale agency insurance

· institutional trust services

· wealth management / private banking

· investment brokerage services

· capital markets services

· factoring

· asset-based lending

· international banking services

· treasury services

· electronic payment services

· credit and debit card services

· consumer finance

· payroll processing

The following table reflects BB&T’s deposit market share and branch locations by state at December 31, 2004.

Table 1

BB&T Deposit Market Share and Branch Locations by State

December 31, 2004

	% of BB&T’s Deposits (2)		Deposit Market Share Rank (2)	Number of Branches
North Carolina (1)	26	%	2nd	334
Virginia	28		2nd	410
Georgia	9		6th	119
Kentucky	6		3rd	98
South Carolina	7		3rd	98
West Virginia	6		1st	81
Maryland	8		6th	125
Tennessee	2		8th	46
Florida	6		10th	91
Washington, D.C.	2		5th	8

(1) Excludes home office deposits.

(2) Source: SNL Financial—data as of June 30, 2004 and updated for actual and pending mergers.

In addition to the markets described in the table above, BB&T operates two branches in Alabama and one branch in Indiana. Please refer to Note 20 “Operating Segments” in the “Notes to Consolidated Financial Statements” for additional disclosures.

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Executive Overview

Significant accomplishments in 2004

In the opinion of BB&T’s management, the Corporation’s most significant accomplishments during 2004 were as follows (amounts include the impact of acquisitions where applicable):

· Performance improved compared to 2003

· Average noninterest-bearing deposits increased 22.8%

· Efficiency improved and internal cost control initiatives were implemented

· BB&T reached $100 billion in assets

· Nonperforming assets and charge-offs substantially improved

· Households utilizing 5 or more BB&T services grew to 26.6%

· The number of customers using online banking services increased 37.8%

· The integration of First Virginia Banks, Inc., was substantially completed

· BB&T acquired and completed the systems conversion of Republic Bancshares, Inc.

· Several insurance agencies, a premium finance company and an asset management company were acquired during 2004

· BB&T completed a successful Executive Management transition

Challenges

BB&T has grown at a rapid pace since its merger of equals with Southern National Corporation in 1995, and BB&T’s business has become more dynamic and complex in recent years. Consequently, management has annually evaluated and, as necessary, adjusted the Corporation’s business strategy in the context of the current operating environment. During this process, management considers the current financial condition and performance of the Company and its expectations for future economic activity, both on a national and local market scale. The achievement of BB&T’s key strategic objectives and established long-term financial goals is subject to many uncertainties and challenges. The challenges, which in the opinion of management, are most relevant and likely to have a near term impact on performance, are presented below:

· Building revenue momentum

· Further improving efficiency

· Effectively managing in a rapidly changing economic environment in BB&T’s core markets

· Costs and risks associated with the current heightened regulatory environment

· Restoring relative superior performance

· Intense price competition

· Increased global event risk

· Dilution from mergers

Competition

The financial services industry is highly competitive and dramatic change continues to occur in all aspects of the Company’s business. The ability of nonbank financial entities to provide services previously reserved for commercial banks has intensified competition. BB&T’s subsidiaries compete actively with national, regional and local financial services providers, including banks, thrifts, securities dealers, mortgage bankers, finance companies and insurance companies. Competition among providers of financial products and services continues to increase with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The industry continues to consolidate, which affects competition by eliminating some regional and

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local institutions, while strengthening the franchises of acquirers. For additional information concerning markets, BB&T’s competitive position and business strategies, see “Market Area” and “General Business Development” below.

Market Area

BB&T’s primary market area consists of North and South Carolina, Virginia, Maryland, Georgia, eastern Tennessee, West Virginia, Kentucky, Florida and Washington, D.C. This area’s employment base is diverse and primarily consists of manufacturing, general services, agricultural, wholesale/retail trade, technology and financial services. BB&T believes its current market area is economically strong and will support consistent growth in assets and deposits in the future. Even so, management intends to continue expanding and diversifying the BB&T franchise, although at a slower pace than in recent years. Management strongly believes that BB&T’s community bank approach to providing client service is a competitive advantage which strengthens the Corporation’s ability to enter new markets and effectively provide financial products and services to businesses and individuals in these markets.

General Business Development

BB&T is a regional financial holding company. The core of its business and franchise was created by the merger-of-equals between BB&T and Southern National Corporation in 1995 and the acquisition of United Carolina Bancshares in 1997. BB&T has maintained a long-term focus on a strategy that includes expanding and diversifying the BB&T franchise both in terms of revenues, profitability and asset size. Tangible evidence of this focus is the growth in average total assets, loans and deposits, which have increased at compound annual rates of 11.0%, 11.8%, and 10.8%, respectively, over the last five years.

Merger Strategy

BB&T’s growth in business, profitability and market share over the past several years was enhanced significantly by mergers and acquisitions. Management made a strategic decision not to pursue any bank or thrift acquisitions during 2004 or 2005, instead focusing on fully integrating recent mergers. Management intends to resume strategic mergers and acquisitions, including bank and thrift acquisitions primarily within BB&T’s existing footprint in 2006. BB&T will continue to pursue economically advantageous acquisitions of insurance agencies, asset managers and other consumer and commercial finance companies to grow existing product lines and expand into related financial businesses. BB&T’s acquisition strategy is focused on three primary objectives:

· to pursue acquisitions of banks and thrifts in the Carolinas, Virginia, Maryland, Washington D.C., Georgia, West Virginia, Tennessee, Kentucky, and Florida with assets of $500 million or more;

· to acquire companies in niche markets that provide products or services that can be offered through the existing distribution system to BB&T’s current customer base; and

· to consider strategic nonbank acquisitions in new markets that are economically feasible and provide positive long-term benefits.

BB&T consummated acquisitions of 58 community banks and thrifts, 73 insurance agencies and 24 nonbank financial services providers over the last fifteen years. BB&T expects, in the long-term, to continue to take advantage of the consolidation in the financial services industry and expand and enhance its franchise through mergers and acquisitions. The consideration paid for these acquisitions may be in the form of cash, debt or BB&T stock. The amount of consideration paid to complete these transactions may be in excess of the book value of the underlying net assets acquired, which could have a dilutive effect on BB&T’s earnings. In addition, acquisitions often result in significant front-end charges against earnings; however, cost savings and revenue enhancements, especially incident to in-market bank and thrift acquisitions, are also typically anticipated.

Lending Activities

The primary goal of the BB&T lending function is to help clients achieve their financial goals by providing quality loan products that are fair to the client and profitable to the Corporation. Management believes that this purpose can best be accomplished by building strong, profitable client relationships over time, with BB&T

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becoming an important contributor to the prosperity and well-being of its clients. In addition to the importance placed on client knowledge and continuous involvement with clients, BB&T’s lending process incorporates the standards of a consistent company-wide credit culture and an in-depth local market knowledge. Furthermore, the Company employs strict underwriting criteria governing the degree of assumed risk and the diversity of the loan portfolio in terms of type, industry and geographical concentration. In this context, BB&T strives to meet the credit needs of businesses and consumers in its markets while pursuing a balanced strategy of loan profitability, loan growth and loan quality.

BB&T conducts the majority of its lending activities within the framework of the Corporation’s community bank operating model, with lending decisions made as close to the client as practicable.

The following table summarizes BB&T’s loan portfolio based on the regulatory classification of the portfolio, which focuses on the underlying loan collateral, and differs from internal classifications presented herein which focus on the primary purpose of the loan.

Table 2

Composition of Loan and Lease Portfolio

	December 31,
	2004			2003			2002			2001			2000
	(Dollars in thousands)
Commercial, financial and agricultural loans	$	7,711,876		$	7,143,759		$	6,975,340		$	6,551,604		$	6,555,831
Lease receivables		5,281,076			5,127,068			5,153,192			5,011,579			4,453,345
Real estate—construction and land development loans		8,601,112			6,477,313			5,291,719			5,334,108			4,264,275
Real estate—mortgage loans		39,257,447			36,251,269			30,023,470			25,542,288			25,239,698
Consumer loans		9,237,815			9,208,182			6,501,831			5,965,010			5,891,059
Total loans and leases held for investment		70,089,326			64,207,591			53,945,552			48,404,589			46,404,208
Loans held for sale		613,476			725,459			2,377,707			1,907,416			906,244
Total loans and leases		70,702,802			64,933,050			56,323,259			50,312,005			47,310,452
Less: unearned income		(2,540,201	)		(2,627,664	)		(2,805,246	)		(2,868,832	)		(2,483,377	)
Net loans and leases	$	68,162,601		$	62,305,386		$	53,518,013		$	47,443,173		$	44,827,075

BB&T’s loan portfolio is approximately 50% business and 50% retail by design, and is divided into three major categories—business, consumer and mortgage. Loans from BB&T’s specialized lending segment, as discussed in Note 20, “Operating Segments” of the “Notes to Consolidated Financial Statements,” are included in the applicable categories. BB&T lends to a diverse customer base that is substantially located within the Company’s primary market area. At the same time, the loan portfolio is geographically dispersed throughout BB&T’s branch network to mitigate concentration risk arising from local and regional economic downturns.

The following discussion presents the principal types of lending conducted by BB&T and describes the underwriting procedures and overall risk management of BB&T’s lending function. The relative risk of each loan portfolio is presented in the “Asset Quality” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

Underwriting Approach

Recognizing that the loan portfolio is a primary source of profitability, proper loan underwriting is critical to long-term financial success. BB&T’s underwriting approach is designed to define acceptable combinations of specific risk-mitigating features that ensure credit relationships conform to BB&T’s risk philosophy. Provided below is a summary of the most significant underwriting criteria used to evaluate new loans and loan renewals:

· Cash flow and debt service coverage—cash flow adequacy is a necessary condition of creditworthiness, meaning that loans not clearly supported by a borrower’s cash flow must be justified by secondary repayment sources.

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· Secondary sources of repayment—alternative repayment funds are a significant risk-mitigating factor as long as they are liquid, can be easily accessed and provide adequate resources to supplement the primary cash flow source.

· Value of any underlying collateral—loans are generally secured by the asset being financed. Because an analysis of the primary and secondary sources of repayment is the most important factor, collateral, unless it is liquid, does not justify loans that cannot be serviced by the borrower’s normal cash flows.

· Overall creditworthiness of the customer, taking into account the customer’s relationships, both past and current, with other lenders—our success depends on building lasting and mutually beneficial relationships with clients, which involves assessing their financial position and background.

· Level of equity invested in the transaction—in general, borrowers are required to contribute or invest a portion of their own funds prior to any loan advances.

Business Loan and Lease Portfolio

The business loan and lease portfolio represents the largest category of the Company’s total loan portfolio and is segmented as follows—commercial loans, generally defined as client relationships with total credit exposure above $500,000, small business loans, and leases. BB&T’s commercial lending program is generally targeted to serve small-to-middle market businesses with sales of $200 million or less. Traditionally, lending to small and mid-sized businesses has been among BB&T’s strongest markets.

Business loans are primarily originated through BB&T’s banking network. In accordance with the Corporation’s lending policy, each loan undergoes a detailed underwriting process, which incorporates BB&T’s underwriting approach, procedures and evaluations described above. In addition, the bank has adopted an internal maximum credit exposure lending limit of $215 million for a “best grade” credit, which is considerably below the Banks’ maximum legal lending limit. Commercial loans are typically priced with an interest rate tied to market indexes, such as the prime rate and the London Interbank Offered Rate (“LIBOR”). Business loans are individually monitored and reviewed for any possible deterioration in the ability of the client to repay the loan. Approximately 95% of BB&T’s commercial loans are secured by real estate, business equipment, inventories, and other types of collateral.

BB&T provides commercial leasing services through BB&T Leasing Corp. (“Leasing”), a subsidiary of Branch Bank. Leasing provides three primary products: finance or capital leases, true leases (as defined under the Internal Revenue Code) and other operating leases for vehicles, rolling stock and tangible personal property. Leasing also provides lease-related services for small to medium-sized commercial customers. In addition to the services offered by Leasing, other BB&T subsidiaries provide leases to municipalities and invest in various types of leveraged lease transactions. Substantially all of BB&T’s leases are secured.

Consumer Loan Portfolio

BB&T offers a wide variety of consumer loan products. Various types of secured and unsecured loans are marketed to qualifying existing clients and to other creditworthy candidates in BB&T’s market area. These loans are relatively homogenous and no single loan is individually significant in terms of its size and potential risk of loss. Consumer loans are subject to the same rigorous lending policies and procedures as described above for commercial loans and are underwritten with note amounts and credit limits that ensure consistency with the Corporation’s risk philosophy. In addition to its normal underwriting due diligence, BB&T uses automated “scoring systems” to help underwrite the credit risk in its consumer portfolio.

The consumer loan portfolio consists of three primary sub-portfolios—direct retail, revolving credit and sales finance. The direct retail category consists mainly of home equity loans and lines of credit, which are secured by residential real estate. It also includes installment loans and some unsecured lines of credit other than credit cards. The revolving credit category is comprised of the outstanding balances on credit cards and BB&T’s checking account overdraft protection product, Constant Credit. Such balances are generally unsecured and actively managed by BB&T Bankcard Corporation. Finally, the sales finance category primarily includes secured indirect installment loans to consumers for the purchase of automobiles. Such loans are originated through

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approved franchised and independent automobile dealers throughout the BB&T market area and limited adjoining states. On a very limited basis, sales finance loans are also originated through qualified non-automotive dealers for the purchase of boats, recreational vehicles and other consumer equipment. Substantially all consumer loans, excluding the revolving credit portfolio, are secured.

Mortgage Loan Portfolio

BB&T is a large originator of residential mortgage loans, with originations in 2004 totaling $10.0 billion. The bank offers various types of fixed- and adjustable-rate loans for the purpose of constructing, purchasing or refinancing owner-occupied properties. BB&T primarily originates conforming mortgage loans. These are loans that are underwritten in accordance with the underwriting standards set forth by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). They are generally collateralized by one-to-four-family residential real estate, have loan-to-collateral value ratios of 80% or less, and are made to borrowers in good credit standing.

Risks associated with the mortgage lending function include interest rate risk, which is mitigated through the sale of substantially all conforming fixed-rate loans in the secondary mortgage market, and default risk by the borrower, which is lessened through rigorous underwriting procedures and mortgage insurance. The right to service the loans and receive servicing income is generally retained when conforming loans are sold. Management believes that the retention of mortgage servicing is a primary relationship driver in retail banking and a vital part of management’s strategy to establish profitable long-term customer relationships and offer high quality client service. Branch Bank also purchases residential mortgage loans from correspondent originators. The loans purchased from third-party originators are subject to the same underwriting and risk-management criteria as loans originated internally.

The following table presents BB&T’s total loan portfolio based upon the primary purpose of the loan, as discussed herein, rather than upon regulatory reporting classifications:

Table 3

Composition of Loan and Lease Portfolio Based on Loan Purpose

	December 31,
	2004		2003		2002		2001		2000
	(Dollars in thousands)
Loans and leases, net of unearned income:
Commercial loans	$	31,433,304	$	28,500,428	$	26,440,906	$	23,640,612	$	21,885,899
Lease receivables		2,887,663		2,677,058		2,524,058		2,318,530		2,100,712
Total commercial loans and leases		34,320,967		31,177,486		28,964,964		25,959,142		23,986,611
Sales finance		6,362,990		6,193,928		3,500,158		2,940,364		2,844,970
Revolving credit		1,276,876		1,180,480		1,050,738		951,319		863,089
Direct retail		13,932,879		12,130,101		9,400,230		8,273,829		8,336,368
Total consumer loans		21,572,745		19,504,509		13,951,126		12,165,512		12,044,427
Residential mortgage loans		12,268,889		11,623,391		10,601,923		9,318,519		8,796,037
Total loans and leases (1)	$	68,162,601	$	62,305,386	$	53,518,013	$	47,443,173	$	44,827,075

(1) Includes loans held for sale.

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The following table reflects the scheduled maturities of commercial, financial and agricultural loans, as well as real estate construction loans:

Table 4

Selected Loan Maturities and Interest Sensitivity (1)

	December 31, 2004
	Commercial, Financial and Agricultural		Real Estate: Construction		Total
	(Dollars in thousands)
Fixed rate:
1 year or less (2)	$	372,992	$	106,230	$	479,222
1-5 years		721,615		960,322		1,681,937
After 5 years		140,701		187,606		328,307
Total		1,235,308		1,254,158		2,489,466
Variable rate:
1 year or less (2)		3,190,550		3,573,903		6,764,453
1-5 years		2,844,011		3,086,143		5,930,154
After 5 years		442,007		686,908		1,128,915
Total		6,476,568		7,346,954		13,823,522
Total loans and leases (3)	$	7,711,876	$	8,601,112	$	16,312,988

(1) Balances include unearned income.

(2) Includes loans due on demand.

	(Dollars in thousands)
(3)    The above table excludes:
(i)     consumer loans	$	9,237,815
(ii)    real estate mortgage loans		39,257,447
(iii)   loans held for sale		613,476
(iv)   lease receivables		5,281,076
Total	$	54,389,814

Scheduled repayments are reported in the maturity category in which the payment is due. Determinations of maturities are based upon contract terms. BB&T’s credit policy typically does not permit automatic renewals of loans. At the scheduled maturity date (including balloon payment date), the customer generally must request a new loan to replace the matured loan and execute a new note with rate, terms and conditions negotiated at that time.

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

The allowance for loan and lease losses is determined based on management’s best estimate of probable losses that are inherent in the portfolio at the balance sheet date. BB&T’s allowance is driven by existing conditions and observations, and reflects losses already incurred, even if not yet identifiable.

The Company determines the allowance based on an ongoing evaluation of the loan and lease portfolios. This evaluation is inherently subjective because it requires material estimates, including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates may be susceptible to significant change. Increases to the allowance are made by charges to the provision for credit losses, which is reflected on the Consolidated Statements of Income. Loans or leases deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to the allowance.

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In addition to the allowance for loan and lease losses, BB&T also estimates probable losses related to binding unfunded lending commitments. The methodology to determine such losses is inherently similar to the methodology utilized in calculating the allowance for commercial loans, adjusted for factors specific to binding commitments, including the probability of funding and exposure at funding. The reserve for unfunded lending commitments is included in accounts payable and other liabilities on the Consolidated Balance Sheets. Changes to the reserve for unfunded lending commitments are made by changes to the provision for credit losses.

Reserve Policy and Methodology

The allowance for loan and lease losses consists of (1) a component for individual loan impairment recognized and measured pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 114, “Accounting by Creditors for Impairment of a Loan,” and (2) components of collective loan impairment recognized pursuant to SFAS No. 5, “Accounting for Contingencies,” including a component that is unallocated. BB&T maintains specific reserves for individually impaired loans pursuant to SFAS No. 114. A loan is impaired when, based on current information and events, it is probable that BB&T will be unable to collect all amounts due (interest as well as principal) according to the contractual terms of the loan agreement. On a quarterly basis, BB&T reviews all commercial lending relationships with outstanding debt of $2 million or more that have been classified as substandard or doubtful. Loans are considered impaired when the borrower does not have the cash flow capacity or willingness to service the debt according to contractual terms, or it does not appear reasonable to assume that the borrower will continue to pay according to contractual agreement. The amount of impairment is based on the present value of expected cash flows discounted at the loan’s effective interest rate, and/or the value of collateral adjusted for any origination costs and nonrefundable fees that existed at the time of origination.

Reserves established pursuant to the provisions of SFAS No. 5 for collective loan impairment are primarily based on historical charge-off experience using a rolling twelve quarter annualized net charge-off rate. However, historical charge-off experience may be adjusted to reflect the effects of current conditions. BB&T considers information derived from its loan risk ratings; internal observable data related to trends within the loan and lease portfolios, including credit quality, concentrations, aging of the portfolio, growth and acquisitions; volatility adjustments to reflect changes in historical net charge-off rates and changes in probabilities of default; external observable data related to industry and general economic trends; and any significant, relevant changes to BB&T’s policies and procedures. Any adjustments to historical loss experience are based on one or more sets of observable data as described above and are directionally consistent with changes in the data from period to period, taking into account the interaction of components over time. The adjusted historical loss information is applied to pools of loans grouped according to similar risk characteristics to calculate components of the allowance. In the commercial lending portfolio, each loan is assigned a “risk grade” at origination by the account officer and the assigned risk grade is subsequently reviewed and finalized through BB&T’s established loan review committee process. Loans are assigned risk grades based on an assessment of conditions that affect the borrower’s ability to meet contractual obligations under the loan agreement. This process includes reviewing borrowers’ financial information, historical payment experience, credit documentation, public information, and other information specific to each borrower. The established risk management regimen includes a review of all credit relationships with total credit exposure of $500,000 or more on an annual basis or at any point management becomes aware of information affecting the borrower’s ability to fulfill their obligations. In addition, for small business and commercial clients where total credit exposure is less than $1 million, BB&T has developed an automated loan review system to identify and proactively manage accounts with a higher risk of loss. The “score” produced by this automated system is updated monthly. All of the loan portfolios grouped in the retail lending and specialized lending categories typically employ scoring models to segment credits into groups with homogenous risk characteristics. Scoring models are validated on a periodic basis in order to ensure reliable default rate information. This information is employed to evaluate the levels of risk associated with new production as well as to assess any risk migration in the existing portfolio.

A portion of the Corporation’s allowance for loan and lease losses is not allocated to any specific category of loans. This unallocated portion of the allowance reflects management’s best estimate of the elements of imprecision and estimation risk inherent in the calculation of the overall allowance. Due to the subjectivity involved in determining the overall allowance, including the unallocated portion, the portion considered unallocated may fluctuate from period to period based on management’s evaluation of the factors affecting the assumptions used in calculating the allowance, including historical loss experience, current economic conditions,

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industry or borrower concentrations and the status of merged institutions. The allocated and unallocated portions of the allowance are available to absorb losses in any loan or lease category. Management evaluates the adequacy of the allowance for loan and lease losses based on the combined total of the allocated and unallocated components.

While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance or to the reserving methodology may be necessary if economic conditions differ substantially from the assumptions used in making the valuations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

The following table presents an estimated allocation of the allowance for loan and lease losses at the end of each of the past five years. This table is presented based on the regulatory reporting classifications of the loans. Amounts applicable to years prior to 2002 reflect acquisitions accounted for as poolings of interests. This allocation of the allowance for loan and lease losses is calculated on an approximate basis and is not necessarily indicative of future losses or allocations. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases.

Table 5

Allocation of Allowance for Loan and Lease Losses by Category

	December 31,
	2004				2003				2002				2001				2000
	Amount		% Loans in each category		Amount		% Loans in each category		Amount		% Loans in each category		Amount		% Loans in each category		Amount		% Loans in each category
	(Dollars in thousands)
Balances at end of period applicable to:
Commercial, financial and agricultural	$	116,602	10.9	%	$	142,293	11.0	%	$	150,700	12.4	%	$	133,238	13.0	%	$	120,486	13.9	%
Real estate:
Construction and land development		95,925	12.2			93,924	10.0			85,525	9.4			79,443	10.6			55,874	9.0
Mortgage		403,433	56.4			381,678	56.9			332,490	57.5			234,872	54.6			199,864	55.3
Total real estate		499,358	68.6			475,602	66.9			418,015	66.9			314,315	65.2			255,738	64.3
Consumer		111,356	13.1			79,765	14.2			64,209	11.5			54,668	11.9			49,575	12.5
Lease receivables		34,600	7.4			42,440	7.9			45,173	9.2			38,098	9.9			30,702	9.3
Unallocated		43,016	—			44,837	—			45,588	—			104,099	—			121,606	—
Total	$	804,932	100.0	%	$	784,937	100.0	%	$	723,685	100.0	%	$	644,418	100.0	%	$	578,107	100.0	%

Investment Activities

Investment securities represent a significant portion of BB&T’s assets. BB&T’s subsidiary banks invest in securities as allowable under bank regulations. These securities include obligations of the U.S. Treasury, agencies and corporations of the U.S. government, including mortgage-backed securities, bank eligible obligations of any state or political subdivision, bank eligible corporate obligations, including commercial paper, negotiable certificates of deposit, bankers acceptances, mutual funds and limited types of equity securities. BB&T’s bank subsidiaries may also deal in securities subject to the provisions of the Gramm-Leach-Bliley Act. Scott & Stringfellow, Inc., BB&T’s full-service brokerage and investment banking subsidiary, engages in the underwriting, trading and sales of equity and debt securities subject to the risk management policies of the Corporation.

BB&T’s investment activities are governed internally by a written, board-approved policy. The investment policy is carried out by the Corporation’s Asset / Liability Management Committee (“ALCO”), which meets regularly to review the economic environment and establish investment strategies. The ALCO also has much broader responsibilities, which are discussed in the “Market Risk Management” section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

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Investment strategies are established by ALCO in consideration of the interest rate environment, balance sheet mix, actual and anticipated loan demand, funding opportunities and the overall interest rate sensitivity of the Corporation. In general, the investment portfolio is managed in a manner appropriate to the attainment of the following goals: (i) to provide a sufficient margin of liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (ii) to provide eligible securities to secure public funds, trust deposits as prescribed by law and other borrowings; and (iii) to earn the maximum return on funds invested that is commensurate with meeting the requirements of (i) and (ii).

Funding Activities

Deposits are the primary source of funds for lending and investing activities, and their cost is the largest category of interest expense. Scheduled payments, as well as prepayments, and maturities from portfolios of loans and investment securities also provide a stable source of funds. Federal Home Loan Bank (“FHLB”) advances, other secured borrowings, Federal funds purchased and other short-term borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. BB&T’s funding activities are monitored and governed through BB&T’s overall asset/liability management process, which is further discussed in the “Market Risk Management” section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein. BB&T conducts its funding activities in compliance with all applicable laws and regulations. Following is a brief description of the various sources of funds used by BB&T. For further discussion relating to outstanding balances and balance fluctuations, refer to the “Deposits and Other Borrowings” section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

Deposits

Deposits are attracted principally from clients within BB&T’s branch network through the offering of a broad selection of deposit instruments to individuals and businesses, including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money rate savings accounts, investor deposit accounts, certificates of deposit and individual retirement accounts. Deposit account terms vary with respect to the minimum balance required, the time period the funds must remain on deposit and service charge schedules. Interest rates paid on specific deposit types are determined based on (i) the interest rates offered by competitors, (ii) the anticipated amount and timing of funding needs, (iii) the availability and cost of alternative sources of funding, and (iv) the anticipated future economic conditions and interest rates. Client deposits are attractive sources of funding because of their stability and relative cost. Deposits are regarded as an important part of the overall client relationship and provide opportunities to cross-sell other BB&T services.

The following table provides information regarding the scheduled maturities of time deposits that are $100,000 and greater at December 31, 2004:

Table 6

Scheduled Maturities of Time Deposits $100,000 and Greater

December 31, 2004

(Dollars in thousands)

Maturity Schedule
Three months or less	$	3,720,936
Over three through six months		1,254,801
Over six through twelve months		1,622,068
Over twelve months		3,483,934
Total	$	10,081,739

Borrowed Funds

BB&T’s ability to borrow funds from nondeposit sources provides additional flexibility in meeting the liquidity needs of customers and the Company. Short-term borrowings include Federal funds purchased, securities sold under repurchase agreements, master notes, short-term FHLB advances, and U.S. Treasury tax and loan depository note accounts. See Note 9 “Federal Funds Purchased, Securities Sold Under Agreements to Repurchase, and Short-Term Borrowed Funds” in the “Notes to Consolidated Financial Statements” herein for additional disclosures related to these types of borrowings.

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BB&T also utilizes longer-term borrowings when management determines that the pricing and maturity options available through these sources create cost-effective options for funding asset growth and satisfying capital needs. BB&T’s long-term borrowings include long-term FHLB advances to the Subsidiary Banks, subordinated debt issued by BB&T Corporation and Branch Bank, junior subordinated debt underlying trust preferred securities and capital leases. See Note 10 “Long-Term Debt” in the “Notes to Consolidated Financial Statements” herein for additional disclosures related to long-term borrowings.

Employees

At December 31, 2004, BB&T had approximately 26,100 full-time equivalent employees compared to approximately 26,300 full-time equivalent employees at December 31, 2003.

Properties

BB&T and its significant subsidiaries occupy headquarters offices that are either owned or operated under long-term leases, and also own free-standing operations centers, with its primary operations and information technology center located in Wilson, North Carolina. BB&T also owns or leases significant office space used as the Corporation’s headquarters in Winston-Salem, North Carolina. At December 31, 2004, BB&T’s subsidiary banks operated 1,413 branch offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama, Florida, Indiana and Washington, D.C. BB&T also operates numerous insurance agencies and other businesses that occupy facilities. Office locations are variously owned or leased. Management believes that the premises occupied by BB&T and its subsidiaries are well-located and suitably equipped to serve as financial services facilities. See Note 6 “Premises and Equipment” in the “Notes to Consolidated Financial Statements” in this report for additional disclosures related to BB&T’s properties and other fixed assets.

Executive Officers of BB&T

The following table lists the members of BB&T’s executive management team as of December 31, 2004:

Name of Executive Officer	Title	Years of Service	Age
John A. Allison, IV	Chairman and Chief Executive Officer	34	56
Ricky K. Brown	Senior Executive Vice President and Manager of Banking Network	27	49
W. Kendall Chalk	Senior Executive Vice President and Chief Credit Officer	30	59
Barbara F. Duck	Senior Executive Vice President and Production and Risk Manager	17	38
Robert E. Greene	President of Branch Banking and Trust Company and Senior Executive Vice President for Administrative Services	32	54
Christopher L. Henson	Senior Executive Vice President and Assistant Chief Financial Officer	20	43
Kelly S. King	Chief Operating Officer	33	56
Scott E. Reed	Senior Executive Vice President and Chief Financial Officer	33	56
Steven B. Wiggs	Senior Executive Vice President and Chief Marketing Officer	26	47
C. Leon Wilson	Senior Executive Vice President and Operations Division Manager	28	49

Web Site Access to BB&T’s Filings with the Securities and Exchange Commission

All BB&T’s electronic filings with the Securities and Exchange Commission (“SEC”), including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available at no cost on the Corporation’s web site, www.BBandT.com, through the Investor Relations link as soon as reasonably practicable after BB&T files such material with, or furnishes it to, the SEC. BB&T’s SEC filings are also available through the SEC’s web site at www.sec.gov.

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REGULATORY CONSIDERATIONS

General

As a bank holding company and a financial holding company under federal law, BB&T is subject to regulation under the Bank Holding Company Act of 1956, as amended, (the “BHCA”) and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). As state-chartered commercial banks, Branch Bank, BB&T-SC and BB&T-VA are subject to regulation, supervision and examination by state bank regulatory authorities in their respective home states. These authorities include the North Carolina Commissioner of Banks, in the case of Branch Bank, the South Carolina Commissioner of Banking, in the case of BB&T-SC, and the Virginia State Corporation Commission’s Bureau of Financial Institutions, in the case of BB&T-VA. In addition, BB&T Bankcard Corporation is a special-purpose Georgia bank, subject to regulation, supervision and examination by the Georgia Department of Banking and Finance. Branch Bank, BB&T-SC, BB&T-VA and BB&T Bankcard Corporation are collectively referred to as the “Banks.” Each of the Banks is also subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation (the “FDIC”). State and Federal law also govern the activities in which the Banks engage, the investments they make and the aggregate amount of loans that may be granted to one borrower. Various consumer and compliance laws and regulations also affect the Banks’ operations.

In addition to federal and state banking laws and regulations, BB&T and certain of its subsidiaries and affiliates, including those that engage in securities underwriting, dealing, brokerage, investment advisory activities and insurance activities, are subject to other federal and state laws and regulations, and supervision and examination by other state and federal regulatory agencies, including the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and various state insurance and securities regulators.

The earnings of BB&T’s subsidiaries, and therefore the earnings of BB&T, are affected by general economic conditions, management policies, changes in state and federal laws and regulations and actions of various regulatory authorities, including those referred to above. Proposals to change the laws and regulations to which BB&T is subject are frequently introduced at both the federal and state levels. The likelihood and timing of any such changes and the impact such changes might have on BB&T and its subsidiaries are impossible to determine with any certainty. The following description summarizes the significant state and federal laws to which BB&T and the Banks currently are subject. To the extent statutory or regulatory provisions are described, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions.

Financial Holding Company Regulation

Under current federal law, as amended by the Gramm-Leach-Bliley Act of 1999 (“GLBA”), a bank holding company, such as BB&T, may elect to become a financial holding company, which allows the holding company to offer customers virtually any type of service that is financial in nature or incidental thereto, including banking and activities closely related thereto, securities underwriting, insurance (both underwriting and agency) and merchant banking. In order to become and maintain its status as a financial holding company, the company and all of its affiliated depository institutions must be well-capitalized, well-managed, and have at least a satisfactory Community Reinvestment Act of 1977 (“CRA”) rating. If the Federal Reserve determines that a financial holding company is not well-capitalized or well-managed, the company has a period of time to come into compliance, but during the period of noncompliance, the Federal Reserve can place any limitations on the financial holding company that it believes to be appropriate. Furthermore, if the Federal Reserve determines that a financial holding company has not maintained a satisfactory rating under the CRA test, the company will not be able to commence any new financial activities or acquire a company that engages in such activities, although the company will still be allowed to engage in activities closely related to banking and make investments in the ordinary course of conducting merchant banking activities. BB&T became a financial holding company on June 14, 2000 and currently satisfies the requirements to maintain its status as a financial holding company.

Most of the financial activities that are permissible for financial holding companies are also permissible for a “financial subsidiary” of one or more of the Banks, except for insurance underwriting, insurance company portfolio investments, real estate investments and development, and merchant banking, which must be conducted in a financial holding company. In order for these financial activities to be engaged in by a financial subsidiary of a

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bank, federal law requires the parent bank (and its sister-bank affiliates) to be well- capitalized and well-managed; the aggregate consolidated assets of all of that bank’s financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and if that bank is one of the 100 largest national banks, it must meet certain financial rating or other comparable requirements.

Current federal law also establishes a system of functional regulation under which the Federal Reserve Board is the umbrella regulator for bank holding companies, but bank holding company affiliates are to be principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the Securities and Exchange Commission for securities affiliates and state insurance regulators for insurance affiliates. Certain specific activities, including traditional bank trust and fiduciary activities, may be conducted in the bank without the bank being deemed a “broker” or a “dealer” in securities for purposes of functional regulation. Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain identifiable areas.

Acquisitions

As an active acquirer, BB&T complies with numerous laws related to its acquisition activity. Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve Board. Current Federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, as long as neither of the states have opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years; and subject to certain deposit market-share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable Federal or state law.

Other Safety and Soundness Regulations

The Federal Reserve Board has enforcement powers over bank holding companies and their non-banking subsidiaries. The Federal Reserve Board has authority to prohibit activities that represent unsafe or unsound practices or constitute violations of law, rule, regulation, administrative order or written agreement with a federal regulator. These powers may be exercised through the issuance of cease and desist orders, civil money penalties or other actions.

There also are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by Federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event the depository institution is insolvent or is in danger of becoming insolvent. For example, under requirements of the Federal Reserve Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit financial resources to support such institutions in circumstances where it might not do so otherwise. In addition, the “cross-guarantee” provisions of Federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by either the Savings Association Insurance Fund (“SAIF”) or the Bank Insurance Fund (“BIF”) as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure. The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the SAIF or the BIF or both. The FDIC’s claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institution.

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State banking regulators also have broad enforcement powers over the Banks, including the power to impose fines and other civil and criminal penalties, and to appoint a conservator (with the approval of the Governor in the case of a North Carolina state bank) in order to conserve the assets of any such institution for the benefit of depositors and other creditors. The North Carolina Commissioner of Banks also has the authority to take possession of a North Carolina state bank in certain circumstances, including, among other things, when it appears that such bank has violated its charter or any applicable laws, is conducting its business in an unauthorized or unsafe manner, is in an unsafe or unsound condition to transact its business or has an impairment of its capital stock.

Payment of Dividends

BB&T is a legal entity separate and distinct from its subsidiaries. The majority of BB&T’s revenue is from dividends paid to BB&T by the Banks. The Banks are subject to laws and regulations that limit the amount of dividends they can pay. In addition, both BB&T and its Banks are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums, and to remain “well-capitalized” under the prompt corrective action regulations summarized elsewhere in this section. Federal banking regulators have indicated that banking organizations should generally pay dividends only if (1) the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (2) the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. North Carolina and Virginia laws state that, subject to certain capital requirements, the board of directors of a bank chartered under their laws may declare a dividend of as much of that bank’s undivided profits as the directors deem expedient. South Carolina allows for the payment of dividends by a state-chartered bank with the prior approval of the Commissioner of Banking. BB&T does not expect that any of these laws, regulations or policies will materially affect the ability of the Banks to pay dividends. During the year ended December 31, 2004, the Banks declared $977.1 million in dividends payable to BB&T. At December 31, 2004, subject to restrictions imposed by state law, the Boards of Directors of the Banks could have declared dividends from their retained earnings up to $2.9 billion; however, to remain well-capitalized under federal guidelines, the Banks would have limited total additional dividends to $1.3 billion.

Capital

Each of the federal banking agencies, including the Federal Reserve Board and the FDIC, have issued substantially similar risk-based and leverage capital guidelines applicable to banking organizations they supervise, including bank holding companies and banks. Under the risk-based capital requirements, BB&T and the Banks are each generally required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of 8%. At least half of the total capital must be composed of common shareholders’ equity excluding unrealized gains or losses on debt securities available for sale, unrealized gains on equity securities available for sale and unrealized gains or losses on cash flow hedges, net of deferred income taxes; plus certain mandatorily redeemable capital securities, less nonqualifying intangible assets net of applicable deferred income taxes, and certain nonfinancial equity investments. This is called “Tier 1 capital.” The remainder may consist of qualifying subordinated debt, certain hybrid capital instruments, qualifying preferred stock and a limited amount of the allowance for credit losses. This is called “Tier 2 capital.” Tier 1 capital and Tier 2 capital combined are referred to as total regulatory capital.

The Federal Reserve requires bank holding companies that engage in trading activities to adjust their risk-based capital ratios to take into consideration market risks that may result from movements in market prices of covered trading positions in trading accounts, or from foreign exchange or commodity positions, whether or not in trading accounts, including changes in interest rates, equity prices, foreign exchange rates or commodity prices. Any capital required to be maintained under these provisions may consist of a new “Tier 3 capital” consisting of forms of short-term subordinated debt.

Each of the federal bank regulatory agencies, including the Federal Reserve, also has established minimum leverage capital requirements for banking organizations. These requirements provide that banking organizations that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure and good earnings, and that have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total

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adjusted average assets of at least 3%. Institutions not meeting these criteria, as well as institutions with supervisory, financial or operational weaknesses, are expected to maintain a minimum Tier 1 capital to total adjusted average assets ratio equal to 100 to 200 basis points above that stated minimum. Holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve also continues to consider a “tangible Tier 1 capital leverage ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activity.

In addition, each of the Federal Reserve Board and the FDIC has adopted risk-based capital standards that explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by each agency in assessing an institution’s overall capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organization’s capital adequacy. The agencies also require banks and bank holding companies to adjust their regulatory capital to take into considerations the risk associated with certain recourse obligations, direct credit subsidies, residual interest and other positions in securitized transactions that expose banking organizations to credit risk.

The ratios of Tier 1 capital, total capital to risk-adjusted assets, and the leverage capital ratios of BB&T and the Subsidiary Banks as of December 31, 2004, are shown in the following table.

Table 7

Capital Adequacy Ratios of BB&T Corporation and Principal Banking Subsidiaries

December 31, 2004

	Regulatory Minimums		Regulatory Minimums to be Well- Capitalized		BB&T		Branch Bank		BB&T- SC		BB&T- VA
Risk-based capital ratios:
Tier 1 capital (1)	4.0	%	6.0	%	9.2	%	10.0	%	10.2	%	12.2	%
Total risk-based capital (2)	8.0		10.0		14.5		11.5		11.5		13.2
Tier 1 leverage ratio (3)	3.0		5.0		7.1		7.5		8.4		7.8

(1) Common shareholders’ equity excluding unrealized gains or losses on debt securities available for sale, unrealized gains on equity securities available for sale and unrealized gains or losses on cash flow hedges, net of deferred income taxes; plus certain mandatorily redeemable capital securities, less nonqualifying intangible assets net of applicable deferred income taxes, and certain nonfinancial equity investments; computed as a ratio of risk-weighted assets, as defined in the risk-based capital guidelines.

(2) The sum of Tier 1 capital, a qualifying portion of the allowance for credit losses, qualifying subordinated debt and qualifying unrealized gains on available for sale equity securities; computed as a ratio of risk-weighted assets, as defined in the risk-based capital guidelines.

(3) Tier 1 capital computed as a percentage of fourth quarter average assets less nonqualifying intangibles and certain nonfinancial equity investments.

The federal banking agencies, including the Federal Reserve Board and the FDIC, are required to take “prompt corrective action” in respect of depository institutions and their bank holding companies that do not meet minimum capital requirements. The law establishes five capital categories for insured depository institutions for this purpose: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered “well-capitalized” under these standards, an institution must maintain a total risk-based capital ratio of 10% or greater; a Tier 1 risk-based capital ratio of 6% or greater; a leverage capital ratio of 5% or greater; and must not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. BB&T and each of the Banks are classified as “well-capitalized.” Federal law also requires the bank regulatory agencies to implement systems for “prompt corrective action” for institutions that fail to meet minimum capital requirements within the five capital categories, with progressively more severe restrictions on operations, management and capital distributions according to the category in which an institution is placed. Failure to meet capital requirements can also cause an

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institution to be directed to raise additional capital. Federal law also mandates that the agencies adopt safety and soundness standards relating generally to operations and management, asset quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards.

In addition to the “prompt corrective action” directives, failure to meet capital guidelines can subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.

Deposit Insurance Assessments

The deposits of the Banks are insured by the FDIC up to the limits set forth under applicable law. A majority of the deposits of the Banks are subject to the deposit insurance assessments of the BIF of the FDIC. However, a portion of the Banks’ deposits (relating to the acquisitions of various savings associations) are subject to assessments imposed by the SAIF of the FDIC. The assessments imposed in BIF-insured and SAIF-insured deposits have been equalized.

The FDIC imposes a risk-based deposit premium assessment system, based in part on an insured institution’s capital classification under the prompt corrective action provisions, and whether that institution is considered by its supervisory agency to be financially sound or to have supervisory concerns. The assessments are set forth in schedules issued by the FDIC that specify, at semi-annual intervals, target reserve ratios designed to maintain the reserve ratio of each of the funds at 1.25% of their estimated insured deposits. The assessments imposed on all FDIC deposits for deposit insurance have an effective rate ranging from 0 to 27 basis points per $100 of assessable deposits, depending on the institution’s capital position and other supervisory factors. In addition, both SAIF-insured and BIF-insured deposits have been required to pay a pro rata portion of the interest due on the obligations issued by the Financing Corporation (“FICO”) to fund the closing and disposal of failed thrift institutions by the Resolution Trust Corporation. At December 31, 2004, the FDIC assessed BIF-insured and SAIF-insured deposits 1.46 basis points per $100 of deposits to cover those obligations. At December 31, 2004, BB&T’s assessment was limited to that 1.46 basis point obligation.

Consumer Protection Laws

In connection with their lending and leasing activities, the Banks are each subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, and the Real Estate Settlement Procedures Act, and state law counterparts.

Federal law currently contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

The CRA requires the Banks’ primary federal bank regulatory agency, in this case the FDIC, to assess the bank’s record in meeting the credit needs of the communities served by each Bank, including low- and moderate-income neighborhoods and persons. Institutions are assigned one of four ratings: “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” This assessment is reviewed for any bank that applies to merge or consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office. The CRA record of each subsidiary bank of a financial holding company, such as BB&T, also is assessed by the Federal Reserve in connection with any acquisition or merger application.

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USA Patriot Act

The USA Patriot Act of 2001 (the “Patriot Act”) contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. The Patriot Act requires such financial institutions to implement policies and procedures to combat money laundering and the financing of terrorism and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. In addition, the Patriot Act requires the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions. Compliance with the Patriot Act by BB&T has not had a material impact on BB&T’s or the Banks’ results of operations or financial condition.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance, accounting obligations and corporate reporting for companies, such as BB&T, with equity or debt securities registered under the Securities Exchange Act of 1934, as amended. In particular, the Sarbanes-Oxley Act established: (i) new requirements for audit committees, including independence, expertise, and responsibilities; (ii) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) new standards for auditors and regulation of audits; (iv) increased disclosure and reporting obligations for reporting companies and their directors and executive officers; and (v) new and increased civil and criminal penalties for violation of the securities laws.

The American Jobs Creation Act of 2004

The American Jobs Creation Act of 2004 (“the Act”) was signed into law by the President on October 22, 2004. The Act includes a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. Under the provisions of the Act, BB&T would receive a tax deduction of 85% of certain foreign earnings if repatriated during 2005 pursuant to a domestic reinvestment plan. BB&T is currently evaluating the potential income tax effects of these provisions. Upon the completion of such evaluation, BB&T expects to make a determination concerning repatriation of these foreign earnings.

Corporate Governance

Information with respect to BB&T’s corporate governance policies and principles is presented on BB&T’s web site, www.BBandT.com, and includes:

· BB&T’s Corporate Governance Guidelines

· Committees of the Corporate Board of Directors and Committee Charters

· BB&T’s Code of Ethics for Employees

· BB&T’s Code of Ethics for Directors

· BB&T’s Code of Ethics for Senior Financial Officers

· Chief Executive Officer and Chief Financial Officer Certifications

· BB&T’s Policy and Procedures for Accounting and Legal Complaints

BB&T intends to disclose any substantive amendments or waivers to the Code of Ethics for Directors or Senior Financial Officers on our web site at www.BBandT.com/Investor.

NYSE Certification

The annual certification of BB&T’s Chief Executive Officer required to be furnished to the New York Stock Exchange pursuant to Section 303A.12(a) of the NYSE Listed Company Manual was previously filed with the New York Stock Exchange on May 18, 2004.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion and analysis of the consolidated financial condition and consolidated results of operations of BB&T Corporation and subsidiaries (“BB&T” or the “Corporation”) for each of the three years in the period ended December 31, 2004, and related financial information, are presented in conjunction with the consolidated financial statements and related notes to assist in the evaluation of BB&T’s 2004 performance.

Reclassifications

In certain circumstances, reclassifications have been made to prior period information to conform to the 2004 presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

Mergers and Acquisitions Completed During 2004

During 2004, BB&T completed the following mergers and acquisitions.

On February 1, 2004, BB&T Insurance Services completed its acquisition of McGriff, Seibels & Williams, Inc., of Birmingham, Alabama (“McGriff”). BB&T issued 8.2 million shares of common stock valued at $300.5 million and paid $50 million in cash to complete the acquisition. The transaction also allows for an additional payment to McGriff’s shareholders of up to $127.9 million in cash over a five-year period if McGriff’s performance exceeds certain targets. BB&T recorded $396.0 million in goodwill and other intangible assets in connection with the acquisition, including subsequent reallocations of purchase price.

On April 14, 2004, BB&T completed its acquisition of Republic Bancshares Inc. (“Republic”), headquartered in St. Petersburg, Florida. BB&T issued 6.5 million shares of common stock valued at $262.3 million and paid $171.1 million in cash in exchange for all of the outstanding common shares of Republic. Republic’s assets totaled $2.9 billion at the time of acquisition and BB&T recorded $260.5 million in goodwill and other intangible assets in connection with the acquisition, including subsequent reallocations of purchase price.

In addition to the mergers and acquisitions noted above, BB&T acquired a number of nonbank financial services companies and insurance agencies during 2004, all of which were immaterial in relation to the consolidated results of BB&T. See Note 2. “Business Combinations” in the “Notes to Consolidated Financial Statements” for further information regarding mergers and acquisitions.

Pending Mergers

On February 16, 2005, BB&T announced plans to acquire a 70% ownership interest in Charlotte, North Carolina-based Sterling Capital Management LLC, a provider of investment management services with more than $8.0 billion in assets under management. Pending regulatory approval, the transaction is expected to be completed in the second quarter of 2005.

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 associated with mergers and acquisitions, costs and benefit obligations associated with BB&T’s pension and postretirement benefit plans, and income taxes.

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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 and effects of new accounting pronouncements are discussed in detail in Note 1 in the “Notes to Consolidated Financial Statements”.

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

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

It is the policy of BB&T to maintain an allowance for loan and lease losses and a reserve for unfunded lending commitments that equals management’s best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date. Estimates for loan and lease losses are determined by analyzing historical loan and lease losses, current trends in delinquencies and charge-offs, plans for problem loan and lease administration, the results of regulatory examinations, and changes in the size, composition and risk assessment of the loan and lease portfolio. Also included in management’s estimates for loan and lease losses are considerations with respect to the impact of current economic events, the outcome of which is 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. A detailed discussion of the methodology used in determining the allowance for loan and lease losses and the reserve for unfunded lending commitments is included in the “Overview and Description of Business—Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments.”

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 amortizes mortgage servicing rights over the estimated period that servicing income is expected to be received based on projections of the amount and timing of estimated future cash flows. The amount and timing of servicing asset amortization is updated based on actual results and updated projections. Please refer to Note 8 “Loan Servicing” in the “Notes to Consolidated Financial Statements” for quantitative disclosures reflecting the effect that changes in management’s assumptions would have on the fair value of mortgage servicing rights.

Intangible Assets

BB&T’s growth in business, profitability and market share over the past several years has been enhanced significantly by mergers and acquisitions. BB&T’s mergers and acquisitions are accounted for using the purchase method of accounting. Under the purchase method, BB&T is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which often involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, which are inherently subjective. The amortization of identified intangible assets is based upon the estimated economic benefits to be received, which is also subjective. These estimates also include the establishment of various accruals and allowances based on planned facility dispositions and employee severance considerations, among other acquisition-related items. In addition, purchase acquisitions typically result in

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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. Please refer to Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” for a description of our impairment testing process. 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 based upon the cost of capital specific to the industry in which the business unit operates. Management has evaluated the effect of lowering the estimated future cash flows or increasing the discount rate for each business unit by 10% and determined that no impairment of goodwill would have been recognized under this evaluation.

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. Please refer to Note 13 “Benefit Plans” in the “Notes to Consolidated Financial Statements” for disclosures related to BB&T’s benefit plans, including quantitative disclosures reflecting the impact that changes in certain assumptions would have on service and interest costs and benefit obligations.

Income Taxes

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

Analysis of Financial Condition

A summary of the more significant fluctuations in balance sheet accounts is presented below.

For the year ended December 31, 2004, BB&T’s average assets totaled $96.3 billion, an increase of $10.9 billion, or 12.8%, compared to the 2003 average primarily reflecting growth in average loans and leases. Average loans and leases for 2004 were up $8.3 billion, or 14.3%, from 2003. The primary components of the growth in average loans and leases were consumer loans, which increased $4.0 billion, or 23.8%; commercial loans and leases, which increased $3.1 billion, or 10.2%; and mortgage loans, which increased $1.2 billion, or 10.9%. Total earning assets averaged $84.9 billion in 2004, an increase of $9.5 billion, or 12.6%, compared to 2003. These averages and growth rates include the effects of acquisitions.

BB&T’s average deposits totaled $64.8 billion, reflecting growth of $7.9 billion, or 13.8%, compared to 2003. The categories of deposits with the highest growth rates were: money rate savings, which increased $3.7 billion, or 20.2%; noninterest-bearing deposits, which increased $2.2 billion, or 22.8%; and savings and interest checking, which increased $892.8 million, or 22.9%.

Shorter-term borrowings include Federal funds purchased, securities sold under repurchase agreements, master notes, short-term bank notes and short-term Federal Home Loan Bank (“FHLB”) advances. Average shorter-term borrowings totaled $6.6 billion for the year ended December 31, 2004, an increase of $1.4 billion, or 28.2%, from the 2003 average. BB&T has also utilized long-term debt for a significant portion of its funding needs. Long-term debt includes FHLB advances, other secured borrowings by Subsidiary Banks and subordinated debt issued by the Corporation and Branch Bank. Average long-term debt totaled $10.9 billion for the year ended December 31, 2004, down $824.1 million, or 7.0%, compared to 2003.

The compound annual rate of growth in average total assets for the five-year period ended December 31, 2004, was 11.0%. Over the same five-year period, average loans and leases increased at a compound annual rate of 11.8%, average securities increased at a compound annual rate of 4.2%, and average deposits grew at a compound

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annual rate of 10.8%. All balance sheet growth rates referred to include the effect of acquisitions accounted for as purchases, as well as internal growth.

For more detailed discussions concerning the causes of these fluctuations, please refer to the sections that follow.

Securities

The securities portfolios provide earnings and liquidity, and are managed as part of the overall asset and liability management process to optimize net interest income and reduce exposure to interest rate risk. Management has historically emphasized investments with durations of five years or less to provide flexibility in managing the balance sheet in changing interest rate environments. Total securities increased 17.5% in 2004, to a total of $19.2 billion at the end of the year. The quality of the investment portfolio continues to be strong with 66.6% of the total portfolio’s fair market value at December 31, 2004 comprised of U.S. Treasury securities and U.S. government entity securities, excluding mortgage-backed securities. The combined duration of the U.S. Treasury and U.S. government entity portfolios was 3.23 years and 3.19 years at December 31, 2004 and 2003, respectively. Mortgage-backed securities composed 23.6% of the total investment portfolio at year-end 2004. The duration of the mortgage-backed securities was 2.78 years at December 31, 2004 compared to 2.71 years at December 31, 2003. The duration of the total portfolio at December 31, 2004 was 3.13 years compared to 3.19 years at December 31, 2003.

The following table provides information regarding the composition of BB&T’s securities portfolio for the years presented:

Table 8

Composition of Securities Portfolio

	December 31, 2004
	2004		2003		2002
	(Dollars in thousands)
Trading securities (at estimated fair value):	$	334,256	$	693,819	$	148,488
Securities held to maturity (at amortized cost):
U.S. Treasuries		125		60,122		51,088
U.S. government entities		—		—		4,435
Total securities held to maturity		125		60,122		55,523
Securities available for sale (at estimated fair value):
U.S. Treasuries		122,455		142,758		100,453
U.S. government entities		12,640,065		12,108,472		11,459,961
States and political subdivisions		784,379		945,988		912,598
Mortgage-backed securities		4,530,426		1,549,524		3,869,037
Equity and other securities		760,871		816,212		1,257,428
Total securities available for sale		18,838,196		15,562,954		17,599,477
Total securities	$	19,172,577	$	16,316,895	$	17,803,488

At December 31, 2004, trading securities reflected on BB&T’s Consolidated Balance Sheets totaled $334.3 million compared to $693.8 million at December 31, 2003. The decrease in trading securities primarily resulted from management’s decision to liquidate a portion of the trading portfolio being used as an economic risk management strategy in connection with BB&T’s mortgage servicing rights. In addition, approximately half of the trading portfolio is held by BB&T’s full-service brokerage subsidiary as a normal part of its operations and, as a result, is subject to significant fluctuations. Market valuation gains and losses in the trading portfolio are reflected in current earnings.

Securities held to maturity are composed of investments in U.S. Treasury securities and made up less than 1% of the total portfolio at December 31, 2004. Securities held to maturity are carried at amortized cost and totaled $125 thousand at December 31, 2004, compared to $60.1 million outstanding at the end of 2003. This

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decrease resulted primarily from the maturity of these securities and the decision to classify the reinvestment of the proceeds as trading securities. Unrealized market valuation gains and losses on securities in the Corporation’s held-to-maturity category affect neither earnings nor shareholders’ equity.

Securities available for sale totaled $18.8 billion at year-end 2004 and are carried at estimated fair value. Securities available for sale at year-end 2003 totaled $15.6 billion. Unrealized market valuation gains and losses on securities classified as available for sale are recorded as a separate component of shareholders’ equity, net of deferred income taxes. The available-for-sale portfolio is primarily composed of investments in U.S. government entities and mortgage-backed securities, which composed 91.8% of the portfolio. This portfolio also contains investments in U.S. Treasury securities, which represented less than 1% of the December 31, 2004 balance, obligations of states and municipalities, which represented 4.2% of the available-for-sale portfolio, and equity and other securities, which made up 4.0% of the available-for-sale portfolio.

The $3.3 billion increase in securities available for sale was the result of a combination of factors including the securitization of approximately $1.0 billion in mortgage loans, the acquisition of Republic and the investment of funds generated by strong deposit growth. During the year ended December 31, 2004, BB&T sold $2.3 billion of available-for-sale securities and realized net gains totaling $6.1 million.

The following table presents BB&T’s securities portfolio at December 31, 2004, segregated by major category with ranges of maturities and average yields disclosed.

Table 9

Securities Maturities and Yields

	December 31, 2004
	Carrying Value		Weighted Average Yield (3)
	(Dollars in thousands)
U.S. Treasuries and U.S. government entities (1):
Within one year	$	1,756,803	3.68	%
One to five years		6,795,893	3.23
Five to ten years		4,601,552	4.03
After ten years		4,138,823	4.45
Total		17,293,071	3.78
Obligations of states and political subdivisions:
Within one year		76,304	5.17
One to five years		372,931	5.86
Five to ten years		219,060	6.96
After ten years		116,084	7.25
Total		784,379	6.30
Other securities:
Within one year		25	7.45
One to five years		7,653	3.48
Five to ten years		182,230	4.88
After ten years		16,396	5.69
Total		206,304	4.89
Trading securities and securities with no stated maturity (2)		888,823	2.53
Total securities (4)	$	19,172,577	3.83	%

(1) Included in U.S. Treasuries and U.S. government entities are mortgage-backed securities totaling $4.5 billion classified as available for sale and carried at estimated fair value. These securities are included in each of the maturity categories based upon final stated maturity dates. The original contractual lives of these securities range from five to 30 years; however, the weighted average maturity is substantially shorter because of the monthly return of principal on certain securities.

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(2) Trading securities and securities with no stated maturity include equity investments which totaled $554.5 million and trading securities which totaled $334.3 million.

(3) Yields on tax-exempt securities are calculated on a taxable-equivalent basis using the statutory federal income tax rate of 35%. Yields for available for sale securities are calculated based on the amortized cost of the securities.

(4) Includes securities held to maturity of $125 thousand carried at amortized cost and securities available for sale and trading securities carried at estimated fair values of $18.8 billion and $334.3 million, respectively.

The available-for-sale portfolio comprised 98.3% of total securities at December 31, 2004. Management believes that the high concentration of securities in the available-for-sale portfolio allows flexibility in the day-to-day management of the overall investment portfolio, consistent with the objective of optimizing profitability and mitigating interest rate risk.

The market value of the available-for-sale portfolio at year-end 2004 was $139.5 million lower than the amortized cost of these securities. At December 31, 2004, BB&T’s available-for-sale portfolio had net unrealized depreciation, net of deferred income taxes, of $87.5 million, which is reported as a component of shareholders’ equity. At December 31, 2003, the available-for-sale portfolio had net unrealized appreciation of $11.4 million, net of deferred income taxes.

On December 31, 2004, BB&T held certain investments having continuous unrealized loss positions for more than 12 months totaling $131.0 million. The vast majority of these investments were in U.S. government entity securities and it is expected that the securities would not be settled at a price less than their amortized cost. Because the decline in market value was caused by interest rate increases and not credit quality, and because BB&T has the ability to hold these investments until a recovery of fair value, which may be maturity, BB&T has not recognized any other-than-temporary impairment in connection with these investments.

The fully taxable equivalent (“FTE”) yield on the total securities portfolio was 4.05% for the year ended December 31, 2004, compared to 4.81% for the prior year. The decrease in FTE yield resulted principally from the prolonged historically low interest rate environment and purchases of lower-yielding securities. As BB&T’s higher-yielding securities matured or were called or were rapidly prepaid, in the case of mortgage-backed securities, the resulting cash flows were reinvested in lower-yielding securities paying then-current market interest rates. The yield on U.S. Treasuries and U.S. government entities decreased from 4.65% in 2003 to 3.88% in 2004, while the yield on mortgage-backed securities decreased from 5.09% to 4.52% and the FTE yield on state and municipal securities decreased from 6.83% last year to 6.51% in the current year.

Loans and Leases

Management emphasizes commercial lending to small and medium-sized businesses, consumer lending and mortgage lending with an overall goal of maximizing the profitability of the loan portfolio while maintaining strong asset quality. The various categories of loan products offered by BB&T are discussed under “Lending Activities” in the “Overview and Description of Business” section herein. BB&T is a full-service lender with approximately one-half of its loan portfolio composed of loans to businesses and one-half composed of loans to individual consumers. Average commercial loans, including lease receivables, increased $3.1 billion, or 10.2%, in 2004 as compared to 2003, and now compose 50.0% of the loan portfolio, compared to 51.8% in 2003. Average consumer loans, which include sales finance, revolving credit and direct retail, increased $4.0 billion, or 23.8%, for the year ended December 31, 2004 as compared to the same period in 2003, and compose 31.1% of average loans, compared to 28.7% in 2003. Average mortgage loans increased $1.2 billion, or 10.9%, in 2004 as compared to 2003, and represented the remaining 18.9% of average total loans for 2004, compared to 19.5% a year ago. BB&T is a large originator of residential mortgage loans, with 2004 originations of $10.0 billion. To improve the overall yield of the loan portfolio and to mitigate interest rate risk, BB&T sells most of its fixed-rate mortgage loans in the secondary market. However, in late 2003, BB&T began retaining a portion of the originated mortgage loans as part of a balance sheet restructuring initiative. The total amount of fixed-rate mortgage loans retained pursuant to this initiative was approximately $3.6 billion. At December 31, 2004, BB&T was servicing $24.5 billion in residential mortgages owned by third parties and $13.4 billion of mortgage loans owned by BB&T, including $1.1 billion classified as securities available for sale.

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BB&T’s loan portfolio, excluding loans held for sale, increased $6.0 billion, or 9.7%, as compared to 2003. Average total loans and leases for 2004 increased $8.3 billion, or 14.3%, compared to 2003. In addition to strong internal loan growth, these increases were aided by the addition of loans held by Republic, which was acquired on April 14, 2004, and had loans of $1.7 billion. During the third quarter of 2004, BB&T securitized $1.0 billion in residential mortgage loans and transferred the related mortgage-backed securities to the available-for-sale securities portfolio. The securitization was undertaken to rebalance the loan portfolio which had grown significantly as a result of strong mortgage loan originations over the last two years and the retention of approximately $3.6 billion in fixed-rate mortgage loans.

While the mix of the consolidated loan portfolio in 2004 was very similar to that of one year ago, the fluctuation reflects certain trends in the composition of the loan portfolio caused by improving general economic conditions across BB&T’s footprint and the mortgage loan securitization mentioned earlier. During 2004, commercial loan activity in the markets served by BB&T improved. BB&T expects these positive trends to continue into 2005 as BB&T’s commercial customers utilize liquid assets accumulated in recent years and their needs for funds increase.

The pace of commercial loan growth during 2004 was complemented by stronger trends in the consumer loan portfolio. During the past two years, the low interest rate environment combined with appreciating home values and the purchase of First Virginia has led to more advances under home equity and revolving lines of credit, and the resulting increase in average direct retail loans, which were up $2.5 billion, or 23.5%, compared to the average balance in 2003. Average sales finance loans increased $1.3 billion, or 27.3%, from the prior year primarily as a result of the purchase of First Virginia, which had a loan portfolio concentrated in sales finance. However, sales finance loans were up only $169.1 million, or 2.7%, at December 31, 2004 compared to year-end 2003. Following the merger, BB&T began to reposition the sales finance portfolio by ceasing origination of certain components of the First Virginia business, in particular the segment with very high quality but low-priced loans, which management views as having a lower risk-adjusted return than the existing BB&T portfolio. Furthermore, management believes that such loans do not fit the potential niches and pricing goals of automobile dealers serviced by BB&T. In addition, during 2004, the sales finance business continued to be highly competitive as many finance subsidiaries of automobile manufacturers were offering large financing discounts and rebates to consumers. Based on current market conditions, historical results and projected portfolio liquidation, BB&T expects slow growth in the sales finance loan portfolio.

Mortgage loans comprised 18.0% of the loan portfolio at December 31, 2004 compared to 18.7% at the end of 2003. Management views mortgage loans as excellent long-term investments due to their lower credit risk, liquidity characteristics and current favorable spreads versus U.S. Treasury securities, and believes originating and servicing mortgage loans is an integral part of BB&T’s relationship-based credit culture. The decrease in the percentage of mortgage loans in the total loan portfolio was the result of slower mortgage origination activity compared to 2003 when interest rates were at historically low levels, the growth in commercial and consumer loans, and the securitization of $1.0 billion of mortgage loans. During 2004, BB&T securitized approximately $1.0 billion in residential mortgage loans and transferred the related mortgage-backed securities to the available-for-sale securities portfolio. The securitization was undertaken to rebalance the loan portfolio which had grown significantly as a result of strong mortgage loan originations over the last two years and the retention, rather than sale, of approximately $3.6 billion in fixed-rate mortgage loans as part of a balance sheet restructuring largely completed during 2003.

The average annualized FTE yields on commercial, consumer and mortgage loans for 2004 were 5.41%, 6.79% and 5.57%, respectively, resulting in a yield for the total loan portfolio of 5.87%, compared to 6.06% for the total portfolio in 2003. The 19 basis point decrease in the average yield on loans resulted primarily from the runoff of higher-yielding fixed-rate loans and leases and more intense competition in loan pricing. During the second half of 2004, the Federal Reserve started to gradually increase the intended Federal funds rate in response to an increase in economic activity. As a result of the Federal Reserve Board’s actions, the prime rate, which is the basis for pricing many commercial and consumer loans, was 5.25% at year-end 2004, compared to 4.00% at both year-end 2003 and during the first half of 2004. Therefore, as loans gradually reprice at higher rates or mature and are replaced with higher-yielding loans, the annualized interest yield of the loan portfolio is expected to increase. Evidence of this trend is visible from the changes in the quarterly annualized interest yield of the loan portfolio, which improved from its low of 5.72% during the second quarter to 6.00% during the fourth quarter of 2004.

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Asset Quality and Credit Risk Management

BB&T utilizes the following general practices to manage credit risk:

· limiting the amount of credit that individual lenders may extend;

· establishing a process for credit approval accountability;

· careful initial underwriting and analysis of borrower, transaction, market and collateral risks;

· ongoing servicing of individual loans and lending relationships;

· continuous monitoring of the portfolio, market dynamics and the economy; and

· periodically reevaluating the Company’s strategy and overall exposure as economic, market and other relevant conditions change.

BB&T’s lending strategy, which focuses on relationship-based lending within our markets and smaller individual loan balances, continues to produce excellent credit quality. As measured by relative levels of nonperforming assets and net charge-offs, BB&T’s asset quality has remained significantly better than published industry averages.

Asset Quality

The following table summarizes asset quality information for BB&T for the past five years.

Table 10

Asset Quality

	December 31,
	2004			2003			2002			2001			2000
	(Dollars in thousands)
Nonaccrual loans and leases	$	268,636		$	350,440		$	374,842		$	316,607		$	180,638
Restructured loans		555			592			175			—			492
Foreclosed property		88,903			96,070			76,647			56,964			55,199
Nonperforming assets	$	358,094		$	447,102		$	451,664		$	373,571		$	236,329
Loans 90 days or more past due and still accruing	$	100,170		$	116,758		$	115,047		$	101,778		$	81,629
Asset Quality Ratios: (1)
Nonaccrual and restructured loans and leases as a percentage of loans and leases		.39	%		.56	%		.70	%		.67	%		.40	%
Nonperforming assets as a percentage of:
Total assets		.36			.49			.56			.53			.36
Loans and leases plus foreclosed property		.52			.72			.84			.79			.53
Net charge-offs as a percentage of average loans and leases		.36			.43			.48			.40			.27
Allowance for loan and lease losses as a percentage of loans and leases		1.18			1.26			1.35			1.36			1.29
Allowance for loan and lease losses as a percentage of loans and leases held for investment		1.19			1.27			1.42			1.42			1.32
Ratio of allowance for loan and leases to:
Net charge-offs		3.42	x		3.17	x		2.94	x		3.44	x		5.13	x
Nonaccrual and restructured loans and leases		2.99			2.24			1.93			2.04			3.19

NOTE:  (1) Items referring to loans and leases are net of unearned income and, except for loans and leases held for investment, include loans held for sale.

During 2004, BB&T’s credit quality continued to improve. The improving economic conditions combined with BB&T’s careful loan underwriting process and active monitoring of past due loans resulted in a reduction in total nonperforming assets and relative levels of nonperforming assets and net charge-offs, the second year of these trends.

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The following table summarizes nonperforming assets and past due loans by loan type for the past three years.

Table 11

Summary of Nonperforming Assets and Past Due Loans

	December 31,
	2004			2003			2002
	(Dollars in thousands)
Nonaccrual loans and leases
Commercial loans and leases	$	143,420		$	219,558		$	251,428
Direct retail		46,187			50,085			39,565
Sales finance		14,670			13,082			7,948
Revolving credit		349			342			243
Mortgage		64,010			67,373			75,658
Total nonaccrual loans and leases	$	268,636		$	350,440		$	374,842
Foreclosed real estate	$	69,324		$	78,964		$	55,448
Other foreclosed assets		19,579			17,106			21,199
Restructured loans		555			592			175
Total nonperforming assets	$	358,094		$	447,102		$	451,664
Nonaccrual loans and leases as a percentage of total loans and leases
Commercial loans and leases		.21	%		.35	%		.47	%
Direct retail		.07			.08			.07
Sales finance		.02			.02			.01
Revolving credit		—			—			—
Mortgage		.09			.11			.15
Total nonaccrual loans and leases as a percentage of loans and leases		.39	%		.56	%		.70	%
Loans 90 days or more past due and still accruing interest
Commercial loans and leases	$	9,986		$	17,759		$	20,386
Direct retail		19,917			25,695			34,386
Sales finance		21,205			27,863			15,800
Revolving credit		4,837			5,601			6,089
Mortgage		44,225			39,840			38,386
Total loans 90 days or more past due and still accruing interest	$	100,170		$	116,758		$	115,047
Total loans 90 days or more past due and still accruing interest as a percentage of total loans and leases
Commercial loans and leases		.01	%		.04	%		.04	%
Direct retail		.03			.04			.06
Sales finance		.03			.04			.03
Revolving credit		.01			.01			.01
Mortgage		.07			.06			.07
Total loans 90 days or more past due and still accruing interest as a percentage of total loans and leases		.15	%		.19	%		.21	%

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

The allowance for loan and lease losses and the reserve for unfunded lending commitments compose BB&T’s allowance for credit losses. The allowance for credit losses totaled $828.3 million at December 31, 2004, compared to $793.4 million at the end of 2003, an increase of 4.4%. The allowance for loan and lease losses, as a percentage of loans and leases, was 1.18% at December 31, 2004, compared to 1.26% at year-end 2003. As a percentage of loans held for investment, the ratio of the allowance for loan and lease losses to total loans and leases was 1.19% at December 31, 2004 compared to 1.27% at the end of last year. BB&T’s strong credit history and recent trends, combined with improvements in BB&T’s relative levels of net charge-offs and nonperforming assets, led to the

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reduction in the allowance as a percentage of outstanding loans and leases for a third consecutive year. Please refer to Note 5 “Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments” in the “Notes to Consolidated Financial Statements” for additional disclosures.

Information relevant to BB&T’s allowance for credit losses for the last five years is presented in the following table. The table is presented using regulatory classifications.

Table 12

Analysis of Allowance for Credit Losses

	December 31,
	2004			2003			2002			2001			2000
	(Dollars in thousands)
Balance, beginning of period	$	793,398		$	723,685		$	644,418		$	578,107		$	529,236
Charge-offs:
Commercial, financial and agricultural		(59,617	)		(71,984	)		(84,967	)		(63,387	)		(33,214	)
Real estate		(60,688	)		(77,547	)		(61,608	)		(41,035	)		(20,759	)
Consumer		(165,218	)		(161,424	)		(144,609	)		(124,359	)		(93,040	)
Lease receivables		(11,156	)		(4,430	)		(5,965	)		(2,448	)		(3,502	)
Total charge-offs		(296,679	)		(315,385	)		(297,149	)		(231,229	)		(150,515	)
Recoveries:
Commercial, financial and agricultural		16,365			25,380			18,029			14,985			12,358
Real estate		9,801			10,808			6,345			4,824			3,788
Consumer		34,302			30,251			24,890			23,955			21,430
Lease receivables		936			1,039			1,353			375			312
Total recoveries		61,404			67,478			50,617			44,139			37,888
Net charge-offs		(235,275	)		(247,907	)		(246,532	)		(187,090	)		(112,627	)
Provision charged to expense		249,269			247,585			263,700			224,318			147,187
Allowance for loans acquired in purchase transactions, net		20,909			70,035			62,099			29,083			14,311
Balance, end of period	$	828,301		$	793,398		$	723,685		$	644,418		$	578,107
Average loans and leases (1)	$	66,107,479		$	57,857,069		$	50,851,417		$	46,587,780		$	41,933,641
Net charge-offs as a percentage of average loans and leases (1)		.36	%		.43	%		.48	%		.40	%		.27	%

(1) Loans and leases are net of unearned income and include loans held for sale.

Deposits and Other Borrowings

Client deposits generated through the BB&T branch network are the largest source of funds used to support asset growth. Total deposits at December 31, 2004, were $67.7 billion, an increase of $8.3 billion, or 14.1%, compared to year-end 2003. The increase in deposits was driven by a $3.9 billion, or 16.7% increase in certificates of deposit (“CDs”) and other time deposits, a $3.1 billion, or 15.1% increase in money rate savings accounts, and a $1.1 billion, or 10.3% increase in noninterest-bearing deposits. For the year ended December 31, 2004, total deposits averaged $64.8 billion, an increase of $7.9 billion, or 13.8%, compared to 2003. The increase in average deposits was the result of a $2.2 billion, or 22.8% increase in average noninterest-bearing deposits, and a $3.7 billion, or 20.2% increase in average money rate savings accounts. Average certificates of deposit and other time deposits increased $1.1 billion, or 4.4%, during 2004 compared to 2003. Other time deposits, including individual retirement accounts and certificates of deposit, remain BB&T’s largest category of deposits, comprising 40.8% of average total deposits for the year, down from 44.4% last year. The primary drivers of the overall increase in average deposits were the purchases of First Virginia at the beginning of the third quarter of 2003 and Republic during the second quarter of 2004, which added deposits of $9.5 billion and $2.5 billion, respectively, and significant internal deposit growth.

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Together with the positive growth trends in client deposits over the last two years, there has been a noticeable shift in the overall deposit mix from certificates of deposit and other time deposits to lower-cost transaction accounts such as noninterest bearing deposits and money rate savings accounts. This shift reflects the reduced attractiveness of time deposits and client preferences for more liquid investments in a low interest rate environment. Another contributing factor, in light of the low interest environment, has been the tendency by many commercial customers to concentrate their deposit balances in noninterest bearing accounts, which allows them to minimize commercial account service charges. Furthermore, in recent years BB&T has intentionally not replaced many of the high-rate certificates of deposit that matured, instead focusing on core deposit growth in noninterest-bearing deposits due to their low cost and their potential for generating service fee income.

The average rate paid on interest-bearing deposits decreased to 1.37% during 2004, from 1.59% in 2003. This decrease resulted primarily from the shift in deposit mix from certificates of deposit and higher-cost time deposits to lower-cost savings and transaction accounts. The average rates paid on the various categories of interest-bearing deposits also decreased as follows: other time deposits, including individual retirement accounts and certificates of deposit, decreased to 2.11% in the current year from 2.39% in 2003; money rate savings accounts decreased to .74% in the current year from .76% in 2003; interest checking decreased from ..42% in 2003 to .33% in the current year; and savings deposits decreased to .17% in 2004 from .28% in 2003. Recent actions by the Federal Reserve Board during the second half of 2004 to raise the targeted Federal funds rate are beginning to cause increases in the above rates paid on interest-bearing deposits.

BB&T also uses various types of shorter-term borrowings in meeting funding needs. While client deposits remain the primary source for funding loan originations, management uses shorter-term borrowings as a supplementary funding source for loan growth. Shorter-term borrowings comprised 6.8% of total funding needs on average in 2004 as compared to 6.0% in 2003. See Note 9 “Federal Funds Purchased, Securities Sold Under Agreements to Repurchase and Short-Term Borrowed Funds” in the “Notes to Consolidated Financial Statements” herein for further disclosure. The types of shorter-term borrowings utilized by the Corporation include Federal funds purchased, which composed 42.9% of total shorter-term borrowings, and securities sold under repurchase agreements, which comprised 37.7% of shorter-term borrowings at year-end 2004. Master notes, U.S. Treasury tax and loan deposit notes, short-term bank notes and short-term Federal Home Loan Bank (“FHLB”) advances are also utilized to meet short-term funding needs. Shorter-term borrowings at the end of 2004 were $6.7 billion, down $647.0 million, or 8.8%, compared to year-end 2003. The decrease in average shorter-term borrowings was primarily a result of healthy deposit growth during 2004, which provided sufficient resources for funding loan and other balance sheet growth. The rates paid on average shorter-term borrowings increased from 1.13% in 2003 to 1.37% during 2004. The increase in the cost of shorter-term borrowings resulted from recent actions by the Federal Reserve Board, which increased the targeted Federal funds rate by 125 basis points during the second half of 2004 to 2.25% from its lowest level of 1.00% set in June 2003. The following table summarizes certain pertinent information for the past three years with respect to BB&T’s shorter-term borrowings:

Table 13

Federal Funds Purchased, Securities Sold Under Agreements to Repurchase and Other Borrowings

	As of / For the Year Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Securities Sold Under Agreements to Repurchase
Maximum outstanding at any month-end during the year	$	3,689,890		$	3,177,747		$	2,568,897
Balance outstanding at end of year		2,520,956			2,831,068			2,511,530
Average outstanding during the year		3,077,625			2,603,343			2,479,185
Average interest rate during the year		1.38	%		1.29	%		2.02	%
Average interest rate at end of year		2.12			1.11			1.64
Federal Funds Purchased and Short-term Borrowed Funds
Maximum outstanding at any month-end during the year	$	5,319,379		$	4,503,832		$	4,542,536
Balance outstanding at end of year		4,166,916			4,503,832			2,885,429
Average outstanding during the year		3,512,846			2,537,500			2,914,294
Average interest rate during the year		1.36	%		0.97	%		1.58	%
Average interest rate at end of year		2.03			0.91			1.00

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BB&T also utilizes long-term debt to provide both funding and, to a lesser extent, regulatory capital. Long-term debt comprised 11.3% of total funding needs on average during 2004 and 13.7% in 2003. See Note 10 “Long-Term Debt” in the “Notes to Consolidated Financial Statements” herein for further disclosure. Long-term debt at December 31, 2004 totaled $11.4 billion, an increase of $611.9 million, or 5.7%, from year-end 2003. For the year ended December 31, 2004, average long-term debt decreased $824.1 million, or 7.0%, compared to the average for 2003. BB&T’s long-term debt consists primarily of FHLB advances, which composed 48.8% of total outstanding long-term debt at December 31, 2004, and subordinated notes of BB&T Corporation, which composed 29.2% of the year-end balance. FHLB advances are cost-effective long-term funding sources that provide BB&T with the flexibility to structure the debt in a manner that aids in the management of interest rate risk and liquidity. The remaining long-term debt consists of both secured and subordinated borrowings by Branch Bank, junior subordinated debt to unconsolidated trusts issued by the Corporation, and capital leases. The average rate paid on long-term debt decreased from 3.87% during 2003 to 3.48% during 2004 primarily because of the balance sheet restructuring completed during 2003, which was intended to improve net interest income and the net interest margin.

During the third quarter of 2004, Branch Bank issued $500 million of senior floating rate debt maturing in June 2007. The proceeds from the offering are being used for general bank funding purposes. On October 27, 2004, BB&T Corporation also issued $600 million of subordinated global notes maturing in November 2019. The proceeds from this offering are being used to fund repurchases of BB&T’s common stock, acquisitions of other companies or their assets, extending credit to or funding investments in BB&T’s subsidiaries and for other general corporate purposes.

During 2003, BB&T completed a balance sheet restructuring. In connection with the restructuring, BB&T refinanced $3.0 billion of FHLB advances, lowering the annual interest rate paid on these advances during the next four years, after which the FHLB has the option to increase the interest rate paid on such advances. Because the refinancing gave rise to substantially similar debt, the transaction resulted in no immediate gain or loss. BB&T also prepaid $2.9 billion in FHLB advances using funds obtained from the reduction of the securities portfolio. The transaction resulted in prepayment penalties totaling $384.9 million that reduced 2003 after-tax earnings by $248.5 million. The prepayment penalties are reflected in BB&T’s Consolidated Statements of Income as a separate category of noninterest expenses. Management estimates that these long-term debt transactions contributed approximately 18 basis points to the net interest margin during 2004 and 12 basis points during 2003.

Liquidity needs are a primary consideration in evaluating funding sources. BB&T’s strategy is to maintain funding flexibility in order that the Corporation may react rapidly to opportunities that may become available in the marketplace. BB&T will continue to focus on traditional core funding strategies, supplemented as needed by the types of borrowings discussed above. See “Liquidity” herein for additional discussion.

Analysis of Results of Operations

Consolidated net income for 2004 totaled $1.56 billion, which generated basic earnings per share of $2.82 and diluted earnings per share of $2.80. Net income for 2003 was $1.06 billion and net income for 2002 totaled $1.30 billion. Basic earnings per share were $2.09 in 2003 and $2.75 in 2002, while diluted earnings per share were $2.07 and $2.72 for 2003 and 2002, respectively.

Two important and commonly used measures of bank profitability are return on average assets (net income as a percentage of average total assets) and return on average shareholders’ equity (net income as a percentage of average common shareholders’ equity). BB&T’s returns on average assets were 1.62%, 1.25% and 1.72% for the years ended December 31, 2004, 2003 and 2002, respectively. The returns on average common shareholders’ equity were 14.71%, 11.97% and 18.32% for the last three years.

Merger-Related and Restructuring Charges

Mergers and acquisitions have played an important role in the development of BB&T’s franchise. BB&T has been an active acquirer of financial institutions, insurance agencies and other nonbank fee income producing businesses for many years. Refer to Note 2 “Business Combinations” in the “Notes to Consolidated Financial Statements” for a summary of mergers and acquisitions consummated during the three years ended December 31,

34

2004. As a result of these activities, the consolidated results of operations for the three year period covered by this discussion include the effects of merger-related and restructuring charges, as well as expenses and certain gains related to the consummation of the transactions.

Merger-related charges and expenses include personnel-related items 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 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.

During 2004, BB&T recorded merger-related and restructuring charges of $5.5 million, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses. These expenses were recorded primarily in connection with the acquisitions and systems conversions of McGriff and Republic.

During 2003, BB&T recorded merger-related and restructuring charges of $89.8 million, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses. These expenses were recorded primarily in connection with the acquisitions and systems conversions of Equitable Bank and First Virginia.

During 2002, BB&T recorded merger-related and restructuring charges of $39.3 million, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses. These expenses were recorded in connection with the first quarter systems conversion of F&M National Corporation, the second quarter systems conversion of Community First Banking Company, and the mergers with MidAmerica Bancorp (“MidAmerica”), Area Bancshares (“AREA”), and Regional Financial Corp. (“Regional”).

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

Table 14

Summary of Merger-Related and Restructuring Charges

(Dollars in thousands)

	For the Year Ended December 31,
	2004			2003		2002
Severance and personnel-related charges	$	8,976		$	20,834	$	4,527
Occupancy and equipment charges		(11,752	)		22,290		9,510
Systems conversions and related charges		580			5,271		11,700
Marketing and public relations		4,038			7,565		6,446
Asset write-offs and other merger-related charges		3,676			33,815		7,097
Total	$	5,518		$	89,775	$	39,280

Severance and personnel-related costs include severance, employee retention, payments related to change-in-control provisions of employment contracts, outplacement services and other benefits associated with employee termination, which typically occur in corporate support and data processing functions. During 2004, BB&T estimated that 200 positions would be eliminated and receive severance in connection with the acquisition of Republic and 225 employees did, in fact, receive severance in 2004. Nine former employees will continue to receive severance payments during 2005. During 2003, BB&T estimated that 1,918 positions would be eliminated and receive severance and 980 employees did, in fact, receive severance during 2003. Substantially all of the remaining positions involved employees who voluntarily resigned or were offered positions elsewhere within BB&T. These former employees did not receive severance. Approximately 551 of the employees whose jobs were eliminated received severance payments during 2004. During 2002, BB&T estimated that 372 positions would be eliminated and receive severance and 370 employees did, in fact, receive severance during 2002. Approximately 90 of these former employees continued to receive severance payments during 2003.

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

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

	First Virginia Banks, Inc
	(Dollars in thousands)
	Balance January 1, 2003		Accrued at acquisition		Merger- related and restructuring charges			Utilized			Other, net (1)			Balance December 31, 2003
Severance and personnel-related charges	$	—	$	26,723	$	19,172		$	(27,000	)	$	—		$	18,895
Occupancy and equipment charges		—		29,579		5,247			(10,560	)		(577	)		23,689
Systems conversions and related charges		—		20,594		12,113			(11,972	)		—			20,735
Other merger-related charges		—		4,245		45,192			(46,762	)		—			2,675
Total	$	—	$	81,141	$	81,724		$	(96,294	)	$	(577	)	$	65,994
	Balance January 1, 2004		Accrued at acquisition		Merger- related and restructuring charges			Utilized			Other, net (1)			Balance December 31, 2004
Severance and personnel-related charges	$	18,895	$	—	$	3,126		$	(13,455	)	$	(1,007	)	$	7,559
Occupancy and equipment charges		23,689		—		2,107			(18,132	)		(1,518	)		6,146
Systems conversions and related charges		20,735		—		2,227			(8,815	)		(14,147	)		—
Other merger-related charges		2,675		—		(4,048	)		1,460			—			87
Total	$	65,994	$	—	$	3,412		$	(38,942	)	$	(16,672	)	$	13,792

(1) Other, net is primarily composed of adjustments to goodwill resulting from changes to original estimates of merger-related accruals.

The remaining accruals at December 31, 2004 for First Virginia are related primarily to costs related to severance payments for 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.

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Activity with respect to the merger and restructuring accruals for all other mergers, which are discussed above, is presented in the accompanying table:

	All Other Mergers
	(Dollars in thousands)
	Balance January 1, 2003		Accrued at acquisition		Merger- related and restructuring charges			Utilized			Other, net (1)			Balance December 31, 2003
Severance and personnel-related charges	$	16,829	$	3,602	$	1,662		$	(10,918	)	$	(2,220	)	$	8,955
Occupancy and equipment charges		41,753		3,944		17,043			(26,268	)		(11,465	)		25,007
Systems conversions and related charges		1,738		940		(6,842	)		5,230			(1,066	)		—
Other merger-related charges		11,281		15,279		(3,812	)		(11,660	)		(2,693	)		8,395
Total	$	71,601	$	23,765	$	8,051		$	(43,616	)	$	(17,444	)	$	42,357
	Balance January 1, 2004		Accrued at acquisition		Merger- related and restructuring charges			Utilized			Other, net(1)			Balance December 31, 2004
Severance and personnel-related charges	$	8,955	$	6,732	$	5,850		$	(10,959	)	$	(3,479	)	$	7,099
Occupancy and equipment charges		25,007		3,261		(13,859	)		(5,001	)		—			9,408
Systems conversions and related charges		—		7,196		(1,647	)		(4,871	)		(678	)		—
Other merger-related charges		8,395		2,483		11,762			(19,143	)		700			4,197
Total	$	42,357	$	19,672	$	2,106		$	(39,974	)	$	(3,457	)	$	20,704

(1) Other, net is primarily composed of adjustments to goodwill resulting from changes to original estimates of merger-related accruals.

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

Because BB&T has often had multiple merger integrations in process, and, due to limited resources, has had to schedule in advance significant events in the merger conversion and integration process, BB&T’s merger process and utilization of merger accruals has typically covered an extended period of time. In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance. 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 December 31, 2004 are expected to be utilized during 2005, unless they relate to specific contracts that expire in later years.

Net Interest Income

Net interest income is BB&T’s primary source of revenue. Net interest income is influenced by a number of factors, including the volume, mix and maturity of interest-earning assets and interest-bearing liabilities and the interest rates earned and paid thereon. The difference between rates earned on interest-earning assets (with an adjustment made to tax-exempt income to provide comparability with taxable income, i.e. the “FTE” adjustment) and the cost of the supporting funds is measured by the net interest margin. The accompanying table presents the dollar amount of changes in interest income and interest expense, and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate). Changes attributable to both volume and rate have been allocated proportionately.

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Table 15

FTE Net Interest Income and Rate/Volume Analysis

For the Years Ended December 31, 2004, 2003 and 2002

																			2004 vs. 2003									2003 vs. 2002
	Average Balances						Yield/Rate						Income/Expense						Increase (Decrease)			Change due to						Increase (Decrease)			Change due to
	2004		2003		2002		2004		2003		2002		2004		2003		2002					Rate			Volume						Rate			Volume
	(Dollars in thousands)
Assets
Securities, at amortized cost (1):
U.S. Treasuries, U.S. government agencies and entities and other (5)	$	17,391,012	$	16,156,301	$	16,005,557	3.94	%	4.70	%	6.15	%	$	684,607	$	759,712	$	983,967	$	(75,105	)	$	(130,145	)	$	55,040		$	(224,255	)	$	(233,438	)	$	9,183
States and political subdivisions		827,260		901,579		933,532	6.51		6.83		7.47			53,822		61,571		69,743		(7,749	)		(2,826	)		(4,923	)		(8,172	)		(5,843	)		(2,329	)
Total securities (5)		18,218,272		17,057,880		16,939,089	4.05		4.81		6.22			738,429		821,283		1,053,710		(82,854	)		(132,971	)		50,117			(232,427	)		(239,281	)		6,854
Other earning assets (2)		620,451		548,403		439,097	1.79		1.39		1.79			11,088		7,659		7,848		3,429			2,340			1,089			(189	)		(1,916	)		1,727
Loans and leases, net of unearned income (1)(3)(4)(5)		66,107,479		57,857,069		50,851,417	5.87		6.06		6.93			3,878,548		3,504,656		3,523,050		373,892			(113,000	)		486,892			(18,394	)		(471,856	)		453,462
Total earning assets		84,946,202		75,463,352		68,229,603	5.45		5.74		6.72			4,628,065		4,333,598		4,584,608		294,467			(243,631	)		538,098			(251,010	)		(713,053	)		462,043
Non-earning assets		11,329,792		9,864,376		7,549,430
Total assets	$	96,275,994	$	85,327,728	$	75,779,033
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
Savings and interest checking	$	4,797,668	$	3,904,880	$	3,363,118	0.22		0.33		0.75			10,709		12,778		25,062		(2,069	)		(4,602	)		2,533			(12,284	)		(15,816	)		3,532
Money rate savings		21,907,558		18,219,720		14,824,396	0.74		0.76		1.13			162,561		137,800		167,329		24,761			(2,649	)		27,410			(29,529	)		(62,672	)		33,143
Other time deposits		26,427,935		25,309,123		23,728,465	2.11		2.39		3.42			556,390		605,099		810,667		(48,709	)		(74,595	)		25,886			(205,568	)		(256,626	)		51,058
Total interest-bearing deposits		53,133,161		47,433,723		41,915,979	1.37		1.59		2.39			729,660		755,677		1,003,058		(26,017	)		(81,846	)		55,829			(247,381	)		(335,114	)		87,733
Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds		6,590,471		5,140,843		5,393,479	1.37		1.13		1.78			90,117		58,842		95,823		31,275			13,388			17,887			(36,981	)		(33,193	)		(3,788	)
Long-term debt		10,886,199		11,710,281		12,134,712	3.48		3.87		4.84			378,695		458,268		587,703		(79,573	)		(44,298	)		(35,275	)		(129,435	)		(114,175	)		(15,260	)
Total interest-bearing liabilities		70,609,831		64,284,847		59,444,170	1.70		1.97		2.84			1,198,472		1,272,787		1,686,584		(74,315	)		(112,756	)		38,441			(413,797	)		(482,482	)		68,685
Noninterest-bearing deposits		11,682,911		9,514,435		7,202,129
Other liabilities		3,386,538		2,633,214		2,019,244
Shareholders’ equity		10,596,714		8,895,232		7,113,490
Total liabilities and shareholders’ equity	$	96,275,994	$	85,327,728	$	75,779,033
Average interest rate spread							3.75	%	3.77	%	3.88	%
Net interest margin							4.04	%	4.06	%	4.25	%	$	3,429,593	$	3,060,811	$	2,898,024	$	368,782		$	(130,875	)	$	499,657		$	162,787		$	(230,571	)	$	393,358

(1) Interest income from securities, loans and leases includes the effects of taxable-equivalent adjustments (reduced by the nondeductible portion of interest expense) using a federal income tax rate of approximately 35% for all years reported and where applicable, state income taxes, to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table were $81.4 million, $(21.2 million) and $150.6 million for the three years ended December 31, 2004, 2003 and 2002, respectively.

(2) Includes Federal funds sold, securities purchased under resale agreements or similar arrangements and interest-bearing deposits with banks.

(3) Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes.

(4) Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income.

(5) Includes assets which were held for sale or available for sale at amortized cost and trading securities at fair value.

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For 2004, net interest income on an FTE-adjusted basis totaled $3.4 billion, compared with $3.1 billion in 2003 and $2.9 billion in 2002. The 12.0% increase in net interest income during 2004 resulted because the benefit from strong earning asset growth more than offset the adverse impact of the low interest rate environment. Also contributing to the year over year increase was the shift in the overall deposit mix to lower-cost transaction accounts.

The FTE-adjusted net interest margin is the primary measure used in evaluating the gross profit margin from the portfolios of earning assets. The FTE-adjusted net interest margin was 4.04% in 2004, 4.06% in 2003 and 4.25% in 2002. The average yield on interest earning assets fell 29 basis points compared to the average yield during 2003, while the average cost of funds over the same time period fell 27 basis points. In addition to the effect of changes in yields on earning assets compared to the cost of funds, the margin was also negatively affected by the reinvestment of proceeds from the sales, maturities and prepayments of securities in lower- yielding securities, the additional interest expense incurred in connection with BB&T’s stock buy-back program, and dilution from the purchase of Republic, which had a net interest margin below 3%. Several factors had a positive impact on the margin. The most significant of them was the balance sheet restructuring completed during 2003. The margin also benefited from the impact of interest rate swap derivatives.

In addition to changes in the composition of BB&T’s earning assets and interest bearing liabilities, the other primary driver of the fluctuations in the net interest margin is the interest rate environment. Over the past three and a half years, the Federal Reserve has taken aggressive actions to lower the level of interest rates by reducing the benchmark Federal funds rate from 6.50% at the beginning of 2001 to 1.00%, where it remained until June 2004. During the second half of 2004, the Federal Reserve increased the target Federal funds rate five times, finishing 2004 with the rate set at 2.25%. At the beginning of 2004, BB&T started repositioning its balance sheet to a more asset-sensitive position in anticipation of rising interest rates. However, as interest rates have risen, the benefit on the margin has been less than expected because BB&T’s interest-bearing liabilities have repriced more quickly than anticipated relative to the repricing of interest-earning assets. BB&T’s management anticipates that the margin will stabilize during 2005.

Provision for Credit Losses

A provision for credit losses is charged against earnings in order to maintain an allowance for loan and lease losses and a reserve for unfunded lending commitments that reflects management’s best estimate of probable losses inherent in the credit portfolios at the balance sheet date. The amount of the provision is based on continuing assessments of nonperforming and “watch list” loans and associated unfunded credit commitments, analytical reviews of loss experience in relation to outstanding loans and funded credit commitments, loan charge-offs, nonperforming asset trends and management’s judgment with respect to current and expected economic conditions and their impact on the loan portfolio and outstanding unfunded credit commitments. The methodology used is described in the “Overview and Description of Business” section under the heading “Allowance for Loan and Lease Losses and Reserve for Unfunded Credit Commitments.” The provision for credit losses recorded by BB&T in 2004 was $249.3 million, compared with $247.6 million in 2003 and $263.7 million in 2002.

The provision for credit losses increased less than 1% during 2004 while the total loan and lease portfolio increased 9.4% compared to the balance outstanding at the end of 2003. Net charge-offs were .36% of average loans and leases for 2004 compared to .43% of average loans during 2003. The allowance for loan and lease losses was 1.18% of loans and leases outstanding and was 2.99x total nonaccrual and restructured loans and leases at year-end 2004, compared to 1.26% and 2.24x, respectively, at December 31, 2003. The decrease from 2002 and the small increase compared with 2003 in the provision for credit losses reflects these improving credit quality trends and growth in the credit portfolios. Management expects these positive internal trends to stabilize in 2005.

Noninterest Income

Noninterest income has become, and will continue to be, a significant contributor to BB&T’s financial success. Noninterest income includes service charges on deposit accounts, trust revenue, mortgage banking income, investment banking and brokerage fees and commissions, insurance commissions, gains and losses on securities transactions and other commissions and fees derived from other activities. Noninterest income as a

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percentage of total revenues has steadily 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.

The following table provides a breakdown of BB&T’s noninterest income:

Table 16

Noninterest Income

							% Change
	Years Ended December 31,						2004 v. 2003		2003 v. 2002
	2004		2003		2002
	(Dollars in thousands)
Service charges on deposits	$	523,319	$	437,524	$	402,476	19.6	%	8.7	%
Mortgage banking income		110,075		109,423		21,601	.6		NM
Trust income		119,479		113,227		94,463	5.5		19.9
Insurance commissions		619,055		395,820		313,436	56.4		26.3
Securities gains (losses), net		6,133		126,211		170,100	(95.1	)	(25.8	)
Bankcard fees and merchant discounts		102,098		83,927		66,848	21.7		25.5
Investment banking and brokerage fees and commissions		264,789		247,394		210,586	7.0		17.5
Other nondeposit fees and commissions		216,498		180,045		141,654	20.2		27.1
Income from bank-owned life insurance		91,883		98,700		88,613	(6.9	)	11.4
Other noninterest income		65,942		35,068		31,470	88.0		11.4
Total noninterest income	$	2,119,271	$	1,827,339	$	1,541,247	16.0	%	18.6	%

NM—not meaningful

The 16.0% growth in noninterest income was led by increased revenues from BB&T’s insurance operations as well as growth in income from service charges on deposit accounts, bankcard fees and merchant discounts, and other nondeposit fees and commissions. These increases were partially offset by a significant decline in gains from sales of securities. The 18.6% increase in noninterest income for 2003 was primarily the result of substantial growth in mortgage banking income, increased insurance commissions from BB&T’s agency network and higher levels of investment banking and brokerage fees and commissions as well as increased service charges on deposits, trust income and other nondeposit fees and commissions. The major categories of noninterest income and their fluctuations are discussed in the following paragraphs. These fluctuations reflect the impact of acquisitions.

Service charges on deposit accounts represent BB&T’s second largest category of noninterest revenue. During 2004, BB&T experienced a 19.6% increase in revenue from service charges on deposit accounts compared to 2003. The primary reasons for the increase were the purchases of Republic and First Virginia, improved collection of NSF and overdraft charges on commercial and personal accounts, and growth in commercial account analysis fees, which were $8.4 million, $60.8 million, and $11.8 million, respectively, more than in 2003. Additionally, the robust growth in noninterest bearing commercial and consumer deposit accounts during 2004 led to a higher level of transaction activity and related service fees, which offset the effect of the introduction of new lower-fee deposit products during 2003 and 2004 in response to intense price competition within BB&T’s markets. Management frequently monitors the pricing of various deposit products and services to ensure that BB&T remains competitive. The 2003 increase of 8.7% in service charges on deposits compared to 2002 was substantially caused by the acquisition of First Virginia at the beginning of the third quarter of 2003. Excluding the contribution of First Virginia, service charges on deposits actually decreased in 2003 as a result of changes in deposit mix and competitive pricing pressure. In light of the low interest rate environment during 2003, many commercial customers concentrated a larger portion of their deposit balances in transaction accounts rather than interest-bearing accounts, which allowed them to minimize commercial account analysis fees. In addition, price reductions on certain retail deposit-related services and new lower-fee deposit products were introduced during 2003 in response to market conditions and competition within BB&T’s market area.

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Income from mortgage banking activities (which includes revenues from originating mortgage loans, net of direct origination cost, revenue from servicing mortgage loans, valuation adjustments, mortgage banking-related derivative gains / losses and amortization related to mortgage servicing rights) totaled $110.1 million in 2004, $109.4 million in 2003 and $21.6 million in 2002. Overall mortgage banking income in 2004 was relatively unchanged compared to 2003; however, the components of income fluctuated as higher mortgage interest rates resulted in lower refinance activity and, consequently, less mortgage production revenue, but resulted in less amortization of mortgage servicing rights and a recapture of the valuation allowance offsetting mortgage servicing rights. This is in contrast to 2003 when refinance activity resulting from very low mortgage rates produced record levels of mortgage production and related revenues, but also resulted in a large impairment in the value of BB&T’s mortgage servicing rights. The mortgage servicing rights impairment that resulted in 2002 and 2003 was largely offset by securities gains, which were utilized by BB&T as an economic risk management strategy. In 2004, BB&T employed a risk management strategy for mortgage servicing rights that was entirely dependent upon derivative financial instruments. The following table provides a breakdown of the various components of mortgage banking income:

Mortgage Banking Income and Related Statistical Information

										% Change
	As of/For the Years Ended December 31,									2004 v. 2003		2003 v. 2002
Mortgage Banking Income	2004			2003			2002
	(Dollars in thousands)
Residential mortgage production revenues	$	61,805		$	200,234		$	164,185		(69.1	)%	22.0	%
Residential mortgage servicing revenues		92,536			101,619			92,811		(8.9	)	9.5
Commercial mortgage banking revenues		21,545			18,820			17,056		14.5		10.3
Mortgage servicing rights valuation (impairments) recaptures, net of related derivative gains or losses		25,183			(56,345	)		(152,371	)	(144.7	)	(63.0	)
Amortization of mortgage servicing rights		(90,994	)		(154,905	)		(100,080	)	(41.3	)	54.8
Total mortgage banking income	$	110,075		$	109,423		$	21,601		.6	%	NM
Mortgage Banking Statistical Information (in billions)
Residential mortgage originations	$	10.0		$	19.4		$	14.1		(48.5	)%	37.6	%
Residential mortgage loans serviced for others		24.5			24.9			24.2		(1.6	)	2.9
Commercial mortgage originations		1.6			1.7			1.4		(5.9	)	21.4
Commercial mortgage loans serviced for others		6.7			6.9			6.3		(2.9	)	9.5

NM—not meaningful

BB&T has an extensive insurance agency/brokerage operation, which at December 31, 2004, ranked as the 6^th largest in the nation. Revenues from BB&T’s insurance operations were the largest source of noninterest income during 2004. Internal growth combined with the expansion of BB&T’s insurance agency network through acquisitions during the last two years, the largest of which was McGriff, generated the strong growth in insurance revenues. Commission income from McGriff contributed approximately $152.0 million to the $223.2 million increase in insurance revenues during 2004 compared to 2003. Revenues from CRC Insurance Services, BB&T’s wholly owned wholesale insurance broker, contributed an additional $47.4 million in growth for the current year. The overall growth of 26.3% in insurance revenues during 2003 was caused by similar factors, including strong internal growth and targeted acquisitions of insurance agencies within BB&T’s market area. These increases were in the categories of property and casualty insurance, employee benefits, and accident and health insurance commissions, which increased $23.0 million, $4.7 million, and $3.8 million, respectively, compared to 2002.

Revenue from corporate and personal trust services increased by $6.3 million, or 5.5%, in 2004 compared to 2003. Trust revenues are based on the types of services provided as well as the overall value of the assets managed, which is affected by stock market conditions. The increase in trust revenues was primarily due to the acquisition of First Virginia and to increases in proprietary mutual fund management fees. The value of trust assets under management, including custodial accounts, increased during each of the last three years and was $24.2 billion, $27.2 billion, and $28.4 billion at December 31, 2002, 2003 and 2004, respectively. At the beginning of the third quarter of 2003, trust assets under management increased by $2.2 billion because of the acquisition of First Virginia, which was offset by the loss of $2.4 billion in trust assets from the North Carolina state employees’

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401 (k) plan, which transferred to a successor trustee at the end of the quarter. The timing of these transactions had a net positive impact on 2004 trust income compared to 2003. The 19.9% increase in trust revenues during 2003 was caused by similar factors that affected the 2004 increase.

Net gains on sales of securities declined by 95.1% during 2004. During 2004, BB&T shifted to a risk management strategy related to mortgage servicing rights and mortgage banking operations entirely dependent on derivatives. During the period of declining interest rates that existed in 2002 and 2003, BB&T utilized the increases in the value of the available-for-sale securities portfolio as an economic hedge against the decline in the carrying value of BB&T’s mortgage servicing rights. The net securities gains in 2003 and 2002 were used to offset the net writedowns in the value of mortgage servicing rights.

Investment banking and brokerage fees and commissions increased $17.4 million in 2004 compared to 2003 and $36.8 million in 2003 compared to 2002. These increases resulted primarily from growth in investment banking revenues at BB&T’s full-service brokerage and investment banking subsidiary, Scott & Stringfellow, which contributed approximately $10.2 million of the 2004 increase. During 2004, Scott & Stringfellow experienced higher demand for its investment services due to the continued expansion of a new product line and the improving economic environment. The majority of the remaining $7.2 million increase in investment banking and brokerage fees and commissions in 2004 compared to 2003 were related to BB&T Investment Services, Inc., and caused by higher investment services revenues from BB&T’s newer markets through the increase in the number of investment counselors in those markets. In addition, production levels from BB&T’s existing investment counselors also increased. The increase in investment banking and brokerage fees and commissions in 2003 compared to 2002 resulted from similar factors.

Other nondeposit fees and commissions, including bankcard fees and merchant discounts, increased $54.6 million, or 20.7%, during 2004 compared to 2003. The principal drivers of the increase were bankcard fees and merchant discounts, check card interchange fees, debit card network interchange fees, business check card interchange fees, and check card foreign ATM fees, which increased $18.2 million, $13.2 million, $4.0 million, $4.2 million, and $4.6 million, respectively, compared to 2003. In addition, fees from money orders and official checks, commercial standby letters of credit fees, and ATM surcharge income increased $1.9 million, $2.6 million, and $2.1 million, respectively, compared to 2003. Furthermore, the acquisitions of Republic and First Virginia contributed to the revenue growth during the current year. Major sources of the 26.6% increase in 2003 revenue included bankcard fees and merchant discounts, check card interchange fees, fees from money orders and official checks, and check card foreign ATM fees, which increased $17.1 million, $8.7 million, $4.2 million, and $5.3 million, respectively, compared to 2002. The increase in nondeposit fees and commissions revenue also includes the impact of acquisitions completed during 2003 and 2002.

BB&T has purchased life insurance coverage on certain officers for whom it has an insurable interest. Income from bank-owned life insurance decreased by 6.9% compared to 2003 primarily due to a decline in the market yields used to credit interest income to such policies. The growth in 2003 was driven by additional purchases of bank-owned life insurance made in mid-year 2002.

Other income increased 88.0% in the current year primarily due to a $12.7 million fair value adjustment related to miscellaneous investments made by a small business investment company and higher income from investments in limited partnerships, which were up $6.2 million. Another contributing factor was growth in revenues from check sales, which increased $5.6 million, primarily due to the acquisitions of First Virginia and Republic. During 2003, lower income from limited partnership investments, which declined $14.7 million, was largely offset by non-taxable income from the increase in the value of various financial assets isolated for the purpose of providing post-employment benefits. Additionally, revenues from check sales and gains from non-hedging derivatives each increased $1.7 million compared to 2002.

The ability to generate significant amounts of noninterest revenues in the future will be very important to the continued financial success of BB&T. Through its subsidiaries, BB&T will continue to focus on asset management, mortgage banking, trust, insurance, investment banking and brokerage services, as well as other fee-producing products and services. BB&T plans to continue to pursue acquisitions of additional insurance agencies and asset management companies, as well as explore strategic acquisitions of other nonbank entities as a means of expanding fee-based revenues. Also, among BB&T’s principal strategies following the acquisition of a financial institution is the cross-sell of noninterest income generating products and services to the acquired institution’s client base.

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Noninterest Expense

Noninterest expense totaled $2.9 billion in 2004, $3.0 billion in 2003 and $2.2 billion in 2002. Certain significant items principally stemming from mergers and acquisitions were recorded as noninterest expenses during 2004, 2003 and 2002. In 2004, $5.5 million in pretax merger-related charges were recorded, while 2003 included $89.8 million in merger-related charges and $39.3 million were recognized in 2002. Additional disclosures related to these merger-related charges are presented in “Merger-Related and Restructuring Charges.” In addition, noninterest expense for 2003 includes a loss from the early termination of FHLB advances in the amount of $384.9 million. See “Deposits and Other Borrowings” section for further discussion of this loss.

The table below shows the components of noninterest expense and the discussion that follows explains the composition of certain categories and the factors that caused them to change in 2004 and 2003.

Table 17

Noninterest Expense

							% Change
	Years Ended December 31,						2004 v. 2003		2003 v. 2002
	2004		2003		2002
	(Dollars in thousands)
Salaries and wages	$	1,338,308	$	1,174,121	$	1,019,785	14.0	%	15.1	%
Pension and other employee benefits		293,449		271,419		226,914	8.1		19.6
Total personnel expenses		1,631,757		1,445,540		1,246,699	12.9		15.9
Net occupancy expense on bank premises		212,346		180,029		156,670	18.0		14.9
Furniture and equipment expense		203,178		191,138		184,402	6.3		3.7
Total occupancy and equipment expenses		415,524		371,167		341,072	12.0		8.8
Regulatory charges		14,910		13,348		11,807	11.7		13.1
Foreclosed property expense		26,272		19,329		7,321	35.9		164.0
Amortization of intangibles		106,348		55,650		20,885	91.1		166.5
Software		43,347		43,966		36,608	(1.4	)	20.1
Telephone		47,034		45,118		44,005	4.2		2.5
Advertising and public relations		31,643		31,110		27,537	1.7		13.0
Travel and transportation		32,009		27,607		24,012	15.9		15.0
Professional services		75,822		70,518		73,496	7.5		(4.1	)
Supplies		37,212		36,792		32,464	1.1		13.3
Loan processing expenses		84,253		78,887		64,225	6.8		22.8
Deposit related expense		34,249		28,571		25,750	19.9		11.0
Merger-related and restructuring charges		5,518		89,775		39,280	(93.9	)	128.6
Loss on early extinguishment of debt		—		384,898		—	NM		NM
Other noninterest expenses		309,965		302,453		239,149	2.5		26.5
Total noninterest expense	$	2,895,863	$	3,044,729	$	2,234,310	(4.9	)%	36.3	%

NM—not meaningful

The 4.9% decrease in total noninterest expense during 2004 compared to 2003 was primarily caused by the combination of lower merger-related charges and the losses on early termination of FHLB advances in 2003. No such losses were incurred in 2004. These comparative decreases were partially offset by additional noninterest expenses as a result of the acquisitions of Republic, McGriff and several other nonbank financial services companies during 2004, and the acquisition of First Virginia in July of 2003. The 2003 increase in noninterest expenses was caused by the effects of acquisitions accounted for as purchases during 2003, including First Virginia, Equitable Bank and several insurance companies, and the aforementioned merger charges and losses on extinguishment of debt.

Total personnel expense is the largest component of noninterest expense and includes salaries and wages, as well as pension and other employee benefit costs. The 2004 increase of 12.9% resulted primarily from additional

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personnel expenses associated with the First Virginia, McGriff and Republic mergers. The 14.0% increase in salaries and wages was primarily attributable to the above mentioned mergers, as well as higher insurance incentive compensation, investment banking incentive compensation, and other annual performance compensation, which grew $28.3 million, $12.2 million, and $16.3 million, respectively, compared to 2003. These increases were partially offset by lower mortgage loan production incentive compensation, which decreased $34.2 million compared to last year due to significantly lower mortgage loan production in 2004. The 8.1% increase in pension and other employee benefit costs was also affected by the above mergers, which caused increases in all categories of benefit expenses compared to 2003. The 15.9% increase in 2003 personnel expenses was mainly attributable to the acquisition of First Virginia, as well as higher mortgage loan production incentive compensation, investment banking incentive compensation, and other annual performance compensation, which grew $20.3 million, $20.4 million, and $23.3 million, respectively, compared to 2002.

Net occupancy and equipment expense increased by $44.4 million in 2004. Substantially all of the increase resulted from the acquisitions of Republic, McGriff and First Virginia, which collectively added approximately $37.1 million in occupancy and equipment expenses. This amount was comprised of higher rent on buildings and premises, furniture and equipment expenses, utilities expenses, and depreciation expenses, which increased by $16.1 million, $12.6 million, $4.4 million, and $4.0 million, respectively, compared to 2003. Additionally, building maintenance expenses and real estate taxes increased by $2.3 million and $2.7 million, respectively. The increase in 2003 compared to 2002 was affected by acquisitions completed during 2003, the largest of which was First Virginia, and was generally due to the same factors that caused the 2004 increase.

The increases in amortization expense associated with intangible assets in 2004 compared to 2003 and in 2003 compared to 2002 were primarily due to the acquisitions of First Virginia, McGriff and Republic, which added $21.7 million, $19.6 million and $6.5 million, respectively, in amortization expenses during 2004 compared to 2003. See Note 2 “Business Combinations” in the “Notes to Consolidated Financial Statements” for a summary of completed mergers and acquisitions during the three year period ended December 31, 2004.

Loan processing expenses were up $5.4 million compared to 2003. This increase was primarily driven by higher origination expenses on retail loans and home equity lines of credit, merchant expenses and retail bankcard expenses, which increased $3.0 million, $3.3 million, and $1.2 million, respectively, compared to 2003. However, this increase was partially offset by declines of $1.2 million and $1.1 million in mortgage loan processing and sales finance expenses, respectively, as a result of the lower volume of such loans in 2004. The 2003 loan processing expenses reflected a $14.7 million, or 22.8%, increase over 2002. This increase was caused by higher loan processing expenses associated with all major loan categories, including mortgage, direct retail and sales finance, as a result of the higher number of loan originations due to the more favorable interest rate environment that existed in 2003 compared to 2002.

Other noninterest expenses, including professional services, increased $33.7 million, or 5.4%, compared to 2003, which reflected an increase of $96.7 million, or 18.5% compared to 2002. In addition to the effect of purchasing Republic, McGriff and First Virginia, the majority of the 2004 increase resulted from higher taxes and license expenses, insurance claims expenses, employee travel, and higher net losses from the disposition of fixed assets. The 2003 increase was caused by higher advertising and public relations expenses, charitable contributions, employee travel, supplies expense, and net losses from the disposition of fixed assets. Please refer to Table 17 for additional detail on fluctuations in other categories of noninterest expense.

The effective management of the Company’s noninterest operating costs is another key contributor to BB&T’s financial success, especially as BB&T becomes a larger and more diverse company. In 2004, management announced plans to implement cost savings and revenue enhancement initiatives with a goal to produce $175 million in combined annual cost savings and revenue enhancements. Implementation of the initiatives began in the fourth quarter of 2004. Management expects that approximately $60 million will be realized in 2005 pursuant to this effort and anticipates that substantially all of the initiatives will be implemented by the fourth quarter of 2006.

Provision for Income Taxes

BB&T’s provision for income taxes totaled $764.0 million for 2004, an increase of $211.9 million, or 38.4%, compared to 2003. The provision for income taxes totaled $552.1 million in 2003 and $497.5 million in 2002. BB&T’s effective tax rates for the years ended 2004, 2003 and 2002 were 32.9%, 34.1% and 27.8%, respectively. The

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increased provision for income taxes in 2004 was the result of higher pretax income. The higher provision in 2003 was a result of the increase in the effective tax rate compared to 2002 including the effects of adjustments related to deferred income taxes associated with BB&T’s leasing operations, which are discussed below. A reconciliation of the effective tax rate to the statutory tax rate is included in Note 12 “Income Taxes” in the “Notes to Consolidated Financial Statements” herein.

BB&T has extended credit to, and invested in, the obligations of states and municipalities and their agencies. The income generated from these investments together with certain other transactions that have favorable tax treatment have reduced BB&T’s overall effective tax rate from the statutory rate in 2004, 2003 and 2002. These transactions include investments in leveraged leases, entering into option contracts transferring future management of residual interests of certain leveraged leases to a wholly-owned foreign subsidiary for which BB&T intends to permanently reinvest the earnings, and the transfer of securities and real estate secured loans to a subsidiary that resulted in a difference between BB&T’s tax basis and financial statement basis in the equity of the subsidiary.

BB&T continually monitors and evaluates the potential impact of current events and circumstances on the estimates and assumptions used in the analysis of its income tax positions and, accordingly, BB&T’s effective tax rate may fluctuate in the future. On a periodic basis, BB&T evaluates its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current Internal Revenue Service (“IRS”) examinations of BB&T’s tax returns, recent positions taken by the IRS on similar transactions, if any, and the overall tax environment in relation to tax-advantaged transactions. In 2003, BB&T determined that it was appropriate to defer recognition of benefits from the option contracts described above until such benefits were realized for income tax purposes and recorded adjustments to reflect that determination.

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

Market Risk Management

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

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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 ALCO to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as ensure an adequate level of liquidity and capital, within the context of corporate performance goals. ALCO also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. ALCO meets regularly to review BB&T’s interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impact on earnings and liquidity as a result of fluctuations in interest rates is within acceptable standards.

BB&T 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 business loans, federal funds purchased, long-term debt, mortgage servicing rights, mortgage banking operations, and certificates of deposit. BB&T’s derivatives resulted in an increase in net interest income of $155.4 million, $124.2 million and $45.0 million in 2004, 2003 and 2002, respectively.

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 December 31, 2004, BB&T had derivative financial instruments outstanding with notional amounts totaling $20.5 billion. The estimated fair value of open contracts used for risk management purposes at December 31, 2004 had net unrealized gains of $73.3 million.

See Note 18 “Derivative Financial Instruments” in the “Notes to Consolidated Financial Statements” herein for additional disclosures.

Impact of Inflation and Changing Interest Rates

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

BB&T’s interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions at December 31, 2004, and is not necessarily indicative of positions on other dates. The carrying amounts of interest rate sensitive assets and liabilities are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap. To reflect anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash flows rather than contractual cash flows. The table does not reflect the impact of hedging strategies.

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Table 18

Interest Rate Sensitivity Gap Analysis

December 31, 2004

	Within One Year		One to Three Years		Three to Five Years		After Five Years			Total
	(Dollars in thousands)
Assets
Securities and other interest-earning assets (1)	$	5,496,913	$	3,184,800	$	5,281,495	$	6,351,984		$	20,315,192
Federal funds sold and securities purchased under resale agreements or similar arrangements		240,387		—		—		—			240,387
Loans and leases (2)		45,443,753		9,824,785		6,287,548		6,606,515			68,162,601
Total interest-earning assets		51,181,053		13,009,585		11,569,043		12,958,499			88,718,180
Liabilities
Savings and interest checking (3)		2,155,302		538,826		269,413		1,526,673			4,490,214
Money rate savings (3)		11,245,342		2,811,336		1,405,668		7,965,451			23,427,797
Other time deposits		18,795,313		2,763,341		2,664,819		3,311,605			27,535,078
Federal funds purchased and securities sold under repurchase agreements or similar arrangements		5,274,506		112,737		—		—			5,387,243
Short-term borrowings		1,300,629		—		—		—			1,300,629
Long-term debt		150,482		2,613,087		29,292		8,626,763			11,419,624
Total interest-bearing liabilities		38,921,574		8,839,327		4,090,012		21,709,672			73,560,585
Asset-liability gap		12,259,479		4,170,258		7,479,031		(8,751,173	)
Cumulative interest rate sensitivity gap	$	12,259,479	$	16,429,737	$	23,908,768	$	15,157,595

(1) Securities based on amortized cost.

(2) Loans and leases include loans held for sale and are net of unearned income.

(3) Projected runoff of deposits that do not have a contractual maturity date was computed based on internal decay rate studies.

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 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 it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap.

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

The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next 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

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prepayment speeds on mortgage-related assets, cash flows and maturities of derivative financial instruments, changes in market conditions, loan volumes and pricing, deposit sensitivity, customer preferences, and capital plans. The resulting change in net interest income reflects the level of sensitivity that net interest income has in relation to changing interest rates.

Table 19

Interest Sensitivity Simulation Analysis

			Annualized Hypothetical Percentage Change in Net Interest Income
Interest Rate Scenario
Linear Change in Prime Rate	Prime Rate
	December 31,		December 31,
	2004	2003	2004	2003
3.00%	8.25%	7.00%	2.59%	(1.37)%
1.50	6.75	5.50	2.07	(1.10)
No Change	5.25	4.00	—	—
(1.00)	NA	3.00	NA	(1.17)
(1.50)	3.75	NA	(2.73)	NA
(2.25)	3.00	NA	(3.92)	NA

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

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

Liquidity

Liquidity represents BB&T’s continuing ability to meet funding needs, primarily deposit withdrawals, timely repayment of borrowings and other liabilities, and funding of loan commitments. In addition to the level of liquid assets, such as trading securities and securities available for sale, many other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, maintaining borrowing capacity in national money markets, growing core deposits, the repayment of loans and the capability to securitize or package loans for sale.

The purpose of BB&T Corporation (the “Parent Company”) is to serve as the capital financing vehicle for the operating subsidiaries. The assets of the Parent Company consist primarily of cash on deposit with subsidiary banks, equity investments in subsidiaries, advances to subsidiaries, receivables from subsidiaries, and other miscellaneous assets. The principal obligations of the Parent Company are principal and interest on master notes, long-term debt, and redeemable capital securities. The main sources of funds for the Parent Company are dividends and management fees from subsidiaries, repayments of advances to subsidiaries, and proceeds from issuance of long-term debt and master notes. The primary uses of funds by the Parent Company are for the retirement of common stock, investments in subsidiaries, advances to subsidiaries, dividend payments to shareholders, and interest and principal payments due on long-term debt and master notes.

The primary source of funds used for Parent Company cash requirements has been dividends declared from the Subsidiary Banks, which totaled $977.1 million during 2004, and proceeds from the issuance of long-term debt, which totaled $599.7 million in 2004. Funds raised through master note agreements with commercial clients are placed on deposit with bank subsidiaries primarily for their use in meeting short-term funding needs and, to a lesser extent, to support the short-term temporary cash needs of the Parent Company. At December 31, 2004 and 2003, master note balances totaled $910.2 million and $941.1 million, respectively.

During 2003, BB&T filed a shelf registration with the Securities and Exchange Commission to provide for the issuance of up to $2.0 billion of securities, which could include unsecured debt securities, shares of common

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stock, shares of preferred stock, stock purchase contracts, stock purchase units, warrants to purchase debt securities, preferred stock or common stock, or units consisting of a combination of these. During 2003, BB&T issued $1.0 billion of subordinated notes under this registration. On October 27, 2004, BB&T issued $600.0 million of subordinated notes leaving $400.0 million available for issuance under this universal shelf registration.

The Parent Company had six issues of subordinated notes outstanding totaling $3.4 billion at December 31, 2004, and had five issues of subordinated notes outstanding which totaled $2.8 billion at December 31, 2003. Please refer to Note 10 “Long-Term Debt” in the “Notes to Consolidated Financial Statements” for additional information with respect to these subordinated notes.

BB&T’s Subsidiary Banks have several major sources of funding to meet their liquidity requirements, including access to capital markets through issuance of senior or subordinated bank notes and institutional certificates of deposit, access to the FHLB system, dealer repurchase agreements and repurchase agreements with commercial clients, participation in the Treasury, Tax and Loan and Special Direct Investment programs with the Federal Reserve, access to the overnight and term Federal funds markets, use of a Cayman branch facility, access to retail brokered certificates of deposit and a borrower in custody program with the Federal Reserve for the discount window.

Management believes current sources of liquidity are adequate to meet BB&T’s current requirements and plans for continued growth. See Note 6 “Premises and Equipment,” Note 10 “Long-Term Debt” and Note 14 “Commitments and Contingencies” in the “Notes to Consolidated Financial Statements” for additional information regarding outstanding balances of sources of liquidity and contractual commitments and obligations.

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

The following table presents, as of December 31, 2004, BB&T’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent those amounts contractually due to the recipient. Further discussion of the nature of each obligation is included in Note 14 “Commitments and Contingencies” in the “Notes to Consolidated Financial Statements.”

Table 20

Contractual Obligations and Other Commitments

December 31, 2004

	Total		Less than One Year		1 to 3 Years		3 to 5 Years		After 5 Years
	(Dollars in thousands)
Contractual Cash Obligations
Long-term debt	$	11,417,658	$	150,462	$	2,612,955	$	29,292	$	8,624,949
Capital lease obligations (1)		3,540		325		611		536		2,068
Operating leases		627,110		100,782		157,160		112,019		257,149
Commitments to fund affordable housing investments		215,244		103,700		89,541		21,909		94
Time deposits		27,535,078		18,795,313		2,763,341		2,664,819		3,311,605
Total contractual cash obligations	$	39,798,630	$	19,150,582	$	5,623,608	$	2,828,575	$	12,195,865

(1) Including interest.

BB&T’s significant commitments include certain investments in affordable housing and historic building rehabilitation projects throughout its market area. BB&T enters into such arrangements as a means of supporting local communities and recognizes tax credits relating to its investments. At December 31, 2004, BB&T’s investments in such projects totaled $257.7 million, which includes outstanding commitments of $215.2 million. BB&T typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships. BB&T’s Subsidiary Banks typically provide financing during

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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 risk exposure relating to such commitments is generally limited to the amount of investments and commitments made.

In addition, BB&T enters into derivative contracts to manage various financial risks. 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. Derivative contracts are carried at fair value on the Consolidated Balance Sheets with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. Derivative contracts are written in amounts referred to as notional amounts, which only provide the basis for calculating payments between counterparties and are not a measure of financial risk. Therefore, the derivative liabilities recorded on the balance sheet as of December 31, 2004, do not represent the amounts that may ultimately be paid under these contracts. Further discussion of derivative instruments is included in Note 1 “Summary of Significant Accounting Policies” and Note 18 “Derivative Financial Instruments” in the “Notes to Consolidated Financial Statements.”

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

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

In the normal course of business, BB&T is also a party to financial instruments to meet the financing needs of clients and to mitigate exposure to interest rate risk. Such financial instruments include commitments to extend credit and certain contractual agreements, including standby letters of credit and financial guarantee arrangements. Further discussion of these commitments is included in Note 14 “Commitments and Contingencies” in the “Notes to Consolidated Financial Statements.”

BB&T contracts with an independent third party for the disbursement of official checks. Under the terms of the agreement, BB&T acts as an agent for the third party in the issuance of official checks. Funds received from the buyers of official checks are transferred to the third party issuer to cover the checks when they are ultimately presented for payment. But for this arrangement with the third party, these funds would have remained at BB&T in the form of noninterest-bearing deposits. The official check program is contractually arranged to substantially limit BB&T’s exposure to loss, as the third party is required to invest the funds received and maintain a 1:1 relationship between outstanding checks and the balances available to cover the checks. BB&T monitors this relationship through a reconciliation process. The third party has provided a letter of credit from another bank in favor of BB&T and has access to a revolving line of credit to further mitigate any risk that there would be inadequate funds to cover the outstanding balance of official checks sold. However, in the event that the third party failed to honor official checks BB&T had sold as its agent, it is likely that BB&T would choose to reimburse the purchasers, though not contractually obligated to do so. At December 31, 2004, the third party issuer had outstanding official checks that had been sold by BB&T totaling $516.7 million.

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BB&T’s significant commitments and obligations are summarized in the accompanying table. Not all of the commitments presented in the table will be utilized; thus the actual cash requirements are likely to be significantly less than the amounts reported.

Table 21

Summary of Significant Lending Commitments

December 31, 2004

(Dollars in thousands)

Lines of credit	$	10,841,533
Commercial letters of credit		31,515
Standby letters of credit		2,030,503
Other commitments (1)		14,057,903
Total other commitments	$	26,961,454

(1) Other commitments include unfunded business loan commitments, unfunded overdraft protection on demand deposit accounts and other unfunded commitments to lend.

Related Party Transactions

The Corporation may extend credit to certain officers and directors in the ordinary course of business. These loans are made under substantially the same terms as comparable third-party lending arrangements and are in compliance with applicable banking regulations.

Capital

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

The capital of the subsidiaries is regularly monitored to determine if the levels that management believes are the most beneficial and efficient for their operations are maintained. Management intends to maintain capital at BB&T’s Subsidiary Banks at levels that will result in the banks being classified as “well-capitalized” for regulatory purposes. Further, it is management’s policy to maintain capital levels at the Subsidiary Banks that result in regulatory risk-based capital ratios that target a Tier 1 leverage ratio of 7.0%. If the capital levels of the banking subsidiaries increase above these guidelines, excess capital may be transferred to the Parent Company, subject to regulatory and other operating considerations, in the form of special dividend payments.

As is the case with the Subsidiary Banks, management also regularly monitors the capital position of BB&T on a consolidated basis. In this regard, management’s policy is to maintain capital at levels that will result in BB&T being classified as “well-capitalized” for regulatory purposes. Further, it is management’s intention to maintain consolidated capital levels that result in regulatory risk-based capital ratios that are in line with peers and to maintain a Tier 1 leverage ratio in the range of 7.0% to 8.0%. Payments of cash dividends to BB&T’s shareholders, which have generally been in the range of 40.0% to 50.0% of earnings over the last six years, and repurchases of common shares are the methods used to manage any excess capital generated. In addition, management closely monitors the Parent Company’s double leverage ratio (investments in subsidiaries as a percentage of stockholders’ equity) with the intention of maintaining the ratio below 125.0%. The active management of the subsidiaries’ equity capital, as described above, is the process utilized to manage this important driver of Parent Company liquidity and is a key element in the management of BB&T’s capital position.

Shareholders’ Equity

Shareholders’ equity totaled $10.9 billion at December 31, 2004, an increase of $939.7 million, or 9.5%, from year-end 2003. During 2004, BB&T issued 19.7 million shares in connection with business combinations, the

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exercise of stock options and other stock-based incentive plans, which increased shareholders’ equity by $696.0 million. Additionally, growth of $802.4 million in shareholders’ equity resulted from BB&T’s earnings retained after dividends to shareholders. This growth was partially offset by a $133.1 million decrease in accumulated other comprehensive income primarily related to available for sale securities, net of deferred income taxes, and by the repurchase of 11.3 million shares of common stock at a cost of $441.4 million.

Capital Adequacy and Resources

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

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

BB&T’s Tier 2 and total regulatory capital have included subordinated notes outstanding under BB&T’s Indenture Regarding Subordinated Securities (“Subordinated Indenture”), dated as of May 24, 1996. In December 2003, BB&T determined that this Indenture included certain provisions that did not comply with the Federal Reserve’s Tier 2 capital guidelines. BB&T was instructed by the Federal Reserve staff to exclude approximately $1.4 billion of such notes from its calculation of Tier 2 capital and total regulatory capital for purposes of BB&T’s Federal Reserve filings beginning December 31, 2003. The exclusion of these notes from BB&T’s regulatory capital did not affect the rights of the note holders in any way and BB&T remains in full compliance with the terms of all notes outstanding under the Subordinated Indenture. On December 23, 2003, BB&T amended the Subordinated Indenture in a manner that made the provisions referred to above inapplicable to subordinated debt issued after the date of the amendment. On October 27, 2004, BB&T issued an additional $600 million of subordinated notes under the amended Subordinated Indenture.

During the third quarter of 2004, BB&T solicited and received the consent of the majority of holders of two outstanding issues of subordinated debt totaling $1.1 billion to amend the terms of the notes and certain provisions of the Subordinated Indenture under which the notes were issued that prevented the notes from qualifying as Tier 2 capital. On September 24, 2004, BB&T amended the Subordinated Indenture and the terms of the notes to permit BB&T to include the notes in its calculation of Tier 2 capital and total regulatory capital for purposes of Federal Reserve filings. This resulted in the total risk-based capital ratio increasing to 14.5% at December 31, 2004 compared to 12.5% at December 31, 2003. As of December 31, 2004, BB&T’s consolidated Tier 2 capital included approximately $3.0 billion of subordinated debt issued by BB&T and Branch Bank.

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In addition to the risk-based capital measures described above, regulators have also established minimum leverage capital requirements for banking organizations. This is the primary measure of capital adequacy used by management and is calculated by dividing period-end Tier 1 capital by average tangible assets for the most recent quarter. The minimum required Tier 1 leverage ratio ranges from 3% to 5% depending upon Federal bank regulatory agency evaluations of an organization’s overall safety and soundness. BB&T’s regulatory capital and ratios are set forth in the following table.

Table 22

Capital—Components and Ratios

	December 31,
	2004			2003
	(Dollars in thousands)
Tier 1 capital	$	6,687,082		$	6,166,160
Tier 2 capital		3,884,044			2,045,514
Total regulatory capital	$	10,571,126		$	8,211,674
Risk-based capital ratios:
Tier 1 capital		9.2	%		9.4	%
Total regulatory capital		14.5			12.5
Tier 1 leverage ratio		7.1			7.2

Common Stock and Dividends

BB&T’s ability to pay dividends is primarily dependent on earnings from operations, the adequacy of capital and the availability of liquid assets for distribution. BB&T’s ability to generate liquid assets for distribution is dependent on the ability of the Subsidiary Banks to pay dividends to the Parent Company. The payment of cash dividends is an integral part of providing a competitive return on shareholders’ investments. The Corporation’s policy is to accomplish this while retaining sufficient capital to support future growth and to meet regulatory requirements. BB&T’s common dividend payout ratio, computed by dividing dividends paid per common share by basic earnings per common share, was 47.52% in 2004 as compared to 58.37% in 2003. BB&T’s annual cash dividends paid per common share increased 9.8% during 2004 to $1.34 per common share for the year, as compared to $1.22 per common share in 2003. This increase marked the 33rd consecutive year that the Corporation’s annual cash dividend paid to shareholders has been increased. A discussion of dividend restrictions is included in Note 15 “Regulatory Requirements and Other Restrictions” in the “Notes to Consolidated Financial Statements” and in the “Regulatory Considerations” section.

BB&T’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “BBT”. BB&T’s common stock was held by approximately 255,000 total shareholders at December 31, 2004 compared to approximately 261,000 at December 31, 2003. The accompanying table, “Quarterly Summary of Market Prices and Dividends Paid on Common Stock,” sets forth the quarterly high and low trading prices and closing sales prices for BB&T’s common stock and the dividends paid per share of common stock for each of the last eight quarters.

Table 23

Quarterly Summary of Market Prices and Cash Dividends Paid on Common Stock

	2004								2003
	Sales Prices						Cash Dividends Paid		Sales Prices						Cash Dividends Paid
	High		Low		Last				High		Low		Last
Quarter Ended:
March 31	$	38.80	$	34.48	$	35.30	$	.32	$	38.80	$	30.66	$	31.43	$	.29
June 30		37.91		33.02		36.97		.32		35.93		31.42		34.30		.29
September 30		40.46		36.38		39.69		.35		38.19		33.72		35.91		.32
December 31		43.25		38.67		42.05		.35		39.69		35.98		38.64		.32
Year	$	43.25	$	33.02	$	42.05	$	1.34	$	39.69	$	30.66	$	38.64	$	1.22

Share Repurchases

BB&T has periodically repurchased shares of its own common stock. During the years ended December 31, 2004, 2003 and 2002, BB&T repurchased 11.3 million shares, 21.5 million shares and 21.8 million shares of common

53

stock, respectively. In accordance with North Carolina law, repurchased shares cannot be held as treasury stock, but revert to the status of authorized and unissued.

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

The following table presents the common stock repurchases made by BB&T during the fourth quarter of 2004 and the remaining shares that may be repurchased under the August 26, 2003 Board authorization:

Share Repurchase Activity

	2004
	Total Shares Repurchased (1)	Average Price Paid Per Share (2)		Total Shares Purchased Pursuant to Publicly-Announced Plan	Maximum Remaining Number of Shares Available for Repurchase Pursuant to Publicly-Announced Plan
October 1-31	558,933	$	39.72	557,900	38,613,900
November 1-30	1,026,332		42.42	1,018,900	37,595,000
December 1-31	2,157,727		42.34	2,148,100	35,446,900
Total	3,742,992	$	41.97	3,724,900	35,446,900

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

(2) Excludes commissions.

Segment Results

BB&T’s operations are divided into seven reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Insurance Services, Investment Banking and Brokerage, Specialized Lending, and Treasury. These operating segments have been identified based primarily on BB&T’s organizational structure. See Note 20 “Operating Segments,” in the “Notes to Consolidated Financial Statements” herein, for additional disclosures related to BB&T’s operating segments, the internal accounting and reporting practices utilized to manage these segments and financial disclosures for these segments. Fluctuations in noninterest income from external customers and noninterest expense incurred directly by the segments are more fully discussed in the “Noninterest Income” and “Noninterest Expense” sections of this discussion and analysis. Merger-related expenses in 2004, 2003 and 2002 and the loss on early extinguishment of debt incurred in 2003 are retained in the corporate office and are excluded from segment results as presented herein.

Banking Network

The Banking Network experienced faster growth in 2004 compared to 2003, with strong internal loan and deposit growth and contributions from the acquisition of Republic. The total Banking Network was composed of 1,413 banking offices at the end of 2004, up from 1,359 banking offices at December 31, 2003. Net interest income for the Banking Network totaled $3.1 billion, an increase of $677.0 million, or 28.0%, compared to 2003. Net interest income for 2003 amounted to $2.4 billion, an increase of $267.1 million, or 12.4%, compared to 2002. The increase in net interest income in 2004 is composed of a 23.4% increase in net interest income from external customers and a 38.5% increase in the net credit generated by the internal funds transfer pricing (“FTP”) system. The increase in net intersegment interest income reflects additional FTP credits allocated to the segment because of deposit and loan balances acquired from Republic and stronger internal growth. The increase in net interest income from external customers was also due to the acquisition of Republic and growth in commercial and consumer loans.

The provision for loan and lease losses increased $21.2 million, or 9.4%, from 2003 to 2004. The increase was primarily due to added provisions as a result of Republic and loan growth. The 2003 provision reflected a smaller increase of $9.7 million, or 4.5%, compared to 2002.

Noninterest income produced from external customers in the Banking Network increased $115.4 million, or 16.4% during 2004, due primarily to growth in service charges on deposits and other nondeposit fees and

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commissions. Noninterest income allocated from other segments decreased $83.9 million, or 18.6% due to lower intersegment revenue related to mortgage banking income, which was down significantly compared to 2003. Comparing 2003 to 2002, noninterest income from external customers increased $117.4 million, or 20.0%, and intersegment noninterest income increased $105.5 million, or 30.5%. Noninterest expenses incurred within the Banking Network were flat, increasing less than 1% in 2004 compared with 2003 because of the integration of past acquisitions and resulting cost savings, while noninterest expenses allocated to the Banking Network increased $54.1 million, or 10.9%, which resulted from growth within the segment and the acquisition of Republic. Comparing 2003 to 2002, noninterest expense increased $195.5 million, or 18.3%, and noninterest expenses allocated to the Banking Network decreased $82.9 million, or 14.3%. The decrease in allocated expenses in 2003 resulted from a refinement in the allocation methodologies during 2003 to allocated expenses based on loan and deposit volumes and total segment assets or full-time equivalent employees assigned to the segment, as applicable.

The provision for income taxes allocated to the Banking Network increased $247.8 million, or 51.2%, because of a 39.6% increase in pretax income, as well as an increase in the effective tax rate compared to 2003. The 2003 provision for income taxes increased $141.3 million, or 41.2%, compared to 2002, also due to increases in pretax income and the effective tax rate.

Total identifiable assets for the Banking Network increased $4.6 billion, or 9.6%, to a total of $52.0 billion, compared to 2003, which reflected an increase of $7.5 billion, or 18.8%, compared to 2002. These increases were largely due to acquisitions completed during the past two years.

Mortgage Banking

Mortgage interest rates increased during the first half of 2004, slowing originations and refinance activity. BB&T’s mortgage originations totaled $10.0 billion in 2004, essentially half the 2003 mortgage origination volume. BB&T’s residential mortgage servicing portfolio totaled $37.8 billion at year-end 2004 compared to $36.6 billion at December 31, 2003.

Net interest income for the Mortgage Banking segment totaled $332.3 million, down $51.3 million, or 13.4%, compared to 2003 primarily as a result of higher funding costs associated with higher rates and the flattening of the yield curve in the second half of 2004. Net interest income for 2003 reflected an increase of $74.5 million, or 24.1%, compared with 2002. These fluctuations reflect the favorable rate environment in 2003 that produced record origination volume and strong warehouse balances compared to higher rates in 2004 that reduced the Mortgage Banking segment’s profitability.

The provision for loan and lease losses increased $1.9 million from 2003 to 2004. This increase resulted primarily from BB&T’s decision to retain, rather than sell, an additional $3.6 billion of mortgage loans during 2003 and 2004 and, in so doing, BB&T recorded additional provisions for loan losses related to these retained mortgage loans. The provision for loan and lease losses increased $3.6 million from 2002 to 2003 because the mortgage retention strategy began mid-year 2003.

Noninterest income produced from external customers of the Mortgage Banking segment decreased $45.2 million, or 27.7% compared to 2003 due to a substantial decrease in residential mortgage production revenues. From 2002 to 2003, noninterest income from external customers increased $118.4 million, or 263.4%, because production and servicing revenues were increasing due to high origination volume in 2003. Noninterest expenses incurred within the Mortgage Banking segment decreased $9.3 million, or 16.6%, primarily as a result of lower mortgage-related incentive compensation costs compared to 2003, while noninterest expenses allocated to Mortgage Banking increased $7.7 million, or 65.7%. Comparing 2003 to 2002, noninterest expenses incurred by the Mortgage Banking segment increased $8.2 million, or 17.2% due to higher mortgage loan incentive compensation, while intersegment noninterest expenses decreased $17.9 million, or 60.5%. The decrease in expenses allocated to the Mortgage Banking segment during 2003 was due to the refinement of BB&T’s expense allocation methodologies as discussed above.

The provision for income taxes allocated to the Mortgage Banking segment decreased $21.9 million, or 15.0%, due to lower pretax income compared to 2003. For 2003, the provision for income taxes increased $68.7 million, or 89.2%, compared to 2002, due to substantial growth in pretax income.

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Total identifiable assets for the Mortgage Banking segment increased $213.5 million, or 1.7%, from 2003 to 2004, and $1.5 billion, or 14.4%, from 2002 to 2003, reflecting the record mortgage origination volumes and retention during the last two years, as previously discussed.

Trust Services

Net interest income for the Trust Services segment totaled $6.1 million, a decrease of $17.0 million, or 73.7%, compared to 2003. This decrease is composed of an 80.4% decrease in net interest expense paid to external customers combined with a 76.1% decrease in the net credit for funds as calculated by BB&T’s internal FTP system. Net interest income in 2003, which totaled $23.0 million, was $4.4 million, or 16.2% less than the income recorded in 2002. These changes were caused by the declining interest rate environment and the level of funds on deposit generated by trust activities during the past two years.

Noninterest income from external customers totaled $130.3 million, an increase of $14.3 million, or 12.3% during 2004. Noninterest income from external customers amounted to $116.0 million in 2003, an increase of $18.1 million, or 18.5%, compared to 2002. The revenue increase in 2004 was primarily due to recent acquisitions and increases in mutual fund and estate management revenues. Noninterest expenses incurred by Trust Services increased $9.3 million, or 10.3%, while noninterest expenses allocated to Trust Services increased $1.0 million. For 2003, noninterest expense incurred by Trust Services increased $10.9 million, or 13.6%, while expenses allocated to the Trust Services segment were essentially unchanged from 2002.

The provision for income taxes allocated to Trust Services decreased $3.1 million, or 25.5%, due to lower pretax income compared to 2003. Comparing 2003 and 2002, the provision for income taxes increased $1.8 million, or 17.0%, due to higher pretax income and a higher effective tax rate compared to 2002. Total identifiable segment assets for Trust Services increased 25.3% to a total of $104.8 million at December 31, 2004, compared to 2003, and increased 6.3% from 2002 to 2003, primarily due to acquisitions of financial institutions.

Insurance Services

Noninterest income produced from external customers by the Insurance Services segment totaled $603.4 million during 2004, an increase of $230.4 million, or 61.8%, compared to 2003. During 2003, noninterest income from external customers amounted to $373.0 million, an increase of $84.3 million, or 29.2%, compared to 2002. Internal growth combined with the expansion of BB&T’s insurance agency network and insurance brokerage operations through acquisitions during the last two years were responsible for this strong growth. For 2004, noninterest expenses incurred within the Insurance Services segment increased $186.9 million, or 65.1% from 2003, while noninterest expenses allocated to the segment in 2004 increased $4.2 million, or 28.1%. For 2003, noninterest expenses incurred within Insurance Services increased $65.9 million, or 29.8% from 2002, while allocated corporate expenses decreased $8.8 million from 2002. The overall increase in noninterest expenses within the Insurance Services segment principally resulted from the continued expansion of the BB&T insurance agency network and resulting additional allocated expenses.

The provision for income taxes allocated to Insurance Services increased $17.1 million, or 60.7% in 2004 compared to 2003 and $10.0 million, or 54.9% in 2003 compared to 2002, consistent with the growth in pretax income during the past two years. Total identifiable segment assets for Insurance Services increased 92.4% to a total of $1.8 billion in 2004 primarily due to the acquisition of insurance agencies, the largest of which was the acquisition of McGriff. During 2003, total identifiable segment assets increased 29.4%, also due to insurance agency acquisitions.

Specialized Lending

BB&T’s Specialized Lending segment continued to expand during 2004 compared to 2003 and 2002. Net interest income from external customers totaled $278.2 million, up $53.5 million, or 23.8%, compared to 2003. Net interest income from external customers in 2003 amounted to $224.7 million, an increase of $38.8 million, or 20.9%, compared with 2002. These increases were caused by broader diversification among the specialty finance alternatives offered to clients by the business units comprising the Specialized Lending segment. Also, loans in Specialized Lending produce higher yields than the overall portfolio, creating these increases in net interest income. In addition, interest-earning assets have grown more rapidly in this segment than in the Banking Network, with average loans growing 19.7% in 2004 compared to 2003.

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The provision for loan and lease losses totaled $91.9 million in 2004, an increase of $4.2 million, or 4.8%, compared to 2003. The provision for loan and lease losses amounted to $87.7 million for 2003, an increase of $24.8 million, or 39.4%, compared to 2002. Due to the generally higher credit risk profiles of the clients of Specialized Lending, loss rates are expected to be higher than conventional bank lending. Loss rates are also affected by shifts in the portfolio mix of the underlying subsidiaries. The growth in this segment has required additional provisions for loan and leases losses.

Noninterest income produced from external customers totaled $53.4 million in 2004, a decrease of $1.3 million, or 2.3% compared to 2003, which reflected a decrease of $3.4 million, or 5.8%, compared to 2002. The 2004 decrease was primarily due to changes in the mix of product offerings and associated fees. For 2004, noninterest expenses incurred within the Specialized Lending segment increased $16.3 million, or 14.0% compared to 2003, while allocated corporate expenses increased $6.0 million, or 64.3% from 2003 to 2004. Comparing 2003 and 2002, noninterest expenses incurred within the Specialized Lending segment increased $8.3 million, or 7.7%, and allocated corporate expenses decreased $3.4 million. The increases in noninterest expenses incurred within the Specialized Lending segment primarily resulted from increased performance incentive compensation and personnel expenses.

The provision for income taxes allocated to the Specialized Lending segment increased $6.3 million, or 31.1%, consistent with higher pretax income in 2004. For 2003, the provision for income taxes decreased $1.1 million, or 5.1%, compared to 2002 due to a decrease in the effective tax rate.

Total identifiable assets for the Specialized Lending segment increased $506.4 million, or 24.3%, from 2003 to 2004, and $301.8 million, or 17.0%, from 2002 to 2003, due to internal growth and branch expansion during the last two years.

Investment Banking and Brokerage

Net interest income for the Investment Banking and Brokerage segment totaled $7.8 million, an increase of $1.0 million compared to 2003. Net interest income in 2003 amounted to $6.7 million, a decrease of 9.7% compared to 2002. Fluctuations in net interest income in this segment are largely due to fluctuations in interest rates and the performance of the market. Noninterest income produced from external customers during 2004 totaled $274.9 million, an increase of $22.1 million, or 8.7% compared to 2003. For 2003, noninterest income from external customers amounted to $252.9 million, an increase of $37.1 million, or 17.2% compared to 2002. These increases resulted from higher fixed income securities underwriting fees, retail brokerage fees and investment banking income in both years. Noninterest expenses incurred within the Investment Banking and Brokerage segment totaled $238.5 million in 2004, an increase of $22.6 million, primarily as a result of higher incentive compensation, while allocated corporate expenses increased $5.0 million. Comparing 2003 and 2002, noninterest expenses incurred by the Investment Banking and Brokerage segment increased $24.3 million, and allocated corporate expenses decreased $5.8 million.

The provision for income taxes allocated to the Investment Banking and Brokerage segment decreased $1.7 million during 2004 compared to 2003, which in turn was $6.9 million higher than 2002. These fluctuations were consistent with the fluctuations in pretax income in both 2004 and 2003. Total identifiable assets for the Investment Banking and Brokerage segment decreased to a total of $885.3 million at December 31, 2004, compared to 2003. For 2003, total identifiable segment assets decreased $35.3 million.

Treasury

Net interest income for the Treasury segment totaled $155.5 million in 2004, a decrease of $111.6 million, or 41.8%, compared to 2003. For 2003, net interest income amounted to $267.1 million, a decrease of $513.5 million, or 65.8% compared with 2002. These fluctuations were principally due to fluctuations in interest rates and the returns in the investment portfolios held by the Treasury segment. Noninterest income produced from external customers decreased $139.5 million during 2004, and, for 2003, noninterest income from external customers decreased $35.7 million. These decreases were primarily due to substantial decreases in gains on sales of securities in both years. Noninterest expenses incurred within the Treasury segment decreased $.5 million, or 8.0%, while allocated corporate expenses also decreased $.5 million. For 2003, noninterest expenses within the Treasury segment increased $1.1 million, and allocated corporate expenses decreased $.7 million.

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The provision for income taxes allocated to the Treasury segment decreased $68.3 million due to a similar decrease in pretax income. In 2003, the provision for income taxes decreased $161.5 million, due to a decrease in pretax income. Total identifiable assets for the Treasury segment decreased $1.8 billion, or 8.7% during 2004 to a total of $18.5 billion. For 2003, total identifiable segment assets for the Treasury segment increased $3.8 billion or 23.4%.

Fourth Quarter Results

Net income for the fourth quarter of 2004 was $416.9 million, compared to $305.0 million for the comparable period of 2003. On a per share basis, diluted net income for the fourth quarter of 2004 was $.75 compared to $.55 for the same period a year ago. Annualized returns on average assets and average shareholders’ equity were 1.68% and 15.21%, respectively, for the fourth quarter of 2004, compared to 1.34% and 11.98%, respectively, for the fourth quarter of 2003.

Net interest income amounted to $846.0 million for the fourth quarter of 2004, a decrease of 3.9% compared to $879.9 million for the same period of 2003. Noninterest income totaled $548.2 million for the fourth quarter of 2004, up 17.4% from $466.9 million earned during the fourth quarter of 2003. BB&T’s noninterest expense for the fourth quarter of 2004 totaled $710.8 million, down 2.7% from the $730.4 million recorded in the fourth quarter of 2003.

The fourth quarter 2004 provision for credit losses increased 12.2% to $65.2 million, compared to $58.1 million for the fourth quarter of 2003. The fluctuation in the quarterly provision is a reflection of actual credit losses experienced during each quarter as well as management’s judgment as to the adequacy of the allowance for loan and lease losses and reserve for unfunded lending commitments at the end of each quarter.

The fourth quarter 2004 provision for income taxes totaled $201.3 million compared to $253.3 million for the same period of 2003, a decrease of 20.5%. The provision for income taxes for the fourth quarter of 2003 included an adjustment related to deferred income taxes, which is discussed in the “Provision for Income Taxes” section herein.

The accompanying table, “Quarterly Financial Summary—Unaudited,” presents condensed information relating to quarterly periods in the years ended December 31, 2004 and 2003.

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Table 24

Quarterly Financial Summary—Unaudited

	2004									2003
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter			Fourth Quarter			Third Quarter			Second Quarter		First Quarter
	(Dollars in thousands, except per share data)
Consolidated Summary of Operations:
Net interest income	$	846,041	$	855,656	$	839,703	$	806,823		$	879,949		$	806,458		$	703,420	$	692,178
Provision for credit losses		65,153		57,165		63,533		63,418			58,088			64,997			61,500		63,000
Securities (losses) gains, net		52		6,590		2		(511	)		(7,529	)		(9,994	)		109,500		34,234
Other noninterest income		548,127		526,239		562,774		475,998			474,388			504,608			332,165		389,967
Noninterest expense		710,839		710,408		740,239		734,377			730,392			1,099,480			631,489		583,368
Provision for income taxes		201,344		208,027		198,601		156,015			253,301			20,704			135,859		142,263
Net income	$	416,884	$	412,885	$	400,106	$	328,500		$	305,027		$	115,891		$	316,237	$	327,748
Basic earnings per share	$	.76	$	.75	$	.72	$	.60		$	.56		$	.21		$	.67	$	.70
Diluted earnings per share	$	.75	$	.74	$	.72	$	.60		$	.55		$	.21		$	.67	$	.69
Selected Average Balances:
Assets	$	98,541,446	$	97,129,491	$	97,286,405	$	92,112,359		$	90,116,726		$	90,845,816		$	81,012,962	$	79,154,304
Securities, at amortized cost		18,880,095		18,416,752		18,378,505		17,188,281			16,937,451			17,423,216			17,432,923		16,428,321
Loans and leases (1)		67,444,813		66,878,307		66,863,486		63,220,144			61,691,059			61,519,643			54,380,475		53,709,137
Total earning assets		86,985,622		85,864,315		85,796,286		81,106,084			79,219,029			79,576,603			72,328,277		70,589,468
Deposits		66,453,758		65,246,428		65,996,826		61,544,550			61,268,006			61,889,773			52,861,339		51,613,112
Federal funds purchased, securities sold under repurchase agreements and short-term debt		6,053,669		7,029,258		6,682,835		6,597,199			6,006,630			5,763,994			4,744,761		4,019,301
Long-term debt		11,489,627		10,759,965		10,668,414		10,621,546			9,936,570			10,205,592			13,173,214		13,582,346
Total interest-bearing liabilities		71,560,607		71,159,539		71,684,390		68,018,298			66,243,726			66,835,963			62,452,487		61,527,349
Shareholders’ equity		10,907,344		10,648,868		10,608,131		10,218,527			10,099,916			10,215,142			7,745,395		7,477,149

(1) Loans and leases are net of unearned income and include loans held for sale.

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SIX YEAR FINANCIAL SUMMARY AND SELECTED RATIOS

(Dollars in thousands, except per share data)

	As of / For the Years Ended December 31,												Five Year Compound Growth Rate
	2004		2003		2002		2001		2000		1999
Summary of Operations
Interest income	$	4,546,695	$	4,354,792	$	4,434,044	$	4,848,615	$	4,878,409	$	4,233,162	1.4	%
Interest expense		1,198,472		1,272,787		1,686,584		2,414,936		2,563,912		2,038,453	(10.1	)
Net interest income		3,348,223		3,082,005		2,747,460		2,433,679		2,314,497		2,194,709	8.8
Provision for credit losses		249,269		247,585		263,700		224,318		147,187		126,559	14.5
Net interest income after provision credit losses		3,098,954		2,834,420		2,483,760		2,209,361		2,167,310		2,068,150	8.4
Noninterest income		2,119,271		1,827,339		1,541,247		1,293,141		819,060		913,062	18.3
Noninterest expense		2,895,863		3,044,729		2,234,310		2,142,074		1,973,364		1,825,302	9.7
Income before income taxes and cumulative effect of change in accounting principle		2,322,362		1,617,030		1,790,697		1,360,428		1,013,006		1,155,910	15.0
Provision for income taxes		763,987		552,127		497,468		386,790		314,518		377,185	15.2
Income before cumulative effect of change in accounting principle		1,558,375		1,064,903		1,293,229		973,638		698,488		778,725	14.9
Cumulative effect of change in accounting principle		—		—		9,780		—		—		—	NM
Net income	$	1,558,375	$	1,064,903	$	1,303,009	$	973,638	$	698,488	$	778,725	14.9
Per Common Share
Average shares outstanding (000’s):
Basic		551,661		509,851		473,304		453,188		450,789		447,569	4.3
Diluted		556,041		514,082		478,793		459,269		456,214		454,771	4.1
Basic earnings per share
Income before cumulative effect of change in accounting principle	$	2.82	$	2.09	$	2.73	$	2.15	$	1.55	$	1.74	10.1
Cumulative effect of change in accounting principle		—		—		.02		—		—		—	NM
Net income	$	2.82	$	2.09	$	2.75	$	2.15	$	1.55	$	1.74	10.1
Diluted earnings per share
Income before cumulative effect of change in accounting principle	$	2.80	$	2.07	$	2.70	$	2.12	$	1.53	$	1.71	10.4
Cumulative effect of change in accounting principle		—		—		.02		—		—		—	NM
Net income	$	2.80	$	2.07	$	2.72	$	2.12	$	1.53	$	1.71	10.4
Cash dividends paid per share	$	1.34	$	1.22	$	1.10	$	.98	$	.86	$	.75	12.3
Book value per share	$	19.76	$	18.33	$	15.70	$	13.50	$	11.96	$	10.30	13.9

NM= Not meaningful.

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SIX YEAR FINANCIAL SUMMARY AND SELECTED RATIOS—Continued

(Dollars in thousands, except per share data)

	As of / For the Years Ended December 31,																		Five Year Compound Growth Rate
	2004			2003			2002			2001			2000			1999
Average Balances
Securities, at amortized cost	$	18,218,272		$	17,057,880		$	16,939,089		$	15,886,732		$	15,241,243		$	14,820,477		4.2	%
Loans and leases (1)		66,107,479			57,857,069			50,851,417			46,587,780			41,933,641			37,819,870		11.8
Other assets		11,950,243			10,412,779			7,988,527			6,348,517			4,638,531			4,410,712		22.1
Total assets	$	96,275,994		$	85,327,728		$	75,779,033		$	68,823,029		$	61,813,415		$	57,051,059		11.0
Deposits	$	64,816,072		$	56,948,158		$	49,118,108		$	44,241,881		$	41,415,940		$	38,741,240		10.8
Long-term debt		10,886,199			11,710,281			12,134,712			11,030,312			7,705,449			6,207,966		11.9
Other liabilities		9,977,009			7,774,057			7,412,723			7,748,647			7,780,591			7,469,542		6.0
Shareholders’ equity		10,596,714			8,895,232			7,113,490			5,802,189			4,911,435			4,632,311		18.0
Total liabilities and shareholders’ equity	$	96,275,994		$	85,327,728		$	75,779,033		$	68,823,029		$	61,813,415		$	57,051,059		11.0
Period End Balances
Total assets	$	100,508,641		$	90,466,613		$	80,216,816		$	70,869,945		$	66,552,823		$	59,380,433		11.1
Deposits		67,699,337			59,349,785			51,280,016			44,733,275			43,877,319			39,319,012		11.5
Long-term debt		11,419,624			10,807,700			13,587,841			11,721,076			8,646,018			6,222,561		12.9
Shareholders’ equity		10,874,474			9,934,731			7,387,914			6,150,209			5,419,809			4,640,189		18.6
Selected Ratios
Rate of return on:
Average total assets		1.62	%		1.25	%		1.72	%		1.41	%		1.13	%		1.36	%
Average shareholders’ equity		14.71			11.97			18.32			16.78			14.22			16.81
Dividend payout		47.52			58.37			40.00			45.58			55.48			43.10
Average equity to average assets		11.01			10.42			9.39			8.43			7.95			8.12

(1) Loans and leases are net of unearned income and include loans held for sale.

61

CONTROLS AND PROCEDURES

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control – Integrated Framework, management concluded that the internal control over financial reporting was effective as of December 31, 2004.

Management’s assessment of the effectiveness of the internal control structure over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and PricewaterhouseCoopers LLP has issued an attestation report on management’s assessment as stated in their report which is included herein.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the management of the Corporation, under the supervision and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the Corporation’s disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective so as to enable the Corporation to record, process, summarize and report in a timely manner the information that the Corporation is required to disclose in its Exchange Act reports.

Changes in Internal Control over Financial Reporting

There was no change in the Corporation’s internal control over financial reporting that occurred during the fourth quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

62

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of BB&T Corporation:

We have completed an integrated audit of BB&T Corporation’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of BB&T Corporation and it subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing on page 62, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

63

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/    PricewaterhouseCoopers LLP

Greensboro, North Carolina

February 22, 2005

64

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2004 and 2003

(Dollars in thousands, except per share data)

	2004			2003
Assets
Cash and due from banks	$	1,782,323		$	2,217,961
Interest-bearing deposits with banks		1,003,125			271,157
Federal funds sold and securities purchased under resale agreements or similar arrangements		240,387			332,849
Trading securities at fair value		334,256			693,819
Securities available for sale at fair value		18,838,196			15,562,954
Securities held to maturity at amortized cost (fair value: $125 at December 31, 2004 and $60,125 at December 31, 2003)		125			60,122
Loans held for sale		613,476			725,459
Loans and leases, net of unearned income		67,549,125			61,579,927
Allowance for loan and lease losses		(804,932	)		(784,937	)
Loans and leases, net		66,744,193			60,794,990
Premises and equipment, net of accumulated depreciation		1,283,546			1,201,342
Goodwill		4,124,241			3,616,526
Core deposit and other intangible assets		513,539			401,944
Other assets		5,031,234			4,587,490
Total assets	$	100,508,641		$	90,466,613
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing deposits	$	12,246,248		$	11,098,251
Savings and interest checking		4,490,214			4,307,069
Money rate savings		23,427,797			20,348,969
Certificates of deposit and other time deposits		27,535,078			23,595,496
Total deposits		67,699,337			59,349,785
Federal funds purchased and securities sold under repurchase agreements		5,387,243			4,866,960
Short-term borrowed funds		1,300,629			2,467,940
Long-term debt		11,419,624			10,807,700
Accounts payable and other liabilities		3,827,334			3,039,497
Total liabilities		89,634,167			80,531,882
Commitments and contingencies (Notes 6 and 14)
Shareholders’ equity:
Preferred stock, $5 par, 5,000,000 shares authorized, none issued or outstanding at December 31, 2004 or at December 31, 2003		—			—
Common stock, $5 par, 1,000,000,000 shares authorized; 550,406,287 issued and outstanding at December 31, 2004 and 541,942,987 issued and outstanding at December 31, 2003		2,752,032			2,709,715
Additional paid-in capital		3,121,716			2,893,812
Retained earnings		5,112,034			4,309,635
Unvested restricted stock		(107	)		(310	)
Accumulated other comprehensive income (loss), net of deferred income taxes of $(66,662) at December 31, 2004 and $13,010 at December 31, 2003		(111,201	)		21,879
Total shareholders’ equity		10,874,474			9,934,731
Total liabilities and shareholders’ equity	$	100,508,641		$	90,466,613

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

65

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands, except per share data)

	2004		2003		2002
Interest Income
Interest and fees on loans and leases	$	3,851,147	$	3,591,402	$	3,468,386
Interest and dividends on securities:
Taxable interest income		632,779		682,479		850,467
Tax-exempt interest income		32,831		35,930		40,121
Dividends		18,850		37,322		67,222
Interest on short-term investments		11,088		7,659		7,848
Total interest income		4,546,695		4,354,792		4,434,044
Interest Expense
Interest on deposits		729,660		755,677		1,003,058
Interest on federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds		90,117		58,842		95,823
Interest on long-term debt		378,695		458,268		587,703
Total interest expense		1,198,472		1,272,787		1,686,584
Net Interest Income		3,348,223		3,082,005		2,747,460
Provision for credit losses		249,269		247,585		263,700
Net Interest Income After Provision for Credit Losses		3,098,954		2,834,420		2,483,760
Noninterest Income
Service charges on deposits		523,319		437,524		402,476
Mortgage banking income		110,075		109,423		21,601
Trust income		119,479		113,227		94,463
Investment banking and brokerage fees and commissions		264,789		247,394		210,586
Insurance commissions		619,055		395,820		313,436
Bankcard fees and merchant discounts		102,098		83,927		66,848
Other nondeposit fees and commissions		216,498		180,045		141,654
Securities gains (losses), net		6,133		126,211		170,100
Income from bank-owned life insurance		91,883		98,700		88,613
Other income		65,942		35,068		31,470
Total noninterest income		2,119,271		1,827,339		1,541,247
Noninterest Expense
Personnel expense		1,631,757		1,445,540		1,246,699
Occupancy and equipment expense		415,524		371,167		341,072
Amortization of intangibles		106,348		55,650		20,885
Professional services		75,822		70,518		73,496
Merger-related and restructuring charges		5,518		89,775		39,280
Loss on early extinguishment of debt		—		384,898		—
Loan processing expenses		84,253		78,887		64,225
Other expenses		576,641		548,294		448,653
Total noninterest expense		2,895,863		3,044,729		2,234,310
Earnings
Income before income taxes and cumulative effect of change in accounting principle		2,322,362		1,617,030		1,790,697
Provision for income taxes		763,987		552,127		497,468
Income before cumulative effect of change in accounting principle		1,558,375		1,064,903		1,293,229
Cumulative effect of change in accounting principle		—		—		9,780
Net Income	$	1,558,375	$	1,064,903	$	1,303,009
Per Common Share
Basic Earnings:
Income before cumulative effect of change in accounting principle	$	2.82	$	2.09	$	2.73
Cumulative effect of change in accounting principle		—		—		0.02
Net income	$	2.82	$	2.09	$	2.75
Diluted Earnings:
Income before cumulative effect of change in accounting principle	$	2.80	$	2.07	$	2.70
Cumulative effect of change in accounting principle		—		—		0.02
Net income	$	2.80	$	2.07	$	2.72
Cash dividends paid	$	1.34	$	1.22	$	1.10
Average Shares Outstanding
Basic		551,661,326		509,850,763		473,303,770
Diluted		556,041,033		514,082,392		478,792,558

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

66

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands, except per share data)

	Shares of Common Stock		Common Stock			Additional Paid-In Capital			Retained Earnings and Other (1)			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, December 31, 2001	455,682,560		$	2,278,413		$	418,565		$	3,145,832		$	307,399		$	6,150,209
Add (Deduct):
Comprehensive income:
Net income	—			—			—			1,303,009			—			1,303,009
Unrealized holding gains (losses) arising during the period on securities available for sale, net of tax of $56,473	—			—			—			—			144,803			144,803
Less: reclassification adjustment for losses (gains) on securities available for sale included in net income, net of tax of $(66,339)	—			—			—			—			(103,761	)		(103,761	)
Change in unrealized gains (losses) on securities, net of tax	—			—			—			—			41,042			41,042
Change in unrecognized gain (loss) on cash flow hedge, net of tax of $(11,570)	—			—			—			—			(17,732	)		(17,732	)
Total comprehensive income	—			—			—			1,303,009			23,310			1,326,319
Common stock issued:
In purchase acquisitions	33,249,184			166,245			1,006,304			—			—			1,172,549
In connection with stock option exercises and other employee benefits, net of cancellations	3,331,716			16,659			43,419			—			—			60,078
Redemption of common stock	(21,811,200	)		(109,056	)		(691,611	)		—			—			(800,667	)
Cash dividends declared on common stock, $1.13 per share	—			—			—			(539,190	)		—			(539,190	)
Other, net	—			—			16,446			2,170			—			18,616
Balance, December 31, 2002	470,452,260			2,352,261			793,123			3,911,821			330,709			7,387,914
Add (Deduct):
Comprehensive income:
Net income	—			—			—			1,064,903			—			1,064,903
Unrealized holding gains (losses) arising during the period on securities available for sale, net of tax of $(153,933)	—			—			—			—			(238,395	)		(238,395	)
Less: reclassification adjustment for losses (gains) on securities available for sale included in net income, net of tax of $(46,907)	—			—			—			—			(79,304	)		(79,304	)
Change in unrealized gains (losses) on securities, net of tax	—			—			—			—			(317,699	)		(317,699	)
Change in unrecognized gain (loss) on cash flow hedge, net of tax of $5,788	—			—			—			—			8,869			8,869
Total comprehensive income	—			—			—			1,064,903			(308,830	)		756,073
Common stock issued:
In purchase acquisitions	90,208,500			451,043			2,742,748			—			—			3,193,791
In connection with stock option exercises and other employee benefits, net of cancellations	2,773,727			13,869			35,396			—			—			49,265
Redemption of common stock	(21,491,500	)		(107,458	)		(690,453	)		—			—			(797,911	)
Cash dividends declared on common stock, $1.25 per share	—			—			—			(667,588	)		—			(667,588	)
Other, net	—			—			12,998			189			—			13,187
Balance, December 31, 2003	541,942,987			2,709,715			2,893,812			4,309,325			21,879			9,934,731
Add (Deduct):
Comprehensive income:
Net income	—			—			—			1,558,375			—			1,558,375
Unrealized holding gains (losses) arising during the period on securities available for sale, net of tax of $(55,843)	—			—			—			—			(95,173	)		(95,173	)
Less: reclassification adjustment for losses (gains) on securities available for sale included in net income, net of tax of $(2,382)	—			—			—			—			(3,751	)		(3,751	)
Change in unrealized gains (losses) on securities, net of tax	—			—			—			—			(98,924	)		(98,924	)
Change in unrecognized gain (loss) on cash flow hedge, net of tax of $(19,822)	—			—			—			—			(31,137	)		(31,137	)
Change in minimum pension liability, net of tax of $(1,625)	—			—			—			—			(3,019	)		(3,019	)
Total comprehensive income	—			—			—			1,558,375			(133,080	)		1,425,295
Common stock issued:
In purchase acquisitions	16,179,320			80,897			535,332			—			—			616,229
In connection with stock option exercises and other employee benefits, net of cancellations	3,534,380			17,672			62,077			—			—			79,749
Redemption of common stock	(11,250,400	)		(56,252	)		(385,109	)		—			—			(441,361	)
Cash dividends declared on common stock, $1.37 per share	—			—			—			(755,976	)		—			(755,976	)
Other, net	—			—			15,604			203			—			15,807
Balance, December 31, 2004	550,406,287		$	2,752,032		$	3,121,716		$	5,111,927		$	(111,201	)	$	10,874,474

(1) Other includes unvested restricted stock.

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

67

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2004, 2003 and 2002

(Dollars in thousands)

	2004			2003			2002
Cash Flows From Operating Activities:
Net income	$	1,558,375		$	1,064,903		$	1,303,009
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		249,269			247,585			263,700
Depreciation		164,180			151,947			143,960
Amortization and accretion of intangibles		106,348			55,650			11,105
Amortization of purchase accounting mark-to-market adjustments, net		26,450			12,080			—
Amortization of premium on debt restructuring		104,684			43,343			—
Discount accretion and premium amortization on securities, net		53,730			34,540			5,030
Net decrease (increase) in trading account securities		472,977			5,995			(50,813	)
Loss (gain) on sales of securities, net		(6,133	)		(126,211	)		(170,100	)
Loss (gain) on sales of loans held for sale		(66,404	)		(223,048	)		(146,092	)
Loss (gain) on disposals of premises and equipment, net		32			10,134			(6,604	)
Proceeds from sales of loans held for sale		5,389,477			13,323,429			10,965,120
Purchases of loans held for sale		(1,073,114	)		(2,600,955	)		(2,079,875	)
Origination of loans held for sale, net of principal collected		(4,137,976	)		(8,847,178	)		(9,209,444	)
Tax benefit from exercise of stock options		15,604			12,998			16,446
Decrease (increase) in other assets, net		(294,056	)		260,987			(768,441	)
Increase (decrease) in accounts payable and other liabilities, net		475,350			387,530			555,137
Other, net		(1,197	)		5,047			(15,680	)
Net cash provided by operating activities		3,037,596			3,818,776			816,458
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale		2,339,733			12,344,360			3,570,905
Proceeds from maturities, calls and paydowns of securities available for sale		3,983,555			5,415,647			5,347,939
Purchases of securities available for sale		(7,852,052	)		(12,825,159	)		(9,097,256	)
Proceeds from maturities, calls and paydowns of securities held to maturity		60,372			55,410			10
Purchases of securities held to maturity		(375	)		(60,009	)		(15,037	)
Leases made to customers		(239,676	)		(122,994	)		(177,732	)
Principal collected on leases		163,026			137,205			149,148
Loan originations, net of principal collected		(5,267,671	)		(4,133,090	)		(1,354,857	)
Purchases of loans		(224,076	)		(173,193	)		(234,406	)
Net cash acquired (paid) in business combinations		(57,312	)		914,646			827,682
Purchases and originations of mortgage servicing rights		(87,158	)		(207,716	)		(203,376	)
Proceeds from disposals of premises and equipment		26,750			22,499			33,199
Purchases of premises and equipment		(220,218	)		(213,225	)		(183,961	)
Proceeds from sales of foreclosed property or other real estate held for sale		112,720			90,213			59,244
Other, net		—			1,359			—
Net cash provided by (used in) investing activities		(7,262,382	)		1,245,953			(1,278,498	)
Cash Flows From Financing Activities:
Net increase (decrease) in deposits		5,819,603			(1,642,889	)		2,290,333
Net increase (decrease) in federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds		(730,286	)		1,239,643			(1,984,723	)
Proceeds from issuance of long-term debt		3,297,508			4,200,741			2,953,291
Repayments of long-term debt		(2,857,488	)		(7,036,070	)		(1,394,400	)
Net proceeds from common stock issued		79,749			49,182			60,078
Redemption of common stock		(441,361	)		(797,911	)		(800,667	)
Cash dividends paid on common stock		(739,071	)		(628,118	)		(521,878	)
Other, net		—			440			—
Net cash provided by (used in) financing activities		4,428,654			(4,614,982	)		602,034
Net Increase in Cash and Cash Equivalents		203,868			449,747			139,994
Cash and Cash Equivalents at Beginning of Year		2,821,967			2,372,220			2,232,226
Cash and Cash Equivalents at End of Year	$	3,025,835		$	2,821,967		$	2,372,220
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest	$	1,181,645		$	1,332,108		$	1,686,880
Income taxes		345,856			107,318			235,124
Noncash investing and financing activities:
Transfer of securities available for sale to trading securities		—			532,193			—
Transfer of loans to foreclosed property		85,979			88,319			66,634
Transfer of fixed assets to other real estate owned		9,963			45,344			17,780
Transfer of other real estate owned to fixed assets		—			33			242
Securitization of mortgage loans		999,699			—			—
Common stock issued in purchase accounting transactions		616,229			3,193,791			1,172,549

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

68

BB&T CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

NOTE 1.    Summary of Significant Accounting Policies

General

BB&T Corporation (“BB&T”, the “Company” or “Parent Company”) is a financial holding company organized under the laws of North Carolina. Branch Banking and Trust Company (“Branch Bank”); Branch Banking and Trust Company of South Carolina (“BB&T-SC”); Branch Banking and Trust Company of Virginia (“BB&T-VA”), (collectively, the “Banks” or “Subsidiary Banks”), Regional Acceptance Corporation (“Regional Acceptance”), and Scott & Stringfellow, Inc., (“Scott & Stringfellow”) comprise BB&T’s principal direct subsidiaries.

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. The following is a summary of BB&T’s more significant accounting policies.

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 in transactions accounted for as purchases 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.

FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) requires enterprises to evaluate 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, FIN 46R requires the deconsolidation of an entity if the evaluation indicates the requirements for consolidation are not met.

BB&T has variable interests in certain entities including affordable housing partnership interests, historic tax credit partnerships, other partnership interests, and trust-preferred securities, none of which were required to be consolidated.

BB&T generally 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 entities, small business investment companies and other entities. The maximum potential exposure to losses relative to investments in variable interest entities is generally limited to the sum of the outstanding balance, future funding commitments and any related loans to the entity. Loans to these entities are underwritten in substantially the same manner as are other loans and are generally secured.

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

Reclassifications

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

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Nature of Operations

BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations primarily through its Subsidiary Banks, which have branches in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Florida, Alabama, Indiana and Washington, D.C. BB&T’s Subsidiary Banks provide a wide range of banking services to individuals and businesses. BB&T’s Subsidiary Banks offer a variety of loans to businesses and consumers, including mortgage loans. BB&T’s loans are primarily to individuals residing in the market areas described above or to businesses located in this geographic area. BB&T’s Subsidiary Banks also market a wide range of deposit services to individuals and businesses. BB&T’s Subsidiary Banks either directly or through their subsidiaries offer lease financing to businesses and municipal governments; discount brokerage services and 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; arranging permanent financing for commercial real estate and providing loan servicing for third party investors; direct consumer finance loans to individuals; payroll processing; and asset management. The direct nonbank subsidiaries of BB&T provide a variety of financial services including automobile lending, equipment financing, factoring, full-service securities brokerage, and capital markets services.

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.

Business Combinations

BB&T accounts for all business combinations using the purchase method of accounting. Under this method of accounting, the accounts of an acquired entity are included with the acquirer’s accounts as of the date of acquisition with any excess of purchase price over the fair value of the net assets acquired (including identifiable intangibles) capitalized as goodwill. BB&T typically provides an allocation period to identify and determine the fair values of the assets acquired and liabilities assumed in business combinations accounted for as purchases. Management currently does not anticipate material adjustments to the assigned values of the assets and liabilities of acquired companies.

To consummate an acquisition, BB&T typically issues common stock and / or pays cash, depending on the terms of the merger agreement. The value of common shares issued in connection with purchase business combinations is determined based on the market price of the securities issued over a reasonable period of time, not to exceed three days before and three days after the measurement date.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, Federal funds sold and securities purchased under resale agreements or similar arrangements. Cash and cash equivalents have maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value.

Securities

At date of purchase, BB&T classifies investment securities as held to maturity, available for sale or trading. Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to yield using the interest method.

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Debt securities acquired with both the intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost.

Debt securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions, are classified as available for sale. Equity securities classified as available for sale are primarily comprised of stock issued by the Federal Home Loan Bank of Atlanta and carried at cost, which approximates fair value. All other securities available for sale are reported at estimated fair value, with unrealized gains and losses reported as accumulated other comprehensive income or loss, net of deferred income taxes, in the shareholders’ equity section of the Consolidated Balance Sheets. Gains or losses realized from the sale of securities available for sale are determined by specific identification and are included in noninterest income.

BB&T evaluates each held to maturity and available for sale security in a loss position for other than temporary impairment. In its evaluation BB&T considers such factors as the length of time and the extent to which the market value has been below cost, the financial condition of the issuer, and BB&T’s ability and intent to hold the security to an expected recovery in market value. Unrealized losses for other than temporary impairment on debt and equity securities are recognized in current period earnings.

Trading account securities, which include both debt and equity securities, are reported at fair value. Market value adjustments, fees, and gains or losses from trading account activities are included in noninterest income. Interest income on trading account securities is included in interest and dividends from securities. Gains or losses realized from the sale of trading securities are determined by specific identification and are included in noninterest income.

During 2003, BB&T transferred $532.2 million of securities available for sale to the trading portfolio and recognized gross losses totaling $19.1 million upon transfer. The transfer was made pursuant to a change in management’s intent with respect to these securities, including more frequent trading activity as part of an economic risk management strategy related to mortgage servicing rights.

Loans Held for Sale

Loans held for sale, which are composed of mortgage and consumer loans, are reported at the lower of cost or market value on an aggregate loan portfolio basis. Gains or losses realized on the sales of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold including any deferred origination fees and costs, adjusted for any servicing asset or liability retained. Gains and losses on sales of mortgage loans are included in mortgage banking income. Gains or losses on sales of consumer loans are included in other noninterest income.

Loans and Leases

Loans and leases that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized fees and costs on originated loans and unamortized premiums or discounts on purchased loans and any related unrealized gains/losses on derivatives. The net amount of nonrefundable loan origination fees and certain direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the loans using methods which approximate the interest method. Discounts and premiums are amortized or accreted to interest income over the estimated life of the loans using methods that approximate the interest method. Commercial loans and substantially all installment loans accrue interest on the unpaid balance of the loans. Lease receivables consist primarily of direct financing leases on rolling stock, equipment and real property, leases to municipalities and investments in leveraged lease transactions. Lease receivables are stated at the total amount of lease payments receivable plus guaranteed residual values, less unearned income. Leveraged leases

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are carried net of nonrecourse debt. Recognition of income over the lives of the lease contracts approximates the interest method. BB&T classifies loans and leases past due when the payment of principal and interest based upon contractual terms is greater than 30 days delinquent.

Nonperforming Assets

Nonperforming assets include loans and leases on which interest is not being accrued and foreclosed property. Foreclosed property consists of real estate and other assets acquired as a result of customers’ loan defaults. Loans and leases are generally placed on nonaccrual status when concern exists that principal or interest is not fully collectible, or when principal or interest becomes 90 days past due, whichever occurs first. Certain loans past due 90 days or more may remain on accrual status if management determines that concern over the collectibility of principal and interest is not significant. Generally, when loans are placed on nonaccrual status, interest receivable is reversed against interest income in the current period. Interest payments received thereafter are applied as a reduction to the remaining principal balance as long as concern exists as to the ultimate collection of the principal. Loans and leases are removed from nonaccrual status when they become current as to both principal and interest and concern no longer exists as to the collectibility of principal and interest.

Assets acquired as a result of foreclosure are carried at the lower of cost or net realizable value. Net realizable value equals fair value less estimated selling costs. Cost is determined based on the sum of unpaid principal, accrued but unpaid interest if not required to be reversed and acquisition costs associated with the loan. Any excess of cost over net realizable value at the time of foreclosure is charged to the allowance for loan and lease losses. Generally, such properties are valued periodically and if the carrying value is greater than the net realizable value, a valuation reserve is established with a charge to noninterest expense. Routine maintenance costs, declines in market value and net losses on disposal are included in other noninterest expense.

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

The allowance for loan and lease losses and reserve for unfunded lending commitments are management’s best estimate of probable credit losses that are inherent in the loan and lease portfolios and off-balance sheet lending commitments at the balance sheet date. The Company determines the allowance for loan and lease losses and the reserve for unfunded lending commitments based on an ongoing evaluation. This evaluation is inherently subjective because it requires material estimates, including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates are susceptible to significant change. Increases to the allowance for loan and lease losses and the reserve for unfunded lending commitments are made by charges to the provision for credit losses, which is reflected in the Consolidated Statements of Income. Loans or lease balances deemed to be uncollectible are charged off against the allowance for loan and lease losses. Recoveries of amounts previously charged-off are credited to the allowance for loan and lease losses.

The allowance for loan and lease losses is the accumulation of various components that are calculated based on various methodologies. BB&T’s allowance for loan and lease losses consists of (1) a component for individual loan impairment recognized and measured pursuant to SFAS No. 114 and (2) components of collective loan impairment recognized pursuant to SFAS No. 5.

BB&T maintains specific reserves for individually impaired loans pursuant to SFAS No. 114. A loan is impaired when, based on current information and events, it is probable that BB&T will be unable to collect all amounts due (interest as well as principal) according to the contractual terms of the loan agreement. Specific reserves are determined on a loan by loan basis based on management’s best estimate of BB&T’s exposure, given the current payment status of the loan, the present value of expected payments and the value of any underlying collateral.

Management’s estimate of the SFAS No. 5 component of the allowance for loan and lease losses is based on one or more sets of observable data that management believes are most reflective of the underlying credit losses

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being estimated. This evaluation is principally based on historical charge-off experience, but also includes information derived from BB&T’s credit ratings systems; internal observable data related to trends within the loan and lease portfolios, including credit quality, geographic, borrower and industry concentrations, aging of the portfolio, growth and loan portfolios of acquired companies; volatility adjustments to reflect changes in historical net charge-off rates and changes in probabilities of default; external observable data related to industry and general economic trends; and any significant, relevant changes to policies or procedures.

The methodology used to determine the reserve for unfunded lending commitments is inherently similar to that used to determine the SFAS No. 5 component of the allowance for loan and lease losses described above, adjusted for factors specific to binding commitments, including the probability of funding and exposure at default.

While management uses the best information available to establish the allowance for loan and lease losses and the reserve for unfunded lending commitments, future adjustments may be necessary if economic conditions differ substantially from the assumptions used in performing the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Adjustments to original estimates are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates.

Premises and Equipment

Premises, equipment, capital leases and leasehold improvements are stated at cost less accumulated depreciation or amortization. Land is stated at cost. In addition, purchased software and costs of computer software developed for internal use are capitalized provided certain criteria are met. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms, including certain renewals which were deemed probable at lease inception, or the estimated useful lives of the improvements. Capitalized leases are amortized by the same methods as premises and equipment over the estimated useful lives or lease terms, whichever is less. Obligations under capital leases are amortized using the interest method to allocate payments between principal reduction and interest expense.

Securities Sold Under Repurchase Agreements

Securities sold under repurchase agreements have maturities ranging from 1 day to 24 months. Securities sold under agreements to repurchase are reflected at the amount of cash received in connection with the borrowing. The terms of repurchase agreements may require BB&T to provide additional collateral if the fair value of the securities underlying the borrowings declines during the term of the agreement.

Income Taxes

The provision for income taxes is based upon income before taxes for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial reporting purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with the cumulative effects included in the current year’s income tax provision.

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, caps, floors, collars, financial forwards and futures contracts, swaptions, when-issued securities, foreign exchange contracts and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value,

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by reference to an underlying instrument, index or referenced interest rate. BB&T uses derivatives primarily to manage economic risk related to business loans, mortgage servicing rights and mortgage banking operations, Federal funds purchased, other short-term borrowings, long-term debt and certificates of deposit. BB&T also uses derivatives to facilitate transactions on behalf of its clients. The fair value of derivatives in a gain or loss position is included in other assets or liabilities, respectively, in the Consolidated Balance Sheets.

BB&T classifies its derivative financial instruments as either (1) a hedge of an exposure to changes in the fair value of a recorded asset or liability (“fair value hedge”), (2) a hedge of an exposure to changes in the cash flows of a recognized asset, liability or forecasted transaction (“cash flow hedge”), or (3) derivatives not designated as hedges. Changes in the fair value of derivatives not designated as hedges are recognized in current period earnings.

For fair value and cash flow hedges, BB&T documents at inception and over the life of the hedge its analysis of actual and expected hedge effectiveness. This analysis includes comparison of the critical terms of the hedge and hedged item, as well as techniques such as regression analysis, to demonstrate that the hedge has been and is expected to be highly effective in off-setting corresponding changes in the fair value or cash flows of the hedged item. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged. For a qualifying cash flow hedge, the portion of changes in the fair value of the derivatives that have been highly effective are recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. For qualifying cash flow hedges involving interest rate caps, the initial fair value of the premium paid is allocated and recognized in the same future period that the hedged forecasted transaction impacts earnings.

For either fair value hedges or cash flow hedges, net income may be affected to the extent that changes in the value of the derivative instruments do not perfectly offset changes in the value of the hedged items. If the hedge ceases to be highly effective, BB&T discontinues hedge accounting and recognizes the changes in fair value in current period earnings. If a derivative that qualifies as a fair value or cash flow hedge is terminated or the designation removed, the realized or then unrealized gain or loss is recognized into income over the original hedge period (fair value hedge) or period in which the hedged item affects earnings (cash flow hedge). Immediate recognition in earnings is required upon sale or extinguishment of the hedged item (fair value hedge) or if it is probable that the hedged cash flows will not occur (cash flow hedge).

Derivatives used to manage economic risk not designated as hedges primarily relate to mortgage servicing rights and mortgage banking operations, with gains or losses included in mortgage banking income. In connection with its mortgage banking activities, BB&T enters into loan commitments to fund residential mortgage loans at specified rates and for specified periods of time. To the extent that BB&T’s interest rate lock commitments relate to loans that will be held for sale upon funding, they are also accounted for as derivatives, with gains or losses included in mortgage banking income.

Per Share Data

Basic net income per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the years presented. Diluted net income per common share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding. Restricted stock grants are considered as issued for purposes of calculating earnings per share.

Goodwill and Other Intangible Assets

Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as purchases. BB&T allocates goodwill to the business that receives significant benefits from the acquisition. In accordance with provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is not amortized over an estimated useful life, but rather is tested at least annually

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for impairment. BB&T performs its impairment testing in the fourth quarter of each year and more frequently if circumstances exist that indicate a probable reduction in the fair value of the business below its carrying value. BB&T measures impairment using multiple methodologies, which include the present value of estimated future cash flows and comparisons of each business unit’s performance to the values of companies of similar industry and size. The analysis is based upon available information regarding expected future cash flows and discount rates. Discount rates are based upon the cost of capital specific to the industry. If the carrying value of the business exceeds the discounted fair value of the business, a second analysis is performed to measure the fair value of all assets and liabilities. If, based on the second analysis, it is determined that the fair value of the assets and liabilities of the business is less than the carrying value, BB&T would recognize impairment for the excess of carrying value over fair value. The adoption of SFAS No. 142 also resulted in the reversal of $9.8 million of remaining negative goodwill, which was recorded as a cumulative effect of change in accounting principle in the 2002 Consolidated Statement of Income.

Core deposit and other intangible assets include premiums paid for acquisitions of core deposits (core deposit intangibles) and other identifiable intangible assets. Intangible assets other than goodwill, which are determined to have finite lives, are amortized based upon the estimated economic benefits received, primarily on an accelerated basis.

In October 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 147, “Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9,” which addresses the financial accounting and reporting for the acquisition of all or part of a financial institution. SFAS No. 147 removes acquisitions of financial institutions, except for transactions between two or more mutual enterprises, from the scope of both SFAS No. 72 and Interpretation No. 9 and requires that those transactions be accounted for in accordance with SFAS No. 141 and SFAS No. 142. SFAS No. 147 also amends SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to include in its scope long-term customer-relationship and credit cardholder intangible assets, and requires companies to cease amortization of unidentifiable intangible assets associated with certain branch acquisitions. The provisions of this Statement were effective beginning October 1, 2002. The implementation of this Statement resulted in a reversal of $3.7 million of pre-tax goodwill amortization during 2002.

Loan Securitizations

BB&T periodically securitizes mortgage loans and transfers the resulting securities to the securities available for sale portfolio. This is accomplished by exchanging the loans for mortgage-backed securities issued primarily by Freddie Mac. Following the transfers, the securities are reported at estimated fair value based on quoted market prices, with unrealized gains and losses reflected in accumulated other comprehensive income, net of deferred income taxes. Since the transfers are not considered a sale, no gain or loss is recorded in conjunction with these transactions. BB&T also securitizes and sells loans to third party investors. BB&T retains the mortgage servicing on loans sold and loans exchanged for securities, recording assets based on the allocation of the carrying amounts of the assets sold between the assets sold and the servicing rights retained based on the relative fair value of the assets sold and the rights retained. Gains or losses incurred on loans sold to third party investors are included in mortgage banking income on the Consolidated Statements of Income.

Mortgage Servicing Rights

The carrying value of mortgage servicing rights is included as other assets in the Consolidated Balance Sheets. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing revenue. The amortization is adjusted prospectively in response to changes in estimated projections of future cash flows. BB&T periodically assesses mortgage servicing rights for impairment based on the fair value of those rights. Impairment is evaluated by strata, which are based on predominant risk characteristics, such as product, note rate and other terms. To the extent the carrying value of the servicing rights exceeds the fair value by strata, impairment is recognized through a valuation allowance established through a charge to mortgage banking income. The valuation allowance may be adjusted in the future as the value of the mortgage servicing rights increases or

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decreases. Mortgage servicing rights and any related valuation allowance are also periodically evaluated to determine whether any portion of the valuation allowance represents other than temporary impairment. Any reduction of mortgage servicing rights and related valuation allowance pursuant to this evaluation has no impact on the results of operations other than a reduction of future amortization of mortgage servicing rights. Revenues from originating, marketing and servicing mortgage loans as well as valuation adjustments related to capitalized mortgage servicing rights are included in mortgage banking income on the Consolidated Statements of Income.

Stock-Based Compensation

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

	For the Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands, except per share data)
Net income:
Net income as reported	$	1,558,375		$	1,064,903		$	1,303,009
Add: Stock-based compensation expense included in reported net income, net of tax		469			595			1,625
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		(19,178	)		(28,957	)		(31,511	)
Pro forma net income	$	1,539,666		$	1,036,541		$	1,273,123
Basic EPS:
As reported	$	2.82		$	2.09		$	2.75
Pro Forma		2.79			2.03			2.69
Diluted EPS:
As reported		2.80			2.07			2.72
Pro Forma		2.77			2.02			2.66

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2004, 2003 and 2002, respectively:

	For the Years Ended December 31,
	2004			2003			2002
Assumptions:
Risk-free interest rate		3.5	%		3.1	%		4.7	%
Dividend yield		3.0			3.0			3.0
Volatility factor		27.0			27.0			27.0
Expected life		6.0	yrs		6.0	yrs		6.0	yrs
Fair value of options per share	$	8.22		$	7.19		$	9.07

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Changes in Accounting Principles and Effects of New Accounting Pronouncements

In December 2003, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes loans purchased by BB&T or acquired in business combinations. The SOP does not apply to loans originated by BB&T. BB&T adopted the provisions of SOP 03-3 effective January 1, 2005. The initial implementation had no effect on BB&T’s consolidated financial position or consolidated results of operations, but will change the way BB&T accounts for impaired loans acquired in a business combination.

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

In May 2004, the FASB issued FASB Staff Position (“FSP”) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “Act”). This Staff Position provides guidance on the accounting for the effects of the Act for employers that sponsor postretirement health care plans that provide prescription drug benefits. The disclosures required by FSP 106-2 are included in Note 13 of the “Notes to Consolidated Financial Statements.”

In May 2004, the Emerging Issues Task Force (“EITF”) released EITF Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” The Issue provided guidance for evaluating whether an investment is other-than-temporarily impaired and requires certain disclosures with respect to these investments. In September 2004, the FASB issued FSP EITF Issue 03-1-1, “Effective Date of Paragraphs 10-20 of EITF Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” This Staff Position delayed certain measurement and recognition provisions of EITF 03-1. The disclosures required by EITF Issue 03-1 are included in Note 3 of the “Notes to Consolidated Financial Statements.”

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29.” The statement requires that exchanges of nonmonetary assets be accounted for at fair value unless the exchange lacks commercial substance. A nonmonetary exchange has commercial substance when the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement eliminates a provision in APB Opinion No. 29 that exempted nonmonetary exchanges of similar productive assets from fair value accounting. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Management currently does not anticipate that the effects of the statement will materially affect BB&T's consolidated financial position or consolidated results of operations.

In December 2004, the FASB issued FSP 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (the “Jobs Act”). The Jobs Act introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. Under the provisions of the Jobs Act, a taxpayer would receive a tax deduction of 85% of certain foreign earnings if repatriated during 2005 pursuant to a domestic reinvestment

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plan. This Staff Position issued disclosure requirements and provided clarification on the accounting for the repatriation provisions of the Jobs Act. BB&T is currently evaluating the potential income tax effects of these provisions. Upon the completion of such evaluation, which is expected to be completed in 2005, BB&T will make a determination concerning the repatriation of these foreign earnings.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”. SFAS No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. SFAS No. 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. SFAS No. 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

BB&T plans to adopt SFAS No. 123(R) using the modified-prospective method on July 1, 2005.

As permitted by SFAS No. 123, BB&T currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have a significant impact on BB&T’s result of operations, although it will have no impact on BB&T’s overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had BB&T adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share as indicated in Note 1 to the Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While BB&T cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such tax deductions were $15.6 million, $13.0 million, and $16.4 million in 2004, 2003 and 2002, respectively.

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NOTE 2.    Business Combinations

The following table presents summary information with respect to mergers and acquisitions of financial institutions and other significant financial services companies completed during the last three years:

Summary of Completed Mergers and Acquisitions

Date of Acquisition	Acquired Institution	Headquarters	Total Assets	Intangibles Recorded	Total Purchase Consideration		BB&T Common Shares Issued to Complete Transaction
April 14, 2004	Republic Bancshares Inc.	St. Petersburg, Fla.	$2.9 billion	$260.5 million	$433.4 million	(1)	6.5 million
February 1, 2004	McGriff, Seibels & Williams, Inc.	Birmingham, Al.	226.6 million	396.0 million	350.5 million	(2)	8.2 million
July 1, 2003	First Virginia Banks, Inc.	Falls Church, Va.	$11.3 billion	$2.2 billion	$3.1 billion		87.0 million
March 14, 2003	Equitable Bank	Wheaton, Md.	446.9 million	32.5 million	53.8 million		1.5 million
September 13, 2002	Regional Financial Corp.	Tallahassee, Fla.	$1.5 billion	$220.4 million	$294.3 million		7.3 million
March 20, 2002	Area Bancshares Corporation	Owensboro, Ky.	2.6 billion	233.3 million	446.2 million		13.2 million
March 8, 2002	MidAmerica Bancorp	Louisville, Ky.	1.8 billion	216.2 million	378.5 million	(3)	8.2 million
January 1, 2002	Cooney, Rikard & Curtin, Inc.	Birmingham, Al.	110.5 million	102.5 million	85.8 million		2.5 million

(1) Includes cash consideration of $171.1 million.

(2) Includes cash consideration of $50.0 million.

(3) Includes cash consideration of $94.9 million.

The intangibles presented for transactions completed in 2004 in the above table include $475.9 million in goodwill and $180.6 million of identifiable intangibles. Identifiable intangibles are being amortized on an accelerated basis over their estimated useful lives. The table above does not include mergers and acquisitions made by any acquired company.

Acquisition of First Virginia Banks, Inc.

On July 1, 2003, BB&T completed its acquisition of First Virginia Banks, Inc. (“First Virginia”), a bank holding company headquartered in Falls Church, Virginia. The merger enabled BB&T to substantially increase its market share and branch presence in Virginia, Maryland and Tennessee. BB&T issued 87.0 million common shares to consummate the transaction. The total purchase consideration of $3.1 billion was determined based on the average market price of BB&T’s common stock over the five-day period beginning two days before and ending two days after the terms of the acquisition were agreed to and announced.

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Under the purchase method of accounting, the assets and liabilities of First Virginia were recorded at their respective fair values as of July 1, 2003. The initial allocation of the purchase price was subsequently adjusted when preliminary valuation estimates were finalized. The following table summarizes the nature and amount of such adjustments recorded in 2004:

First Virginia Banks, Inc.

Purchase Price Allocation

December 31, 2004

(Dollars in thousands)
Total intangibles recorded as of December 31, 2003	$	2,183,436
Purchase accounting adjustments recorded in 2004:
Severance and personnel-related		1,933
Occupancy and equipment		(18,915	)
Income taxes		(11,422	)
Other, net		(731	)
Total intangibles recorded as of December 31, 2004	$	2,154,301
Identifiable intangible assets	$	270,600
Goodwill		1,883,701
	$	2,154,301

Insurance and Other Nonbank Acquisitions

In addition to the financial institutions and other significant financial services companies presented in the above table, BB&T acquired eight insurance agencies and three nonbank financial services companies during 2004. In conjunction with these transactions, BB&T issued approximately 1.4 million shares of common stock and paid approximately $74.2 million in cash. Approximately $49.7 million in goodwill and $34.8 million of identifiable intangible assets were recorded in connection with these transactions. BB&T acquired six insurance agencies during 2003. In conjunction with these transactions, BB&T issued approximately 1.7 million shares of common stock and paid approximately $1.0 million in cash. Approximately $42.3 million in goodwill and $30.9 million of identifiable intangible assets were recorded in connection with these transactions. During 2002, BB&T acquired eight insurance agencies. In conjunction with these transactions, BB&T issued approximately 1.7 million shares of common stock and paid approximately $1.9 million in cash. Approximately $43.7 million in goodwill and $30.4 million of identifiable intangible assets were recorded in connection with these acquisitions.

In connection with the acquisitions completed during 2004, BB&T offered additional incentives to the acquired companies to offset the loss of future cash flows previously received through ownership positions. These amounts will be charged to goodwill or compensation in the period earned based on the terms of the agreement. The maximum determinable amount payable under these agreements, if earned, is $131.6 million, of which $105.9 million would be a charge to goodwill. Incentive amounts relating to one agreement do not specify dollar limitations and have been excluded from these amounts because it is not possible to quantify the maximum exposure resulting from this agreement.

Merger-Related and Restructuring Charges

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

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Summary of Merger-Related and Restructuring Charges

(Dollars in thousands)

	For the Year Ended December 31,
	2004			2003		2002
Severance and personnel-related charges	$	8,976		$	20,834	$	4,527
Occupancy and equipment charges		(11,752	)		22,290		9,510
Systems conversions and related charges		580			5,271		11,700
Marketing and public relations		4,038			7,565		6,446
Asset write-offs other merger-related charges		3,676			33,815		7,097
Total	$	5,518		$	89,775	$	39,280

Severance and personnel-related costs include severance, employee retention, payments related to change-in-control provisions of employment contracts, outplacement services and other benefits associated with employee termination, which typically occur in corporate support and data processing functions. Occupancy and equipment charges or credits represent merger-related costs or gains associated with lease terminations, obsolete equipment write-offs, and the sale of duplicate facilities and equipment. Credits may result when obsolete properties or equipment are sold for more than originally estimated. Systems conversions and related charges include expenses necessary to convert and combine the acquired branches and operations of merged companies. Marketing and public relations costs represent direct media advertising related to the acquisitions. The other merger-related charges are composed of asset and supply inventory write-offs, litigation accruals and other similar charges.

In conjunction with the consummation of an acquisition and completion of other requirements, BB&T typically accrues certain merger-related expenses related to estimated severance and other personnel-related costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition. The following tables present a summary of BB&T’s merger accrual activity for 2004 and 2003.

	Merger Accrual Activity
	(Dollars in thousands)
	Balance January 1, 2003		Accrued at acquisition		Merger-related and restructuring charges			Utilized			Other, net (1)			Balance December 31, 2003
Severance and personnel-related charges	$	16,829	$	30,325	$	20,834		$	(37,918	)	$	(2,220	)	$	27,850
Occupancy and equipment charges		41,753		33,523		22,290			(36,828	)		(12,042	)		48,696
Systems conversions and related charges		1,738		21,534		5,271			(6,742	)		(1,066	)		20,735
Other merger-related charges		11,281		19,524		41,380			(58,422	)		(2,693	)		11,070
Total	$	71,601	$	104,906	$	89,775		$	(139,910	)	$	(18,021	)	$	108,351
	Balance January 1, 2004		Accrued at acquisition		Merger-related and restructuring charges			Utilized			Other, net (1)			Balance December 31, 2004
Severance and personnel-related charges	$	27,850	$	6,732	$	8,976		$	(24,414	)	$	(4,486	)	$	14,658
Occupancy and equipment charges		48,696		3,261		(11,752	)		(23,133	)		(1,518	)		15,554
Systems conversions and related charges		20,735		7,196		580			(13,686	)		(14,825	)		—
Other merger-related charges		11,070		2,483		7,714			(17,683	)		700			4,284
Total	$	108,351	$	19,672	$	5,518		$	(78,916	)	$	(20,129	)	$	34,496

(1) Other, net is primarily composed of adjustments to goodwill resulting from changes to original estimates of merger-related accruals.

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

Severance and personnel-related costs include severance, employee retention, payments related to change-in-control provisions of employment contracts, outplacement services and other benefits associated with employee termination, which typically occur in corporate support and data processing functions. During 2004, BB&T estimated that 200 positions would be eliminated and receive severance in connection with the acquisition of Republic and 225 employees did, in fact, receive severance in 2004. Nine former employees will continue to receive severance payments during 2005. During 2003, BB&T estimated that 1,918 positions would be eliminated and receive severance and 980 employees did, in fact, receive severance during 2003. Substantially all of the remaining positions involved employees who voluntarily resigned or were offered positions elsewhere within BB&T. These former employees did not receive severance. Approximately 551 of the employees whose jobs were eliminated received severance payments during 2004. During 2002, BB&T estimated that 372 positions would be eliminated and receive severance and 370 employees did, in fact, receive severance during 2002. Approximately 90 of these former employees continued to receive severance payments during 2003.

Because BB&T has often had multiple merger integrations in process, and, due to limited resources, has had to schedule in advance significant events in the merger conversion and integration process, BB&T’s merger process and utilization of merger accruals may cover an extended period of time. In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance. 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 December 31, 2004 are expected to be utilized during 2005, unless they relate to specific contracts that expire in later years.

Since BB&T is a frequent acquirer of financial institutions, the Company has a number of employees who have among their primary responsibilities the analysis of mergers and acquisitions, the acquisition approval process and/or converting the systems of acquired entities to BB&T’s automation platform. Substantially all of the expenses associated with these employees are considered to be on-going and are not classified as merger-related.

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Note 3.    Securities

The amortized costs and approximate fair values of securities held to maturity and available for sale were as follows:

	December 31, 2004
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses
	(Dollars in thousands)
Securities held to maturity:
U.S. Treasuries	$	125	$	—	$	—	$	125
Total securities held to maturity		125		—		—		125
Securities available for sale:
U.S. Treasuries		122,183		1,009		737		122,455
U.S. government entities		12,817,387		16,756		194,078		12,640,065
Mortgage-backed securities		4,537,855		26,664		34,093		4,530,426
States and political subdivisions		754,093		31,241		955		784,379
Equity and other securities		746,168		17,761		3,058		760,871
Total securities available for sale		18,977,686		93,431		232,921		18,838,196
Total securities	$	18,977,811	$	93,431	$	232,921	$	18,838,321
	December 31, 2003
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses
	(Dollars in thousands)
Securities held to maturity:
U.S. Treasuries	$	60,122	$	3	$	—	$	60,125
Total securities held to maturity		60,122		3		—		60,125
Securities available for sale:
U.S. Treasuries		140,230		2,584		56		142,758
U.S. government entities		12,156,966		129,245		177,739		12,108,472
Mortgage-backed securities		1,536,869		22,665		10,010		1,549,524
States and political subdivisions		904,250		42,488		750		945,988
Equity and other securities		806,929		18,136		8,853		816,212
Total securities available for sale		15,545,244		215,118		197,408		15,562,954
Total securities	$	15,605,366	$	215,121	$	197,408	$	15,623,079

Accumulated other comprehensive income at December 31, 2004 and 2003 included $(87.5 million) and $11.4 million, respectively, of net after-tax unrealized gains (losses) relating to securities available for sale.

At December 31, 2004 and 2003, securities with carrying value of approximately $8.7 billion and $9.2 billion were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law.

Excluding securities issued by the U.S. Government and its agencies and corporations, there were no investments in securities from one issuer that exceeded ten percent of shareholders' equity at December 31, 2004 or December 31, 2003. Trading securities totaling $334.3 million at December 31, 2004 and $693.8 million at December 31, 2003 are excluded from the accompanying tables. Equity securities are primarily composed of investments in stock issued by the FHLB of Atlanta. At December 31, 2004 and 2003, BB&T held $343.7 million and $391.0 million, respectively, of investments in FHLB stock.

Proceeds from sales of securities available for sale during 2004, 2003 and 2002 were $2.3 billion, $12.3 billion and $3.6 billion, respectively. Gross gains of $13.7 million, $180.4 million and $181.1 million and gross losses of $7.6 million, $54.1 million and $11.0 million were realized on those sales in 2004, 2003 and 2002, respectively.

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The amortized cost and estimated fair value of the debt securities portfolio at December 31, 2004, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted average contractual maturities of underlying collateral.

	December 31, 2004
	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Debt Securities:
Due in one year or less	$	125	$	125	$	1,824,976	$	1,833,007
Due after one year through five years		—		—		7,253,655		7,176,477
Due after five years through ten years		—		—		5,088,299		5,002,842
Due after ten years		—		—		4,272,450		4,271,303
Total debt securities		125		125		18,439,380		18,283,629
Total equity securities		—		—		538,306		554,567
Total securities	$	125	$	125	$	18,977,686	$	18,838,196

The following table reflects the gross unrealized losses and fair value of BB&T's investments at December 31, 2004, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in thousands)
Securities:
U.S. Treasuries	$	94,678	$	715	$	798	$	22	$	95,476	$	737
U.S. government entities		6,613,357		68,845		3,686,430		125,233		10,299,787		194,078
Mortgage-backed securities		2,862,419		30,780		222,472		3,313		3,084,891		34,093
States and political subdivisions		113,786		865		6,565		90		120,351		955
Equity and other securities		39,331		742		105,965		2,316		145,296		3,058
Total temporarily impaired securities	$	9,723,571	$	101,947	$	4,022,230	$	130,974	$	13,745,801	$	232,921

On December 31, 2004, BB&T held certain investments having continuous unrealized loss positions for more than 12 months totaling $131.0 million. The vast majority of these investments were in U.S. government entities and it is expected that the securities would not be settled at a price less than their amortized cost. Because the decline in market value was caused by interest rate increases and not credit quality, BB&T has not recognized any other-than-temporary impairment in connection with these investments.

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NOTE 4.    Loans and Leases

	December 31,
	2004		2003
	(Dollars in thousands)
Loans and leases, net of unearned income:
Commercial loans	$	31,433,304	$	28,500,428
Lease receivables		2,887,663		2,677,058
Total commercial loans and leases		34,320,967		31,177,486
Sales finance		6,362,990		6,193,928
Revolving credit		1,276,876		1,180,480
Direct retail		13,932,879		12,130,101
Total consumer loans		21,572,745		19,504,509
Residential mortgage loans		12,268,889		11,623,391
Total loans and leases (1)(2)	$	68,162,601	$	62,305,386

(1) Includes loans held for sale.

(2) Unearned income totaled $2.5 billion and $2.6 billion at December 31, 2004 and 2003, respectively.

The investment in lease receivables, net of unearned income, was $2.9 billion and $2.7 billion at December 31, 2004 and 2003, respectively. These balances included $1.6 billion and $1.5 billion, respectively, of investments in leveraged leases. BB&T's investment in leveraged leases was as follows:

	December 31,
	2004			2003
	(Dollars in thousands)
Rentals receivable (net of principal and interest on nonrecourse debt and head lease obligation)	$	3,746,600		$	3,746,600
Unearned income		(2,170,514	)		(2,246,214	)
Investment in leveraged leases, net of unearned income		1,576,086			1,500,386
Deferred taxes arising from leveraged leases		(993,348	)		(901,445	)
Net investment in leveraged leases	$	582,738		$	598,941

BB&T had $48.5 billion in loans secured by real estate at December 31, 2004. However, these loans were not concentrated in any specific market or geographic area other than the Banks’ primary markets. Certain loans have been pledged as collateral for outstanding Federal Home Loan Bank Advances at December 31, 2004 and 2003.

The following table sets forth certain information regarding BB&T’s impaired loans:

	December 31,
	2004			2003
	(Dollars in thousands)
Total recorded investment—impaired loans	$	55,489		$	135,224
Total recorded investment with no related valuation allowance		35,006			6,338
Total recorded investment with related valuation allowance		20,483			128,886
Allowance for loan and lease losses assigned to impaired loans		(5,956	)		(38,395	)
Net carrying value—impaired loans	$	49,533		$	96,829

Average impaired loans for the years ended December 31, 2004, 2003, and 2002 totaled $81.8 million, $181.2 million and $126.7 million, respectively. The amount of interest that has been recognized as income on impaired loans for any of the last three years has not been significant.

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NOTE 5. Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments

An analysis of the allowance for credit losses for each of the past three years is presented in the following table:

	For the Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Beginning Balance	$	793,398		$	723,685		$	644,418
Allowance for acquired (sold) loans, net		20,909			70,035			62,099
Provision for credit losses		249,269			247,585			263,700
Loans and leases charged-off		(296,679	)		(315,385	)		(297,149	)
Recoveries of previous charge-offs		61,404			67,478			50,617
Net loans and leases charged-off		(235,275	)		(247,907	)		(246,532	)
Ending Balance	$	828,301		$	793,398		$	723,685

The allowance for credit losses 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. At December 31, 2004, 2003 and 2002 the allowance for loan and lease losses totaled $804.9 million, $784.9 million and $723.7 million, respectively. The reserve for unfunded lending commitments totaled $23.4 million and $8.5 million at December 31, 2004 and 2003, respectively.

At December 31, 2004, 2003 and 2002, loans and leases not currently accruing interest totaled $268.6 million, $350.4 million and $374.8 million, respectively. Loans 90 days or more past due and still accruing interest totaled $100.2 million, $116.8 million and $115.0 million at December 31, 2004, 2003 and 2002, respectively. The gross additional interest income that would have been earned if the loans and leases classified as nonaccrual had performed in accordance with the original terms was approximately $17.8 million, $19.5 million and $22.0 million in 2004, 2003 and 2002, respectively. Foreclosed property totaled $88.9 million, $96.1 million and $76.6 million at December 31, 2004, 2003 and 2002, respectively.

NOTE 6.    Premises and Equipment

A summary of premises and equipment is presented in the accompanying table:

	December 31,
	2004			2003
	(Dollars in thousands)
Land and land improvements	$	290,157		$	268,287
Buildings and building improvements		896,220			820,884
Furniture and equipment		824,695			752,080
Leasehold improvements		231,882			212,119
Construction in progress		30,237			50,279
Capitalized leases on premises and equipment		2,530			2,522
Total		2,275,721			2,106,171
Less—accumulated depreciation and amortization		(992,175	)		(904,829	)
Net premises and equipment	$	1,283,546		$	1,201,342

Useful lives for premises and equipment are as follows: buildings and building improvements—40 years; furniture and equipment—5 to 10 years; leasehold improvements—estimated useful life or lease term, including

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certain renewals which were deemed probable at lease inception, whichever is less; and capitalized leases on premises and equipment—estimated useful life or remaining term of tenant lease, whichever is less. Certain properties are pledged to secure mortgage indebtedness totaling $1.7 million at December 31, 2004 and 2003.

BB&T has noncancelable leases covering certain premises and equipment. Many of the leases have one or more renewal options, generally for periods of two to five years. Total rent expense applicable to operating leases was $109.4 million, $114.0 million and $90.8 million for 2004, 2003 and 2002, respectively. Rental income from owned properties and subleases was $10.4 million, $9.3 million and $7.8 million for 2004, 2003 and 2002, respectively. Future minimum lease payments for operating and capitalized leases for years subsequent to 2004 are as follows:

	Leases
	Operating		Capitalized
	(Dollars in thousands)
Years ended December 31:
2005	$	100,782	$	325
2006		85,909		311
2007		71,251		300
2008		61,622		267
2009		50,397		269
2010 and later		257,149		2,068
Total minimum lease payments	$	627,110		3,540
Less—amount representing interest				(1,574	)
Present value of net minimum payments on capitalized leases			$	1,966

NOTE 7.    Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill attributable to each of BB&T’s operating segments for the years ended December 31, 2004 and 2003 are as follows:

	Goodwill Activity by Operating Segment
	Banking Network			Mortgage Banking		Trust Services			Insurance Services		Investment Banking and Brokerage			Specialized Lending		Total
	(Dollars in thousands)
Balance, January 1, 2003	$	1,361,988		$	7,459	$	27,330		$	227,723	$	70,905		$	27,974	$	1,723,379
Acquired goodwill, net		1,913,358			—		—			41,529		—			1,739		1,956,626
Adjustments to goodwill		(62,829	)		—		—			—		(650	)		—		(63,479	)
Balance, December 31, 2003		3,212,517			7,459		27,330			269,252		70,255			29,713		3,616,526
Acquired goodwill, net		213,980			—		4,380			278,477		—			7,930		504,767
Adjustments to goodwill		(19,616	)		—		(369	)		21,385		894			654		2,948
Balance, December 31, 2004	$	3,406,881		$	7,459	$	31,341		$	569,114	$	71,149		$	38,297	$	4,124,241

The adjustments to goodwill in the table above reflect reallocations of purchase price subsequent to the dates of acquisition. The adjustments to goodwill recorded in 2004 include $20.9 million relating to acquisitions completed during 2004, $(17.6 million) relating to acquisitions completed in earlier years, and $(.3 million) associated with a book of business in BB&T’s insurance services segment that was sold during 2004.

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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 December 31, 2004							As of December 31, 2003
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(Dollars in thousands)
Identifiable intangible assets
Core deposit intangibles	$	364,937	$	(134,214	)	$	230,723	$	321,851	$	(77,447	)	$	244,404
Other (1)		362,500		(79,684	)		282,816		187,644		(30,104	)		157,540
Totals	$	727,437	$	(213,898	)	$	513,539	$	509,495	$	(107,551	)	$	401,944

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

During the years ended December 31, 2004, 2003 and 2002, BB&T incurred $106.3 million, $55.7 million and $20.9 million, respectively, in pretax amortization expenses associated with core deposit intangibles and other intangible assets. At December 31, 2004, the weighted-average remaining lives of core deposit intangibles and other identifiable intangibles were 11.3 years and 10.5 years, respectively.

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

	Estimated Amortization Expense
	(Dollars in thousands)
For the Year Ended December 31:
2005	$	102,240
2006		89,278
2007		77,186
2008		64,271
2009		50,548

NOTE 8.    Loan Servicing

The following is an analysis of BB&T’s mortgage servicing rights arising from BB&T’s residential mortgage operations and commercial mortgage banking activities. Mortgage servicing rights are included in other assets in the Consolidated Balance Sheets.

	Mortgage Servicing Rights For the Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Balance, January 1,	$	334,931		$	318,839		$	359,037
Amount capitalized		85,840			207,716			203,376
Acquired in purchase transactions		2,929			—			9,270
Amortization expense		(90,994	)		(154,905	)		(100,080	)
Other than temporary impairment		(28,057	)		(110,978	)		—
Change in valuation allowance		36,091			74,259			(152,764	)
Balance, December 31,	$	340,740		$	334,931		$	318,839

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Following is an analysis of the aggregate changes in the valuation allowance for mortgage servicing rights in 2004, 2003 and 2002:

	Valuation Allowance for Mortgage Servicing Rights For the Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Balance, January 1,	$	143,727		$	217,986		$	65,222
Provision for impairment		83,775			146,132			156,756
Other than temporary impairment		(28,057	)		(110,978	)		—
Provision recapture and other reductions		(91,809	)		(109,413	)		(3,992	)
Balance, December 31,	$	107,636		$	143,727		$	217,986

The unpaid principal balances of BB&T’s total residential mortgage servicing portfolio were $37.8 billion, $36.6 billion and $34.8 billion at December 31, 2004, 2003 and 2002, respectively. The unpaid principal balances of residential mortgage loans serviced for others were $24.5 billion, $24.9 billion and $24.2 billion at December 31, 2004, 2003 and 2002, respectively. Mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets.

During 2004, 2003 and 2002, BB&T sold residential mortgage loans with unpaid principal balances of $5.3 billion, $13.1 billion and $10.8 billion, respectively, and recognized pretax gains of $36.2 million, $133.2 million and $101.4 million, respectively, which were recorded in noninterest income as a component of mortgage banking income. BB&T retained the related mortgage servicing rights and receives servicing fees. At December 31, 2004 and 2003, the approximate weighted average servicing fee was .35% of the outstanding balance of the residential mortgage loans. The weighted average coupon interest rate on the portfolio of mortgage loans serviced for others was 5.86% and 5.95% at December 31, 2004 and 2003, respectively.

At December 31, 2004, BB&T had $283.8 million of residential mortgage loans sold with limited recourse liability. In the event of nonperformance by the borrower, BB&T has recourse exposure of approximately $28.4 million on these mortgage loans.

BB&T also arranges and services commercial real estate mortgages through Laureate Capital, the commercial mortgage banking subsidiary of Branch Bank. During the years ended December 31, 2004, 2003 and 2002, Laureate Capital originated $1.6 billion, $1.7 billion and $1.4 billion, respectively, of commercial real estate mortgages, all of which were arranged for third party investors and serviced by Laureate Capital. Laureate Capital’s exposure to credit risk or interest rate risk as a result of these loans is minimal. As of December 31, 2004, 2003 and 2002, Laureate Capital’s portfolio of commercial real estate mortgages serviced for others totaled $6.7 billion, $6.9 billion and $6.3 billion, respectively. Commercial real estate mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. Mortgage servicing rights related to commercial mortgage loans totaled $14.3 million, $14.8 million and $14.0 million at December 31, 2004, 2003 and 2002, respectively.

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BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights. These assumptions include prepayment speeds, net charge-off experience and discount rates commensurate with the risks involved and comparable to assumptions used by market participants to value and bid servicing rights available for sale in the market. At December 31, 2004, the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% adverse changes in key economic assumptions are included in the accompanying table, which excludes commercial mortgage servicing rights.

	Residential Mortgage Servicing Rights December 31, 2004
	(Dollars in thousands)
Fair Value of Residential Mortgage Servicing Rights	$	333,188
Weighted Average Life		5.5 yrs
Prepayment Speed		17.8	%
Effect on fair value of a 10% increase	$	(16,910	)
Effect on fair value of a 20% increase		(32,665	)
Expected Credit Losses		.02	%
Effect on fair value of a 10% increase	$	(187	)
Effect on fair value of a 20% increase		(558	)
Weighted Average Discount Rate		9.87	%
Effect on fair value of a 10% increase	$	(7,983	)
Effect on fair value of a 20% increase		(16,097	)

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

The Company also has securitized residential mortgage loans and retained the resulting securities in the available for sale securities portfolio. As of December 31, 2004, the fair value of the securities available for sale still owned by BB&T was $1.055 billion and the remaining unpaid principal balance of the underlying loans totaled $1.043 billion. Based on the performance of the underlying loans and general liquidity of the securities, the Company’s recovery of the cost basis in the securities has not been significantly impacted by changes in interest rates, prepayment speeds or credit losses.

The following table includes a summary of mortgage loans managed or securitized and related delinquencies and net charge-offs.

	Years Ended December 31,
	2004		2003
	(Dollars in thousands)
Mortgage Loans Managed or Securitized (1)	$	13,595,771	$	12,153,638
Less: Loans Securitized and Transferred to Securities Available for Sale		1,043,084		146,935
Less: Loans Held for Sale		590,442		725,459
Less: Mortgage Loans Sold with Recourse		283,798		383,312
Mortgage Loans Held for Investment	$	11,678,447	$	10,897,932
Mortgage Loans on Nonaccrual Status	$	64,010	$	67,373
Mortgage Loans 90 Days Past Due and Still Accruing Interest	$	44,225	$	39,840
Mortgage Loan Net Charge-offs	$	4,868	$	4,602

(1) Balances exclude loans serviced for others, with no other continuing involvement.

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NOTE 9. Federal Funds Purchased, Securities Sold Under Agreements to Repurchase and Short-Term Borrowed Funds

Federal funds purchased, securities sold under agreements to repurchase and short-term borrowed funds are summarized as follows:

	December 31,
	2004		2003
	(Dollars in thousands)
Federal funds purchased	$	2,866,287	$	2,035,892
Securities sold under agreements to repurchase		2,520,956		2,831,068
Total Federal funds purchased and securities sold under agreements to repurchase		5,387,243		4,866,960
Master notes		910,168		941,100
U.S. Treasury tax and loan deposit notes payable		165,911		178,319
Other short-term borrowed funds		224,550		1,348,521
Total short-term borrowed funds		1,300,629		2,467,940
Total	$	6,687,872	$	7,334,900

Federal funds purchased represent unsecured borrowings from other banks and generally mature daily. Securities sold under agreements to repurchase are borrowings collateralized by securities of the U.S. government or its agencies and have maturities ranging from one day to 24 months. U.S. Treasury tax and loan deposit notes payable are payable upon demand to the U.S. Treasury. Master notes are unsecured, non-negotiable obligations of BB&T Corporation (variable rate commercial paper) that mature in less than one year.

A summary of selected data related to Federal funds purchased, securities sold under agreements to repurchase and short-term borrowed funds follows:

	As of / For the Year Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Maximum outstanding at any month-end during the year	$	9,009,269		$	7,334,900		$	7,111,433
Balance outstanding at end of year		6,687,872			7,334,900			5,396,959
Average outstanding during the year		6,590,471			5,140,843			5,393,479
Average interest rate during the year		1.37	%		1.13	%		1.78	%
Average interest rate at end of year		2.06			0.99			1.30

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NOTE 10.    Long-Term Debt

Long-term debt is summarized as follows:

	December 31,
	2004		2003
	(Dollars in thousands)
Parent Company
7.25% Subordinated Notes Due 2007	$	249,122	$	248,804
6.375% Subordinated Notes Due 2025 (1)		351,111		353,240
4.75% Subordinated Notes Due 2012 (2,4)		494,707		494,159
6.50% Subordinated Notes Due 2011 (2,4)		645,841		645,353
5.20% Subordinated Notes Due 2015 (2,4)		996,274		996,030
5.25% Subordinated Notes Due 2019 (2,4)		599,750		—
Branch Bank
Floating Rate Senior Notes Due 2007 (2.51% at December 31, 2004)		499,806		—
4.875% Subordinated Notes Due 2013 (2,4)		249,099		248,987
Floating Rate Secured Borrowings Due 2007 (6)		1,500,000		1,500,000
Federal Home Loan Bank Advances to the Subsidiary Banks
Varying maturities to 2023 with interest rates from 1.00% to 8.50% (5)		5,572,685		6,086,782
Capitalized Leases
Varying maturities to 2028 with interest rates from 7.99% to 15.78%		1,966		2,115
Junior Subordinated Debt to Unconsolidated Trusts (3)		193,558		163,919
Other Long-Term Debt		2,952		2,979
Hedging Gains on Long-Term Debt		62,753		65,332
Total Long-Term Debt	$	11,419,624	$	10,807,700

(1) These subordinated notes are mandatorily puttable to BB&T on June 30, 2005, and contain a remarketing option that allows the notes to be reissued by the holder of the option to the stated maturity of June 30, 2025.

(2) Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital.

(3) Securities qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations.

(4) These fixed rate notes were swapped to floating rates based on LIBOR. At December 31, 2004, the effective rates ranged from 2.49% to 3.02%.

(5) At December 31, 2004, the weighted average cost of these advances was 5.11% and the weighted average maturity was 12 years.

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

Excluding the capitalized leases set forth in Note 6, future debt maturities are $150.5 million, $121.3 million, $2.5 billion, $5.7 million and $23.5 million for the next five years. The maturities for 2010 and later years total $8.6 billion.

Junior Subordinated Debt to Unconsolidated Trusts

In July, 1997, Mason-Dixon Capital Trust (‘‘MDCT’’) issued $20 million of 10.07% Preferred Securities. MDCT, a statutory business trust created under the laws of the State of Delaware, was formed by Mason-Dixon Bancshares, Inc., (‘‘Mason-Dixon’’) for the sole purpose of issuing the Preferred Securities and investing the proceeds thereof in 10.07% Junior Subordinated Debentures issued by Mason-Dixon. Mason Dixon, which merged into BB&T on July 14, 1999, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of MDCT’s obligations under the Preferred Securities. MDCT’s sole asset is the Junior Subordinated Debentures issued by Mason-Dixon and assumed by BB&T, which mature June 15, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after June 15, 2007. The Preferred Securities of MDCT, are subject to mandatory redemption in whole on June 15, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions.

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In November, 1997, MainStreet Capital Trust I (‘‘MSCT I’’) issued $50 million of 8.90% Trust Securities. MSCT I, a statutory business trust created under the laws of the State of Delaware, was formed by MainStreet Financial Corporation, (‘‘MainStreet’’) for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in 8.90% Junior Subordinated Debentures issued by MainStreet. MainStreet, which merged into BB&T on March 5, 1999, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of MSCT I’s obligations under the Trust Securities. MSCT I’s sole asset is the Junior Subordinated Debentures issued by MainStreet and assumed by BB&T, which mature December 1, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after December 1, 2007. The Trust Securities of MSCT I are subject to mandatory redemption in whole on December 1, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions. One Valley Bancorp, Inc., which merged into BB&T Corporation on July 6, 2000 and a subsidiary of Mason-Dixon Bancshares, Inc, which merged into BB&T on July 14, 1999, each owned $2 million of the Trust Securities issued by MSCT I.

In November, 1997, Premier Capital Trust I (‘‘PCT I’’) issued $28.75 million of 9.00% Preferred Securities. PCT I, a statutory business trust created under the laws of the State of Delaware, was formed by Premier Bancshares, Inc., (‘‘Premier’’) for the purpose of issuing the Preferred Securities and investing the proceeds thereof in 9.00% Junior Subordinated Debentures issued by Premier. Premier, which merged into BB&T on January 13, 2000, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of PCT I’s obligations under the Preferred Securities. PCT I’s sole asset is the Junior Subordinated Debentures issued by Premier and assumed by BB&T, which mature December 31, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after December 31, 2007. The Preferred Securities of PCT I, are subject to mandatory redemption in whole on December 31, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions.

In April, 1998, Mason-Dixon Capital Trust II (‘‘MDCT II’’) issued $20 million of 8.40% Preferred Securities. MDCT II, a Delaware statutory business trust, was formed by Mason-Dixon Bancshares, Inc., (‘‘Mason-Dixon’’) for the sole purpose of issuing the Preferred Securities and investing the proceeds thereof in 8.40% Junior Subordinated Debentures issued by Mason-Dixon. Mason Dixon, which merged into BB&T on July 14, 1999, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of MDCT II’s obligations under the Preferred Securities. MDCT II’s sole asset is the Junior Subordinated Debentures issued by Mason-Dixon and assumed by BB&T, which mature June 30, 2028, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after June 30, 2003. The Preferred Securities of MDCT II are subject to mandatory redemption in whole on June 30, 2028, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions.

In July, 1998, FCNB Capital Trust (‘‘FCNBCT’’) issued $40.25 million of 8.25% Trust Preferred Securities. FCNBCT, a statutory business trust created under the laws of the State of Delaware, was formed by FCNB Corp, (‘‘FCNB’’) for the purpose of issuing the Trust Preferred Securities and investing the proceeds thereof in 8.25% Subordinated Debentures issued by FCNB. FCNB, which merged into BB&T on January 7, 2001, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of FCNBCT’s obligations under the Trust Preferred Securities. FCNBCT’s sole asset is the Subordinated Debentures issued by FCNB and assumed by BB&T, which mature July 31, 2028, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after July 31, 2003. The Trust Preferred Securities of FCNBCT, are subject to mandatory redemption in whole on July 31, 2028, or such earlier date in the event the Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions.

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In July, 1997, RBI Capital Trust I (‘‘RBICT I’’) issued $28.75 million of 9.10% Cumulative Trust Preferred Securities. RBICT I, a statutory business trust created under the laws of the State of Delaware, was formed by Republic Bancshares, Inc, (“Republic”) for the sole purpose of issuing the Cumulative Trust Preferred Securities and investing the proceeds thereof in 9.10% Junior Subordinated Debentures issued by Republic. Republic, which merged into BB&T on April 14, 2004, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of RBICT I’s obligations under the Preferred Securities. RBICT I’s sole asset is the Junior Subordinated Debentures issued by Republic and assumed by BB&T, which mature June 30, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after June 30, 2002. The Preferred Securities of RBICT I are subject to mandatory redemption in whole on June 30, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions.

As a result of the mergers with MainStreet Financial Corporation, Mason-Dixon Bancshares, Inc., Premier Bancshares, Inc., FCNB Corp and Republic Bancshares, Inc., BB&T is the sole owner of the common stock of the above statutory Delaware business trusts and has assumed agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of the trusts’ obligations under the Trust and Preferred Securities. The proceeds from the issuance of these securities qualify as Tier I capital under the risk-based capital guidelines established by the Federal Reserve.

NOTE 11.    Shareholders’ Equity

The authorized capital stock of BB&T consists of 1,000,000,000 shares of common stock, $5 par value, and 5,000,000 shares of preferred stock, $5 par value. At December 31, 2004, 550,406,287 shares of common stock and no shares of preferred stock were issued and outstanding.

Stock Option Plans

At December 31, 2004, BB&T had the following stock-based compensation plans: the 2004 Stock Incentive Plan, the 1994 and 1995 Omnibus Stock Incentive Plans (‘‘Omnibus Plans’’), and the Non-Employee Directors’ Stock Option Plan (‘‘Directors’ Plan’’), which are described below. BB&T’s shareholders have approved all plans that award incentive stock options, non-qualified stock options, shares of restricted stock, performance shares and stock appreciation rights with the exception of plans assumed from acquired companies.

In connection with mergers and acquisitions, BB&T typically issues options to purchase shares of its common stock in exchange for options outstanding at the acquired entities at the time the merger is completed. To the extent vested, the options are considered to be part of the purchase price paid. There is no change in the aggregate intrinsic value of the options issued compared to the intrinsic value of the options held immediately before the exchange, nor does the ratio of the exercise price per option to the market value per share change.

BB&T’s 2004 Stock Incentive Plan is intended to assist the Corporation in recruiting and retaining employees, directors and independent contractors and to associate the interests of eligible participants with those of BB&T and its shareholders. At December 31, 2004, there were no options outstanding under this plan. The plan is authorized to issue 25 million shares.

BB&T’s Omnibus Plans are intended to allow BB&T to recruit and retain employees with ability and initiative and to associate the employees’ interests with those of BB&T and its shareholders. At December 31, 2004, 10.2 million qualified stock options at prices ranging from $8.00 to $48.01 and 18.6 million non-qualified stock options at prices ranging from $.01 to $53.10 were outstanding. The stock options generally vest over 3 to 5 years and have a 10-year term. The provisions of the 1995 Omnibus Plan provide for an automatic increase in the authorized number of shares issuable, equal to 3% of any increase in the Corporation’s outstanding common

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shares. Including options authorized under these provisions and various shareholder amendments to the plan, the maximum number of shares issuable under the 1995 Omnibus Plan was 48.9 million at December 31, 2004. At December 31, 2004, there were 6.9 million shares available to issue under both Omnibus Plans.

The Directors’ Plan is intended to provide incentives to non-employee directors to remain on the Board of Directors and share in the profitability of BB&T. The plan creates a deferred compensation system for participating non-employee directors. Each non-employee director may elect to defer 0%, 50% or 100% of certain fees for each calendar year and apply that percentage toward the grant of options to purchase BB&T common stock. Such elections are required to be in writing and are irrevocable for each calendar year. The exercise price at which shares of BB&T common stock may be purchased shall be equal to 75% of the 30 day average of the market value of the common stock as of the date of grant. Options are vested after six months and may be exercised anytime thereafter until the expiration date, which is ten years from the date of grant. At December 31, 2004, options to purchase 821 thousand shares of common stock at prices ranging from $8.52 to $31.80 were outstanding pursuant to the Directors’ Plan. At December 31, 2004, there were 448 thousand shares available to issue under the Directors’ Plan.

BB&T also has option plans outstanding as the result of assuming the plans of acquired companies. At December 31, 2004, there were 560 thousand stock options outstanding in connection with these plans, with option prices ranging from $14.77 to $29.54. No additional grants will be issued under these plans.

A summary of the status of the Company’s stock option plans at December 31, 2004, 2003 and 2002 reflecting changes during the years then ended is presented below:

	2004				2003				2002
	Shares		Wtd. Avg. Exercise Price		Shares		Wtd. Avg. Exercise Price		Shares		Wtd. Avg. Exercise Price
Outstanding at beginning of year	26,950,671		$	29.85	22,678,378		$	28.00	20,679,803		$	24.75
Issued in purchase transactions	435,351			24.32	1,170,857			23.84	1,103,089			24.55
Granted	7,487,867			36.63	6,637,138			32.63	4,732,504			36.71
Exercised	(3,607,216	)		22.78	(2,814,250	)		17.84	(3,408,760	)		18.31
Forfeited or Expired	(1,056,770	)		34.95	(721,452	)		34.42	(428,258	)		34.92
Outstanding at end of year	30,209,903		$	32.11	26,950,671		$	29.85	22,678,378		$	28.00
Options exercisable at year-end	17,459,600		$	29.86	16,611,373		$	27.19	14,518,667		$	24.24

The following table summarizes information about the options outstanding at December 31, 2004:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding 12/31/04	Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price		Number Exercisable 12/31/04	Weighted-Average Exercise Price
$  0.01  to  $10.00	155,266	0.8	yrs	$	8.49	155,266	$	8.49
10.01  to    15.00	1,195,928	1.4			12.85	1,195,928		12.85
15.01  to    25.00	4,413,358	4.2			22.40	4,330,858		22.37
25.01  to    35.00	8,724,794	6.9			31.72	4,231,075		30.79
35.01  to    45.00	15,646,595	7.5			36.70	7,472,511		36.65
45.01  to    53.10	73,962	3.8			49.02	73,962		49.02
	30,209,903	6.6	yrs	$	32.11	17,459,600	$	29.86

Share Repurchase Activity

During the years ended December 31, 2004, 2003 and 2002, BB&T repurchased 11.3 million shares, 21.5 million shares and 21.8 million shares of common stock, respectively. At December 31, 2004, BB&T was authorized to repurchase 35.4 million shares under the August 26, 2003, Board of Directors’ authorization.

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NOTE 12.    Income Taxes

The provision for income taxes was composed of the following:

	Years Ended December 31,
	2004		2003			2002
	(Dollars in thousands)
Current expense (benefit):
Federal	$	420,134	$	15,376		$	192,843
State		40,255		(12,836	)		13,814
Foreign		103,522		97,616			38,699
Total current expense		563,911		100,156			245,356
Deferred expense:
Federal		187,900		423,102			244,603
State		12,176		28,869			7,509
Total deferred expense		200,076		451,971			252,112
Provision for income taxes	$	763,987	$	552,127		$	497,468

The income tax provisions in the above table do not include the effects of income tax deductions resulting from exercises of stock options, which amounted to $15.6 million, $13.0 million and $16.4 million in 2004, 2003 and 2002, respectively, and were recorded as increases to shareholders’ equity. The foreign income tax expense is related to income generated on assets controlled by a foreign subsidiary of Branch Bank.

The reasons for the difference between the provision for income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes were as follows:

	Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Federal income taxes at statutory rate of 35%	$	812,827		$	565,961		$	626,744
Increase (decrease) in provision for income taxes as a result of:
Tax-exempt income from securities, loans and leases, net of related non-deductible interest expense		(25,444	)		(30,540	)		(36,767	)
Tax-exempt life insurance income		(35,501	)		(37,304	)		(31,696	)
Basis difference in subsidiary stock		(3,390	)		(3,874	)		(34,751	)
Option contracts on leveraged leases		—			74,375			(16,818	)
State income taxes, net of Federal tax benefit		34,080			9,921			13,859
Other, net		(18,585	)		(26,412	)		(23,103	)
Provision for income taxes	$	763,987		$	552,127		$	497,468
Effective income tax rate		32.9	%		34.1	%		27.8	%

BB&T has entered into certain transactions that have favorable tax treatment. These transactions include investments in leveraged leases, entering into option contracts transferring responsibility for management of future residuals in certain leveraged lease investments to a foreign subsidiary, and the transfer of securities and real estate secured loans to a subsidiary. These transactions, together with other loans and investments that produce tax-exempt income, reduced BB&T’s effective tax rate from the statutory rate. 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. In this regard, during 2003 BB&T determined that it was appropriate to defer recognition of benefits from the option contracts referred to above until such benefits were realized for income tax purposes and recorded adjustments to reflect that determination.

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The tax effects of temporary differences that gave rise to significant portions of the net deferred tax assets (liabilities) included in other liabilities in the “Consolidated Balance Sheets” were:

	December 31,
	2004			2003
	(Dollars in thousands)
Deferred tax assets:
Allowance for loan and lease losses	$	300,721		$	295,779
Deferred compensation		110,065			98,218
Other		149,429			125,744
Total deferred tax assets		560,215			519,741
Deferred tax liabilities:
Lease financing		(1,042,574	)		(951,379	)
Prepaid pension plan expense		(90,339	)		(90,801	)
Identifiable intangible assets		(143,900	)		(101,874	)
Unamortized FHLB loan prepayment fees		(260,455	)		(195,181	)
Other		(267,511	)		(265,287	)
Total deferred tax liabilities		(1,804,779	)		(1,604,522	)
Net deferred tax liabilities	$	(1,244,564	)	$	(1,084,781	)

Securities transactions resulted in income tax expense of $2.4 million, $46.9 million and $65.3 million related to securities gains for the years ended December 31, 2004, 2003 and 2002, respectively.

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

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NOTE 13.    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 upon consummation of the business combinations. The plans of acquired institutions are typically merged into the BB&T plans upon consummation of the mergers, and, under these circumstances, credit is usually given to these employees for years of service at the acquired institution for vesting and eligibility purposes.

The following table summarizes expenses relating to employee retirement plans:

	For the Years Ended December 31,
	2004		2003		2002
	(Dollars in thousands)
Defined benefit plans	$	40,439	$	40,559	$	36,486
Defined contribution and ESOP plans		55,346		45,822		37,743
Postretirement benefit plans		9,341		10,643		7,463
Other		11,029		14,080		4,168
Total expense related to benefit plans	$	116,155	$	111,104	$	85,860

Defined Benefit Retirement Plans

BB&T provides a defined benefit retirement plan qualified under the Internal Revenue Code that covers substantially all employees. Benefits are based on years of service, age at retirement and the employee’s compensation during the five highest consecutive years of earnings within the last ten years of employment.

In addition, supplemental retirement benefits are provided to certain key officers under supplemental defined benefit executive retirement plans, which are not qualified under the Internal Revenue Code. Although technically unfunded plans, a Rabbi Trust and insurance policies on the lives of the certain covered employees partially finance future benefits.

The following actuarial assumptions were used to determine net periodic pension costs:

	December 31,
	2004		2003
Actuarial Assumptions
Weighted average assumed discount rate	6.25	%	6.75	%
Weighted average expected long-term rate of return on plan assets	8.00		8.00
Assumed rate of annual compensation increases	4.00		4.00

The weighted average expected long-term rate of return on plan assets represents the average rate of return expected to be earned on plan assets over the period the benefits included in the benefit obligation are to be paid. In developing the expected rate of return, BB&T considers long-term compound annualized returns of historical market data for each asset category, as well as historical actual returns on the Company’s plan assets. Using this reference information, the Company develops forward-looking return expectations for each asset category and a weighted average expected long-term rate of return for the plan based on target asset allocations contained in BB&T’s Investment Policy Statement.

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Financial data relative to the defined benefit pension plans is summarized in the following tables for the years indicated. The data is calculated using an actuarial measurement date of December 31.

	For the Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Net Periodic Pension Cost
Service cost	$	52,507		$	39,521		$	34,509
Interest cost		55,165			44,539			36,567
Estimated return on plan assets		(72,471	)		(51,547	)		(35,416	)
Net amortization and other		5,238			8,046			826
Net periodic pension cost	$	40,439		$	40,559		$	36,486

The following actuarial assumptions were used to determine benefit obligations:

	December 31,
	2004		2003
Actuarial Assumptions
Weighted average assumed discount rate	5.75	%	6.25	%
Assumed rate of annual compensation increases	4.00		4.00

	Qualified Pension Plan						Nonqualified Pension Plans
	Years Ended December 31,						Years Ended December 31,
	2004			2003			2004			2003
	(Dollars in thousands)
Change in Projected Benefit Obligation
Projected benefit obligation, January 1,	$	803,370		$	508,980		$	85,542		$	56,490
Service cost		49,130			36,821			3,377			2,700
Interest cost		49,306			39,791			5,859			4,748
Actuarial (gain) loss		70,904			63,046			14,201			5,592
Benefits paid		(32,664	)		(28,340	)		(3,286	)		(2,921	)
Change in plan provisions		—			—			1,370			1,265
Plans of acquired entities (1)		—			183,072			1,424			17,668
Projected benefit obligation, December 31,	$	940,046		$	803,370		$	108,487		$	85,542

(1) Includes amounts recorded as purchase accounting adjustments subsequent to the dates of acquisition.

	Years Ended December 31,						Years Ended December 31,
	2004			2003			2004			2003
	(Dollars in thousands)
Change in Plan Assets
Fair value of plan assets, January 1,	$	900,143		$	471,263		$	—		$	—
Actual return on plan assets		90,415			116,290			—			—
Employer contributions		33,342			170,000			3,286			2,921
Benefits paid		(32,664	)		(28,340	)		(3,286	)		(2,921	)
Plans of acquired entities		—			170,930			—			—
Fair value of plan assets, December 31,	$	991,236		$	900,143		$	—		$	—

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	Years Ended December 31,						Years Ended December 31,
	2004			2003			2004			2003
	(Dollars in thousands)
Net Amount Recognized
Funded status	$	51,190		$	96,773		$	(108,487	)	$	(85,542	)
Unrecognized transition (asset) obligation		—			—			—			60
Unrecognized prior service cost		(22,345	)		(26,934	)		213			146
Unrecognized net loss (gain)		211,485			165,228			28,446			16,006
Net amount recognized	$	240,330		$	235,067		$	(79,828	)	$	(69,330	)
	Years Ended December 31,						Years Ended December 31,
	2004			2003			2004			2003
	(Dollars in thousands)
Reconciliation of Net Pension Asset (Liability)
Prepaid pension cost, January 1,	$	235,067		$	108,845		$	(69,330	)	$	(45,661	)
Contributions		33,342			170,000			3,286			2,921
Net periodic pension cost		(28,079	)		(31,637	)		(12,360	)		(8,922	)
Purchase accounting recognition		—			(12,141	)		(1,424	)		(17,668	)
Prepaid (accrued) pension cost, December 31,	$	240,330		$	235,067		$	(79,828	)	$	(69,330	)

The accumulated benefit obligation for the qualified plan totaled $822.7 million and $710.9 million at December 31, 2004 and 2003, respectively. For the nonqualified plans, the accumulated benefit obligation totaled $87.4 million and $70.4 million at December 31, 2004 and 2003, respectively. At December 31, 2004, BB&T had recorded a minimum pension liability of $4.6 million in connection with its nonqualified plans and had recorded $3.0 million, net of tax as accumulated other comprehensive income for minimum pension liability.

Employer contributions to the qualified pension plan are in amounts between the minimum required for funding standard accounts and the maximum amount deductible for federal income tax purposes. Management is not required to make a contribution to the qualified pension plan during 2005; however, management elected to make a discretionary contribution of $30.0 million in the first quarter of 2005 and may make additional contributions later in 2005 if determined appropriate. For the nonqualified plans the employer contributions are based on benefit payments. The following table reflects the estimated benefit payments reflecting expected future service for the next five years and for the years 2010 through 2014:

Estimated Benefit Payments	Qualified Pension Plan		NonQualified Pension Plans
2005	$	27,763	$	3,981
2006		29,620		4,213
2007		31,820		4,464
2008		34,698		4,953
2009		38,250		5,549
2010-2014		268,433		41,792

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The allocation of plan assets for the defined benefit pension plan, by asset category, is as follows at December 31, 2004 and 2003.

	December 31,
	2004		2003
Allocation of Plan Assets
Equity securities	67.6	%	65.0	%
Debt securities	28.6		27.3
Cash equivalents	3.8		7.7
Total	100.0	%	100.0	%

The plan assets included 936 thousand shares valued at $39.4 million and 910 thousand shares valued at $35.1 million of BB&T common stock at December 31, 2004 and 2003, respectively.

BB&T’s primary total return objective for plan assets is, over a full market cycle, to exceed the rate of inflation by at least 4% per year and to compare favorably to a universe of peer portfolios comprised of a similar group of investments. The plan assets have a long-term, indefinite time horizon that runs concurrent with the average life expectancy of the participants. As such, the Plan can assume a time horizon that extends well beyond a full market cycle, and can assume an above-average level of risk, as measured by the standard deviation of annual return. It is expected, however, that both professional investment management and sufficient portfolio diversification will smooth volatility and help to generate a reasonable consistency of return. The investments are broadly diversified among economic sector, industry, quality and size in order to reduce risk and to produce incremental return. Within approved guidelines and restrictions, investment managers have wide discretion over the timing and selection of individual investments.

The target asset allocations for the plan assets include a range of 40% to 80% for equity securities, 20% to 60% for debt securities, with any remainder to be held in cash equivalents. Equities are expected to be maintained at a risk level approximately equivalent to that of the equity market as a whole, with investments generally restricted to high-quality, marketable securities of corporations with minimum market capitalization of $100 million that are actively traded. No single major industry may represent more than 25% of the total market value of the plan, and no single security may represent more than 10% of the total market value. Investments in debt securities are intended to provide both diversification and a predictable and dependent source of income, and may include appropriately-liquid preferred stocks, corporate debt securities and obligations of the U.S. Government and its agencies or mutual funds investment in these types of securities. Investments in a single issuer, other than the U.S. Government, may not exceed 5% of the total market value of the plan assets. No more than 15% of the corporate debt securities in the debt securities portfolio may be rated below investment grade. Cash equivalent investments may include the highest quality commercial paper, repurchase agreements, Treasury Bills, certificates of deposit and money market funds to provide income and liquidity for expense payments.

Postretirement Benefits Other than Pension

BB&T provides certain postretirement benefits. These benefits provide covered employees a subsidy for purchasing health care and life insurance. During 2004, BB&T amended its postretirement benefit to eliminate the subsidy for those employees retiring after December 31, 2004. BB&T also reduced the subsidy paid to employees who retired on or before December 31, 2004, were age 55 years or older, and had at least ten years of service. For those employees, the subsidy is based upon years of service of the employee at the time of retirement. The effect of the plan amendment was a reduction in the projected benefit obligation by $95.5 million, which will be amortized as a reduction of benefit costs over approximately 17 years. Employer contributions to the plan are based on benefit payments.

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The estimated benefit payments for other postretirement benefits are $2.9 million, $2.7 million, $2.6 million, $2.5 million and $2.4 million for the next five years and $10.1 million for the years 2010 through 2014.

The following actuarial assumptions were used to determine postretirement benefit plans other than pension costs and obligations:

	December 31,
	2004		2003
Actuarial Assumptions
Weighted average assumed discount rate	5.75	%	6.25	%
Medical trend rate—initial year	5.00		5.00
Medical trend rate—ultimate	5.00		5.00

The following tables set forth the components of the retiree benefit plan and the amounts recognized in the consolidated financial statements at December 31, 2004, 2003 and 2002 using a measurement date for actuarial calculations as of December 31. Because of the amendments to the plan in 2004, management does not believe that any subsidy that may be provided by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 would be material. Therefore, no subsidy has been included in the actuarial calculation.

	For the Years Ended December 31,
	2004		2003		2002
	(Dollars in thousands)
Net Periodic Postretirement Benefit Cost:
Service cost	$	3,121	$	3,766	$	2,482
Interest cost		6,179		5,891		4,530
Amortization and other		41		986		451
Net periodic postretirement benefit cost	$	9,341	$	10,643	$	7,463

	Years Ended December 31,
	2004			2003
	(Dollars in thousands)
Change in Projected Benefit Obligation
Projected benefit obligation, January 1,	$	122,226		$	73,914
Service cost		3,121			3,766
Interest cost		6,179			5,891
Plan participants’ contributions		5,359			3,447
Actuarial loss (gain)		(50	)		17,234
Benefits paid		(15,419	)		(10,383	)
Plan amendments		(95,515	)		2,459
Plans of acquired companies		—			25,898
Projected benefit obligation, December 31,	$	25,901		$	122,226

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	Years Ended December 31,
	2004			2003
	(Dollars in thousands)
Change in Plan Assets
Fair value of plan assets, January 1,	$	—		$	—
Actual return on plan assets		—			—
Employer contributions		10,060			6,936
Plan participants’ contributions		5,359			3,447
Benefits paid		(15,419	)		(10,383	)
Fair value of plan assets, December 31,	$	—		$	—
	Years Ended December 31,
	2004			2003
	(Dollars in thousands)
Net Amount Recognized
Funded status	$	(25,901	)	$	(122,226	)
Unrecognized prior service cost		(88,710	)		5,977
Unrecognized net actuarial (gain) loss		15,143			14,096
Unrecognized transition obligation		—			1,966
Net amount recognized	$	(99,468	)	$	(100,187	)
	Years Ended December 31,
	2004			2003
	(Dollars in thousands)
Reconciliation of Postretirement Benefit
Prepaid (accrued) postretirement benefit, January 1,	$	(100,187	)	$	(72,899	)
Contributions		10,060			6,936
Net periodic postretirement benefit cost		(9,341	)		(10,643	)
Adjustment for additional claims		—			2,317
Adjustment for acquired companies		—			(25,898	)
Prepaid (accrued) postretirement benefit cost, December 31,	$	(99,468	)	$	(100,187	)
	December 31, 2004
	1% Increase			1% Decrease
Impact of a 1% change in assumed health care cost on:
Service and interest costs		0.7	%		(0.6	)%
Accumulated postretirement benefit obligation		0.7			(0.5	)

Defined Contribution Plans

BB&T offers a 401(k) Savings Plan that permits employees with more than 90 days of service to contribute from 1% to 25% of their compensation. For full-time employees who are 21 years of age or older with one year or more of service, BB&T makes matching contributions of up to 6% of the employee’s compensation. BB&T’s contribution to the 401(k) Savings Plan totaled $53.4 million, $45.7 million and $37.0 million for the years ended December 31, 2004, 2003 and 2002, respectively. BB&T also offers defined contribution plans to certain employees of subsidiaries who do not participate in the 401 (k) Savings Plan.

Other

There are various other employment contracts, deferred compensation arrangements and covenants not to compete with certain employees and former employees.

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Note 14.    Commitments and Contingencies

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, interest rate caps, floors and collars, interest rate swaps, swaptions, when-issued securities, options written and forward and futures contracts. BB&T also has commitments to fund certain affordable housing investments and contingent liabilities of certain sold loans. The following table presents the contractual or notional amount of these instruments:

	Contract or Notional Amount at December 31,
	2004		2003
	(Dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend, originate or purchase credit	$	24,899,436	$	21,196,760
Standby letters of credit and financial guarantees written		2,030,503		1,564,187
Commercial letters of credit		31,515		36,733
Financial instruments whose notional or contract amounts exceed the amount of credit risk:
Derivative financial instruments		20,509,499		14,608,690
Commitments to fund affordable housing investments		215,244		214,961
Mortgage loans sold with recourse		283,798		383,312

Commitments to extend, originate or purchase credit are primarily lines of credit to businesses and consumers and have specified rates and maturity dates. Many of these commitments also have adverse change clauses, which allow BB&T to cancel the commitment due to deterioration in the borrowers’ creditworthiness.

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. As of December 31, 2004, BB&T had issued $2.0 billion in such guarantees. 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.

Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for clients and are generally collateralized by the goods being shipped to the client.

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

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

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Forward commitments to sell mortgage loans and mortgage-backed securities are contracts for delayed delivery of securities in which BB&T agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities’ values and interest rates.

BB&T invests in certain affordable housing and historic building rehabilitation projects throughout its market area as a means of supporting local communities, and receives tax credits related to these investments. BB&T typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships. BB&T’s Subsidiary Banks typically provide financing during the construction and development of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project. BB&T’s outstanding commitments to fund affordable housing investments totaled $215.2 million and $215.0 million at December 31, 2004 and 2003, respectively.

Legal Proceedings

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

NOTE 15.    Regulatory Requirements and Other Restrictions

BB&T’s Subsidiary Banks are required by the Board of Governors of the Federal Reserve System to maintain reserve balances in the form of vault cash or deposits with the Federal Reserve Bank based on specified percentages of certain deposit types, subject to various adjustments. At December 31, 2004, the net reserve requirement amounted to $336.2 million.

BB&T’s Subsidiary Banks are subject to laws and regulations that limit the amount of dividends they can pay. In addition, both BB&T and its Subsidiary Banks are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums, and to remain “well-capitalized” under the prompt corrective action regulations. BB&T does not expect that any of these laws, regulations or policies will materially affect the ability of the Banks to pay dividends. At December 31, 2004, subject to restrictions imposed by state law, the Boards of Directors of the Banks could have declared dividends from their retained earnings up to $2.9 billion; however, to remain well-capitalized under federal guidelines, the Banks would have limited total additional dividends to $1.3 billion.

BB&T is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on BB&T’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of BB&T’s assets, liabilities and certain off-balance-sheet items calculated pursuant to regulatory directives. BB&T’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. BB&T is in full compliance with these requirements. Banking regulations also identify five capital categories for insured depository institutions: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. At December 31, 2004 and 2003, BB&T and each of the Subsidiary Banks were classified as “well-capitalized”. There are no conditions or events that management believes have changed BB&T’s or the Subsidiary Banks’ classification.

Quantitative measures established by regulation to ensure capital adequacy require BB&T to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average tangible assets.

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The following table provides summary information regarding regulatory capital for BB&T and its significant banking subsidiaries as of December 31, 2004 and 2003:

	December 31, 2004						December 31, 2003
	Actual Capital				Minimum Capital Requirement		Actual Capital				Minimum Capital Requirement
	Ratio		Amount				Ratio		Amount
	(Dollars in thousands)
Tier 1 Capital
BB&T	9.2	%	$	6,687,082	$	2,907,003	9.4	%	$	6,166,160	$	2,620,474
Branch Bank	10.0			5,376,809		2,156,231	9.5			4,613,526		1,944,023
BB&T—SC	10.2			506,332		197,801	9.7			462,545		189,861
BB&T—VA	12.2			1,523,551		497,599	12.3			1,450,244		472,701
Total Capital
BB&T	14.5			10,571,126		5,814,006	12.5			8,211,674		5,240,948
Branch Bank	11.5			6,211,961		4,312,462	11.2			5,421,022		3,888,046
BB&T—SC	11.5			568,486		395,602	11.0			522,205		379,722
BB&T—VA	13.2			1,636,939		995,198	13.3			1,565,833		945,401
Leverage Capital
BB&T	7.1			6,687,082		3,766,502	7.2			6,166,160		2,584,715
Branch Bank	7.5			5,376,809		2,142,942	7.1			4,613,526		1,937,649
BB&T—SC	8.4			506,332		181,548	7.9			462,545		176,000
BB&T—VA	7.8			1,523,551		586,528	7.5			1,450,244		583,952

As an approved seller/servicer, one of our Subsidiary Banks is required to maintain minimum levels of shareholder’s equity, as specified by various agencies, including the United States Department of Housing and Urban Development, Government National Mortgage Association, Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. At December 31, 2004 and 2003, this subsidiary’s equity was above all required levels.

At December 31, 2004 and 2003, BB&T’s broker/dealer subsidiaries had restricted cash deposits totaling $122.2 million and $60.4 million, respectively. These deposits relate to monies held for the exclusive benefit of clients and are included in interest-bearing deposits with banks on the Consolidated Balance Sheets.

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NOTE 16.    Parent Company Financial Statements

Parent Company

Condensed Balance Sheets

December 31, 2004 and 2003

	2004		2003
	(Dollars in thousands)
Assets
Cash and due from banks	$	49,038	$	17,537
Interest-bearing bank balances		1,472,342		1,871,734
Securities available for sale at fair value		13,839		17,246
Investment in banking subsidiaries		11,679,084		10,361,772
Investment in other subsidiaries		1,325,411		1,246,767
Total investments in subsidiaries		13,004,495		11,608,539
Advances to / receivables from banking subsidiaries		98,130		147,927
Advances to / receivables from other subsidiaries		879,693		410,051
Premises and equipment		4,377		4,542
Other assets		127,579		49,542
Total assets	$	15,649,493	$	14,127,118
Liabilities and Shareholders’ Equity
Short-term borrowed funds	$	910,168	$	941,100
Short-term borrowed funds due to subsidiaries		8,680		82,053
Dividends payable		192,849		175,944
Accounts payable and other liabilities		72,544		27,630
Long-term debt		3,397,220		2,801,741
Long-term debt due to subsidiaries		193,558		163,919
Total liabilities		4,775,019		4,192,387
Total shareholders’ equity		10,874,474		9,934,731
Total liabilities and shareholders’ equity	$	15,649,493	$	14,127,118

Parent Company

Condensed Income Statements

For the Years Ended December 31, 2004, 2003 and 2002

	2004		2003			2002
	(Dollars in thousands)
Income
Dividends from banking subsidiaries	$	977,067	$	1,478,947		$	1,110,449
Dividends from other subsidiaries		11,210		24,796			52,260
Interest and other income from subsidiaries		31,628		30,316			66,179
Other income (loss)		406		(734	)		1,094
Total income		1,020,311		1,533,325			1,229,982
Expenses
Interest expense		107,094		86,455			98,019
Other expenses		22,200		20,743			20,391
Total expenses		129,294		107,198			118,410
Income before income taxes and equity in undistributed earnings of subsidiaries		891,017		1,426,127			1,111,572
Income tax benefit		26,563		22,606			16,906
Income before equity in undistributed earnings of subsidiaries		917,580		1,448,733			1,128,478
Equity in undistributed earnings of subsidiaries in excess of (less than) dividends from subsidiaries		640,795		(383,830	)		174,531
Net income	$	1,558,375	$	1,064,903		$	1,303,009

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Parent Company

Condensed Statements of Cash Flows

For the Years Ended December 31, 2004, 2003 and 2002

	2004			2003			2002
	(Dollars in thousands)
Cash Flows From Operating Activities:
Net income	$	1,558,375		$	1,064,903		$	1,303,009
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in earnings of subsidiaries less than (in excess of) dividends from subsidiaries		(640,795	)		383,830			(174,531	)
Depreciation of premises and equipment		165			522			164
Amortization of unearned compensation		172			180			2,052
Discount accretion and premium amortization		(529	)		(585	)		(707	)
Loss (gain) on sales of securities		(159	)		128			(74	)
Decrease (increase) in other assets		29,960			(54,578	)		217,997
Increase (decrease) in accounts payable and accrued liabilities		(11,677	)		(21,138	)		(35,142	)
Other, net		—			—			2,395
Net cash provided by operating activities		935,512			1,373,262			1,315,163
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale		3,424			2,034			582
Purchases of securities available for sale		—			(223	)		(37	)
Investment in subsidiaries		(19,050	)		(54,666	)		(231,600	)
Advances to subsidiaries		(631,600	)		(1,292,403	)		(1,372,630	)
Proceeds from repayment of advances to subsidiaries		159,500			1,584,532			1,257,895
Net cash (paid) received in purchase accounting transactions		(210,437	)		(1,726	)		(101,151	)
Other, net		—			(2,966	)		2,189
Net cash provided by (used in) investing activities		(698,163	)		234,582			(444,752	)
Cash Flows From Financing Activities:
Net increase (decrease) in long-term debt		599,748			746,030			493,510
Net increase (decrease) in short-term borrowed funds		(30,932	)		96,885			(42,582	)
Net increase (decrease) in advances from subsidiaries		(73,373	)		82,053			—
Net proceeds from common stock issued		79,749			49,182			60,078
Redemption of common stock		(441,361	)		(797,911	)		(800,667	)
Cash dividends paid on common stock		(739,071	)		(628,118	)		(521,878	)
Net cash (used in) provided by financing activities		(605,240	)		(451,879	)		(811,539	)
Net Increase (Decrease) in Cash and Cash Equivalents		(367,891	)		1,155,965			58,872
Cash and Cash Equivalents at Beginning of Year		1,889,271			733,306			674,434
Cash and Cash Equivalents at End of Year	$	1,521,380		$	1,889,271		$	733,306

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NOTE 17.    Disclosures about Fair Value of Financial Instruments

A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity.

Estimates of the fair value of BB&T’s financial instruments are presented in the accompanying tables. Fair value estimates are made at a point in time, based on relevant market data and information about the financial instrument. Fair values should be calculated based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a significant portion of BB&T’s financial instruments. Fair value estimates for these instruments are based on judgments regarding current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates.

The following methods and assumptions were used by BB&T in estimating the fair value of its financial instruments:

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

Securities: Fair values for securities are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities.

Loans receivable and loans held for sale: The fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms and credit quality. The carrying amounts of accrued interest approximate fair values. The fair values of loans held for sale, which are primarily residential mortgage loans, are based on quoted market prices and the projected value of the net servicing fees.

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

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

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

Derivative financial instruments: The fair values of derivative financial instruments are determined based on dealer quotes. The fair value of most interest rate lock commitments, which are related to residential mortgage loan commitments, are based on quoted market prices of the underlying loans adjusted for commitments that BB&T does not expect to fund, excluding any value attributable to the net servicing fee.

Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness

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

The following is a summary of the carrying amounts and fair values of BB&T’s financial assets and liabilities:

	December 31,
	2004					2003
	Carrying Amount			Fair Value		Carrying Amount			Fair Value
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	3,025,835		$	3,025,835	$	2,821,967		$	2,821,967
Trading securities		334,256			334,256		693,819			693,819
Securities available for sale		18,838,196			18,838,196		15,562,954			15,562,954
Securities held to maturity		125			125		60,122			60,125
Derivative assets		127,951			127,951		183,500			183,500
Loans and leases, net of unearned income:
Loans (1)		65,274,938			65,324,859		59,628,328			60,035,728
Leases		2,887,663			NA		2,677,058			NA
Allowance for loan and lease losses		(804,932	)		NA		(784,937	)		NA
Net loans and leases	$	67,357,669				$	61,520,449
Financial liabilities:
Deposits	$	67,699,337			67,703,916	$	59,349,785			59,670,878
Federal funds purchased and securities sold under repurchase agreements		5,387,243			5,387,243		4,866,960			4,866,960
Short-term borrowed funds		1,300,629			1,300,629		2,467,940			2,467,940
Derivative liabilities		54,626			54,626		47,475			47,475
Long-term debt		11,417,658			11,470,820		10,805,585			11,714,840
Capitalized leases		1,966			NA		2,115			NA

(1) Includes loans held for sale.

NA—not applicable.

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

	December 31,
	2004				2003
	Notional/ Contract Amount		Fair Value		Notional/ Contract Amount		Fair Value
	(Dollars in thousands)
Contractual commitments:
Commitments to extend, originate or purchase credit	$	24,899,436	$	34,586	$	21,196,760	$	26,331
Mortgage loans sold with recourse		283,798		709		383,312		958
Standby and commercial letters of credit and financial guarantees written		2,062,018		8,793		1,600,920		1,386
Commitments to fund affordable housing investments		215,244		195,287		214,961		195,337

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NOTE 18.    Derivative Financial Instruments

BB&T uses a variety of derivative financial instruments to manage various financial risks. Derivatives derive their cash flows, and therefore their value, by reference to an underlying instrument, index or referenced interest rate. BB&T uses derivatives primarily to manage risk related to business loans, Federal funds purchased, long-term debt, mortgage servicing rights, mortgage banking operations, and certificates of deposit. The following tables set forth certain information concerning BB&T’s derivative financial instruments at December 31, 2004 and 2003:

Derivative Financial Instruments

(Dollars in thousands)

	December 31, 2004
	Notional Amount		Average Receive Rate		Average Pay Rate		Estimated Fair Value
Type
Receive fixed swaps	$	6,513,601	4.61	%	2.63	%	$	67,170
Pay fixed swaps		2,277,818	2.40		3.37			(11,900	)
Forward starting receive fixed swaps		200,000	—		—			(908	)
Forward starting pay fixed swaps		1,500,000	—		—			3,519
Caps, floors and collars		1,421,112	—		—			435
Foreign exchange contracts		306,747	—		—			549
Interest rate lock commitments		507,121	—		—			2,134
Forward commitments		898,100	—		—			(1,657	)
Swaptions		1,750,000	—		—			2,030
When issued securities		3,740,000	—		—			7,060
Options on contracts purchased		1,260,000	—		—			4,981
Options on contracts sold		135,000	—		—			(88	)
Total	$	20,509,499					$	73,325
	December 31, 2003
	Notional Amount		Average Receive Rate		Average Pay Rate		Estimated Fair Value
Type
Receive fixed swaps	$	7,165,164	4.57	%	1.77	%	$	133,480
Pay fixed swaps		622,031	1.32		3.68			(16,425	)
Forward starting receive fixed swaps		150,000	—		—			54
Forward starting pay fixed swaps		1,500,000	—		—			(6,285	)
Caps, floors and collars		1,369,467	—		—			5,283
Foreign exchange contracts		191,858	—		—			40
Futures contracts		6,925	—		—			6
Interest rate lock commitments		82,913	—		—			910
Forward commitments		395,332	—		—			(1,941	)
Swaptions		2,200,000	—		—			11,176
When issued securities		900,000	—		—			9,641
Options on contracts purchased		25,000	—		—			86
Total	$	14,608,690					$	136,025

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The following tables disclose data with respect to BB&T’s derivative financial instrument classifications and hedging relationships:

Derivative Classifications and Hedging Relationships

(Dollars in thousands)

	December 31, 2004							December 31, 2003
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Gain		Loss					Gain		Loss
Derivatives Designated as Cash Flow Hedges:
Hedging business loans	$	2,750,000	$	4,170	$	(9,463	)	$	4,150,000	$	52,084	$	(74	)
Hedging certificates of deposits and short-term borrowed funds		3,750,000		6,131		(3,147	)		2,750,000		5,283		(6,285	)
Hedging medium term bank notes		500,000		—		(1,070	)		—		—		—
Derivatives Designated as Fair Value Hedges:
Hedging business loans		4,217		—		(118	)		6,867		—		(287	)
Hedging long-term debt		3,000,000		72,543		(9,790	)		2,400,000		71,725		(6,393	)
Derivatives Not Designated as Hedges		10,505,282		45,107		(31,038	)		5,301,823		54,408		(34,436	)
Total	$	20,509,499	$	127,951	$	(54,626	)	$	14,608,690	$	183,500	$	(47,475	)

At December 31, 2004 and 2003, BB&T had designated notional values of $3.0 billion and $2.4 billion, respectively, of derivatives as fair value hedges. At December 31, 2004, fair value hedges reflected a net unrealized gain of approximately $62.6 million, with instruments in a gain position reflecting a fair value of $72.5 million recorded in other assets and instruments in a loss position with a fair value of $9.9 million recorded in other liabilities. At December 31, 2003, derivatives designated as fair value hedges reflected a net unrealized gain of $65.0 million, composed of instruments in a gain position with a fair value of $71.7 million and instruments in a loss position with a fair value of $6.7 million. There was no impact on earnings during 2004, 2003 or 2002 resulting from fair value hedge ineffectiveness.

At December 31, 2004 and 2003, BB&T had designated derivatives with notional values of $7.0 billion and $6.9 billion, respectively, as cash flow hedges. The instruments had a net estimated fair value of $(3.4 million) and $51.0 million at December 31, 2004 and 2003, respectively. The effect on earnings resulting from the ineffectiveness of cash flow hedges was not material for 2004, 2003 or 2002.

Accumulated other comprehensive income includes $(20.7 million) and $10.4 million of net after-tax unrecognized (losses) gains attributable to cash flow hedges at December 31, 2004 and 2003, respectively. The estimated net amount of the unrecognized losses reflected in accumulated other comprehensive income at December 31, 2004 that is expected to be reclassified into earnings within the next 12 months is $2.0 million. During 2004, 2003 and 2002, BB&T reclassified into earnings from other comprehensive income after-tax net gains of $42.2 million, $42.5 million and $10.0 million, respectively.

Accumulated other comprehensive income included $8.0 million in unrecognized after-tax losses and $28.6 million in net unrecognized after-tax gains on interest rate swaps hedging variable interest payments on business loans at December 31, 2004 and 2003, respectively. These amounts included unrecognized after-tax losses on previously terminated swaps of $4.8 million and $2.8 million at December 31, 2004 and 2003, respectively. In addition, at December 31, 2004 and 2003, accumulated other comprehensive income included $12.7 million and $18.2 million, respectively, in net unrecognized losses on interest rate swaps and caps hedging variable interest payments on short-term borrowed funds, certificates of deposit and medium term bank notes. These amounts

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included unrecognized after-tax losses of $13.6 million and $14.4 million on interest rate caps at December 31, 2004 and 2003, respectively. BB&T’s business loans, short-term borrowings, certificates of deposit and medium term bank notes expose it to variability in cash flows for interest payments. The risk management objective for these assets and liabilities is to hedge the variability in the interest payments. This objective is met by entering into interest rate swaps and interest rate caps that fix the interest payments when interest rates on the hedged item exceed predetermined rates.

All of BB&T’s cash flow hedges are hedging exposure to variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments. The maximum length of time over which BB&T is hedging its exposure to the variability in future cash flows for forecasted transactions related to variable interest payments on existing financial instruments is 5.8 years.

BB&T also held $10.5 billion and $5.3 billion in notional value of derivatives not designated as hedges at December 31, 2004 and 2003, respectively. At December 31, 2004, these instruments were in a net gain position with a net estimated fair value of $14.1 million. At December 31, 2003, such instruments were in a net gain position and had an estimated fair value of $20.0 million. Changes in the fair value of these derivatives are reflected in current period earnings. Derivatives not designated as a hedge in the notional amounts of $8.5 billion and $3.8 billion have been entered into as risk management instruments for mortgage servicing rights and mortgage banking operations at December 31, 2004 and 2003, respectively. For mortgage loans originated for sale, BB&T is exposed to changes in market rates and conditions subsequent to the interest rate lock and funding date. BB&T’s economic risk management strategy related to its interest rate lock commitment derivatives and loans held for sale includes utilizing mortgage-based derivatives such as forward commitments and options in order to mitigate market risk. BB&T also held derivatives not designated as hedges with notional amounts totaling $2.0 billion and $1.5 billion that have been entered into to facilitate transactions on behalf of BB&T’s clients.

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, counterparties are required to provide cash collateral to BB&T when their unsecured loss positions exceed certain negotiated limits. As of December 31, 2004 and 2003, BB&T had received cash collateral of approximately $46.5 million and $62.3 million, respectively. All of the derivative contracts to which BB&T is a party settle monthly, quarterly or semiannually. Further, BB&T has netting agreements with the dealers with which it does business. Because of these factors, BB&T’s credit risk exposure related to derivatives contracts at December 31, 2004 and 2003 was not material.

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NOTE 19.    Computation of Earnings Per Share

The basic and diluted earnings per share calculations are presented in the following table:

	Years Ended December 31,
	2004		2003		2002
	(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Income before cumulative effect of change in accounting principle	$	1,558,375	$	1,064,903	$	1,293,229
Cumulative effect of change in accounting principle		—		—		9,780
Net income	$	1,558,375	$	1,064,903	$	1,303,009
Weighted average number of common shares outstanding during period		551,661,326		509,850,763		473,303,770
Basic earnings per share
Income before cumulative effect of change in accounting principle	$	2.82	$	2.09	$	2.73
Cumulative effect of change in accounting principle		—		—		.02
Net income	$	2.82	$	2.09	$	2.75
Diluted Earnings Per Share:
Income before cumulative effect of change in accounting principle	$	1,558,375	$	1,064,903	$	1,293,229
Cumulative effect of change in accounting principle		—		—		9,780
Net income	$	1,558,375	$	1,064,903	$	1,303,009
Weighted average number of common shares outstanding during period		551,661,326		509,850,763		473,303,770
Add:
Effect of dilutive outstanding options		4,379,707		4,231,629		5,488,788
Weighted average number of common shares, as adjusted		556,041,033		514,082,392		478,792,558
Diluted earnings per share
Income before cumulative effect of change in accounting principle	$	2.80	$	2.07	$	2.70
Cumulative effect of change in accounting principle		—		—		.02
Net income	$	2.80	$	2.07	$	2.72

For the years ended December 31, 2004, 2003 and 2002, respectively, options to purchase an additional 180 thousand, 10.1 million and 4.0 million shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect.

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NOTE 20.    Operating Segments

BB&T’s operations are divided into seven reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Insurance Services, Specialized Lending, Investment Banking and Brokerage, and Treasury. These operating segments have been identified based 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 measures and presents information for internal reporting purposes in a variety of different ways. Information for BB&T’s reportable segments is available based on organizational structure, product offerings and customer relationships. The internal reporting system presently utilized by management in the planning and measuring of operating activities, as well as the system to which most managers are held accountable, is based on organizational structure.

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.

The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, BB&T allocates capital, funding charges and credits, an economic provision for loan and lease losses, certain noninterest expenses and income tax provisions to each segment, as applicable. Also, to promote revenue growth and provide a basis for employee incentives, certain revenues of Mortgage Banking, Trust Services, Insurance Services, Specialized Lending, and the Investment Banking and Brokerage segments are reflected in the individual segment results and also allocated to the Banking Network. This double counting of revenue is reflected in intersegment noninterest revenues and eliminated to arrive at consolidated results. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and business or product lines within the segments change. Also, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised.

BB&T’s overall objective is to maximize shareholder value by optimizing return on equity and managing risk. Allocations of capital and the economic provision for loan and lease losses are designed to address this objective. Capital is assigned to each segment on an economic basis, using management’s assessment of the inherent risks associated with the segment. Economic capital allocations are made to cover the following risk categories: credit risk, funding risk, interest rate risk, option risk, basis risk, market risk and operational risk. Each segment is evaluated based on a risk-adjusted return on capital. Capital assignments are not equivalent to regulatory capital guidelines and the total amount assigned to all segments typically varies from total consolidated shareholders’ equity. Unallocated capital is retained in the Treasury segment.

The economic provision for loan and lease losses is also allocated to the relevant segments based on management’s assessment of the segments’ risks as described above. Unlike the provision for loan and lease losses recorded pursuant to generally accepted accounting principles, the economic provision adjusts for the impact of expected credit losses over the effective lives of the related loans and leases. Any unallocated provision for loan and lease losses is retained in the corporate office.

BB&T allocates expenses to the reportable segments based on various methodologies, including volume and amount of loans and deposits, amount of total assets and liabilities and the volume of full-time equivalent

115

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

employees serviced. A portion of corporate overhead expense is not allocated, but is retained in corporate accounts reflected as other expenses in the accompanying tables. Income taxes are allocated to the various segments using effective tax rates.

BB&T utilizes a funds transfer pricing (‘‘FTP’’) system to eliminate the effect of interest rate risk from the segments’ net interest income because such risk is centrally managed within the Treasury segment. The FTP system credits or charges the segments with the economic value or cost of the funds the segments create or use. The FTP system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The net FTP credit or charge is reflected as net intersegment interest income (expense) in the accompanying tables.

Banking Network

BB&T’s Banking Network serves individual and business clients by offering a variety of loan and deposit products and other financial services. The Banking Network is primarily responsible for serving client relationships, and, therefore, is credited with revenue from the Mortgage Banking, Trust Services, Insurance Services, Investment Banking and Brokerage, Specialized Lending and other segments, which is reflected in intersegment noninterest income. Amortization and depreciation expense that has been allocated to the segment totaled $83.7 million, $84.7 million and $80.4 million for 2004, 2003 and 2002, respectively.

Mortgage Banking

The Mortgage Banking segment retains and services mortgage loans originated by the Banking Network as well as those purchased from various correspondent originators. Mortgage loan products include fixed- and adjustable-rate government and conventional loans for the purpose of constructing, purchasing or refinancing owner-occupied properties. Fixed-rate mortgage loans are typically sold to government agencies with servicing rights retained by BB&T, while adjustable-rate loans are typically held in the portfolio. The Mortgage Banking segment earns interest on loans held in the warehouse and portfolio, fee income from the origination and servicing of mortgage loans and recognizes gains or losses from the sale of mortgage loans. The Banking Network receives an interoffice credit for the origination of loans and servicing rights, with the corresponding charge remaining in the corporate office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results. Amortization and depreciation expense that has been allocated to the segment totaled $1.1 million, $2.2 million and $2.3 million for 2004, 2003 and 2002, respectively.

Trust Services

BB&T’s Trust Services segment provides personal trust administration, estate planning, investment counseling, wealth management, asset management, employee benefits services, and corporate trust services to individuals, corporations, institutions, foundations and government entities. The Banking Network receives an interoffice credit for trust fees in the initial year the account is referred, with the corresponding charge remaining in the corporate office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results. Amortization and depreciation expense that has been allocated to the segment totaled $4.5 million, $3.8 million and $2.7 million for 2004, 2003 and 2002, respectively.

Insurance Services

BB&T operates the 6^th largest insurance agency/brokerage network in the nation. BB&T Insurance Services provides property and casualty, life and health insurance to businesses and individuals. It also provides small business and corporate products, such as workers compensation and professional liability, as well as surety coverage and title insurance. The Banking Network receives credit for insurance commissions on referred accounts, with the corresponding charge retained in the corporate office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results. Amortization and depreciation expense that has been allocated to the segment totaled $43.2 million, $15.1 million and $10.6 million for 2004, 2003 and 2002, respectively.

Specialized Lending

BB&T’s Specialized Lending segment consists of seven wholly owned subsidiaries that provide specialty finance alternatives to consumers and businesses including: commercial factoring services, dealer-based financing

116

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

of equipment for both small businesses and consumers, commercial fleet vehicle and equipment leasing, direct consumer finance, insurance premium finance, nonconforming mortgage lending, indirect sub-prime automobile finance, and full-service commercial mortgage banking. Bank clients as well as non-bank clients within and outside BB&T’s primary geographic market area are served by these companies. The Banking Network receives credit for referrals to these companies with the corresponding charge retained in the corporate office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results. Amortization and depreciation expense that has been allocated to the segment totaled $12.0 million, $10.9 million and $9.3 million for 2004, 2003 and 2002, respectively.

Investment Banking and Brokerage

BB&T’s Investment Banking and Brokerage segment offers clients investment alternatives, including discount brokerage services, fixed-rate and variable-rate annuities, and mutual funds through BB&T Investment Services, Inc., a subsidiary of Branch Bank. The Investment Banking and Brokerage segment includes Scott & Stringfellow, Inc., a full-service brokerage and investment banking firm headquartered in Richmond, Virginia. Scott & Stringfellow specializes in the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. Scott & Stringfellow also has a public finance department that provides investment banking services, financial advisory services and municipal bond financing to a variety of regional tax-exempt issuers. The Banking Network is credited for investment service revenues on referred accounts, with the corresponding charge retained in the corporate office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results. Amortization and depreciation expense that has been allocated to the segment totaled $2.4 million, $2.4 million and $3.0 million for 2004, 2003 and 2002, respectively.

Treasury

BB&T’s Treasury segment is responsible for the management of the securities portfolios, overall balance sheet funding and liquidity, and overall management of interest rate risk. Amortization and depreciation expense that has been allocated to the segment totaled $.2 million for 2004, 2003 and 2002.

The following tables present selected financial information for BB&T’s reportable business segments for the years ended December 31, 2004, 2003 and 2002:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

BB&T Corporation

Reportable Segments

For the Years Ended December 31, 2004, 2003 and 2002

	Banking Network						Mortgage Banking									Trust Services									Insurance Services						Specialized Lending
	2004		2003		2002		2004			2003			2002			2004			2003			2002			2004		2003		2002		2004		2003		2002
	(Dollars in thousands)
Net interest income (expense)	$	2,084,942	$	1,689,466	$	1,492,450	$	701,976		$	678,557		$	636,212		$	(2,579	)	$	(13,178	)	$	(20,445	)	$	4,354	$	1,602	$	1,763	$	278,226	$	224,687	$	185,873
Net intersegment interest income (expense)		1,011,952		730,444		660,390		(369,671	)		(294,995	)		(327,161	)		8,636			36,202			47,908			—		—		—		—		—		—
Net interest income		3,096,894		2,419,910		2,152,840		332,305			383,562			309,051			6,057			23,024			27,463			4,354		1,602		1,763		278,226		224,687		185,873
Provision for loan and lease losses		246,672		225,478		215,769		8,834			6,912			3,271			—			—			—			—		—		—		91,911		87,741		62,927
Noninterest income		820,518		705,114		587,700		118,092			163,328			44,939			130,298			116,021			97,914			603,421		373,002		288,658		53,441		54,717		58,083
Intersegment noninterest income		367,679		451,622		346,111		—			—			—			—			—			—			—		—		—		—		—		—
Noninterest expense		1,264,940		1,262,895		1,067,380		46,935			56,245			47,996			100,106			90,786			79,896			473,881		286,984		221,051		132,986		116,696		108,354
Allocated corporate expenses		550,230		496,131		579,017		19,330			11,665			29,525			9,286			8,273			8,565			19,160		14,956		23,732		15,375		9,356		12,716
Income before income taxes		2,223,249		1,592,142		1,224,485		375,298			472,068			273,198			26,963			39,986			36,916			114,734		72,664		45,638		91,395		65,611		59,959
Provision for income taxes		731,671		483,894		342,610		123,702			145,610			76,949			9,091			12,201			10,428			45,228		28,148		18,175		26,573		20,271		21,360
Segment net income	$	1,491,578	$	1,108,248	$	881,875	$	251,596		$	326,458		$	196,249		$	17,872		$	27,785		$	26,488		$	69,506	$	44,516	$	27,463	$	64,822	$	45,340	$	38,599
Identifiable segment assets (period end)	$	52,026,132	$	47,453,414	$	39,927,325	$	12,459,612		$	12,246,128		$	10,709,260		$	104,752		$	83,616		$	78,673		$	1,803,123	$	937,274	$	724,195	$	2,588,650	$	2,082,228	$	1,780,414

118

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

BB&T Corporation

Reportable Segments

For the Years Ended December 31, 2004, 2003 and 2002—continued

	Investment Banking and Brokerage						Treasury							All Other Segments (1)						Intersegment Eliminations									Total Segments
	2004		2003		2002		2004		2003		2002			2004		2003		2002		2004			2003			2002			2004		2003		2002
	(Dollars in thousands)
Net interest income (expense)	$	7,792	$	6,748	$	7,474	$	119,294	$	261,583	$	819,658		$	168,274	$	221,824	$	173,427	$	—		$	—		$	—		$	3,362,279	$	3,071,289	$	3,296,412
Net intersegment interest income (expense)		—		—		—		36,209		5,535		(39,035	)		—		—		—		(687,126	)		(477,186	)		(342,102	)		—		—		—
Net interest income		7,792		6,748		7,474		155,503		267,118		780,623			168,274		221,824		173,427		(687,126	)		(477,186	)		(342,102	)		3,362,279		3,071,289		3,296,412
Provision for loan and lease losses		—		—		—		—		154		142			45,757		39,995		31,228											393,174		360,280		313,337
Noninterest income		274,941		252,891		215,747		67,700		207,158		242,815			136,850		197,020		121,550											2,205,261		2,069,251		1,657,406
Intersegment noninterest income		—		—		—		—		—		—			—		—		—		(367,679	)		(451,622	)		(346,111	)		—		—		—
Noninterest expense		238,502		215,925		191,638		5,889		6,399		5,333			69,059		105,063		38,111											2,332,298		2,140,993		1,759,759
Allocated corporate expenses		14,006		9,010		14,771		443		987		1,687			15,274		13,740		11,419											643,104		564,118		681,432
Income before income taxes		30,225		34,704		16,812		216,871		466,736		1,016,276			175,034		260,046		214,219		(1,054,805	)		(928,808	)		(688,213	)		2,198,964		2,075,149		2,199,290
Provision for income taxes		11,658		13,390		6,474		50,507		118,841		280,345			57,399		158,762		48,927		(343,866	)		(303,720	)		(192,011	)		711,963		677,397		613,257
Segment net income	$	18,567	$	21,314	$	10,338	$	166,364	$	347,895	$	735,931		$	117,635	$	101,284	$	165,292	$	(710,939	)	$	(625,088	)	$	(496,202	)	$	1,487,001	$	1,397,752	$	1,586,033
Identifiable segment assets (period end)	$	885,294	$	947,479	$	982,755	$	18,530,232	$	20,297,032	$	16,449,141		$	4,564,247	$	4,414,341	$	5,767,429	$	—		$	—		$	—		$	92,962,042	$	88,461,512	$	76,419,192

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

119

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	For the Years Ended December 31,
	2004			2003			2002
	(Dollars in thousands)
Net Interest Income
Net interest income from segments	$	3,362,279		$	3,071,289		$	3,296,412
Other net interest income (expense) (1)		373,389			283,841			(925,454	)
Elimination of management accounting practices (2)		(410,819	)		(384,541	)		(293,493	)
Elimination of other interest income and expense (3)		23,374			111,416			669,995
Consolidated net interest income	$	3,348,223		$	3,082,005		$	2,747,460
Net income
Net income from segments	$	1,487,001		$	1,397,752		$	1,586,033
Other net income (loss) (1)		91,512			191,583			(903,831	)
Elimination of management accounting practices (2)		86,303			(405,599	)		(112,192	)
Elimination of other income and expense (3)		(106,441	)		(118,833	)		732,999
Consolidated net income	$	1,558,375		$	1,064,903		$	1,303,009
	December 31,
	2004			2003			2002
	(Dollars in thousands)
Total Assets
Total assets from segments	$	92,962,042		$	88,461,512		$	76,419,192
Other, net (1,3)		7,546,599			2,005,101			3,797,624
Consolidated total assets	$	100,508,641		$	90,466,613		$	80,216,816

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

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

(3) Amounts reflect intercompany eliminations to arrive at consolidated results.

120

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of March 7, 2005:

BB&T CORPORATION         (Registrant)
By:	/S/    JOHN A. ALLISON, IV
	John A. Allison, IV Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of March 7, 2005.

/S/    JOHN A. ALLISON, IV        

John A. Allison, IV

Chairman of the Board and Chief Executive Officer

/S/    SCOTT E. REED        

Scott E. Reed

Senior Executive Vice President and

Chief Financial Officer

/S/    EDWARD D. VEST        

Edward D. Vest

Executive Vice President and Corporate Controller

121

A Majority of the Directors of the Registrant are included.

/S/    JENNIFER S. BANNER        

Jennifer S. Banner

Director

/S/    ANNA R. CABLIK        

Anna R. Cablik

Director

/S/    NELLE RATRIE CHILTON        

Nelle Ratrie Chilton

Director

/S/    ALFRED E. CLEVELAND        

Alfred E. Cleveland

Director

/S/    RONALD E. DEAL        

Ronald E. Deal

Director

Tom D. Efird

Director

/S/    BARRY J. FITZPATRICK        

Barry J. Fitzpatrick

Director

/S/    LLOYD VINCENT HACKLEY        

Lloyd Vincent Hackley

Director

/S/    JANE P. HELM        

Jane P. Helm

Director

/S/    JOHN P. HOWE III, M.D.        

John P. Howe III, M.D.

Director

/S/    JAMES H. MAYNARD        

James H. Maynard

Director

/S/    ALBERT O. MCCAULEY        

Albert O. McCauley

Director

/S/    J. HOLMES MORRISON        

J. Holmes Morrison

Director

/S/    NIDO R. QUBEIN        

Nido R. Qubein

Director

/S/    E. RHONE SASSER        

E. Rhone Sasser

Director

/S/    ALBERT F. ZETTLEMOYER        

Albert F. Zettlemoyer

Director

122

EXHIBIT INDEX

Exhibit No.	Description	Location
2(a)	Agreement and Plan of Reorganization dated as of July 29, 1994 and amended and restated as of October 22, 1994 between the Registrant and BB&T Financial Corporation.	Incorporated herein by reference to Annex I of Form S-4 Registration Statement No. 33-56437.
2(b)	Plan of Merger as of July 29, 1994 as amended and restated on October 22, 1994 between the Registrant and BB&T Financial Corporation.	Incorporated herein by reference to Annex II of Form S-4 Registration Statement No. 33-56437.
2(c)	Agreement and Plan of Reorganization dated as of January 20, 2003 between the Registrant and First Virginia Banks, Inc.	Incorporated herein by reference to Appendix A of Form S-4 Registration Statement No. 333-103832.
3(i)	Articles of Incorporation of the Registrant, as amended.	Filed herewith.
3(ii)	Bylaws of the Registrant, as amended.	Incorporated herein by reference to Exhibit 3(ii) of the Quarterly Report on Form 10-Q, filed November 8, 2004.
4(a)	Articles of Incorporation of the Registrant related to Junior Participating Preferred Stock.	Filed herewith in Article IV of Exhibit 3(i).
4(b)	Subordinated Indenture (including Form of Subordinated Debt Security) between the Registrant and State Street Bank and Trust Company, Trustee, dated as of May 24, 1996.	Incorporated herein by reference to Exhibit 4(d) of Form S-3 Registration Statement No. 333-02899.
4(c)	Senior Indenture (including Form of Senior Debt Security) between the Registrant and State Street Bank and Trust Company, Trustee, dated as of May 24, 1996.	Incorporated herein by reference to Exhibit 4(c) of Form S-3 Registration Statement No. 333-02899.
4(d)	First Supplemental Indenture between the Registrant and U.S. Bank National Association, Trustee, dated as of December 23, 2003.	Incorporated herein by reference to Exhibit 4 of the Current Report on Form 8-K, filed December 23, 2003.
4(e)	Second Supplemental Indenture between the Registrant and U.S. Bank National Association, Trustee, dated as of September 24, 2004.	Incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed September 27, 2004.
10(a)*	BB&T Corporation Non-Employee Directors’ Deferred Compensation and Stock Option Plan (amended and restated November 1, 2001).	Incorporated herein by reference to Exhibit 10(v) of the Annual Report on Form 10-K, filed March 15, 2002.

Exhibit No.	Description	Location
10(b)*	2001 Declaration of Amendment to BB&T Corporation Non-Employee Directors’ Deferred Compensation and Stock Option Plan.	Incorporated herein by reference to Exhibit 10(y) of the Annual Report on Form 10-K, filed March 15, 2002.
10(c)*	2004 Declaration of Amendment to BB&T Corporation Non-Employee Directors’ Deferred Compensation and Stock Option Plan.	Filed herewith.
10(d)*	2005 Declaration of Amendment to BB&T Corporation Non-Employee Directors’ Deferred Compensation and Stock Option Plan.	Incorporated herein by reference to Exhibit 10(e) of the Current Report on Form 8-K, filed February 28, 2005.
10(e)*	Southern National Corporation 1994 Omnibus Stock Incentive Plan.	Incorporated herein by reference to Exhibit 4.3 of Form S-8 Registration Statement No. 33-57865.
10(f)*	BB&T Corporation 1995 Omnibus Stock Incentive Plan (as amended and restated through February 25, 2003).	Incorporated herein by reference to Exhibit 99 of Form S-8 Registration Statement No. 333-116502.
10(g)*	Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation 1995 Omnibus Stock Incentive Plan, as amended and restated.	Incorporated herein by reference to Exhibit 10(b) of the Current Report on Form 8-K, filed February 28, 2005.
10(h)*	BB&T Corporation 2004 Stock Incentive Plan.	Incorporated herein by reference to Exhibit 99 of Form S-8 Registration Statement No. 333-116488.
10(i)*	Form of Non-Employee Director Nonqualified Stock Option Agreement for the BB&T Corporation 2004 Stock Incentive Plan.	Incorporated herein by reference to Exhibit 10(c) of the Current Report on Form 8-K, filed February 28, 2005.
10(j)*	Form of Employee Nonqualified Stock Option Agreement for the BB&T Corporation 2004 Stock Incentive Plan.	Incorporated herein by reference to Exhibit 10(d) of the Current Report on Form 8-K, filed February 28, 2005.
10(k)*	BB&T Corporation Amended and Restated 1996 Short-Term Incentive Plan.	Incorporated herein by reference to Exhibit 10(q) of the Annual Report on Form 10-K, filed on March 16, 2001.

Exhibit No.	Description	Location
10(l)*	Southern National Deferred Compensation Plan for Key Executives and amendments.	Filed herewith.
10(m)*	Southern National Supplemental Executive Retirement Plan and amendments.	Filed herewith.
10(n)*	Southern National Non-Qualified Defined Benefit Plan and amendments	Incorporated herein by reference to Exhibit 10(l) of the Annual Report on Form 10-K, filed March 8, 2004.
10(o)*	BB&T Corporation Non-Qualified Defined Contribution Plan (amended and restated November 1, 2001).	Incorporated herein by reference to Exhibit 10(p) of the Annual Report on Form 10-K, filed March 15, 2002.
10(p)*	BB&T Corporation Supplemental Defined Contribution Plan for Highly Compensated Employees (amended and restated effective November 1, 2001).	Incorporated herein by reference to Exhibit 10(n) of the Annual Report on Form 10-K, filed March 15, 2002.
10(q)*	BB&T Corporation Non-Qualified Deferred Compensation Trust (amended and restated effective November 1, 2001).	Incorporated herein by reference to Exhibit 10(x) of the Annual Report on Form 10-K, filed March 15, 2002.
10(r)*	Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and John A. Allison, IV.	Incorporated herein by reference to Exhibit 10(z) of the Quarterly Report on Form 10-Q, filed May 13, 2002.
10(s)*	Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and W. Kendall Chalk.	Incorporated herein by reference to Exhibit 10(aa) of the Quarterly Report on Form 10-Q, filed May 13, 2002.
10(t)*	Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Robert E. Greene.	Incorporated herein by reference to Exhibit 10(ab) of the Quarterly Report on Form 10-Q, filed May 13, 2002.
10(u)*	Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Kelly S. King.	Incorporated herein by reference to Exhibit 10(ad) of the Quarterly Report on Form 10-Q, filed May 13, 2002.

Exhibit No.	Description	Location
10(v)*	2004 Amendments to Amended and Restated Employment Agreement, effective July 1, 2004, by and among the Registrant, Branch Banking and Trust Co. and Kelly S. King.	Incorporated herein by reference to Exhibit 99.3 of the Current Report on Form 8-K, filed November 1, 2004.
10(w)*	Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Scott E. Reed.	Incorporated herein by reference to Exhibit 10(ae) of the Quarterly Report on Form 10-Q, filed May 13, 2002.
10(x)*	Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and C. Leon Wilson, III.	Incorporated herein by reference to Exhibit 10(ag) of the Quarterly Report on Form 10-Q, filed May 13, 2002.
10(y)*	Employment Agreement, dated October 29, 2004, by and among the Registrant, Branch Banking and Trust Co. and Christopher L. Henson.	Incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed November 1, 2004.
10(z)*	Employment Agreement, dated October 29, 2004, by and among the Registrant, Branch Banking and Trust Co. and Ricky K. Brown.	Incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K, filed November 1, 2004.
10(aa)*	Employment Agreement, dated November 10, 2003, by and among the Registrant, Branch Banking and Trust Co. and Barbara F. Duck.	Incorporated herein by reference to Exhibit 10(af) of the Annual Report on Form 10-K, filed March 8, 2004.
10(ab)*	Employment Agreement, dated November 10, 2003, by and among the Registrant, Branch Banking and Trust Co. and Steven B. Wiggs.	Incorporated herein by reference to Exhibit 10(ag) of the Annual Report on Form 10-K, filed March 8, 2004.
10(ac)*	Death Benefit Only Plan, dated April 23, 1990, by and between Branch Banking and Trust Co. (as successor to Southern National Bank of North Carolina) and L. Glenn Orr, Jr.	Incorporated herein by reference to Registration Statement No. 33-33984.
10(ad)*	Settlement and Non-Compete Agreement, dated February 28, 1995, by and between the Registrant and L. Glenn Orr, Jr.	Incorporated herein by reference to Exhibit 10(b) of Form S-4 Registration Statement No. 33-56437.

Exhibit No.	Description	Location
10(ae)*	Settlement Agreement, Waiver and General Release, dated September 19, 1994, by and between the Registrant, Branch Banking and Trust Co. (as successor to Southern National Bank of North Carolina) and Gary E. Carlton.	Incorporated herein by reference to Exhibit 10(c) of Form S-4 Registration Statement No. 33-56437.
10(af)*	Settlement and Noncompetition Agreement, dated July 1, 1997, by and between the Registrant and E. Rhone Sasser.	Filed herewith.
10(ag)*	Employment Agreement, dated February 6, 2000, by and between the Registrant and J. Holmes Morrison.	Incorporated herein by reference to Exhibit 10(s) of the Annual Report on Form 10-K, filed on March 16, 2001.
10(ah)*	Employment Agreement, dated January 20, 2003, by and between Branch Banking and Trust Co. of Virginia and Barry J. Fitzpatrick.	Incorporated herein by reference to Exhibit 10(ae) of the Annual Report on Form 10-K, filed March 8, 2004.
10(ai)*	Special Pay Agreement, dated January 20, 2003, by and between First Virginia Banks, Inc. and Barry J. Fitzpatrick.	Incorporated herein by reference to Exhibit 10(ah) of the Annual Report on Form 10-K, filed March 8, 2004.
10(aj)*	First Virginia Banks, Inc. 1983 Directors’ Deferred Compensation Plan; First Virginia Banks, Inc. 1986 Directors’ Deferred Compensation Plan (and amendments thereto).	Incorporated herein by reference to Exhibit 10(ai) of the Annual Report on Form 10-K, filed March 8, 2004.
10(ak)*	First Virginia Banks, Inc. Key Employee Salary Reduction Deferred Compensation Plan; First Virginia Banks, Inc. 1986 Key Employee Salary Reduction Deferred Compensation Plan.	Incorporated herein by reference to Exhibit 10(aj) of the Annual Report on Form 10-K, filed March 8, 2004.
11	Statement re Computation of Earnings Per Share.	Filed herewith as Note 19 to the Financial Statements.
12	Statement re Computation of Ratios.	Filed herewith.
21	Subsidiaries of the Registrant.	Filed herewith.
22	Proxy Statement for the 2005 Annual Meeting of Shareholders.	Future filing incorporated herein by reference pursuant to General Instruction G(3).
23	Consent of Independent Registered Public Accounting Firm.	Filed herewith.

Exhibit No.	Description	Location
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
32.1	Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
32.2	Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.
	* Management compensatory plan or arrangement.

EX-3.I

Exhibit 3 (i)

BB&T CORPORATION

ARTICLES OF INCORPORATION

As Amended Effective April 28, 2004

BB&T CORPORATION

ARTICLES OF INCORPORATION

TABLE OF CONTENTS

		Page
ARTICLE I.	Name of the Corporation	1
ARTICLE II.	Duration of the Corporation	1
ARTICLE III.	Purpose of the Corporation	1
ARTICLE IV.	Corporation Authority to Issue Common Stock and Preferred Stock	2
Section 1.	Stated Value	3
Section 2.	Dividends and Distributions	3
Section 3.	Liquidation Preferences	4
Section 4.	Redemption	4
Section 5.	Conversion Rights	6
Section 6.	Voting Rights	11
Section 7.	Reacquired Shares	13
Section 8.	No Sinking Fund	13
	Series B Junior Participating Preferred Stock	13
Section 1.	Designation and Amount	13
Section 2.	Dividends and Distributions	13
Section 3.	Voting Rights	14
Section 4.	Certain Restrictions	15
Section 5.	Reacquired Shares	16
Section 6.	Liquidation, Dissolution or Winding Up	16
Section 7.	Statutory Share Exchange, Merger, Consolidation	17
Section 8.	No Redemption	17
Section 9.	Ranking	18
Section 10.	Amendment	18
Section 11.	Fractional Shares	18
ARTICLE V.	Number and Terms of Directors	18
ARTICLE VI.	Full Power and Authority of Corporation	18
ARTICLE VII.	Shareholder Limitations	19
ARTICLE VIII.	Corporation Board of Directors Authority	20
ARTICLE IX.	Corporation Board of Directors Liability	20

BB&T CORPORATION

Articles of Incorporation

(As Amended Effective April 28, 2004)

ARTICLE I

The name of the Corporation is BB&T Corporation.

ARTICLE II

The period of duration of the Corporation shall be unlimited and perpetual.

ARTICLE III

The purposes for which the Corporation is organized are:

(a) To act as a holding company; to operate, serve and conduct business as a holding company of one or more banks and other corporations; to acquire and own shares of stock or other interests in other businesses and corporations of any lawful character including without limitation, banks, insurance agencies, mortgage loan and servicing businesses, data processing businesses, factoring businesses, credit card businesses, farm and forestry management and agency businesses, and other financially related businesses; to furnish services of all types to and for such banks, corporations and businesses; and as shareholder or as owner of other interests in such banks, corporations and businesses, to exercise all rights, powers and privileges of ownership incident thereto.

(b) To itself operate insurance agencies; to make and acquire mortgage loans and render mortgage loan services; to render data processing services; to render factoring services; to operate consumer and small loan businesses and to make, acquire and service consumer and small loans; to organize, operate and manage mutual funds; to render travel services; to operate credit card businesses; to acquire, own and lease all types of equipment and property; to engage in farming and forestry; to render farm and forestry management and agency services and to engage in and operate all types of farming, agricultural and forestry businesses; to lend its own money; to act as agent or broker in procuring and making loans; and to render financial, management and business services of all types.

(c) To engage in, operate, conduct, perform or participate in every kind of financial, commercial, agricultural, mercantile, manufacturing, industrial, mining, transportation or other enterprise, business, work, contract, undertaking, venture, or operation.

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(d) To carry on any other business to any extent and in any manner not prohibited by the laws of North Carolina, or, where the Corporation may seek to do business elsewhere, by local laws; and to engage in, operate and conduct any business which may be deemed adapted, directly or indirectly, to add to the profits of its principal businesses or to increase the value of its assets.

(e) To do all and everything necessary, suitable, expedient or proper for the accomplishment of any of the objects and purposes herein enumerated, or incidental to the powers herein named, or incidental to the protection or benefit of the Corporation, and, in general, to carry on any lawful business necessary or incidental to the attainment of the objects or purposes of the Corporation, or which may be conveniently carried on in connection with any of the business of the Corporation, with all the powers now or hereafter conferred by the laws of North Carolina upon corporations of like character.

ARTICLE IV

The Corporation shall have the authority to issue 1,000,000,000 shares of Common Stock, par value $5 each, and 5,000,000 shares of Preferred Stock, par value $5 each. The designations of each class are as follows:

(a) The first class is Common Stock in the amount of 120,000,000 shares, par value $5 each share.

(b) The second class is Preferred Stock in the amount of 5,000,000 shares, par value $5 each share. The Preferred Stock may be issued from time to time in one or more series, and authority is expressly vested in the Board of Directors without action of shareholders to divide the Preferred Stock into series, to provide for the issuance thereof, and to fix and determine the relative rights, voting powers, preferences, limitations and designations of the shares of any series so established. Authority is expressly vested in the Board of Directors, without limitation, to determine: (1) The number of shares to constitute such series and the distinctive designation thereof: (2) The dividend rate, conditions and time of accrual and payment thereof, and the dividend preferences, if any, between the classes of stock and between the series of Preferred Stock; (3) Whether dividends shall be cumulative and, if so, the date from which dividends on each such series shall accumulate; (4) Whether, and to what extent, the holders of one or more series of Preferred Stock shall enjoy voting rights, if any, in addition to those prescribed by law; (5) Whether, and upon what terms, Preferred Stock will be convertible into or exchangeable for shares of any class or any other series of the same class; and (6) Whether, and upon what terms, the Preferred Stock, will be redeemable, and the preference, if any, to which the Preferred Stock will be entitled in the event of voluntary liquidation, dissolution or winding up of the Corporation.

6 3/4% Cumulative Convertible Preferred Stock, Series A. The Corporation has designated 770,000 shares of the authorized but unissued shares of the Corporation’s Preferred Stock, par value $5.00 per share, as 6 3/4% Cumulative Convertible Preferred Stock, Series A (the “Series A Preferred Stock”). The terms of the Series A Preferred Stock, in the respect in which the shares of such series may vary from shares of any and all other series of Preferred Stock, are as follows:

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(1) Stated Value. The Series A Preferred Stock shall have a stated value of $100.00 per share.

(2) Dividends and Distributions.

(a) The holders of shares of Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of assets of the Corporation legally available for payment, cash dividends, accruing from the date of issuance, at the annual rate of $6.75 per share, and no more, payable quarterly on February 15, May 15, August 15, and November 15 of each year (each quarterly period ending on any such date being hereinafter referred to as a “dividend period”), commencing May 15, 1992. The initial dividend for the period commencing February 11, 1992 to, but not including, May 15, 1992, will be $1.7625 per share and will be payable on May 15, 1992. The date of initial issuance of share of Series A Preferred Stock is hereinafter referred to as the “Issue Date.” Dividends payable on the Series A Preferred Stock (i) for any period less than a full dividend period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months and (ii) for each full dividend period, shall be computed by dividing the annual dividend rate by four. Each such dividend will be payable to holders of record as they appear on the stock register of the Corporation on such record dates, not more than 60 days nor less than 10 days preceding the payment dates, as shall be fixed by the Board of Directors.

(b) Dividends on shares of Series A Preferred Stock shall be cumulative from the date of issue whether or not there shall be funds legally available for payment thereof. Accumulations of dividends on Series A Preferred Stock shall not bear interest. The Corporation shall not (i) declare or pay or set apart for payment any dividends or distributions on any stock ranking as to dividend junior to the Series A Preferred Stock (other than dividends paid in shares of capital stock ranking junior to the Series A Preferred Stock as to dividends and upon liquidation, dissolution or winding up or options, warrants or rights to subscribe for such junior stock) or (ii) make any purchase or redemption of, or any sinking fund payment for the purchase of, any stock ranking as to dividends on a parity with or junior to the Series A Preferred Stock (except by conversion into or exchange for capital stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends and upon liquidation, dissolution or winding up) unless all dividends payable on all outstanding shares of Series A Preferred stock for all past dividend periods shall have been paid in full or declared and a sufficient sum set apart for payment thereof; provided, however, that any moneys theretofore deposited in any sinking fund with respect to any Preferred Stock of the Corporation in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of such Preferred Stock in accordance with the terms of such sinking fund regardless of whether at the time of such application all dividends payable on all outstanding shares of Series A Preferred Stock shall have been paid in full or declared and a sufficient sum set apart for payment thereof.

(c) All dividends declared on shares of Series A Preferred Stock and any other class of Preferred Stock or series thereof ranking on a parity as to dividends with the Series A Preferred Stock shall be declared pro rata, so that the amount of dividends declared per share on the Series A Preferred Stock and such other Preferred Stock for the same dividend period, or for the dividend period of the Series A Preferred Stock ending within the dividend period of such

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other stock, shall, in all cases, bear to each other the same ratio that accrued dividends per share on shares of the Series A Preferred Stock and such other stock bear to each other.

(3) Liquidation Preferences.

(a) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to shareholders an amount equal to $100.00 per share plus an amount equal to any accrued and unpaid dividends thereon to but excluding the date of such distribution, and no more, before any distribution shall be made to the holders of any class of stock of the Corporation ranking junior to the Series A Preferred Stock as to liquidation payments, but the holders of Series A Preferred Stock shall not be entitled to receive such distribution until the liquidation preference of any other shares of the Corporation’s capital stock ranking senior to the Series A preferred Stock with respect to rights upon liquidation, dissolution or winding up shall have been paid (or a sufficient sum set aside for payment thereof) in full.

(b) In the event the assets of the Corporation available for distribution to shareholders upon any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to the Series A Preferred Stock and any other shares of Preferred Stock of the Corporation ranking on a parity with the Series A Preferred Stock as to the distribution of assets, the holders of the Series A Preferred Stock and the holders of such other Preferred Stock shall share ratably in any distribution of assets of the Corporation in proportion to the full respective preferential amounts to which they are entitled.

(c) The merger or consolidation of the Corporation into or with any other corporation, the merger or consolidation of any other corporation into or with the Corporation or the sale, lease or conveyance of all or part of the property or business of the Corporation shall not be deemed a liquidation, dissolution or winding up of the affairs of the Corporation within the meaning of this Paragraph 3.

(4) Redemption.

(a) The Corporation, at its option, may redeem any or all shares of Series A Preferred Stock at any time on or after March 1, 1996, at the redemption prices set forth below, plus an amount equal to accrued and unpaid dividends thereon to but excluding the date of redemption (the “Redemption Price”):

Twelve month period Beginning March 1,	Redemption Price
1996	$104.050
1997	$103.375
1998	$102.700
1999	$102.025

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2000	$101.350
2001	$100.675
2002 and thereafter	$100.00

(b) If less than all the outstanding shares of Series A Preferred Stock are to be redeemed, the shares to be redeemed shall be selected pro rata as nearly as practicable or by lot, or by such other method as the Board of Directors may determine to be equitable (with adjustments to avoid fractional shares).

(c) Notice of any redemption shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the date fixed for redemption to the holders of record of the shares of Series A Preferred Stock to be redeemed, at their respective addresses appearing on the books of the Corporation. Notice so mailed shall be conclusively presumed to have been duly given whether or not actually received. Such notice shall state: (i) the date fixed for redemption; (ii) the Redemption Price; (iii) that the holder has the right to convert such shares into Common Stock until the close of business on the redemption date; (iv) the then-effective conversion price and the place where certificates for such shares may be surrendered for conversion; (v) if less than all shares held by such holder are to be redeemed, the number of shares to be redeemed from such holder; (vi) the place where certificates for such shares are to be surrendered for payment of the Redemption Price; and (vii) that after such date fixed for redemption the shares to be redeemed shall not accrue dividends.

(d) At the option of the Corporation, if notice of redemption is mailed as aforesaid, and if prior to the date fixed for redemption funds sufficient to pay in full the Redemption Price are deposited in trust, for the account of the holders of the shares to be redeemed, with a bank or trust company named in such notice doing business in the Borough of Manhattan, the city of New York, State of New York or the State of North Carolina and having capital surplus and undivided profits of at least $50 million (which bank or trust company also may be the transfer agent and/or paying agent for the Series A Preferred Stock) notwithstanding the fact that any certificate(s) for shares called for redemption shall not have been surrendered for cancellation, on and after such date of deposit the shares represented thereby so called for redemption shall be deemed to be no longer outstanding, and all rights of the holders of such shares as shareholders of the Corporation shall cease, except the right of the holders thereof to convert such shares in accordance with the provisions of Paragraph 5 at any time prior to the close of business on the redemption date and the right of the holders thereof to receive out of the funds so deposited in trust the Redemption Price, without interest, upon such surrender of the certificate(s) representing such shares. Any funds so deposited with such bank or trust company in respect of shares of Series A Preferred Stock converted before the close of business on the redemption date shall be returned to the Corporation upon such conversion. Any funds so deposited with such bank or trust company which shall remain unclaimed by the holders of shares called for redemption at the end of two years after the redemption date shall be repaid to the Corporation, on demand, and thereafter the holder of any such shares shall look only to the Corporation for the payment, without interest, of the Redemption Price.

(e) Any provisions of this Paragraph 4 to the contrary notwithstanding, in the event that any quarterly dividend payable on the Series A Preferred Stock shall be in arrears and

5

until all such dividends in arrears shall have been paid or declared and set apart for payment, the Corporation shall not redeem any shares of Series A Preferred Stock unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and shall not purchase or otherwise acquire any shares of Series A Preferred Stock except in accordance with a purchase offer made by the Corporation on the same terms to all holders of record of Series A Preferred Stock.

(5) Conversion Rights. The holders of shares of Series A Preferred Stock shall have the right, at their option, to convert such shares into shares of Common Stock on the following terms and conditions:

(a) Shares of Series A Preferred Stock shall be convertible at any time on the basis of their stated value into fully paid and nonassessable shares of Common Stock at a conversion price of $16.93 per share of Common Stock (the “Conversion Price”). The Conversion Price shall be subject to adjustment from time to time as hereinafter provided. No payment or adjustment shall be made on account of any accrued and unpaid dividends on shares of Series A Preferred Stock surrendered for conversion prior to the record date for the determination of shareholders entitled to such dividends or on account of any dividends on the shares of Common Stock issued upon such conversion subsequent to the record date for the determination of shareholders entitled to such dividends. If any shares of Series A Preferred Stock shall be called for redemption, the right to convert the shares designated for redemption shall terminate at the close of business on the date fixed for redemption unless default is made in the payment of the Redemption Price. In the event of default in the payment of the Redemption Price, the right to convert the shares designated for redemption shall terminate at the close of business on the date that such default is cured.

(b) To convert shares of Series A Preferred Stock into Common Stock, the holder thereof shall surrender the certificate therefor, duly endorsed if the Corporation shall so require, or accompanied by appropriate instruments of transfer satisfactory to the Corporation, at the office of the Transfer Agent for the Series A Preferred Stock, or at such other office as may be designated by the Corporation, together with written notice that such holder irrevocably elects to convert such shares. Such notice shall also state the name and address in which such holder wishes the certificate for the shares of Common Stock issuable upon conversion to be issued. A soon as practicable after receipt of the Certificate representing the shares of Series A Preferred Stock to be converted and the notice of election to convert the same, the Corporation shall issue and deliver at said office a certificate or certificates for the number of whole shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock surrendered for conversion, together with a cash payment in lieu of any fraction of a share, as hereinafter provided, to the person entitled to receive the same. Shares of Series A Preferred Stock shall be deemed to have been converted immediately prior to the close of business on the date such shares are surrendered for conversion and notice of election to convert the same is received by the Corporation in accordance with the foregoing provisions, and the person entitled to receive the Common Stock issuable upon such conversion shall be deemed for all purposes to the record holder of such common stock as of such date.

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(c) In the case of any share of Series A Preferred Stock that is converted after any record date with respect to the payment of a dividend on the Series A Preferred Stock and on or prior to the date on which such dividend is payable by the Corporation (the “Dividend Due Date”) the dividend due on such Dividend Due Date shall be payable on such Dividend Due Date to the holder of record of such shares as of such preceding record date notwithstanding such conversion. Shares of Series A Preferred Stock surrendered for conversion during the period from the close of business on any record date with respect to the payment of a dividend on the Series A Preferred Stock next preceding any Dividend Due Date to the opening of business on such Dividend Due Date shall (except in the case of shares of Series A Preferred Stock which have been called for redemption on a redemption date within such period) be accompanied by payment in next-day funds or other funds acceptable to the Corporation of an amount equal to the dividend payable on such Dividend Due Date on the shares of Series A Preferred Stock being surrendered for conversion. The dividend with respect to a share of Series A Preferred Stock called for redemption on a redemption date during the period from the close of business on any record date with respect to the payment of a dividend on the Series A Preferred Stock next preceding any Dividend Due Date to the opening of business on such Dividend Due Date shall be payable on such Dividend Due Date to the holder of record of such shares of such dividend record date notwithstanding the conversion of such share of Series A Preferred Stock after such record date and prior to such Dividend Due Date, and the holder converting such share of Series A Preferred Stock need not include a payment of such dividend amount upon surrender of such share of Series A Preferred Stock for conversion. Except as provided in this paragraph, no payment or adjustment shall be made upon any conversion on account of any dividends accrued on shares of Series A Preferred Stock surrendered for conversion or on account of any dividends on the shares of Common Stock issued upon conversion.

(d) No fractional shares of Common Stock shall be issued upon conversion of any shares of Series A Preferred Stock. If more than one share of Series A Preferred Stock is surrendered at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If the conversion of any shares of Series A Preferred Stock results in a fractional share of Common Stock, the Corporation shall pay cash in lieu thereof in an amount equal to such fraction multiplied by the closing price, as defined in subsection (vi) of Paragraph 5 (e) below, on the date on which the shares of Series A Preferred Stock were duly surrendered for conversion, or if such date is not a trading date, on the next succeeding trading date.

(e) The Conversion Price shall be adjusted from time to time as follows:

(i) In case the Corporation shall pay or make a dividend or other distribution on shares of Common Stock in Common Stock, the Conversion Price in effect at the opening of business on the date following the date fixed for the determination of shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the date following the date fixed for such determination. For

7

purposes of this subsection, the number of shares of Common Stock at any time outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(ii) In case the Corporation shall issue rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in subsection (vi) below) of the Common Stock on the date fixed for the determination of shareholders entitled to receive such rights or warrants (other than pursuant to a dividend reinvestment plan), the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. For the purposes of this subsection (ii), the number of shares of Common Stock at anytime outstanding shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock.

(iii) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(iv) In case the Corporation shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights or warrants referred to in subsection (ii) above, any dividend or distribution paid in cash out of the retained earnings of the Corporation and any dividend or distribution referred to in subsection (i) above, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of shareholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (vi) below) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and shall be described in a statement filed with the Transfer Agent) of the portion of the evidences of indebtedness or assets so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to

8

the opening of business on the day following the date fixed for the determination of shareholders entitled to receive such distribution.

(v) The reclassification of Common Stock into securities including securities other than Common Stock (other than any reclassification upon consolidation or merger to which Paragraph 5 (g) below applies) shall be deemed to involve (A) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be “the date fixed for the determination of shareholders entitled to receive such distribution” within the meaning of subsection (iv) above), and (B) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be “the day upon which such subdivision or combination becomes effective” within the meaning of subsection (iii) above).

(vi) For the purpose of any computation under subsections (ii) and (iv) above, the current market price per share of Common Stock on any day shall be deemed to be the average of the daily closing prices for the ten consecutive trading days selected by the Board of Directors commencing not more than 20 trading days before and ending not later than the day in question. The closing price for each day shall be the reported last sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on such exchange, on the principle national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotation National Market System or, if the Common Stock is not listed or admitted to trading any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose.

(vii) No adjustment in the Conversion Price for the Series A Preferred Shares shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this paragraph (vii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.

(f) Whenever the Conversion Price shall be adjusted as herein provided (i) the Corporation shall forthwith make available at the office of the Transfer Agent for the Series A Preferred Stock a statement describing in reasonable detail the adjustment, the facts requiring such adjustment and the method of calculation used; and (ii) the Corporation shall cause to be mailed by first class mail, postage prepaid, as soon as practicable to each holder of record of shares of Series A Preferred Stock a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price.

9

(g) In the case of any consolidation or merger to which the Corporation is a party and as a result of which holders of Common Stock shall be entitled to receive securities, cash or other property with respect to or in exchange for such Common Stock, or in case of any sale or conveyance to another corporation of the property of the Corporation as an entirety or substantially as an entirety, or in case of any reclassification or change in outstanding shares of Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), there will be no adjustment of the Conversion Price but the holder of each share of Series A Preferred Stock then outstanding will have the right thereafter to convert such share into the kind and amount of securities, cash, or other property which such holder would have owned or have been entitled to receive immediately after such consolidation or merger, sale or conveyance or reclassification or change had such share been converted immediately prior to the effective date of such consolidation or merger, sale or conveyance or reclassification or change. The adjustments described in this paragraph shall be subject to further adjustments as appropriate that shall be as nearly equivalent as may be practicable to the relevant adjustments provided for in Paragraph 5 (e) and this paragraph 5 (g). If, in the case of any such consolidation, merger, sale or conveyance, the stock or other securities and property receivable thereupon by a holder of shares of Common Stock includes shares of stock, securities or other property or assets (including cash) of an entity other than the successor or acquiring entity, as the case may be, in such consolidation, merger, sale or conveyance, then the Corporation shall enter into an agreement with such other entity for the benefit of the holders of Series A Preferred Stock that shall contain such provisions to protect the interests of such holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The provisions of this Paragraph 5 (g) shall similarly apply to successive consolidations, mergers, sales, exchanges, reclassifications or changes.

(h) The Corporation shall pay any taxes that may be payable in respect of the issuance of shares of Common Stock upon conversion of shares of Series A Preferred Stock, but the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance of shares of Common Stock in any name other than that in which the shares of Series A Preferred Stock so converted are registered, and the Corporation shall not be required to issue or deliver any such shares unless and until the person requesting such issuance shall have paid to the Corporation the amount of any such taxes, or shall have established to the satisfaction of the Corporation that such taxes have been paid.

(i) The Corporation may make such reductions in the Conversion Price, in addition to those required by subsections (i) through (iv) of Paragraph 5 (e) above, as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients.

(j) The Corporation shall at all times reserve and keep available out of its authorized but unissued Common Stock the full number of shares of Common Stock issuable upon the conversion of all shares of Series A Preferred Stock then outstanding.

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(k) In the event that:

(i) the Corporation shall declare a dividend or any other distribution of its Common stock, payable otherwise than in cash out of retained earnings; or

(ii) the Corporation shall authorize the granting to the holders of its Common Stock of rights to subscribe for or purchase any shares of capital stock of any class or of any other rights; or

(iii) the Corporation shall purpose to effect any consolidation of the Corporation with or merger of the Corporation with or into any other corporation or a sale of the assets of the Corporation substantially as an entirety which would result in an adjustment under Paragraph 5 (g);

the Corporation shall cause to be mailed to the holders of record of Series A Preferred Stock at least 20 days prior to the applicable date hereinafter specified a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined or (y) the date on which such consolidation, merger or sale is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such consolidation, merger or sale. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such dividend, distribution, consolidation, merger or sale.

(6) Voting Rights. Other than as required by applicable law, the Series A Preferred Stock shall not have any voting powers either general or special, except that:

(a) Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the consent of the holders of at least two-thirds of all of the shares of the Series A Preferred Stock at the time outstanding, given in person or by proxy, either in writing or by a vote at a meeting called for the purpose at which the holders of shares of Series A Preferred Stock shall vote together as a separate class, shall be necessary to (i) authorize, create or issue, or increase the authorized or issued amount of, any class or series of stock ranking prior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, (ii) authorize, create or issue, or increase the authorized or issued amount of, any class or series of stock (including any class or series of Preferred Stock) which ranks on a parity with the Series A Preferred Stock as to dividends and upon liquidation, dissolution or winding up (“Parity Stock”) unless the Articles of Incorporation creating or authorizing such class or series provide that if in any case the stated dividends or amounts payable upon liquidation, dissolution or winding up are not paid in full on the Series A Preferred Stock and all outstanding shares of Parity Stock, the shares of all Parity Stock shall share ratably in the payment of dividends, including accumulations (if any) in accordance with the sums which would be payable on all Parity Stock if all dividends in respect of all shares of Parity Stock were paid in full, and on any distribution of assets upon liquidation, dissolution or winding up ratably in accordance with the sums which would be payable in respect of all shares

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of Parity Stock if all sums payable were discharged in full, or (iii) amend, alter or repeal the provisions of the Articles of Incorporation, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of such shares of Series A Preferred Stock or the holders thereof; provided, however, that any increase in the amount of the authorized Preferred Stock or any outstanding series of Preferred Stock or any other capital stock of the Corporation, or the creation and issuance of other series of Preferred Stock including Series A Preferred Stock, or of any other capital stock of the Corporation, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.

(b) Whenever, at any time or times, dividends payable on the shares of Series A Preferred Stock shall be in arrears in an amount equal to at least six full quarterly dividends, whether or not consecutive, on shares of the Series A Preferred Stock at the time outstanding, the holders of the outstanding shares of Series A Preferred Stock shall have the exclusive right, voting separately as a class together with all other series of cumulative Preferred Stock upon which like voting rights have been conferred and are exercisable, to elect two directors of the Corporation at the Corporation’s next annual meeting of shareholders and at each subsequent annual meeting of shareholders. At elections for such directors, each holder of Series A Preferred Stock shall be entitled to one vote for each share held. Upon the vesting of such right of the holder of Series A Preferred Stock, the maximum authorized number of members of the Board of Directors shall automatically be increased by two. The rights of the holders of the Series A Preferred Stock, voting separately as a class (either alone or together with the holders of shares of all other series of cumulative Preferred Stock upon which like voting rights have been conferred and are exercisable) to elect members of the Board of Directors of the Corporation as aforesaid shall continue until such time as all dividends accumulated on the Series A preferred Stock shall have been paid in full, at which time such right shall terminate, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned.

(c) Each director elected pursuant to Paragraph (b) shall continue to serve as such director for the full term for which he shall have been elected, notwithstanding that prior to the end of such term all dividends accumulated on the Series A Preferred Stock shall have been paid in full. If the office of any director elected by the holders of Series A Preferred Stock voting as a class becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, the remaining director elected by the holders of the Series A Preferred Stock voting as a class may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Whenever the term of office of the directors elected by and the special voting powers vested in the holders of Series A Preferred Stock as provided in this section shall have expired, the number of directors shall be such number as may be provided for in the Articles of Incorporation or Bylaws irrespective of any increase made pursuant to the provisions of this section.

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7. Reacquired Shares. Shares of Series A Preferred Stock converted, redeemed, or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series.

8. No Sinking Fund. Shares of Series A Preferred Stock are not subject to the operation of a sinking fund.

(c) Series B Junior Participation Preferred Stock of Southern National Corporation.

(1) Designation and Amount. The shares of such series shall be designated as “Series B Junior Participating Preferred Stock” and the number of share constituting such series initially shall be 2,000,000. Such number of shares may be increased or decreased by the Board of Directors; provided, that no decrease shall reduce the number of shares of Series B Junior Participating Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series B Junior Participating Preferred Stock.

(2) Dividends and Distributions.

(a) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series B Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series B Junior Participating Preferred Stock, in preference to the holders of Common Stock, par value $5 per share, of the Corporation (the “Common Stock”) and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of February, May, August and November in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Junior Participating Preferred Stock. In the event the Corporation shall on or at any time after December 17, 1996 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine or consolidate the outstanding shares of Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series B Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after

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such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(b) The Corporation shall declare a dividend or distribution on the Series B Junior Participating Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, subject to the requirements of applicable law and the Articles of Incorporation, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series B Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series B Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series B Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Junior Participating Preferred Stock in an amount less that the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof.

3. Voting Rights. The holders of shares of Series B Junior Participating Preferred Stock shall have the following voting rights:

(a) Subject to the provision for adjustment hereinafter set forth, each share of Series B Junior Participating Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any time on or after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine or consolidate the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series B Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

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(b) Except as otherwise provided herein, in any other amendment to the Articles of Incorporation of the Corporation or by law, the holders of shares of Series B Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one group on all matters submitted to a vote of shareholders of the Corporation.

(c) Except as set forth herein, holders of Series B Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

4. Certain Restrictions.

(a) Whenever quarterly dividends or other dividends or distributions payable on the Series B Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, redeem or purchase or otherwise acquire for consideration, or make any other distributions on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Junior Participating Preferred Stock;

(ii) declare or pay dividends on, redeem, or purchase or otherwise acquire for consideration, or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Junior Participating Preferred Stock, provided that there may be declared and paid ratably dividends on the Series B junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; and provided further that the Corporation may at any time redeem or purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Junior Participating Preferred Stock;

(iii) purchase or otherwise acquire for consideration any shares of Series B Junior Participating Preferred Stock, or redeem or purchase or otherwise acquire any shares of stock ranking on a parity with the Series B Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(b) The Corporation shall not permit any subsidiary of the Corporation (for the account of such subsidiary) to purchase or otherwise acquire for consideration any shares of

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stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

(c) No dividend shall be declared and paid, or set apart for payment on, any share of the Series B Junior Participating Preferred Stock or any share of any other series of Preferred Stock or any share of any class of stock, or series thereof, ranking on a parity with this Series as to dividends, for any dividend period unless at the same time a like proportionate dividend for the same dividend period, ratably in proportion to the respective dividends applicable thereto, shall be declared and paid, or set apart for payment on, all shares of this Series and all shares of all other series of Preferred Stock and all shares of any class, or series thereof, ranking on a parity with this Series as to dividends, then issued and outstanding and entitled to receive dividends.

5. Reacquired Shares. Any shares of Series B Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock, subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation of the Corporation (including Articles of Amendment duly adopted in accordance with the North Carolina Business Corporation Act), creating a series of Preferred Stock or any similar stock, or as otherwise required by law.

6. Liquidation, Dissolution or Winding Up.

(a) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series B Junior Participating Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series B Liquidation Preference”). Following the payment of the full amount of the Series B Liquidation Preference, no additional distributions shall be made to the holders of shares of Series B Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) series B Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in subparagraph (c) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series B Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series B Junior Participating Preferred Stock and Common Stock, respectively, holders of Series B Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one (1) with respect to such Preferred Stock and Common Stock, on a per share basis, respectively.

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(b) In the event, however, that there are not sufficient assets available to permit payment in full of the Series B Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a parity with the Series B Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock.

(c) In the event the Corporation shall at any time on or after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(d) Neither the sale, lease or conveyance of all or substantially all of the property or business of the Corporation, nor the merger, consolidation or statutory share exchange of the Corporation into or with any other corporation or the merger, consolidation or statutory share exchange of any other corporation into or with the Corporation, shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, for the purposes of this paragraph 6.

7. Statutory Share Exchange, Merger, Consolidation, etc.

In case the Corporation shall enter into any statutory share exchange, merger, consolidation, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series B Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time on or after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine or consolidate the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

8. No Redemption. The shares of Series B Junior Participating Preferred Stock shall not be redeemable.

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9. Ranking. The Series B Junior Participating Preferred Stock shall rank junior to all other series of the Corporation’s Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise.

10. Amendment. The Articles of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series B Junior Participating Preferred Stock so as to affect them adversely, except in accordance with the provisions of Section 55-10-04 of the North Carolina Business Corporation Act, or as otherwise permitted by law.

11. Fractional Shares. Series B Junior Participating Preferred Stock may be issued in fractions of a share (which shall be integral multiples of one one-hundredth of a share of Series B Junior Participating Preferred Stock), which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Junior Participating Preferred Stock.

ARTICLE V

The number and term of directors of the Corporation shall be fixed by the Bylaws.

ARTICLE VI

In addition to the general powers granted corporations under the laws of the State of North Carolina, the Corporation shall have full power and authority to do the following:

(d) To acquire, by purchase or otherwise, the goodwill, business, property rights, franchises and assets of every kind, with or without undertaking either wholly or in part the liabilities, of any person, firm, association or corporation; and to acquire any property or business as a going concern or otherwise (i) by purchase of the assets thereof wholly or in part, (ii) by acquisition of the shares of any part thereof, or (iii) in any other manner, and to pay for the same in cash or in shares or bonds or other evidences of indebtedness of the Corporation, or otherwise; to hold, maintain and operate, or in any manner dispose of, the whole or any part of the goodwill, business, rights and property so acquired, and to conduct in any lawful manner the whole or any part of any business so acquired; and to exercise all the powers necessary or convenient in and about the management of such business.

(e) To subscribe or cause to be subscribed for, and to take, purchase and otherwise acquire, own, hold, use, sell, assign, transfer, exchange, distribute and otherwise dispose of, the whole or any part of the shares of the capital stock, bonds, coupons, mortgages, deeds of trust, debentures, securities, obligations, evidences of indebtedness, notes, goodwill, rights, assets and property of any and every kind, or any part thereof, of any other corporation or corporations, association or associations, firm or firms, or person or persons, together with shares, rights, units or interest in, or in respect of, any trust estate, now or hereafter existing, and whether created by

18

the laws of the State of North Carolina or any other state, territory or country; and to operate, manage and control such properties, or any of them either in the name of such other corporation or corporations or in the name of the Corporation, and while the owners of any of said shares of capital stock to exercise all the rights, powers and privileges of ownership of every kind and description, including the right to vote thereon, with power to designate some person or persons for that purpose from time to time, and to the same extent as natural persons might or could do.

(f) To promote or aid in any manner, financially or otherwise, any person, firm, corporation or association of which any shares of stock, bonds, notes, debentures or other securities or evidences of indebtedness are held directly or indirectly by the Corporation, and for this purpose to guarantee the contracts, dividends, shares, bonds, debentures, notes and other obligations of such other persons, firms, corporations or associations; and to do any other act or things designed to protect, preserve, improve or enhance the value of such shares, bonds, notes, debentures or other securities or evidences of indebtedness.

(g) To acquire by purchase, subscription, exchange, or in any other lawful manner, and to hold, receive, use, mortgage, pledge, sell, assign, transfer, exchange, dispose of, and otherwise deal in and with securities (which term, for the purpose of this Article VI, includes, without limitation of the generality thereof, shares of stock, other shares, bonds, debentures, notes, mortgages, or other obligations, and certificates, receipts, warrants, or other instruments representing rights or options to receive, purchase or subscribe for any of the same, or representing any other rights or interests therein or in any property or assets) created or issued by any persons, firms, associations, trusts, partnerships, corporations, joint ventures, syndicates, or governments or subdivisions thereof; to pay for securities (as defined in this Article VI) (i) in cash, (ii) by exchange of shares of stock, bonds, or other evidences of indebtedness of the Corporation for such securities acquired, (iii) in cash and by such exchange of shares of stock, bonds or evidences of indebtedness, or (iv) in any other lawful manner; and to exercise, as owner or holder of any such securities as herein defined, any and all rights, powers and privileges in respect thereof.

ARTICLE VII

No holder of: (a) any shares of stock of any class of the Corporation, common or preferred, or (b) any options, rights or warrants to purchase any stock, or (c) any shares or obligations convertible into shares of any class shall be entitled as of right as such holder to purchase or to subscribe for any unissued shares of any class nor any increased shares to be issued by reason of any increase in the authorized capital stock of the Corporation, or any bonds, certificates of indebtedness, debentures, or other securities convertible into shares of stock of the Corporation or carrying any right to purchase shares of stock of any class, whether now or hereafter authorized; and no such holder shall have any preemptive or preferential right to purchase or to subscribe for any unissued, additional or increased shares or any such bonds, certificates of indebtedness, debentures or other securities; but any such unissued, additional or increased shares of stock, and any such bonds, certificates of indebtedness, debentures or other securities convertible into shares of stock or carrying any right to purchase shares may be issued, sold, exchanged or disposed of from time to time by authority of the Board of Directors of the

19

Corporation to such persons, firms, or corporations and for such consideration and upon such terms as the Board of Directors in the exercise of its discretion shall from time to time determine and deem advisable.

ARTICLE VIII

The Board of Directors of the Corporation shall have power by vote of a majority of the directors then holding office and without the assent or vote of the shareholders to adopt, make, alter, amend and rescind the Bylaws of the Corporation.

ARTICLE IX

To the fullest extent permitted by the North Carolina Business Corporation Act, as the same exists or may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation, its shareholders or otherwise for monetary damage for breach of his duty as a director. Any repeal or modification of this Article IX shall be prospective only and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification.

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EX-10.C

Exhibit 10(c)

2004 DECLARATION OF AMENDMENT TO

BB&T CORPORATION

NON-EMPLOYEE DIRECTORS’ DEFERRED COMPENSATION AND STOCK

OPTION PLAN

THIS DECLARATION OF AMENDMENT is made this 24th day of February, 2004, by BB&T CORPORATION (the “Corporation”) to the BB&T Corporation Non-Employee Directors’ Deferred Compensation and Stock Option Plan, as amended and restated (the “Plan”).

R E C I T A L S:

It is deemed advisable to amend the Plan to extend the term of the Stock Option Subplan, a component of the Plan, in order to (i) comply with certain requirements recently imposed by the New York Stock Exchange, Inc. and (ii) continue to effectuate the purpose of the Plan by providing eligible participants with the opportunity to acquire or increase their proprietary interest in the Corporation through the grant of stock options and purchase of shares of the Corporation’s common stock thereunder.

NOW, THEREFORE, IT IS DECLARED that, effective as of February 24 , 2004, the Plan shall be amended by deleting Section 4.9.1 (“Effective Date and Term of Options” ) in its entirety and inserting the following in lieu thereof:

“Effective Date and Term of Stock Option Subplan: The Stock Option Subplan was adopted effective December 19, 1991, amended and restated effective October 22, 1996, January 1, 1997 and November 1, 2001, and further amended December 18, 2001. Options may be granted under the Plan on and after the effective date and until April 21, 2007 or until the earlier termination of the Plan by the Board; provided, however, that any Option granted prior to the termination of the Plan may be exercised in accordance with its terms.”

IN WITNESS WHEREOF, this Declaration of Amendment is executed on behalf of BB&T Corporation on the day and year first above written.

BB&T CORPORATION
By:	/s/ Kelly S. King
	Kelly S. King
	President

ATTEST:

/s/ David L. Craven

David L. Craven

Senior Vice President and Assistant Secretary

[Corporate Seal]

BE IT FURTHER RESOLVED, that the proper officers of the Corporation, acting for and in behalf of the Corporation, shall be and hereby are authorized and directed to execute the Amendment and to take such additional actions as may be deemed necessary or advisable to carry out the intent and purpose of these resolutions.

* * * * * * * * * * * * *

THIS IS TO CERTIFY that the foregoing is a true and correct copy of resolutions duly adopted by the Board of Directors of BB&T Corporation on the 24^th day of February, 2004.

By:	/s/ David L. Craven
	David L. Craven
	Senior Vice President and Assistant Secretary

[Corporate Seal]

2

EX-10.L

Exhibit 10(l)

SOUTHERN NATIONAL

DEFERRED COMPENSATION PLAN

FOR

KEY EXECUTIVES

Effective January 1, 1989

TABLE OF CONTENTS

		PAGE
ARTICLE I	STATEMENT OF PURPOSE	1
ARTICLE II	DEFINITIONS	2
ARTICLE III	ELIGIBILITY, PARTICIPATION AND DEFERRALS	8
ARTICLE IV	SEVERANCE BENEFITS	13
ARTICLE V	SURVIVOR BENEFITS	15
ARTICLE VI	NONCOMPETITION	17
ARTICLE VII	ADMINISTRATIVE COMMITTEE	20
ARTICLE VIII	AMENDMENT AND TERMINATION	21
ARTICLE IX	MISCELLANEOUS	22
ARTICLE X	CONSTRUCTION	28

i

ARTICLE I

STATEMENT OF PURPOSE

This Plan provides retirement and survivor benefits to or on behalf of certain key executives of Southern National Corporation and its Participating Subsidiaries, and thereby helps Southern National attract and retain superior key management employees and gives such employees additional incentive to work to make Southern National more profitable.

For executives who participate in the Southern National Employee Stock Ownership Plan (the “ESOP”), a qualified stock bonus plan with a qualified 401(k) cash or deferred arrangement feature, the Plan restores benefits lost or denied because of certain limitations imposed by the rules governing qualified retirement plans.

ARTICLE II

DEFINITIONS

When used herein and capitalized, the following terms shall have the meanings denoted, unless the context clearly requires otherwise.

2.01 Actuarial Equivalent and Actuarially Equivalent. A form of benefit differing in time, period or manner of payment from a specified benefit provided by this Plan or provided by the Pension Plan, but having the same value when computed using the same assumptions used for computing actuarial equivalence under the Pension Plan.

2.02 Change in Control. A Change in Control shall be deemed to have occurred upon the happening of any of the following:

(a) the adoption of a plan of merger or consolidation of Southern National Corporation with any other corporation or association as a result of which the holders of the voting capital stock of Southern National Corporation would receive less than 50% of the voting capital stock of the surviving or resulting corporation;

(b) the occurrence of any event (including, without limitation, any merger or consolidation) as a result of which Southern National Corporation is not the owner beneficially and of record of 50% or more of the voting power of the capital stock of Southern National Bank of North Carolina, N.A. (the “Bank”);

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(c) the sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of Southern National Corporation or the Bank (other than as security for the obligations of Southern National Corporation or the Bank);

(d) the approval by the shareholders of Southern National Corporation or the Bank of any plan or proposal for the liquidation or dissolution of Southern National Corporation or the Bank;

(e) the acquisition by any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)), other than any Trustee under any employee benefit plan of Southern National Corporation or the Bank, and persons (as such term is so used) who are then affiliates and associates (as defined on January 1, 1989 in Rule 12b-2 under the Exchange Act) of such person, or any one of them, after the date this Plan is executed, directly or indirectly, of beneficial ownership (as defined on January 1, 1989 in Rules 13d-3 and 13d-5 under the Exchange Act) of securities of Southern National Corporation representing in the aggregate 20% or more of the voting power of all then outstanding securities of Southern National Corporation having the right under ordinary circumstances to vote in an election of the Board of Directors of Southern National Corporation (without limitation, any securities having such voting power that any such

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person has the right to acquire pursuant to any agreement, or upon exercise of conversion of rights, warrants or options, or otherwise, shall be deemed beneficially owned by such person); or

(f) the failure, for any reason, during any period of two consecutive years, of the individuals who at the beginning of such period constitute the entire Board of Directors of Southern National Corporation (the “Board”) and any new directors whose election by the Board, or whose nomination for election by the shareholders, shall have been approved by a vote of at least two-thirds (2/3) of the directors of the Board then still in office who either were directors at the beginning of the period or whose election or nomination for election shall previously have been so approved, to constitute a majority of the members of the Board.

2.03 Code. The Internal Revenue Code of 1986, as amended, and as it may be amended from time to time.

2.04 Committee. The committee which administers the Plan and which is more particularly described in Article VIII below. The Committee shall be made up of the individuals who hold the following offices of Southern National Bank of North Carolina, N.A.: Chairman of the Board of Directors, President, Director of Human Resources, and Chief Financial Officer.

2.05 Company. Southern National Corporation, Participating Subsidiaries, and any successor by merger, acquisition or otherwise. All references to “Company” shall be

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“Compensation,” as that definition is amended from time to time, such definition being expressly incorporated herein by reference.

7. Deferral Election. An irrevocable election by a Participant to defer a portion of his Compensation for a calendar year, such election to be made in the manner prescribed by Article III, Section 3 of this Plan. Amounts so deferred are “elective deferrals.”

8. Designated Beneficiary. One or more beneficiaries, as designated in a writing filed with the Committee, to whom payments otherwise due to or for the benefit of the Participant hereunder shall be made in the event of his death prior to the complete payment of such benefit. In the event no such written designation is made by the Participant or if such beneficiary shall not be in existence at the Participant’s death or if such beneficiary predeceases the Participant, the Participant shall be deemed to have designated his estate as such beneficiary.

9. Employee. A person who is employed the Company.

10. ERISA. The Employee Retirement Income Security Act of 1974, as amended, and as it may be further amended from time to time.

11. ESOP. The Southern National Employee Stock Ownership Plan, as amended and restated effective July 1, 1987, as it may be further amended from time to time.

12. ESOP Excess Plan. The Southern National ESOP Excess Plan, effective January 1, 1989, and as it may be amended from time to time.

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13. Insurable. Insurable shall mean that at the time of the Participant’s election to defer Compensation pursuant to this Plan the life of the Participant is insurable by an insurance company approved by the Committee and at premium rates acceptable to the Committee in the exercise of its sole and absolute discretion.

14. Participant. An Employee who has been notified pursuant to Article III, Section 1 that he is eligible to participate in the Plan and who has made a Deferral Election.

15. Participating Subsidiaries. Each subsidiary of Southern National Corporation which, pursuant to action duly adopted by its board of directors, has adopted this Plan. “Subsidiary” means a corporation over 50% of the voting stock of which is owned by Southern National Corporation, by another subsidiary or other subsidiaries of Southern National Corporation. The foregoing notwithstanding, the Board of Directors of Southern National Corporation may designate any company affiliated with Southern National Corporation as a “subsidiary” for purposes of this Plan.

16. Plan. The Southern National Deferred Compensation Plan for Key Executives as contained herein, and as it may be amended from time to time.

17. Pre-Tax Employee Contributions. Amounts contributed to the ESOP on behalf of a Participant pursuant to the Participant’s election to have his Compensation for a calendar year reduced and contributed to the ESOP in accordance with Section 401(k)

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(or any successor section) of the Code and corresponding provisions of the ESOP.

18. Severance Date. The date the Participant’s employment with the Company terminates for any reason other than death; provided, however, that if the Participant’s employment ceases because of Total Disability, his Severance Date shall be the earlier of (i) the first date he is no longer under a Total Disability and does not return to active employment with the Company or (ii) his sixty-fifth (65th) birthday.

19. Total Disability. Total Disability shall have the same meaning as is ascribed to such term by the long-term disability benefits plan sponsored by the Company and in which the Participant participates. If the Participant does not participate in such plan or if the Company does not sponsor such a plan, then the Participant shall be under a Total Disability if by reason of sickness or injury he cannot perform each of the material duties of his regular occupation; provided, however, that after the first twenty-four (24) months he shall be under a Total Disability if he cannot perform each of the material duties of any gainful occupation for which he is reasonably fitted by training, education or experience.

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ARTICLE III

ELIGIBILITY, PARTICIPATION AND DEFERRALS

1. Eligibility. The Committee shall have the sole discretion to determine the Employees who are eligible to become Participants; provided, however, that no Employee who is not a member of the “select group of management or highly compensated employees,” as defined in Sections 201(2), 301(a)(3) and 401(a) of ERISA shall be eligible to become a Participant in the Plan. An Employee shall become eligible upon being notified by the Committee that he is eligible.

2. Participation. An Employee who is eligible to participate shall become a Participant by making a Deferral Election.

3. Elective Deferrals.

(a) For each calendar year, each eligible Employee is entitled to make a Deferral Election in such manner and form as the Committee prescribes to defer Compensation for the calendar year which, by reason of the application of Sections 401(k), 402(g) and 415 of the Code and the corresponding provisions of the ESOP, the Employee is prohibited from deferring and having contributed to the ESOP as Pre-Tax Employee Contributions.

(b) Deferral Elections shall be made as follows:

(i) Within thirty (30) days following the adoption of this Plan to defer Compensation to be earned in the remainder of such calendar year;

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(ii) Within thirty (30) days following the date on which an Employee first becomes eligible to participate in this Plan to defer Compensation to be earned in the remainder of such calendar year; or

(iii) In all other cases on or before December 31 to defer Compensation to be earned in succeeding calendar years.

4. Limitations on Elective Deferrals.

(a) The maximum amount by which an eligible Employee or Participant may reduce his Compensation for a calendar year pursuant to a Deferral Election under Article III, Section 3 shall be the difference between (i) fifteen percent (15%) of his Compensation for the calendar year and (ii) his maximum permissible amount of Pre-Tax Employee Contributions for the calendar year. The eligible Employee’s or Participant’s “maximum permissible amount of Pre-Tax Employee Contributions for the calendar year” is (i) the annual $7,000 limitation - set forth in Code Section 402(g) and any corresponding provisions of the ESOP, as amended and adjusted for inflation, on elective deferrals to certain qualified retirement plans or, if less, (ii) the maximum amount of Pre-Tax Employee Contributions permitted to be made by the eligible Employee or Participant for such calendar year by reason of the application of the actual deferral percentage nondiscrimination test and annual addition limitation set forth in Sections 401(k) and 415 of the Code and in any corresponding provisions of the ESOP.

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(b) Anything to the contrary herein notwithstanding, a Participant’s elective deferrals of Compensation for a calendar year shall not be permitted under this Plan unless the Participant has made the maximum permissible amount of Pre-Tax Employee Contributions for the calendar year.

5. Deemed Deferrals. In addition to any elective deferrals pursuant to a Deferral Election in accordance with Sections 3 and 4 of this Article III, for each calendar year for which a Participant has made a Deferral Election, the Participant shall receive credit for “deemed deferrals” equal to the difference between (A) and (B) where (A) is the amount of Company Matching Contributions which would have been credited to the Participant’s account in the ESOP (i) had the ESOP permitted the amount of the elective deferrals the Participant made pursuant to a Deferral Election under this Plan for the calendar year to have been contributed as Pre-Tax Employee Contributions, and (ii) had there not been given effect the compensation, elective deferral, nondiscrimination and annual addition limitations set forth in Sections 401(a)(17), 402(g), 401(k), 401(m), and 415 of the Code and in any corresponding provisions of the ESOP, and where (B) is the amount of Company Matching Contributions actually credited to the Participant’s account in the ESOP.

6. No ESOP Excess Plan Deferrals. Anything to the contrary herein notwithstanding, any eligible Employee or Participant who has elected to make deferrals of compensation under the ESOP Excess Plan for a calendar year (hereafter called

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“ESOP Excess Deferrals”) shall be ineligible to make a Deferral Election under this Plan for such calendar year. The foregoing notwithstanding, any eligible Employee who has elected to make ESOP Excess Deferrals for the 1989 calendar year shall be permitted to make a Deferral Election to defer Compensation under this Plan for the calendar year 1989; provided, however (i) such Deferral Election shall supersede his deferral election under the ESOP Excess Plan, (ii) no additional ESOP Excess Deferrals for the calendar year 1989 shall be made after the making of such Deferral Election, (iii) any ESOP Excess Deferrals for the calendar year 1989 which were made prior to such Deferral Election shall be transferred to this Plan and treated for all purposes as elective deferrals made under such Deferral Election and subject to Sections 3 and 4 of this Article III, and (iv) such Deferral Election shall not be honored unless the eligible Employee has properly executed a release of liability in a form acceptable to the Committee with respect to deferred compensation benefits which would have been payable under the ESOP Excess Plan with respect to ESOP Excess Deferrals for the 1989 calendar year.

7. Benefits. The total amount of deferred compensation or other benefits payable under this Plan to a Participant or his Designated Beneficiary pursuant to Articles IV or V shall be the sum of the amounts payable with respect to each individual calendar year for which the Participant has a deferral amount (whether elective or deemed) for such calendar year. The amount of deferred compensation or other benefits payable with respect

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to deferrals (elective or deemed) for any calendar year shall be determined in accordance with the appropriate column in the schedule of benefits attached as an exhibit to the Deferral Election for the calendar year.

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ARTICLE IV

SEVERANCE BENEFITS

1. Benefits. After the Severance Date of a Participant, the Company shall pay the Participant a level fifteen (15) year annuity payable in equal monthly installments. The amount of the monthly payments are determined in accordance with the appropriate column on the schedule of benefits provided for in Article III, Section 7. Payment of the benefit shall commence on the first January 1st following the Severance Date; provided, however, that if the Severance Date occurs after the Participant attains age sixty (60) but before he attains age sixty-five (65), payment shall commence on the first January 1st following the Participant’s sixty-fifth (65th) birthday unless the Participant files a written election with the Committee no later than the later of the date of the making of his last Deferral Election or the date two (2) years prior to his Severance Date, to have his benefits commence on the first January 1st following his Severance Date. Payment shall continue on the first day of each month thereafter until one hundred eighty (180) monthly payments have been made.

2. Payments to Beneficiary. In the event a Participant dies prior to full payment of his benefits under this Article IV, all remaining payments due hereunder shall be made to such Participant’s Designated Beneficiary, provided such Designated Beneficiary is living at the time of the Participant’s death. In

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the event the Designated Beneficiary is not living at the time of the Participant’s death, all remaining payments due hereunder shall be paid to the Participant’s estate. In the event the Designated Beneficiary survives the Participant but dies prior to full payment of all remaining payments due hereunder, all payments then remaining due hereunder shall be paid to the Designated Beneficiary’s estate.

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ARTICLE V

SURVIVOR BENEFITS

1. Benefits. Upon the death of the Participant prior to his Severance Date the Company shall pay to the Participant’s Designated Beneficiary a level fifteen (15) year annuity payable in equal monthly installments. Payment of the benefit shall commence on the first January 1st following the Participant’s death and shall continue on the first day of each month thereafter until one hundred eighty (180) monthly payments have been made. The amount of the monthly payments shall be the sum of (A) and (B) below:

(A) With respect to elective and deemed deferrals made in calendar years in which the Participant was deemed Insurable, the amount determined with reference to the appropriate column in the schedule of benefits for calculating survivor benefits attached to the Participant’s Deferral Elections for those calendar years.

(B) With respect to elective and deemed deferrals made in calendar years in which the Participant was deemed not Insurable, the amount determined in accordance with the appropriate column on the schedule of benefits attached to the Participant’s Deferral Elections for those calendar years on the basis of the assumption that the Participant terminated employment with the Company on the day immediately preceding his death.

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2. Payments to Beneficiary. In the event that a Designated Beneficiary dies prior to full payment of his survivor benefits under this Article V, all remaining payments due hereunder shall be made to such Designated Beneficiary’s estate. In the event the Designated Beneficiary is not living at the time of the Participant’s death, the survivor benefits shall be paid to the Participant’s estate.

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ARTICLE VI

NONCOMPETITION

Notwithstanding any provision of this Plan to the contrary but subject to the proviso below, if any Participant terminates employment with the Company for any reason and later accepts employment with, or assumes any other position with, any national bank, state bank, savings and loan association, or any other similar financial institution which has one or more offices in a state in which a subsidiary of Southern National Corporation has a banking office, the Company may at its discretion and in full and complete discharge of its obligations to the Participant under this Plan and his Deferral Elections, make a lump sum payment to the Participant equal to the present value (calculated using the “Present Value Monthly Discount Rate” stated on the schedule of benefits attached to the Participant’s various Deferral Elections) of the remaining benefit payments due to or on behalf of the Participant; provided, however, that the Company shall have no right to make such lump sum payment if, within two (2) years following a Change in Control, either the Company terminates the Participant’s employment other than for cause or the Participant quits or resigns for good reason. Termination by the Company of the Participant’s employment for “cause” shall mean termination due to (i) an act or acts of dishonesty by the Participant constituting a felony and resulting or intended to result in substantial gain or

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personal enrichment for the Participant at the expense of the Company or (ii) willful and continued failure by the Participant to substantially perform his duties with the Company, other than for incapacity due to mental or physical illness, after a written demand for substantial performance is delivered to the Participant by the Chairman of the Board of Directors of the Company which specifies how the Participant has failed to substantially perform his duties; provided, however, in no event shall the Participant’s termination by the Company be considered to have been for cause if such termination shall have been the result of (i) the Participant’s bad judgment or negligence, (ii) any act or omission without intent of gaining a profit to which the Participant was not legally entitled, or (iii) any act or omission believed by the Participant in good faith to have been in, or not opposed to, the interests of the Company. “Good reason” shall mean: (i) the assignment to the Participant of any duties inconsistent with his duties immediately prior to the Change in Control or any removal of the Participant from or any failure to reelect or reappoint the Participant to his positions, except in connection with promotions to higher office; (ii) a reduction by the Company in the Participant’s base salary as in effect immediately prior to the Change in Control; (iii) the failure by the Company to maintain, and to continue the Participant’s participation in, the Company’s benefit or compensation plans as in effect immediately prior to the Change in Control (including but not limited to bonus and incentive

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compensation plans, stock option, bonus, award and purchase plans, life insurance, medical, health and accident insurance, disability plans and deferred compensation plans); or the taking of any action by the Company which would adversely affect the Participant’s participation in or reduce the Participant’s benefits under any of such plans or deprive the Participant of any fringe benefit he enjoyed immediately prior to the Change in Control; or the failure to provide the Participant with the number of paid vacation days to which he was entitled under the Company’s normal vacation policy in effect immediately prior to the Change in Control; (iv) the relocation of the Participant’s office to anywhere other than a location within 25 miles of the Participant’s office immediately prior to the Change in Control or the Company’s requiring the Participant to be based anywhere other than within 25 miles of the Participant’s office immediately prior to the Change in Control, except for required travel on the Company’s business to an extent consistent with the Participant’s business travel obligations immediately prior to the Change in Control; or (v) Total Disability.

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ARTICLE VII

ADMINISTRATIVE COMMITTEE

1. This Plan shall be administered by the Committee. The Committee shall have all powers necessary to enable it to carry out its duties in the administration of the Plan. Not in limitation, but in application of the foregoing, the Committee shall have the duty and power to determine all questions that may arise hereunder as to the status and rights of Participants.

2. The Committee shall act by a majority of the number then constituting the Committee, and such action may be taken either by a vote at a meeting or in writing without a meeting.

3. The Committee shall keep a complete record of all its proceedings and all data relating to the administration of the Plan.

4. The Committee shall select one of its members as a Chairman. The Committee shall appoint a Secretary to keep minutes of its meetings and the Secretary may or may not be a member of the Committee. The Committee shall make such rules and regulations for the conduct of its business as it shall deem advisable.

5. No member of the Committee shall be personally liable for any actions taken by the Committee unless the member’s action involves willful misconduct.

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ARTICLE VIII

AMENDMENT AND TERMINATION

Southern National Corporation reserves the right, at any time or from time to time, by action of its Board of Directors, to amend in whole or in part any or all provisions of the Plan. In addition, Southern National Corporation reserves the right by action of its Board of Directors to terminate the Plan in whole or in part, and each Participating Subsidiary reserves the right by action of its Board of Directors to terminate the Plan with respect to such Participants employed by it. Anything to the contrary herein notwithstanding, any such amendment or termination shall not adversely affect any benefits attributable to elective or deemed deferrals made in the calendar year in which the amendment or termination is adopted or in any prior calendar years.

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ARTICLE IX

MISCELLANEOUS

1. Early Death or Suicide. Notwithstanding any provision in this Plan to the contrary, in the event (i) the Participant dies prior to the first May 1 following the making of a Deferral Election pursuant to Section 3(b)(iii) of Article III, (ii) the Participant dies within one hundred twenty (120) days after making a Deferral Election pursuant to Section 3(b)(i) or (ii) of Article III, or (iii) the Participant dies as a result of suicide within twenty-eight (28) months after making a Deferral Election, then in lieu of all other benefits to which the Designated Beneficiary would otherwise be entitled pursuant to such Deferral Election(s), the Company shall pay to the Designated Beneficiary, within sixty (60) days of receipt of written proof of the Participant’s death, a lump sum equal to the Participant’s actual deferrals pursuant to such Deferral Election(s) plus interest thereon from the date of deferral at the rate of nine percent (9%) per annum compounded annually. The payment of such lump sum shall fully and completely discharge the Company’s obligations under such Deferral Election(s) and shall fully and completely satisfy all the Participant’s and his Designated Beneficiary’s rights thereunder.

2. Nonalienation of Benefits. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to

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anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under this Plan shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits. If the Participant or any beneficiary hereunder shall become bankrupt, or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right hereunder, then such right or benefit shall, in the discretion of the Committee, cease and terminate, and in such event, the Committee may hold or apply the same or any part thereof for the benefit of the Participant or his beneficiary, spouse, children, or other dependents, or any of them in such manner and in such amounts and proportions as the Committee may deem proper.

3. No Trust Created. The obligations of Southern National Corporation and Participating Subsidiaries to make payments hereunder shall constitute a liability of Southern National Corporation and Participating Subsidiaries to a Participant. Such payments shall be made from the general funds of Southern National Corporation and its Participating Subsidiaries, and no such Company shall be required to establish or maintain any special or separate fund, or purchase or acquire life insurance on a Participant’s life, or otherwise to segregate assets to assure that such payment shall be made, and neither a Participant, his estate nor Designated Beneficiary shall have any interest in any particular asset of either Southern National Corporation or its Participating Subsidiaries by reason of its

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obligations hereunder. Nothing contained in the Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Company and a Participant or any other person.

4. No Employment Agreement. Neither the execution of this Plan nor any action taken by the Company pursuant to this Plan shall be held or construed to confer on a Participant any legal right to be continued as an Employee of the Company in an executive position or in any other capacity whatsoever. This Plan shall not be deemed to constitute a contract of employment between the Company and a Participant, nor shall any provision herein restrict the right of the Company to discharge any Participant or restrict the right of any Participant to terminate his employment with the Company.

5. Designation of Beneficiary. Participants shall file with the Company a notice in writing designating one or more Designated Beneficiaries to whom payments otherwise due to or for the benefit of the Participant hereunder shall be made in the event of his death prior to the complete payment of such benefit. Participants shall have the right to change the beneficiary or beneficiaries so designated from time to time; provided, however, that any change shall not become effective until received in writing by the Committee.

6. Payment to Incompetents. The Committee shall make payment provided herein directly to a Participant or such Designated Beneficiary entitled thereto, or if such Participant or

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such Designated Beneficiary has been determined by a court of competent jurisdiction to be mentally or physically incompetent, then payment shall be made to the duly appointed guardian, committee or other authorized representative of such Participant or such Designated Beneficiary and his estate. The Company shall have the right to make payment directly to a Participant or such Designated Beneficiary or until it has received actual notice of the physical or mental incapacity of such Participant or such Designated Beneficiary, and notice of the appointment of a duly authorized representative of his estate. Any such payment for the benefit of the Participant or such Designated Beneficiary or to such representative for his benefit, shall be a complete discharge of all liability of the Company therefor. The Company is authorized to interpret and administer this Section in accordance with the laws of the State of North Carolina.

7. Claims for Benefits. Each Participant or beneficiary must claim any benefit to which he is entitled under this Plan by a written notification to the Committee. If a claim is denied, it must be denied within a reasonable period of time, and be contained in a written notice stating the following:

A. The specific reason for the denial.

B. Specific reference to the Plan provision on which the denial is based.

C. Description of additional information necessary for the claimant to present his claim, if any, and an explanation of why such material is necessary.

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D. An explanation of the Plan’s claims review procedure.

The claimant will have 60 days to request a review of the denial by the Committee, which will provide a full and fair review. The request for review must be in writing delivered to the Committee. The claimant may review pertinent documents, and he may submit issues and comments in writing.

The decision by the Committee with respect to the review must be given within 60 days after receipt of the request, unless special circumstances require an extension (such as for a hearing). In no event shall the decision be delayed beyond 120 days after receipt of the request for review. The decision shall be written in a manner calculated to be understood by the claimant, and it shall include specific reasons and refer to specific Plan provisions as to its effect.

8. Binding Effect. Southern National Corporation shall be jointly and severally liable with respect to obligations incurred by a Participating Subsidiary under this Plan. Obligations incurred by the Company pursuant to this Plan shall be binding upon and inure to the benefit of the Company, its successors and assigns, and the Participant and the beneficiary or beneficiaries designated pursuant to Article IX, Section 5 hereinabove.

9. Entire Plan. This document and any amendments contains all the terms and provisions of the Plan and shall constitute the entire Plan, any other alleged terms or provisions being of no effect.

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10. Merger or Consolidation. In the event of a merger or a consolidation by the Company with another corporation, or the acquisition of substantially all of the assets or outstanding stock of the Company by another corporation, then and in such event the obligations and responsibilities of the Company under this Plan shall be assumed by any such successor or acquiring corporation, and all of the rights, privileges and benefits of the Participants hereunder shall continue.

11. Participant Transfers. In the event a Participant is transferred between Southern National Corporation and a Participating Subsidiary, or between Participating Subsidiaries, the Company to which the Participant is transferred (i) shall assume, to the extent it is executory at the time of the transfer, any obligation under a Deferral Election to defer Compensation of the Participant, and (ii) shall become jointly liable with the transferring Company to pay any benefits due the Participant under such Deferral Election.

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DECLARATION OF AMENDMENT TO

SOUTHERN NATIONAL DEFERRED COMPENSATION PLAN

FOR KEY EXECUTIVES

THIS DECLARATION OF AMENDMENT, made the 25^th day of March, 1997, by SOUTHERN NATIONAL CORPORATION (the “Company”), as sponsor of the Southern National Deferred Compensation Plan for Key Executives (the “Plan”).

R E C I T A L S:

Effective January 1, 1989, Southern National Bank of North Carolina established the Plan for the benefit of selected key employees. The purpose of the Plan was to restore to employees certain benefits (the “Restoration Benefits”) that would have been provided under the Southern National Employee Stock Ownership Plan (which has subsequently been merged into the Southern National Corporation 401 (k) Savings Plan) except for the limitations imposed by Sections 401(a)(17), 401(k), 401(m), 402(g) and 415 of the Internal Revenue Code of 1986, as amended. Branch Banking and Trust Company (“BB&T”) established a similar plan (the “BB&T Plan”) effective as of January 1, 1988, for the benefit of its selected key employees. The BB&T Plan was entitled the Branch Banking and Trust Company Supplemental Executive Retirement Plan. On February 28, 1995, the Company and BB&T Financial Corporation, the former parent corporation of BB&T, were merged. As a result of the merger, the Company became the parent corporation of BB&T and the Company became the sponsor of the Plan. Effective as of January 1, 1996, the Company assumed the sponsorship of the BB&T Plan and the name of the BB&T Plan was changed to the Southern National Corporation Supplemental Executive Retirement Plan. Since the Restoration Benefits were also provided under the BB&T Plan, the BB&T Plan eliminated the need for the Plan. Accordingly, the Plan was frozen as of December 31, 1995. Effective as of January

1, 1997, the BB&T Plan was amended and restated and the name of the BB&T Plan was changed to the Southern National Corporation Non-Qualified Defined Contribution Plan. It is deemed advisable for the Company to amend the Plan to reflect the Plan’s frozen status.

NOW, THEREFORE, it is declared that the Plan shall be and hereby is amended as follows:

1. Effective as of January 1,1996, Article III of the Plan shall be amended by adding the following new material to the end of Section 2:

“Effective as of December 31, 1995, no new Employees of the Company shall become Participants in the Plan. The Participants in the Plan as of such date are designated in Exhibit A attached hereto.”

2. Effective as of January 1, 1996, Article III of the Plan shall be further amended by adding the following new material to the end of Section 3(a):

“Effective as of December 31, 1995, no additional Deferral Elections shall be made by Participants under the Plan.”

IN WITNESS WHEREOF, this Amendment has been executed by the Company on the day and year first above stated.

SOUTHERN NATIONAL CORPORATION
By:	/s/ Robert E. Greene
	Authorized Officer

Attest:

/s/ Jerone C. Herring

(Assistant) Secretary

[Corporate Seal]

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EX-10.M

Exhibit 10(m)

SOUTHERN NATIONAL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)

Effective January 1, 1989

TABLE OF CONTENTS

		PAGE
ARTICLE I	STATEMENT OF PURPOSE	1
ARTICLE II	DEFINITIONS	2
ARTICLE III	ELIGIBILITY AND PARTICIPATION	14
ARTICLE IV	RETIREMENT BENEFITS	15
ARTICLE V	PRE-RETIREMENT SURVIVOR BENEFITS	17
ARTICLE VI	DISABILITY BENEFITS	18
ARTICLE VII	SEVERANCE BENEFITS	20
ARTICLE VIII	NONCOMPETITION	21
ARTICLE IX	COMMITTEE	24
ARTICLE X	AMENDMENT AND TERMINATION	26
ARTICLE XI	MISCELLANEOUS	27
ARTICLE XII	CONSTRUCTION	31

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ARTICLE I

STATEMENT OF PURPOSE

This Plan is designed to enhance the earnings and growth of Southern National Corporation and its Participating Subsidiaries. The Plan provides benefits to or on behalf of selected key management employees which supplement retirement and survivor benefits payable from the Southern National Retirement Plan, a qualified defined benefit pension plan. Such supplemental benefits are intended to enable Southern National to attract and retain superior key management employees and to give such employees additional incentive to make Southern National more profitable.

ARTICLE II

DEFINITIONS

When used herein and capitalized, the following terms shall have the meanings denoted, unless the context clearly requires otherwise.

2.01 Actuarial Equivalent and Actuarially Equivalent. A form of benefit differing in time, period or manner of payment from a specified benefit provided by this Plan or provided by the Pension Plan, but having the same value when computed using the same assumptions used for computing actuarial equivalence under the Pension Plan.

2.02 Change in Control. A Change in Control shall be deemed to have occurred upon the happening of any of the following:

(a) the adoption of a plan of merger or consolidation of Southern National Corporation with any other corporation or association as a result of which the holders of the voting capital stock of Southern National Corporation would receive less than 50% of the voting capital stock of the surviving or resulting corporation;

(b) the occurrence of any event (including, without limitation, any merger or consolidation) as a result of which Southern National Corporation is not the owner beneficially and of record of 50% or more of the voting power of the capital stock of Southern National Bank of North Carolina, N.A. (the “Bank”);

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(c) the sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of Southern National Corporation or the Bank (other than as security for the obligations of Southern National Corporation or the Bank);

(d) the approval by the shareholders of Southern National Corporation or the Bank of any plan or proposal for the liquidation or dissolution of Southern National Corporation or the Bank;

(e) the acquisition by any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)), other than any Trustee under any employee benefit plan of Southern National Corporation or the Bank, and persons (as such term is so used) who are then affiliates and associates (as defined on January 1, 1989 in Rule 12b-2 under the Exchange Act) of such person, or any one of them, after the date this Plan is executed, directly or indirectly, of beneficial ownership (as defined on January 1, 1989 in Rules 13d-3 and 13d-5 under the Exchange Act) of securities of Southern National Corporation representing in the aggregate 20% or more of the voting power of all then outstanding securities of Southern National Corporation having the right under ordinary circumstances to vote in an election of the Board of Directors of Southern National Corporation (without limitation, any securities having such voting power that any such

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person has the right to acquire pursuant to any agreement, or upon exercise of conversion of rights, warrants or options, or otherwise, shall be deemed beneficially owned by such person); or

(f) the failure, for any reason, during any period of two consecutive years, of the individuals who at the beginning of such period constitute the entire Board of Directors of Southern National Corporation (the “Board”) and any new directors whose election by the Board, or whose nomination for election by the shareholders, shall have been approved by a vote of at least two-thirds (2/3) of the directors of the Board then still in office who either were directors at the beginning of the period or whose election or nomination for election shall previously have been so approved, to constitute a majority of the members of the Board.

2.03 Code. The Internal Revenue Code of 1986, as amended, and as it may be amended from time to time.

2.04 Committee. The committee which administers the Plan and which is more particularly described in Article VIII below. The Committee shall be made up of the individuals who hold the following offices of Southern National Bank of North Carolina, N.A.: Chairman of the Board of Directors, President, Director of Human Resources, and Chief Financial Officer.

2.05 Company. Southern National Corporation, Participating Subsidiaries, and any successor by merger, acquisition or otherwise. All references to “Company” shall be

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applied to each such Company as if the Plan were solely the Plan of such Company.

2.06 Credited Service. This term shall have the meaning the Pension Plan ascribes to such term, except that for purposes of this Plan a Participant shall be credited with Credited Service for any period he is under a Total Disability.

2.07 Designated Beneficiary. One or more beneficiaries, as designated by a Participant in writing delivered to the Committee, to whom certain SERP Pre-Retirement Death Benefits shall be paid pursuant to the provisions of Article V below. In the event no such written designation is made by the Participant or such beneficiary shall not be living or in existence at the time payments are to commence, the Participant shall be deemed to have designated his estate as such beneficiary.

2.08 Early Payment Reduction Percentage. The sum of (A) and (B) where (A) is the product of one thousand six hundred and sixty-seven ten thousandths percent ( .1667%) multiplied by the number of such whole calendar months by which the date of the first monthly payment of a Participant’s SERP Retirement Benefit precedes the month of his sixty-fifth (65th) birthday, and where (B) is the product of one-half of one percent (.50%) multiplied by the number of whole calendar months, in excess of sixty (60), by which the date of the first monthly payment of the Participant’s SERP Retirement Benefit precedes the month of his sixty-fifth (65th) birthday.

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2.09 Early Retirement Date. The date on which a Participant under this Plan who has attained at least age fifty-five (55) and has at least fifteen (15) years of Credited Service terminates employment with the Company prior to attaining age sixty-five (65).

2.10 Eligible Spouse. The person, if any, who is legally married to the Participant on the Participant’s date of death; provided however that such term shall not include a spouse who on the date of death is legally separated from the Participant pursuant to a court order or written agreement between the Participant and spouse.

2.11 ERISA. The Employee Retirement Income Security Act of 1974, as amended, and as it may be amended from time to time.

2.12 ERISA Excess Benefit.

(a) If the Participant is married, the difference between (i) the monthly amount he would receive as the primary annuitant of a joint and seventy-five percent (75%) survivor annuity which is Actuarially Equivalent to his Unlimited Pension Plan Benefit and which commences when his SERP Retirement Benefit commences, and (ii) his Pension Plan Benefit.

(b) If the Participant is not married, the difference between (i) the monthly amount he would receive as the annuitant of a level life and ten-year certain annuity which is Actuarially Equivalent to his Unlimited Pension Plan Benefit and

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which commences when his SERP Retirement Benefit commences, and (ii) his Pension Plan Benefit.

For purposes of this Section and Section 2.19, (A) a “joint and seventy-five percent (75%) survivor annuity” means an annuity providing a monthly benefit for the life of the Participant with a monthly benefit payable to his surviving spouse, if any, for the remainder of her life in an amount equal to seventy-five percent (75%) of the monthly benefit payable to him during his lifetime; and (B) a “level life and ten-year certain annuity” means an annuity providing a monthly benefit payable for a minimum of one hundred and twenty (120) months and, if longer, for the life of the Participant.

2.13 Final Average Earnings. A Participant’s average Monthly Earnings (as defined in Section 2.14) for the sixty (60) calendar months during which his Monthly Earnings were the highest (which sixty months may or may not be consecutive) within the one hundred and twenty (120) calendar months (or if less the total number of calendar months during which he was employed with the Company) immediately preceding the earliest to occur of his Severance Date, date of death, or date his employment with the Company terminates by reason of Total Disability. In the event the Participant does not have at least sixty (60) months of employment with the Company, Final Average Earnings shall mean the average Monthly Earnings for his total period of employment.

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2.14 Monthly Earnings. Monthly Earnings, for any calendar month, shall mean the quotient obtained by dividing by twelve (12) the total earnings paid to a Participant by the Company during the calendar year in which the calendar month falls. For purposes of the preceding sentence, “total earnings paid to a Participant by the Company during the calendar year” shall mean the total earnings paid by the Company to the Participant reported or reportable for that calendar year on U.S. Treasury Department Wage and Tax Statement Form W-2 or similar form required for such purpose, increased by (i) any deferrals under the Southern National Employee Stock Ownership Plan as amended from time to time, and (ii) any reductions in compensation resulting from participation in any deferred compensation plan or cafeteria plan to the extent that such deferrals and reductions are excluded from reporting on Form W-2 or other similar form required for such purpose. For purposes of the preceding sentence, noncash items, including company car income and income from stock options, and benefits paid under this Plan or any other employee benefit plan of the Company shall be excluded from “total earnings paid to a Participant by the Company during the calendar year.”

2.15 Normal Retirement Date. The first day of the month next following the month of the Participant’s sixty-fifth (65th) birthday.

2.16 Participant. An employee selected by the Committee pursuant to the provisions of Article III to

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participate in this Plan. The Committee may designate new Participants as it, in its sole discretion, deems proper.

2.17 Participating Subsidiary. Each subsidiary of Southern National Corporation who, pursuant to action duly adopted by its board of directors, has adopted this Trust Agreement. “Subsidiary” means a corporation over 50% of the voting stock of which is owned by Southern National Corporation, by another subsidiary or other subsidiaries of Southern National Corporation. The foregoing notwithstanding, the Board of Directors of Southern National Corporation may designate any company affiliated with Southern National Corporation as a “subsidiary” for purposes of this Plan.

2.18 Pension Plan. The Southern National Retirement Plan as it may be amended from time to time.

2.19 Pension Plan Benefit. One-twelfth (l/l2th) of the annual amount of the benefit which would be payable to a Participant under the Pension Plan if the Participant’s vested accrued benefit in the Pension Plan were paid as follows:

(A) In the case of a married Participant, in the form of a joint and seventy-five percent (75%) survivor annuity which is Actuarially Equivalent to his vested accrued benefit in the Pension Plan and which commences when his SERP Retirement Benefit commences;

(B) In the case of an unmarried Participant, in the form of a level life and ten-year

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certain annuity which is Actuarially Equivalent to his vested accrued benefit in the Pension Plan and which commences when his SERP Retirement Benefit commences.

The foregoing assumptions are made solely for purposes of this Plan, and such assumptions shall apply without regard for the form in which or the time at which a Participant’s vested accrued benefit under the Pension Plan is actually paid or authorized to be paid.

2.20 Plan. This Southern National Supplemental Executive Retirement Plan (SERP) as contained herein and as it may be amended from time to time.

2.21 Postponed Retirement Date. The first day of the month next following the month of the Participant’s Severance Date if such Severance Date is later than his Normal Retirement Date.

2.22 SERP Retirement Benefit. Subject to Section 4.03 below, an amount equal to the greater of (A) or (B) below:

(A) The product of (1) the Participant’s Target Retirement Benefit reduced by the sum of (i) his Pension Plan Benefit and (ii) fifty percent (50%) of his Social Security Benefit, multiplied by (2) the difference between one hundred percent (100%) and the Early Payment Reduction Percentage.

(B) The Participant’s ERISA Excess Benefit.

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2.23 Severance Date. The date on which a Participant terminates his employment with the Company other than by reason of death; provided, however, that if his employment with the Company terminates prior to Early or Normal Retirement by reason of the onset of Total Disability, then his Severance Date shall be the earlier of (a) the date such Total Disability ceases and he does not return to the employ of the Company or (b) the date he first becomes eligible to retire on his Early Retirement Date or Normal Retirement Date.

2.24 Social Security Benefit. An amount equal to the annual Primary Old Age Insurance benefit to which the Participant would be entitled to receive commencing on his Normal Retirement Date (assuming that he will have no earnings after such date that would cause a reduction in such benefit) under the Federal Social Security Act, as such Act is in effect on the Participant’s Severance Date, divided by twelve (12). The Social Security Benefit shall be calculated on the basis of the Participant’s estimated earnings history, constructed as follows:

(a) If the Participant has not reached age sixty-five (65) on his Severance Date, it shall be assumed that he will receive no additional compensation during the period between his Severance Date and his attainment of age sixty-five (65);

(b) The Participant’s Monthly Earnings shall be used for the one hundred and twenty (120) calendar month period

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(or for the Participant’s total months of employment if shorter) that is considered in the determination of Final Average Earnings; and

(c) For years beginning the later of 1951, or the calendar year in which the Participant attained age twenty-two (22), and ending with the year immediately preceding the period described in (b) above, the Participant’s wages for purposes of the Federal Social Security Act shall be calculated by projecting backwards, using a salary scale of six percent (6%) per annum, his Monthly Earnings for the earliest calendar year in the period described in (b) above.

Notwithstanding the foregoing, a Participant shall have the right to have his Social Security Benefit recomputed on the basis of his actual Social Security earnings history by providing appropriate documentation to the Committee. For a Participant whose Social Security full-benefit retirement age is later than age sixty-five (65), the Social Security Benefit shall be determined at age sixty-five (65) subject to applicable Social Security reduction for months before his full-benefit retirement age.

2.25 Target Retirement Benefit. An amount equal to fifty-five percent (55%) of the Participant’s Final Average Earnings.

2.26 Total Disability. Total disability shall have the same meaning as is ascribed to such term by the long-term

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disability benefits plan sponsored by the Company and in which the Participant participates. If the Participant does not participate in such plan or if the Company does not sponsor such a plan, then the Participant shall be under a Total Disability if by reason of sickness or injury he cannot perform each of the material duties of his regular occupation; provided, however, that after the first twenty-four (24) months he shall be under a Total Disability if he cannot perform each of the material duties of any gainful occupation for which he is reasonably fitted by training, education or experience.

2.27 Unlimited Pension Plan Benefit. The vested accrued benefit to which the Participant would have been entitled under the Pension Plan if such benefit were computed without giving effect to the compensation and annual benefit limitations as set forth in Sections 401(a)(17) and 415 of the Code and corresponding provisions of the Pension Plan.

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ARTICLE III

ELIGIBILITY AND PARTICIPATION

3.01 Eligibility. The Committee shall have the sole discretion to determine the employees of the Company who are eligible to become Participants; provided, however, that no employee who is not a member of the “select group of management or highly compensated employees,” as defined in Sections 201(2), 301(a)(3) and 401(a) of ERISA shall be eligible to become a Participant in the Plan.

3.02 Participation. The Committee shall cause those employees selected by it to become Participants to be notified of their participation and of the benefits available to them under the Plan. Once selected to participate in the Plan, a Participant shall remain a Participant as long as he is employed by the Company.

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ARTICLE IV

RETIREMENT BENEFITS

4.01 Retirement.

(a) Benefit Payable to Participant. Upon a Participant’s retirement on his Early Retirement Date, Normal Retirement Date or Postponed Retirement Date, the Company shall make monthly payments to the Participant of his SERP Retirement Benefit commencing with the month immediately following the month of the Participant’s Severance Date and continuing for each month thereafter until and including the month of his death.

(b) Spousal Survivor Benefit. Upon the death of a retired Participant who is either receiving or entitled to receive a SERP Retirement Benefit, the Company shall make monthly payments to the Participant’s Eligible Spouse, if any, commencing with the month next following the month of the retired Participant’s death and continuing for each month thereafter until and including the month of the Eligible Spouse’s death. Each monthly payment shall equal seventy-five percent (75%) of the monthly amount of the deceased Participant’s SERP Retirement Benefit.

4.02 Reemployment of Retired Participant. A retired Participant receiving or eligible to receive supplemental retirement benefits under this Plan and who is reemployed by the Company shall not be entitled to any increased benefits under

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this Plan by reason of accumulating additional years of Credited Service or Monthly Earnings after his reemployment.

4.03 Actuarial Reduction. Notwithstanding the foregoing provisions of Sections 2.22 and 4.01, in the event the Eligible Spouse is more than ten (10) years younger than the Participant, the monthly amount of the Participant’s SERP Retirement Benefit (as otherwise calculated under Sections 2.22 and 4.01(a) above) and, consequently, the derivative spousal survivor benefit under Section 4.01(b), shall be reduced in order that the Participant’s SERP Retirement Benefit and the spousal survivor benefit, when considered together, is the Actuarial Equivalent of the benefits that would be payable to the Participant and his Eligible Spouse if the Eligible Spouse were ten (10) years younger than the Participant.

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ARTICLE V

PRE-RETIREMENT SURVIVOR BENEFITS

5.01 Death Benefit.

(a) If a Participant who has not attained age sixty-five (65) dies prior to his Severance Date, the Company shall pay to the Participant’s Eligible Spouse or, if none, his Designated Beneficiary a monthly benefit for one hundred and eighty (180) consecutive months. The amount of the monthly benefit shall equal twenty percent (20%) of the Participant’s Final Average Earnings. The benefits shall commence in the first month following the month of the Participant’s death.

(b) If a Participant who has attained age sixty-five (65) dies prior to his Severance Date, he shall be considered to have retired on the day before his death and, accordingly, the Company shall pay to his Eligible Spouse, if any, the spousal survivor benefit set forth in Section 4.01(b).

(c) Except as set forth in this Article V, no survivor benefit is payable under this Plan if a Participant dies prior to his Severance Date.

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ARTICLE VI

DISABILITY BENEFITS

6.01 Disability Prior to Retirement Date.

(a) Except as provided in Article IV in the case of retirement by Participants, this Plan provides no disability benefits.

(b) If the Participant’s employment with the Company terminates by reason of the onset of Total Disability, and the termination of employment occurs prior to the Participant’s Early Retirement Date and Normal Retirement Date, then for purposes of qualifying for the Early Retirement Date the Participant will receive credit for Credited Service during his period of Total Disability. If the Participant’s Total Disability continues until a Severance Date which qualifies him for a benefit under Article IV, his Final Average Earnings is calculated based on his Monthly Earnings during the one hundred and twenty (120) calendar month period immediately preceding the date on which his Total Disability commenced.

(c) If the Participant’s Total Disability ceases, and he does not return to regular active employment with the Company, then for the purpose of determining his years of Credited Service his employment shall be deemed terminated on the date that the Total Disability ceased.

(d) The Committee may from time to time request that a Participant who is under a Total Disability submit to a

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medical examination or related series of examinations by a physician or physicians acceptable to the Committee to determine whether the Total Disability continues. A Participant’s refusal to submit to such an examination or related series of examinations shall be deemed an admission by him that he is no longer under a Total Disability. All examinations requested by the Committee pursuant to this provision shall be at the expense of the Company.

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ARTICLE VII

SEVERANCE BENEFITS

7.01 No Severance Benefits. Except as provided in Article IV in the case of retirement by Participants, this Plan provides no severance benefits.

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ARTICLE VIII

NONCOMPETITION

Notwithstanding any provision of this Plan to the contrary but subject to the proviso below, if any Participant terminates employment with the Company for any reason and accepts employment with, or assumes any other position with, any national bank, state bank, savings and loan association, or any other similar financial institution with one or more offices in a state in which a subsidiary of Southern National Corporation has a banking office, the Participant shall forfeit all rights to all retirement and survivor benefits to which he, his Eligible Spouse, or his Designated Beneficiary is or may become entitled to under this Plan; provided, however, that no such forfeiture shall occur if, within two (2) years following a Change in Control, either the Company terminates the Participant’s employment other than for cause or the Participant quits or resigns for good reason. Termination by the Company of the Participant’s employment for “cause” shall mean termination due to (i) an act or acts of dishonesty by the Participant constituting a felony and resulting or intended to result in substantial gain or personal enrichment for the Participant at the expense of the Company or (ii) willful and continued failure by the Participant to substantially perform his duties with the Company, other than for incapacity due to mental or physical illness, after a written demand for substantial performance is

21

delivered to the Participant by the Chairman of the Board of Directors of the Company which specifies how the Participant has failed to substantially perform his duties; provided, however, in no event shall the Participant’s termination by the Company be considered to have been for cause if such termination shall have been the result of (i) the Participant’s bad judgment or negligence, (ii) any act or omission without intent of gaining a profit to which the Participant was not legally entitled, or (iii) any act or omission believed by the Participant in good faith to have been in, or not opposed to, the interests of the Company. “Good reason” shall mean: (i) the assignment to the Participant of any duties inconsistent with his duties immediately prior to the Change in Control or any removal of the Participant from or any failure to reelect or reappoint the Participant to his positions, except in connection with promotions to higher office; (ii) a reduction by the Company in the Participant’s base salary as in effect immediately prior to the Change in Control; (iii) the failure by the Company to maintain, and to continue the Participant’s participation in, the Company’s benefit or compensation plans as in effect immediately prior to the Change in Control (including but not limited to bonus and incentive compensation plans, stock option, bonus, award and purchase plans, life insurance, medical, health and accident insurance, disability plans and deferred compensation plans); or the taking of any action by the Company which would adversely affect the Participant’s participation in or reduce the

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Participant’s benefits under any of such plans or deprive the Participant of any fringe benefit he enjoyed immediately prior to the Change in Control; or the failure to provide the Participant with the number of paid vacation days to which he was entitled under the Company’s normal vacation policy in effect immediately prior to the Change in Control; (iv) the relocation of the Participant’s office to anywhere other than a location within 25 miles of the Participant’s office immediately prior to the Change in Control or the Company’s requiring the Participant to be based anywhere other than within 25 miles of the Participant’s office immediately prior to the Change in Control, except for required travel on the Company’s business to an extent consistent with the Participant’s business travel obligations immediately prior to the Change in Control; or (v) Total Disability.

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ARTICLE IX

COMMITTEE

9.01 Authority. The Committee shall be responsible for the administration and interpretation of the Plan, and shall have all powers necessary to enable it to carry out its duties in the administration and interpretation of the Plan, and shall have the duty and power to determine all questions that may arise hereunder as to the status and rights of Participants in the Plan.

9.02 Voting. The Committee shall act by a majority of the number then constituting the Committee, and such action may be taken either by vote at a meeting or in writing without a meeting.

9.03 Records. The Committee shall keep a complete record of all its proceedings and all data relating to the administration of the Plan. The Committee shall make such rules and regulations for the conduct of its business as it shall deem advisable.

9.04 Liability. No member of the Committee shall be personally liable for any actions taken or omitted by the Committee unless the member’s action or inaction involves willful misconduct. To the extent permitted by applicable law, the Company shall indemnify and hold harmless each member of the Committee and each employee of the Company acting pursuant to the direction of the Committee from and against any and all

24

liability, claims, demands, costs and expenses (including reasonable attorneys’ fees) arising out of or incident to any act or failure to act in connection with the administration of the Plan, except for any such act or failure to act that involves willful misconduct.

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ARTICLE X

AMENDMENT AND TERMINATION

Southern National Corporation reserves the right, at any time and from time to time, by action of its Board of Directors, to amend or terminate the Plan, and each Participating Subsidiary reserves the right by action of its Board of Directors to terminate the Plan with respect to it and the Participants employed by it; provided, however, no such amendment or termination shall reduce or eliminate the benefits (including survivor benefits) of a Participant (or Eligible Spouse or Designated Beneficiary) to whom payments under this Plan have commenced or who is then eligible under Article IV to retire and begin receiving benefits under this Plan. In addition, each other Participant in the Plan on the date of such amendment or termination shall be entitled to benefits (including survivor benefits) under this Plan, at such times as such benefits would have been paid absent such amendment or termination, in an amount not less than the amount that would have been paid absent such amendment or termination multiplied by an “accrual fraction” (which may not exceed 1.0) the numerator of which is equal to the number of his years of Credited Service at the time of such amendment or termination and the denominator of which is equal to the lesser of fifteen (15) or the number of years of Credited Service he would have had if the Plan had not been amended or terminated and if he had continued in the employ of the Company until the date he attained age sixty (60); provided, however, that upon and after a Change in Control, each Participant’s accrual fraction shall be 1.0.

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ARTICLE XI

MISCELLANEOUS

11.01 Nonalienation of Benefits. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under the Plan shall be void. No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to such benefits. If a Participant or Eligible Spouse hereunder shall become bankrupt, or attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right hereunder, then such right or benefit shall, in the discretion of the Committee, cease and terminate, and in such event, the Committee may hold or apply the same, or any part thereof, for the benefit of the Participant or Eligible Spouse in such manner and in such amounts and proportions as the Committee may deem proper.

11.02 No Trust Created. The obligations of the Company to make payments hereunder shall constitute a liability of the Company to the Participants. Such payments shall be made from the general funds of the Company and the Company shall not be required to establish or maintain any special or separate fund, or to purchase or acquire life insurance on a Participant’s life, or otherwise to segregate assets to assure that such

27

payments shall be made. Neither a Participant, Eligible Spouse, or Designated Beneficiary shall have any interest in any particular asset of the Company by reason of the obligations hereunder, and the right of any of them to receive payments under this Plan shall be no greater than the right of any other unsecured general creditor of the Company. Nothing contained in the Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Company and a Participant, Eligible Spouse, or Designated Beneficiary.

11.03 No Employment Agreement. Neither the execution of this Plan nor any action taken by the Company pursuant to this Plan shall be held or construed to confer on a Participant any legal right to be continued as an employee of the Company. This Plan shall not be deemed to constitute a contract of employment between the Company and a Participant, nor shall any provision herein restrict the right of any Participant to terminate his employment with the Company.

11.04 Binding Effect. Southern National Corporation and Participating Subsidiaries shall be jointly and severally liable with respect to the obligations incurred pursuant to this Plan and such obligations shall be binding upon and inure to the benefit of their successors and assigns, and the Participant and his Eligible Spouse and Designated Beneficiary.

11.05 Claims for Benefits. Any Participant, Eligible Spouse or Designated Beneficiary claiming a benefit under this Plan must give written notification thereof to the Committee. If

28

a claim is denied, it must be denied within a reasonable period of time and the denial must be accompanied by a written notice stating the following:

(a) Specific reason for the denial;

(b) Specific reference to the Plan provision on which the denial is based;

(c) Description of additional information necessary for the claimant to present his claim, if any, and an explanation of why such material is necessary; and

(d) Explanation of the Plan’s claims review procedure.

The claimant will have 60 days to request a review of the denial by the Committee. The request for review must be in writing delivered to the Committee, which will then provide a full and fair review. The claimant may review pertinent documents, and he may submit issues and comments in writing. The decision by the Committee with respect to the review must be given within 60 days after receipt of the request, unless special circumstances require an extension (such as for a hearing). In no event shall the decision be delayed beyond 120 days after receipt of the request for review. The decision shall be written in a manner calculated to be understood by the claimant, and it shall include the specific reasons and refer to the specific Plan provisions on which it is based.

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11.06 Entire Plan. This document and any amendments hereto contain all the terms and provisions of the Plan and shall constitute the entire Plan, any other alleged terms or provisions being of no effect.

11.07 Merger or Consolidation. In the event of a merger or a consolidation of the Company or a Participating Subsidiary with another corporation or entity, or the acquisition of substantially all of the assets or outstanding stock of the Company or a Participating Subsidiary by another corporation or entity, then and in such event the obligations and responsibilities of such merged or acquired corporation under this Plan shall be assumed by any such successor or acquiring corporation or entity, and all of the rights, privileges and benefits of the Participants hereunder shall continue.

11.08 Payment to Incompetent. The Committee shall make the payments provided herein directly to a Participant or beneficiary entitled thereto, or if such Participant or beneficiary has been determined by a court of competent jurisdiction to be mentally or physically incompetent, then payment shall be made to the duly appointed guardian, conservator or other authorized representative of such Participant or beneficiary. The Company shall have the right to make payment directly to a Participant or beneficiary until it has received actual notice of the physical or mental incapacity of such Participant or beneficiary and notice of the appointment of a duly authorized representative of his estate. Any such payment to an authorized representative for the benefit of a Participant or beneficiary shall be a complete discharge of all liability of the Company herefor.

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ARTICLE XII

CONSTRUCTION

12.01 Governing Law. This Plan shall be construed and governed in accordance with the laws of the State of North Carolina.

12.02 Gender. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender, and the singular may include the plural, unless the context clearly indicates to the contrary.

12.03 Headings, Etc. The cover page of the Plan, the Table of Contents and all headings used in this Plan are for convenience of reference only and are not part of the substance of this Plan.

12.04 Date. The effective date of this Plan is January 1, 1989.

IN WITNESS WHEREOF, this Plan is duly executed by Southern National Corporation’s duly authorized officers as of the 15th day of June, 1989.

SOUTHERN NATIONAL CORPORATION
BY:	/s/ Hector MacLean

ATTEST:

/s/ Faye M. Hollowell

Secretary (Acting)

[Corporate Seal]

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DECLARATION OF AMENDMENT TO

SOUTHERN NATIONAL

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)

THIS DECLARATION OF AMENDMENT, made the 25^th day of March, 1997, by SOUTHERN NATIONAL CORPORATION (the “Company”), as sponsor of the Supplemental Executive Retirement Plan (SERP) (the “Plan”).

R E C I T A L S:

The Company sponsors the Plan for the benefit of selected key management employees. On February 28,1995, the Company and BB&T Financial Corporation were merged. It is deemed advisable for the Company to amend the Plan to change the name of the Plan to the “Southern National Corporation Target Pension Plan” and to update and clarify certain provisions.

NOW, THEREFORE, it is declared that the Plan shall be and hereby is amended as follows:

1. Effective as of January 1, 1997, the name of the Plan shall be changed to the “Southern National Corporation Target Pension Plan.” On and after January 1,1997, all references to the word “Plan” shall mean “Southern National Corporation Target Pension Plan.”

2. Effective as of February 28,1995, Article II of the Plan shall be amended by deleting the reference in Section 2.04 to “Southern National Bank of North Carolina, N.A.” and substituting therefor “Branch Banking and Trust Company.”

3. Effective as of January 1, 1996, Article II of the Plan shall be further amended by deleting Section 2.18 in its entirety and substituting therefor the following:

“2.18 ‘Pension Plan’ means the Southern National Corporation Pension Plan (amended and restated as of January 1, 1996), as it may be amended from time to time.”

4. Effective as of January 1, 1997, Article II of the Plan shall be further amended by deleting Section 2.20 in its entirety and substituting therefor the following:

“2.20 ‘Plan.’ This Southern National Corporation Target Pension Plan as contained herein and as it may be amended from time to time.”

5. Effective as of January 1, 1997, Article III of the Plan shall be amended by adding the following new material to the end of Section 3.02:

“The Participants in the Plan are designated in Exhibit A attached hereto, as the same may be amended from time to time by the Committee.”

6. Effective as of February 28, 1995, Article XI of the Plan shall be amended by deleting Section 11.02 in its entirety and substituting therefor the following:

“11.02 Funding. The Plan is intended to be an unfunded plan of deferred compensation maintained for a select group of highly compensated or management employees. The obligation of the Company to make payments hereunder shall constitute a general unsecured obligation of the Company to the Participant. Notwithstanding the foregoing, the Company has established and maintains a special separate fund as provided for in the document entitled “Southern National Executive Compensation Trust.” Notwithstanding the foregoing, no Participant, Eligible Spouse or Designated Beneficiary shall have any legal or equitable rights, interest or claims in any particular asset of the trust or the Company by reason of the Company’s obligation hereunder, and nothing contained herein shall create or be construed as creating any other fiduciary relationship between the Company and a Participant or any other person. To the extent that any person acquires a right to receive payments from the trust or the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.”

7. Except as otherwise provided in this Declaration of Amendment, the Plan shall continue and benefits shall be payable in accordance with its terms, as amended.

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IN WITNESS WHEREOF, this Amendment has been executed by the Company on the day and year first above stated.

SOUTHERN NATIONAL CORPORATION
By:	/s/ Robert E. Greene
	Authorized Officer

Attest:

/s/ Jerone C. Herring

(Assistant) Secretary

[Corporate Seal]

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EX-10.AF

Exhibit 10(af)

SETTLEMENT AND NONCOMPETITION

AGREEMENT

THIS SETTLEMENT AND NONCOMPETITION AGREEMENT (the “Agreement”) made and entered into this 1st day of July 1997, by and between BB&T CORPORATION, a North Carolina corporation with its principal office at Winston-Salem, North Carolina (“BB&T”), and E. RHONE SASSER, an individual residing in Whiteville, North Carolina (“Sasser”).

R E C I T A L S :

Sasser has been employed by United Carolina Bancshares Corporation (“UCB”) as its Chairman of the Board of Directors and Chief Executive Officer pursuant to an Employment Agreement entered into by Sasser and UCB dated as of January 18,1995 (the “UCB Employment Agreement”). As of November 1, 1996, BB&T and UCB entered into an Agreement and Plan of Reorganization (later modified as of the same date in an Amended and Restated Agreement and Plan of Reorganization, and referred to herein as the “Reorganization Agreement”), pursuant to which UCB has been merged with and into BB&T (the “Merger”). The parties hereto acknowledge that the UCB Employment Agreement constitutes a legally enforceable agreement by Sasser, that Sasser has complied with his obligations thereunder in all material respects, and that Sasser is willing and able to continue to perform his obligations thereunder. BB&T, as successor to UCB, desires to terminate the UCB Employment Agreement and Sasser’s employment by BB&T and to enter into this Agreement in full settlement of the UCB Employment Agreement. BB&T and Sasser acknowledge that this Agreement has been negotiated at arms-length, that both parties hold equal bargaining positions, and that each has relied on the advice of experienced counsel in negotiating the terms and provisions of this Agreement.

BB&T also recognizes that Sasser has broad experience in the banking business and close relations with many of UCB’s major customers, has close relations with key employees of UCB, and has extensive knowledge of UCB trade secrets and other proprietary information, and BB&T thus believes that Sasser could substantially damage the business of BB&T were he to compete with BB&T or attempt to solicit away customers or employees of BB&T.

Sasser, in consideration of the payments in Article I and the benefits provided in Article II, agrees that the UCB Employment Agreement shall be and hereby is terminated in its entirety effective on the date hereof, and acknowledges and agrees that he has no further rights or entitlements thereunder.

NOW, THEREFORE, for and in consideration of the premises and the mutual promises and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, BB&T and Sasser covenant and agree as follows:

ARTICLE I

COMPENSATION

1.01.  Annual Compensation.

(a) Payments to Sasser.

Commencing on the date hereof and continuing through the earlier of (i) attainment by Sasser of his sixty-fifth birthday, or (ii) Sasser’s death, BB&T shall pay to Sasser $769,392 per annum, as adjusted as provided in Section 1.01(d) (such amount as adjusted is referred to herein as the “Base Amount”). The payments made pursuant to this Section 1.01 are in addition to the benefits provided in Article II. One-twelfth of the Base Amount shall be paid for each calendar month in accordance with the normal payroll practices of BB&T on the date set from time to time for payment of monthly salary to BB&T senior executives (the “Payment Date”). If Sasser shall survive to tie date of his sixty-fifth birthday (the “Determination Date”), he shall receive for the remainder of his lifetime monthly amounts (payable on the Payment Date each month) of seventy percent of the highest monthly Base Amount paid to him during the twelve calendar months preceding the Determination Date, reduced as provided in Section 1.02.

(b) Payments following Death of Sasser.

If Sasser’s death occurs before the Determination Date, BB&T shall pay through and including the Determination Date, to Sasser’s current spouse, Dorothy F. Sasser (“Current Spouse”), if she survives him and was married to Sasser at the date of his death, or if not, in equal portions to Sasser’s two sons, Edward Craig Sasser and Douglas Bryon Sasser, if they both survive him, or if they do not both survive him, to Sasser’s estate (the foregoing to be referred to hereinafter, as appropriate, as “Sasser’s Beneficiary”) a monthly death benefit equal to one-twelfth of the Base Amount, including continuing adjustments as provided in Section 1.01 (d). The monthly payment for each calendar month shall be made on the Payment Date for the month. Upon the occurrence of the Determination Date (if Sasser’s death occurs before the Determination Date), or upon Sasser’s death if he dies following the Determination Date, BB&T shall pay to his Current Spouse, if she is then living and was married to Sasser at the date of his death, a monthly death benefit for her life, payable on the Payment Date each month, equal to thirty-five percent of the highest monthly Base Amount paid by BB&T to Sasser or Sasser’s Beneficiary during the twelve-month period immediately preceding the Determination Date, reduced as provided in Section 1.02. No payments shall be made under this Section 1.01(b) following the Determination Date if Sasser dies prior to the Determination Date and his Current Spouse either is not married to him on the date of his death or does not survive beyond the Determination Date, or following Sasser’s death if Sasser dies following the Determination Date and his Current Spouse is not married to him on the date of his death.

(c) Partial Month.

If any payment pursuant to 1.01 (a) or (b) commences on a day other than the first day of a calendar month, or ceases on a day other than the last day of a calendar month, the monthly amount payable for such partial month shall equal the amount payable for a full month multiplied by a fraction, the numerator of which is the number of days in the month during the period for which the payment is to be made, and the denominator of which is the number of days in the month.

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(d) CPI Adjustment.

The Base Amount shall be automatically increased as of each year (commencing on July 1,1998 and ending with July 1 next preceding the Determination Date) to reflect increases in the cost of living (as hereinafter described). The amount of any annual automatic cost of living increase in the Base Amount shall be determined by multiplying the most recent Base Amount by a fraction, the numerator of which shall be the Consumer Price Index (the “CPI”) [All Urban Consumers, South Region Average (1982-84 = 100); All Items, Bureau of Labor Statistics of The United States Department of Labor], for the month of May preceding the July 1 of the current calendar year, and the denominator of which shall be the CPI for May of the calendar year preceding the current year. If the quotient obtained in the foregoing fraction shall be less than one, the Base Amount shall not be adjusted for the current year (and, for the purpose of determining the CPI adjustment, if any, for future years, the denominator of the above fraction shall be the CPI for May of the calendar year in which a CPI adjustment was last made to the Base Amount) In the event (i) the CPI ceases to use the 1982-84 average of 100 as the base of calculation, or (ii) a substantial change is made in the quality or quantity of the items utilized in determining the CPI, or (iii) the publishing of the CPI shall be discontinued for any reason, the parties hereto shall thereafter accept and use such other index or comparable statistics to measure the cost of living as shall be mutually agreeable to BB&T and Sasser or Sasser’s Beneficiary.

(e) Parachute Payment Adjustment.

In the event that any amount required to be paid or distributed to Sasser pursuant to this Agreement shall constitute a parachute payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and the rules and regulations thereunder (the “Code”), and the aggregate of such parachute payments and any other amounts otherwise required to be paid or distributed to Sasser by BB&T shall cause Sasser to be subject to the excise tax on excess parachute payments under Section 4999 of the Code (the “Excise Tax”), BB&T shall pay to Sasser an additional amount (the “Gross-Up Payment”) such that the net amount Sasser shall receive after the payment of any Excise Tax shall equal the amount which he would have received if the Excise Tax had not been imposed. The Gross-Up Payment shall be determined by BB&T’s regular independent auditors and shall equal the sum of the following:

(i) The rate of the Excise Tax multiplied by the amount of the excess parachute payments;

(ii) Any federal income tax, social security tax, unemployment tax or Excise Tax imposed upon Sasser as a result of the Gross-Up Payment required to be made under this paragraph (e); and

(iii) Any state income or other tax imposed upon Sasser as a result of the Gross-Up Payment required to be made under this paragraph (e).

For purposes of determining the amount of the Gross-Up Payment, Sasser shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation for individuals in the calendar year in which the Excise Tax is required to be paid. In addition, Sasser shall be deemed to pay state income taxes at a rate determined in accordance with the following formula:

( 1 - (highest marginal rate of federal income taxation for individuals)) x (highest marginal rate of North Carolina income taxes for individuals in the calendar year in which the Excise Tax is required to be paid).

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The Gross-Up Payment shall be made on or before the date that Sasser is required to pay the Excise Tax; provided, that if the amount of such Payment cannot be finally determined on or before such date, BB&T shall pay to Sasser on such date an estimate, as determined in good faith by BB&T’s regular independent auditors, of the minimum amount of such payment and shall pay the remainder of such payment (together with interest at the rate provided under Section 1274(b)(2)(B) of the Code) as soon as the amount can be determined but no later than the thirtieth day after the date Sasser becomes subject to the payment of the Excise Tax. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time the Gross-Up Payment is made, Sasser shall repay to BB&T at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax, federal and state taxes imposed on the Gross-Up Payment being repaid by Sasser, if such repayment results in a reduction in Excise Tax and/or a federal or state tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time the Gross-Up Payment is made (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), BB&T shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined.

1.02.   Other Payments.

The payments due after the Determination Date to Sasser or his Current Spouse under Section 1.01 shall be reduced by the sum of the following amounts:

(a) BB&T Pension Plan.

The amount actually paid each month to Sasser (and to his Current Spouse, if applicable) under the BB&T Pension Plan (which plan shall succeed by plan merger to the assets and liabilities under the UCB defined benefit pension plan), based on the payment option applicable with respect to Sasser under the BB&T Pension Plan.

(b) Benefit Equivalency Plan.

The amount actually paid each month to Sasser (and to his Current Spouse, if applicable) under the UCB Benefit Equivalency Plan, based on the payment option applicable with respect to Sasser under such Plan.

1.03.  Liquidated Damages.

The amounts payable pursuant to this Article I and the life insurance coverages and other benefits provided in Article II are payable to or for the benefit of Sasser as liquidated damages for settlement of the UCB Employment Agreement, as well as compensation for the covenants in Article III.

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ARTICLE II

ADDITIONAL BENEFITS

In order to protect Sasser against the loss of certain rights and benefits to which he is entitled under the UCB Employment Agreement, and to provide certain additional benefits, BB&T hereby agrees to the following:

2.01.   Life Insurance.

BB&T shall maintain Sasser’s split-dollar life insurance policies and shall provide additional life insurance, as follows:

(a) Split-Dollar Life Insurance.

BB&T shall continue to pay through the earlier of the Determination Date or Sasser’s death the employer’s portion of the premiums on the UCB split-dollar insurance policies on Sasser’s life. Sasser or his designee shall continue to own the policies subject to BB&T’s interest therein.

(b) Life Insurance.

BB&T has acquired and shall maintain one or more life insurance policies with an insurer reasonably acceptable to Sasser with an aggregate death benefit of $1,000,000 on Sasser’s life, payable to one or more beneficiaries designated from time to time by Sasser. BB&T shall pay the premium payments for such policies until the date of Sasser’s death.

2.02.   Medical Insurance.

BB&T shall provide medical benefits coverage to Sasser, including dependent coverage for his Current Spouse (if she shall remain married to Sasser), at the same level as provided by BB&T to participants under the BB&T Corporation Retiree Health Care Plan (the “BB&T Plan”) for the period beginning on the date hereof and ending on the date of death of Sasser or, if later, the date of death of his Current Spouse if she shall be married to him at the date of his death; provided, however, that in no event will the level of such benefits be less than that provided under UCB’s retiree health plan in effect immediately prior to the effective time of the Merger. Sasser (or, if coverage extends beyond Sasser’s death, his Current Spouse) shall be responsible for that percentage of the cost of his coverage (and that of his dependent spouse) under the BB&T Plan which is paid by other similarly situated participants under the BB&T Plan

2.03.   Other Benefits.

In addition to the benefits provided in Section 2.02, Sasser shall be entitled to participate in the benefit plans or arrangements under the BB&T Corporation Flexible Compensation Program (the “BB&T Flexible Benefits Plan”), if and to the extent he is eligible to participate in accordance with the terms and provisions of the BB&T Flexible Benefits Plan. Sasser shall be responsible for that portion of the cost of his coverage under the BB&T Flexible Benefits Plan which is paid by other similarly situated

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participants under the BB&T Plan. If Sasser is not eligible to participate in accordance with the terms and conditions of the BB&T Flexible Benefits Plan, BB&T shall, if Sasser so requests, provide similar coverage outside such plan at a level not less than that provided under UCB’s flexible benefits plan in effect immediately prior to the effective time of the Merger, and Sasser will pay an amount towards such alternate coverage as he would have paid had he been eligible to participate in the BB&T Flexible Benefits Plan.

2.04.  Long Term Incentive Plan.

In accordance with the UCB Long Term Incentive Plan, immediately prior to the effective time of the Merger, the dollar amount of Sasser’s accrued benefits under such plan were converted to shares of UCB common stock based on the average of the closing price of such stock over the 20 trading days immediately preceding the Merger. Such UCB shares were converted to shares of BB&T common stock in the Merger, based on the Exchange Ratio (as defined in the Reorganization Agreement). Such shares of BB&T common stock shall be distributed to Sasser in a single lump sum on the date hereof.

2.05.  Stock Options.

Any Stock Options (as defined in the Reorganization Agreement) issued pursuant to the Stock Option Plan (as defined in the Reorganization Agreement) in which Sasser is vested as of the date hereof shall be converted to options to acquire shares of common stock of BB&T pursuant to Section 2.10 of the Reorganization Agreement. Such Stock Options as so converted shall be subject to and governed by the terms of the Stock Option Plan as defined in the Reorganization Agreement.

ARTICLE III

NONCOMPETITION AND CONFIDENTIALITY

3.01.  Background for Covenants.

Sasser has been an employee of UCB for approximately 29 years, of which 14 years have been as Chairman of the Board of Directors, Chief Executive Officer or in other senior executive positions. During his tenure with UCB, Sasser has established close personal relationships with many of UCB’s largest and most significant customers. In addition, he has established close personal relationships with many of UCB’s key employees at all levels within the organization, many of whom will be important to BB&T in the transition period following the merger of UCB into BB&T and in conducting the former business of UCB on an on-going basis. Sasser and BB&T recognize and acknowledge that Sasser could cause serious harm to the business formerly conducted by UCB (and now to be conducted by BB&T) if he were to compete with BB&T in its market area or if he were to attempt to entice key employees of UCB (now employees of BB&T) to terminate their employment with BB&T. The parties further acknowledge that the terms and provisions of this Article III have been negotiated at arms-length, that both parties hold equal bargaining positions, that each party has relied on the advice of experienced legal counsel in negotiating the terms and provisions of this Article III, and that each party intends to be legally bound by these terms and provisions.

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3.02.  Noncompetition and Nonsolicitation Covenants.

Following the date of this Agreement, Sasser shall not directly or indirectly, (i) anywhere in the states of North Carolina, South Carolina and Virginia and in any county outside such states contiguous to one or more of such states, either as a principal, agent, employee, employer, stockholder, owner, member, proprietor, partner or in any other individual or representative capacity whatsoever, engage in the banking and financial services business, which includes consumer, savings and commercial banking and the insurance and trust businesses, or the savings and loan or mortgage banking business, or any other business in which BB&T is engaged at this time; (ii) solicit or assist any other person in soliciting, any depositors or customers of BB&T (including without limitation any former depositors or customers of UCB) to become depositors or customers of any other institution; or (iii) induce any employee of BB&T (including without limitation any former employee of UCB) to terminate his or her employment with BB&T; provided, that nothing contained in part (i) of this Section 3.02 shall be deemed to limit Sasser’s right to invest in a business similar to BB&T’s business if such investment is limited to less than one percent of the capital stock or other securities of any corporation or similar organization with stock or securities publicly owned or regularly traded on any public exchange or market. This Section 3.02 shall apply for a period of ten years from the date hereof.

3.03.  Proprietary and Confidential Information.

Sasser acknowledges that during his employment with UCB he learned a substantial amount of information which is now proprietary and confidential to BB&T. Such proprietary and confidential information includes, but is not limited to, UCB’s business, marketing, customer development, strategic planning and expansion plans, methods of doing business, trade secrets and similar information as related to the business formerly conducted by UCB. Sasser acknowledges that BB&T would be damaged if such proprietary and confidential information were made available to BB&T’s competitors. Sasser agrees that, except as required by law, he shall not at any time divulge to any person, agency, institution, company or other entity any information which he knows or has reason to believe is proprietary or confidential to BB&T. Sasser agrees that his duties and obligations under this Section 3.03 shall continue for as long as such information remains proprietary or confidential to BB&T.

3.04.  Breach of Obligations.

Payments and benefits due Sasser under Article I (other than under Section 1.01(e)) shall be discontinued in the event Sasser breaches the provisions of Section 3.02 or 3.03; provided that Sasser has received written notice from BB&T of such breach and such breach remains uncured thirty days after the delivery of such notice. If there is a disagreement between the parties as to whether Sasser has breached Section 3.02 or 3.03, then after the above thirty-day period, if such breach remains uncured in BB&T’s opinion, BB&T may suspend payments and benefits to Sasser until such time as BB&T and Sasser shall agree as to BB&T’s right to discontinue payments and benefits or until there is a final determination of the issue. In the event such determination results in a continuation of payments and benefits to Sasser, BB&T shall pay any suspended payments in a lump sum, together with interest at the rate provided under Section 1274(b)(2)(B) of the Code from the date of suspension, and shall resume regular payments and benefits in accordance with Article I.

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3.05.  Reasonableness of Restrictions.

BB&T and Sasser acknowledge and agree that this Agreement, including without limitation the noncompetition provisions of Section 3.02 and the nondisclosure provisions of Section 3.03, does not unduly or unfairly curtail Sasser’s ability to support himself and his family due to Sasser’s financial resources, extensive business experience and expertise, and ability to engage in banking and related businesses outside of North Carolina, South Carolina and Virginia. BB&T and Sasser further acknowledge and agree that the protections to BB&T in this Article III are reasonable and necessary in relation to the need of BB&T to protect its business.

ARTICLE IV

AMENDMENT OR TERMINATION

BB&T may, with the prior written consent of Sasser or Sasser’s Beneficiary following his death, modify, alter, amend or terminate this Agreement, in whole or in part at any time. An amendment may be made retroactively if it is necessary to make this Agreement conform to applicable law or if agreeable to the parties. No amendment or modification of this Agreement or any covenant, condition or limitation shall be valid unless in writing and duly executed by the parties to this Agreement.

ARTICLE V

BOARD OF DIRECTOR AND EXECUTIVE COMMITTEE SERVICE

At the first meeting of the Board of Directors of BB&T following the date hereof, Sasser will be appointed to BB&T’s Board of Directors, which appointment will continue for so long as Sasser is willing and able to serve and until the next annual meeting of shareholders of BB&T. Sasser will also at such meeting be appointed as a member of the Executive Committee of BB&T’s Board of Directors. Thereafter, BB&T will use its best efforts, subject to the fiduciary duties of the members of the Nominating Committee and the other members of its Board of Directors, to nominate Sasser for election to BB&T’s Board of Directors and to appoint him to the Executive Committee, in each case so that he will serve on the Board and Executive Committee until the normal retirement age for BB&T directors as established from time to time (currently age 70). Sasser will receive the normal compensation of an outside director or committee member with respect to these services.

ARTICLE VI

GENERAL PROVISIONS

6.01.  Construction.

Headings and subheadings used in this Agreement have been inserted for convenience of reference only and shall be ignored in any construction of the provisions. If a provision of this Agreement is illegal or invalid, that illegality or invalidity does not affect other provisions in this Agreement.

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6.02.  Governing Law.

This Agreement shall be construed, enforced, and administered in accordance with the laws of the State of North Carolina (other than its choice of law rules), except to the extent that those laws are superseded by the laws of the United States of America.

6.03.  Mitigation.

Sasser shall not be required to mitigate the amounts of any payments provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any such payment be reduced by any compensation earned by Sasser as the result of employment by another employer, subject to compliance by Sasser with the provisions of Sections 3.02 and 3.03.

6.04.  Withholding.

All payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law.

6.05.  Notice.

For purposes of this Agreement, notices and all other communications shall be in writing. All notices to BB&T shall be directed to the attention of the Chief Executive Officer. Notices and communications are effective when personally delivered or sent by nationally recognized air courier, charges prepaid, addressed to the addressee at the addressee’s last known address. Notices of change in address are effective only upon receipt.

6.06.  Certain Expenses.

In the event a dispute arises as to Sasser’s entitlements to any rights or benefits hereunder, and thereafter Sasser incurs legal fees and other expenses, including court costs or arbitrator fees, in seeking to obtain or to enforce such rights or benefits, and Sasser prevails in obtaining or enforcing such rights or benefits through settlement, arbitration, judgment or otherwise, BB&T shall promptly pay Sasser’s reasonable legal fees and expenses incurred in so enforcing this Agreement. Except to the extent provided in the preceding sentence, each party hereto shall pay its own legal fees and other expenses associated with any dispute.

6.07.  Entire Agreement.

This Agreement sets forth all of the promises, covenants, agreements, conditions and understandings between the parties to this Agreement with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements or conditions, express or implied, oral or written, with respect thereto, except as contained herein. Specifically, without limitation, Sasser agrees that (i) this Agreement fulfills the obligations of BB&T with respect to him as set forth in that letter agreement between UCB and BB&T dated November 1, 1996, as amended and supplemented, (ii) the UCB Employment Agreement is terminated in its entirety effective on the date hereof, and he has no further rights or entitlements under the UCB Employment Agreement, and (iii) his employment with UCB

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is terminated and the benefits and payments herein are in full settlement of all obligations to him under the UCB Employment Agreement or otherwise arising out of his employment with UCB.

6.08.  Recitals.

The Recitals to this Agreement shall form a part of this Agreement.

6.09.  Counterparts.

This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

6.10.  Contests and Audits.

Sasser agrees that for tax purposes he shall report the payments made to him hereunder in a manner that is consistent with the tax treatment of such payments by BB&T. Sasser shall promptly notify BB&T in writing upon receipt of notice of any pending or threatened audit or assessment with respect to Sasser which may relate to the treatment of payments hereunder. BB&T shall have the right at its option and expense to exclusively control and have responsibility for the conduct of any audit, examination, proceeding or litigation (a “Contest”) to tie extent such Contest relates to the treatment of payments hereunder, but Sasser shall retain control of any other matter included in such Contest. BB&T agrees to notify Sasser reasonably in advance of any proposed settlement.

[signature page follows]

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IN WITNESS WHEREOF, BB&T, by its duly authorized officer and Sasser have hereunto set their hands as of the day and year first written above.

BB&T CORPORATION
By:	/s/ John A. Allison, IV
	John A. Allison, IV
	Chairman of the Board of Directors and Chief Executive Officer
E. RHONE SASSER

IN WITNESS WHEREOF, BB&T, by its duly authorized officer and Sasser have hereunto set their hands as of the day and year first written above.

BB&T CORPORATION
By:
	John A. Allison, IV
	Chairman of the Board of Directors and Chief Executive Officer
/s/ E. RHONE SASSER
E. RHONE SASSER

EX-12

Exhibit 12

BB&T Corporation

Earnings To Fixed Charges

(Dollars in thousands)

	For the Years Ended December 31,
	2004			2003			2002			2001			2000
Earnings:
Income before income taxes	$	2,322,362		$	1,617,030		$	1,790,697		$	1,360,428		$	1,013,006
Plus:
Fixed charges		1,232,111			1,306,218			1,713,021			2,438,401			2,586,815
Less:
Capitalized interest		638			514			504			798			470
Earnings, including interest on deposits		3,553,835			2,922,734			3,503,214			3,798,031			3,599,351
Less:
Interest on deposits		729,660			755,677			1,003,058			1,566,269			1,685,248
Earnings, excluding interest on deposits	$	2,824,175		$	2,167,057		$	2,500,156		$	2,231,762		$	1,914,103
Fixed Charges:
Interest expense	$	1,198,472		$	1,272,787		$	1,686,584		$	2,414,936		$	2,563,912
Capitalized interest		638			514			504			798			470
Interest portion of rent expense		33,001			32,917			25,933			22,667			22,433
Total Fixed Charges	$	1,232,111		$	1,306,218		$	1,713,021		$	2,438,401		$	2,586,815
Less:
Interest on deposits		729,660			755,677			1,003,058			1,566,269			1,685,248
Total fixed charges excluding interest on deposits	$	502,451		$	550,541		$	709,963		$	872,132		$	901,567
Earnings to fixed charges:
Including interest on deposits		2.88	x		2.24	x		2.05	x		1.56	x		1.39	x
Excluding interest on deposits		5.62	x		3.94	x		3.52	x		2.56	x		2.12	x

EX-21

Exhibit 21

SUBSIDIARIES OF THE REGISTRANT

BB&T Corporation, a North Carolina corporation, is a bank holding company and a financial holding company. The table below sets forth all of BB&T's subsidiaries as to State or Jurisdiction of Organization.

Subsidiary	State or Jurisdiction of Organization
Branch Banking and Trust Company	North Carolina
BB&T Leasing Corporation	North Carolina
BB&T Investment Services, Inc.	North Carolina
BB&T Insurance Services, Inc.	North Carolina
Independent Trustees, Inc.	Virginia
First Virginia Insurance Services of Maryland	Maryland
Grey Eagle, Inc.	Delaware
Prime Rate Premium Finance Corporation, Inc.	South Carolina
Reliable Policy Management, LLC	South Carolina
Agency Technologies, Inc.	South Carolina
Farr Associates, Inc.	North Carolina
Stanley, Hunt, DuPree & Rhine, Inc.	North Carolina
FundNet, Inc.	North Carolina
BB&T Credit Participation Company	Georgia
BB&T Service Corporation	Nevada
Branch Investments, LLC	Delaware
Branch Management, LLC	Delaware
Branch Administrators Limited	United Kingdom
Branch Holdings, LLC	Delaware
Branch Funding Trust	Delaware
Branch Finance, LLC	Delaware
Liberty Mortgage Corporation	Georgia
Laureate Capital, LLC	North Carolina
PMB Holdings Inc.	Tennessee
PMB Investments, Inc.	Georgia
Lendmark Financial Services, Inc.	Georgia
Lendmark Mortgage and Finance, Inc.	Georgia
LFS Reinsurance Company, Ltd.	Turks & Caicos Islands
BB&T Collateral Service Corporation	North Carolina
BB&T Collateral Service Corporation (TN)	Tennessee
BB&T Collateral Service Corporation (WV)	West Virginia
CRC Insurance Services, Inc.	Alabama
Real Property, Inc.	New York
Real Restaurant Owners, Inc.	New York
Southern Cross Insurance Services, Inc.	Mississippi
BB&T Mortgage Reinsurance Company	Vermont
Branch Realty, Inc.	Virginia
Matewan Real Estate Holdings, Inc.	Delaware
Matewan Realty Inc.	Delaware
BB&T Capital Partners, LLC	North Carolina
McGriff, Seibels & Williams, Inc.	Alabama
Attenta, Inc.	Alabama
McGriff, Seibels & Williams of Georgia, Inc.	Georgia
McGriff, Seibels & Williams of Texas, Inc.	Texas
McGriff, Seibels & Williams de Mexico,
Intermediario de Reasaguro, S.A. de C.V.	Mexico
JMD Consulting Services, Inc.	Nevada
MS&W, Inc.	Louisiana
McGriff, Seibels & Williams of Louisiana, Inc.	Louisiana

Subsidiary	State or Jurisdiction of Organization
McGriff, Seibels & Williams of Maryland, Inc.	Maryland
Magic City Insurance Agency of Alabama, Inc.	Delaware
eFuel, Inc.	North Carolina
BT Financial Corporation	North Carolina
Sterling Title Holdings, Inc.	Maryland
Sterling I, Inc.	Maryland
Sterling III, Inc.	Maryland
Matewan Insurance and Investments, Inc.	West Virginia
First Freedom Investments, Inc.	Georgia
First Freedom Insurance Services, Inc.	Georgia
OVB Foreclosed Properties, Inc.	West Virginia
One Property Management, Inc.	West Virginia
One Valley Insurance Corporation	West Virginia
Arnall Insurance Agency	Georgia
Curtis Mortgage Company, Inc.	Tennessee
Frederick Underwriters, Inc.	Maryland
Friendly Finance Company, Inc.	Tennessee
Monocacy Management Company	Maryland
AutoBase Information Systems, Inc.	North Carolina
CSB Financial Services, Inc.	West Virginia
Republic SPE, Inc.	Florida
Republic SPE II, Inc.	Florida
Regional Acceptance Corporation	North Carolina
Rega Insurance Services, Inc.	North Carolina
Greenville Car Mart, Inc.	North Carolina
Regional Fidelity Reinsurance Limited	Turks & Caicos Islands
Money 24, Inc.	North Carolina
Scott & Stringfellow	Virginia
Scott & Stringfellow, Inc.	Virginia
Scott & Stringfellow Realty, Inc.	Virginia
SHDR Investment Advisors, Inc.	South Carolina
MidAmerica Gift Certificate Company	Colorado
BB&T Factors Corporation	North Carolina
BB&T Bankcard Corporation	Georgia
BB&T Payroll Services Corporation	Georgia
Grey Hawk, Inc.	Nevada
Mason-Dixon Capital Trust	Delaware
Mason-Dixon Capital Trust II	Delaware
MainStreet Capital Trust I	Delaware
Premier Capital Trust I	Delaware
FCNB Capital Trust	Delaware
AREA Services, Inc.	Kentucky
First Virginia Services, Inc.	Virginia
RBI Capital Trust I	Delaware
First Virginia Life Insurance Company	Virginia
Sheffield Financial, LLC	North Carolina
BB&T Overseas Leasing, Ltd.	Bermuda
BB&T Asset Management, Inc.	North Carolina
BB&T Assurance Co., LTD	Bermuda
Matewan Venture Fund, Inc.	West Virginia
Liberty Properties, Inc.	Georgia
One Valley Square, Inc.	West Virginia
Rose Shanis Financial Services, LLC	Maryland
Branch Banking and Trust Company of South Carolina	South Carolina
FICORP of South Carolina	South Carolina
First Service Corporation	South Carolina

Subsidiary	State or Jurisdiction of Organization
Investor Services, Inc.	South Carolina
Atlantic Wire Company, LLC	Connecticut
Northeast Steel & Machine Products, Inc.	Connecticut
Branch Banking and Trust Company of Virginia	Virginia
BB&T-VA Collateral Service Corporation	Virginia
BB&T Credit Services, Inc.	Virginia
Colony Financial	Virginia
Fidelity Service Corporation	Virginia
Valley Security Insurance Company	Virginia
Creative Payment Solutions, Inc.	North Carolina
Wilson Fiduciary Management Corporation	Wyoming
BB&T Charitable Foundation	North Carolina

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 33-57859, 33-57861, 333-02899, 333-27755, 333-35879, 333-64074 and 333-105129) and Form S-8 (Nos. 33-52367, 33-57865, 33-57867, 33-57871, 333-03989, 333-50035, 333-69823, 333-81471, 333-36540, 333-36538, 333-52278, 333-104934, 333-116488, 333-116502, 333-118152, 333-118153 and 333-118154) of BB&T Corporation of our report dated February 22, 2005 relating to the financial statements, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/    PricewaterhouseCoopers LLP

Greensboro, North Carolina

March 7, 2005

EX-31.1

Exhibit 31.1

CERTIFICATIONS

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

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

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date: March 7, 2005

/S/ John A. Allison, IV

John A. Allison, IV

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Scott E. Reed, certify that:

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

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

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

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

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

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

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

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

Date: March 7, 2005

/S/ Scott E. Reed

Scott E. Reed

Senior Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

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

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

(2) Accompanying this certification is BB&T Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, a periodic report (the “periodic report”) filed by the issuer with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which contains financial statements.

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

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

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

/S/ John A. Allison, IV

John A. Allison, IV

Chairman and Chief Executive Officer

March 7, 2005

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

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

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

(1) I am a Senior Executive Vice President and the Chief Financial Officer of BB&T Corporation (the “issuer”).

(2) Accompanying this certification is BB&T Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004, a periodic report (the “periodic report”) filed by the issuer with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which contains financial statements.

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

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

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

/S/ Scott E. Reed

Scott E. Reed

Senior Executive Vice President and

Chief Financial Officer

March 7, 2005

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