BB&T announces 2nd quarter net income of $386.8 million; Reports operating earnings per share of $.75

WINSTON-SALEM, N.C., July 13 /PRNewswire-FirstCall/ -- BB&T Corporation reported today second quarter net income totaling $386.8 million, or $.70 per diluted share. Net income decreased 3.3% compared with $400.1 million earned in the second quarter of 2004 because of a one-time, non-cash adjustment related to property and equipment leases, which totaled $26.6 million after-tax, or $.05 per diluted share. Diluted earnings per share for the quarter decreased 2.8% compared to $.72 earned during the second quarter last year.

Operating earnings for the second quarter of 2005 totaled $413.2 million, or $.75 per diluted share, excluding the impact of net after-tax merger- related credits and the adjustment for leases. Excluding the effects of merger-related and nonrecurring items from both 2005 and 2004, operating earnings for the second quarter of 2005 increased 3.2% compared with the second quarter last year, while diluted operating earnings per share increased 4.2% compared to the second quarter last year. Compared to the first quarter of 2005, operating earnings per share reflect an increase of 22.6% on an annualized basis.

BB&T's second quarter operating results produced annualized returns on average assets and average shareholders' equity of 1.60% and 15.00%, respectively, compared to prior year returns of 1.66% and 15.18%, respectively.

Cash basis operating results exclude the unamortized balances of intangibles from assets and shareholders' equity and exclude the amortization of intangibles, the net amortization of purchase accounting mark-to-market adjustments, merger-related items and nonrecurring items from earnings. Cash basis operating earnings totaled $436.0 million for the second quarter of 2005, an increase of 3.2% compared to the second quarter of 2004. Cash basis operating diluted earnings per share were $.79 for the second quarter, an increase of 3.9% compared to $.76 earned during the same period in 2004. Cash basis operating earnings for the second quarter of 2005 produced annualized returns on average tangible assets and average tangible shareholders' equity of 1.77% and 27.82%, respectively, compared to prior year returns of 1.83% and 28.41%, respectively.

"I am pleased to report solid operating results for the second quarter of 2005," said Chairman and Chief Executive Officer John A. Allison. "We are gaining momentum, particularly in lending, where we experienced one of our strongest quarters in recent years in terms of growth and quality. This growth was reflected in all our major loan categories. Also, our key asset quality ratios continued to improve this quarter, reaching their best levels in years. While it is unfortunate that we needed to record a one-time adjustment related to leases this quarter, it does not detract from the performance of our core operations, where most of the trends are very positive. We are fully on track to accomplish our financial objectives for 2005."

For the first six months of 2005, BB&T's net income was $782.2 million, an increase of 7.4% compared to $728.6 million earned in the first six months of 2004. Diluted earnings per share for the first half of 2005 totaled $1.42, an increase of 7.6% compared to the same period in 2004. Excluding merger- related charges or credits and nonrecurring items, operating earnings totaled $806.9 million, and operating diluted earnings per share was $1.46, each reflecting an increase of 9.8% compared to the first six months of 2004.

Loan Growth Accelerates to 10.6% in Second Quarter

Average loans and leases totaled $70.4 billion for the second quarter of 2005, an annualized increase of 10.6% compared to the first quarter of 2005. This growth was led by average mortgage loans, which increased 18.5%, average commercial loans, which increased 10.2%, and average consumer loans, which grew 6.7%, compared to the first quarter of 2005.

Asset Quality is Excellent - Improves Further in 2nd Quarter

BB&T's asset quality continued to improve during the second quarter of 2005. Nonperforming assets, as a percentage of total assets, decreased to .29% at June 30 compared to .33% at March 31 and .42% at June 30, 2004. Annualized net charge-offs were .25% of average loans and leases for the second quarter of 2005, down from .28% in the first quarter of 2005 and .34% in the second quarter last year. These are the lowest levels of nonperforming assets and quarterly net charge-offs in four years. Excluding losses incurred by BB&T's specialized lending subsidiaries, annualized net charge-offs for the current quarter were .16% of average loans and leases compared to .17% in the first quarter of 2005 and .24% in the second quarter of 2004.

BB&T's Fee-Based Businesses Produce Healthy Growth

BB&T's noninterest income generating businesses produced healthy growth rates during the second quarter with the exception of mortgage banking operations. Total noninterest income was $584.9 million for the quarter, an increase of 3.9% compared with the same period in 2004. Excluding mortgage banking operations, noninterest income increased 13.1% compared with the second quarter of 2004. In addition, noninterest income increased $68.3 million, or 53.0% on an annualized basis, compared to the first quarter of 2005, reflecting the significant seasonality in our first quarter noninterest income. These increases were led by higher revenues from investment banking and brokerage fees and commissions, revenues from insurance operations, trust revenues, service charges on deposit accounts and other nondeposit fees and commissions.

Investment banking and brokerage operations had a very strong quarter, as fees increased 27.4% to $81.0 million in the second quarter of 2005 compared to $63.6 million earned in the same quarter last year. The increase was primarily driven by higher revenues from investment banking services and improving trends in fixed income sales and trading.

BB&T's insurance operations continued to experience growth and are the largest provider of noninterest income. Insurance commissions increased 10.3% to $181.6 million in the current quarter compared with $164.7 million earned during the second quarter of 2004. In addition, insurance commissions increased $29.3 million, or 77.2% on an annualized basis, compared to the first quarter of 2005, reflecting the seasonality of BB&T's insurance operations.

Trust revenues increased 16.5% to $36.7 million in the second quarter of 2005 compared with $31.5 million earned in the same quarter last year. This increase was primarily attributable to the previously announced merger with Charlotte, N.C.-based Sterling Capital Management LLC, which occurred on April 1.

Service charges on deposit accounts totaled $139.2 million for the second quarter of 2005, an increase of 5.9% compared to $131.4 million earned in the same quarter last year. The increase was primarily attributable to higher revenues from overdraft items and a decrease in fee waivers, which were partially offset by a decline in commercial account revenues due to higher earnings credits.

Other nondeposit fees and commissions totaled $91.6 million for the second quarter of 2005, an increase of $12.1 million, or 15.2%, compared to the second quarter of 2004. This increase was generated primarily by growth in bankcard fees and debit card related services.

Revenues from mortgage banking operations totaled $12.4 million for the second quarter of 2005, a decrease of $44.3 million compared to the second quarter last year. The decrease was primarily the result of fluctuations in the valuation allowance for mortgage servicing rights. Current quarter revenues include a net provision for the valuation of mortgage servicing rights, including hedging activities, of $9.1 million compared to a $30.4 million net recapture of the valuation allowance in the second quarter of 2004. In addition, revenues from residential mortgage production activities declined $8.7 million compared to the same quarter last year because a larger percentage of loan originations were retained this year.

Noninterest Expense

BB&T's noninterest expenses totaled $831.3 million for the second quarter of 2005, an increase of $91.0 million compared to the second quarter of 2004. This increase includes expenses related to a $43.0 million one-time adjustment to account for escalating lease payments and the amortization of leasehold improvements in response to guidance issued earlier this year.

Excluding merger-related items, the lease adjustment and growth resulting from purchase acquisitions, noninterest expenses increased 3.5% compared to the second quarter of 2004. The cash basis operating efficiency ratio of 50.3% for the second quarter of 2005 improved slightly compared to the first quarter of 2005.

BB&T Increases Quarterly Cash Dividend

On June 28, BB&T's board of directors approved an 8.6% increase in the quarterly cash dividend paid to shareholders. The increase, to $.38 per share, marks the 34th consecutive year that BB&T has raised its cash dividend to shareholders. BB&T has paid a cash dividend to shareholders every year since 1903. The dividend will be paid on August 1 to shareholders of record on July 15.

At June 30, BB&T had $105.8 billion in assets and operated more than 1,400 banking offices in the Carolinas, Virginia, West Virginia, Kentucky, Georgia, Maryland, Tennessee, Florida, Alabama, Indiana and Washington, D.C. BB&T's common stock is traded on the New York Stock Exchange under the trading symbol BBT. The closing price of BB&T's common stock on July 12 was $41.59 per share.

For additional information about BB&T's financial performance, company news, products and services, please visit our Web site at http://www.bbandt.com/.

Earnings Webcast

To hear a live webcast of BB&T's second quarter 2005 earnings conference call at 10:30 a.m. (EDT) today, please visit our Web site at http://www.bbandt.com/. Replays of the conference call will be available through our Web site until 5 p.m. (EDT) on Friday, July 29.

This press release contains financial information determined by methods other than in accordance with Generally Accepted Accounting Principles ("GAAP"). BB&T's management uses these "non-GAAP" measures in their analysis of the Corporation's performance. Non-GAAP measures typically adjust GAAP performance measures to exclude the effects of charges, expenses and gains related to the consummation of mergers and acquisitions, and costs related to the integration of merged entities, as well as the amortization of intangibles and purchase accounting mark-to-market adjustments in the case of "cash basis" performance measures. These non-GAAP measures may also exclude other significant gains, losses or expenses that are unusual in nature and not expected to recur. Since these items and their impact on BB&T's performance are difficult to predict, management believes presentations of financial measures excluding the impact of these items provide useful supplemental information that is important for a proper understanding of the operating results of BB&T's core businesses. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

This press release contains certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current projections. Please refer to BB&T's filings with the Securities and Exchange Commission for a summary of important factors that could affect BB&T's forward-looking statements. BB&T undertakes no obligation to revise these statements following the date of this press release.

QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands, except per share data) Percent For the Three Months Ended Increase 6/30/05 6/30/04 (Decrease) OPERATING EARNINGS STATEMENTS (1) Interest income - taxable equivalent $1,353,216 $1,139,932 18.7 % Interest expense 455,719 279,751 62.9 Net interest income - taxable equivalent 897,497 860,181 4.3 Less: Taxable equivalent adjustment 20,532 20,478 0.3 Net interest income 876,965 839,703 4.4 Provision for credit losses 49,424 63,533 (22.2) Net interest income after provision for credit losses 827,541 776,170 6.6 Noninterest income (2) 583,902 562,776 3.8 Noninterest expense (3) 787,734 739,448 6.5 Operating earnings before income taxes 623,709 599,498 4.0 Provision for income taxes 210,534 199,041 5.8 Operating earnings (1) $413,175 $400,457 3.2 % PER SHARE DATA BASED ON OPERATING EARNINGS (1) Basic Earnings $.76 $.72 5.6 % Diluted Earnings .75 .72 4.2 Weighted average shares - Basic 547,089,165 554,041,770 Diluted 551,245,112 557,485,680 Dividends paid per common share $.35 $.32 9.4 % PERFORMANCE RATIOS BASED ON OPERATING EARNINGS (1) Return on average assets 1.60 % 1.66 % Return on average equity 15.00 15.18 Net yield on earning assets (taxable equivalent) 3.92 4.02 Efficiency ratio (taxable equivalent) (4) 52.5 52.6 CASH BASIS PERFORMANCE BASED ON OPERATING EARNINGS (1)(5) Cash basis operating earnings $435,959 $422,466 3.2 % Diluted earnings per share .79 .76 3.9 Return on average tangible assets 1.77 % 1.83 % Return on average tangible equity 27.82 28.41 Efficiency ratio (taxable equivalent) (4) 50.3 50.3 QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands, except per share data) Percent For the Three Months Ended Increase 6/30/05 6/30/04 (Decrease) INCOME STATEMENTS Interest Income $1,332,684 $1,119,454 19.0 % Interest Expense 455,719 279,751 62.9 Net interest income 876,965 839,703 4.4 Provision for credit losses 49,424 63,533 (22.2) Net interest income after provision for credit losses 827,541 776,170 6.6 Noninterest income 584,919 562,776 3.9 Noninterest expense 831,288 740,239 12.3 Income before income taxes 581,172 598,707 (2.9) Provision for income taxes 194,367 198,601 (2.1) Net income $386,805 $400,106 (3.3)% PER SHARE DATA Basic earnings $.71 $.72 (1.4)% Diluted earnings .70 .72 (2.8) Weighted average shares - Basic 547,089,165 554,041,770 Diluted 551,245,112 557,485,680 PERFORMANCE RATIOS BASED ON NET INCOME Return on average assets 1.50 % 1.65 % Return on average equity 14.04 15.17 Efficiency ratio (taxable equivalent) (4) 55.4 52.6 NOTES: Applicable ratios are annualized. (1) Operating earnings exclude the effect of merger-related charges or credits and nonrecurring items. These amounts totaled $26.4 million and $351 thousand, net of tax, in the second quarters of 2005 and 2004, respectively. See Reconciliation Tables included herein. (2) Excluding purchase accounting transactions, noninterest income would have decreased approximately .4% for the quarter, compared to the same period in 2004. (3) Excluding purchase accounting transactions, noninterest expense would have increased approximately 3.5% for the quarter, compared to the same period in 2004. (4) Excludes securities gains (losses), foreclosed property expense, provisions for or recaptures of the impairment of mortgage servicing rights, and gains or losses on mortgage servicing rights-related derivatives. Cash basis and operating ratios also exclude merger-related charges or credits and nonrecurring items, where applicable. See Reconciliation Tables included herein. (5) Cash basis performance information excludes the effect on earnings of amortization expense applicable to intangible assets, the unamortized balances of intangibles from assets and equity, and the net amortization of purchase accounting mark-to-market adjustments. See Reconciliation Tables included herein. QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands, except per share data) Percent For the Six Months Ended Increase 6/30/05 6/30/04 (Decrease) OPERATING EARNINGS STATEMENTS (1) Interest income - taxable equivalent $2,616,870 $2,241,110 16.8 % Interest expense 850,028 553,377 53.6 Net interest income - taxable equivalent 1,766,842 1,687,733 4.7 Less: Taxable equivalent adjustment 40,694 41,207 (1.2) Net interest income 1,726,148 1,646,526 4.8 Provision for credit losses 90,469 126,951 (28.7) Net interest income after provision for credit losses 1,635,679 1,519,575 7.6 Noninterest income (2) 1,100,523 1,038,263 6.0 Noninterest expense (3) 1,520,997 1,464,175 3.9 Operating earnings before income taxes 1,215,205 1,093,663 11.1 Provision for income taxes 408,273 358,562 13.9 Operating earnings (1) $806,932 $735,101 9.8 % PER SHARE DATA BASED ON OPERATING EARNINGS Basic earnings $1.47 $1.34 9.7 % Diluted earnings 1.46 1.33 9.8 Weighted average shares - Basic 548,179,529 550,309,127 Diluted 552,443,239 554,016,363 Dividends paid on common shares $.70 $.64 9.4 % PERFORMANCE RATIOS BASED ON OPERATING EARNINGS (1) Return on average assets 1.59 % 1.56 % Return on average equity 14.82 14.20 Net yield on earning assets (taxable equivalent) 3.94 4.06 Noninterest income as a percentage of total income (taxable equivalent) (4) 38.3 37.5 Efficiency ratio (taxable equivalent) (4) 52.7 53.7 CASH BASIS PERFORMANCE BASED ON OPERATING EARNINGS (1)(5) Cash basis operating earnings $851,788 $777,431 9.6 % Diluted earnings per share 1.54 1.40 10.0 Return on average tangible assets 1.76 % 1.73 % Return on average tangible equity 27.41 26.17 Efficiency ratio (taxable equivalent) (4) 50.5 51.5 QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands, except per share data) Percent For the Six Months Ended Increase 6/30/05 6/30/04 (Decrease) INCOME STATEMENTS Interest income $2,576,176 $2,199,903 17.1 % Interest expense 850,028 553,377 53.6 Net interest income 1,726,148 1,646,526 4.8 Provision for credit losses 90,469 126,951 (28.7) Net interest income after provision for credit losses 1,635,679 1,519,575 7.6 Noninterest income 1,101,540 1,038,263 6.1 Noninterest expense 1,561,994 1,474,616 5.9 Income before income taxes 1,175,225 1,083,222 8.5 Provision for income taxes 393,036 354,616 10.8 Net income $782,189 $728,606 7.4 % PER SHARE DATA Basic earnings $1.43 $1.32 8.3 % Diluted earnings 1.42 1.32 7.6 Weighted average shares - Basic 548,179,529 550,309,127 Diluted 552,443,239 554,016,363 PERFORMANCE RATIOS BASED ON NET INCOME Return on average assets 1.55 % 1.55 % Return on average equity 14.37 14.07 Efficiency (taxable equivalent)(4) 54.1 54.1 NOTES: Applicable ratios are annualized. (1) Operating earnings exclude the effect of merger-related charges or credits and nonrecurring items. These amounts totaled $24.7 million and $6.5 million, net of tax, in 2005 and 2004, respectively. See Reconciliation Tables included herein. (2) Excluding purchase accounting transactions, noninterest income would have increased approximately .6% for the six months ended June 30, 2005 compared to 2004. (3) Excluding purchase accounting transactions, noninterest expense would have decreased approximately .9% for the six months ended June 30, 2005 compared to 2004. (4) Excludes securities gains (losses), foreclosed property expense, provisions for or recaptures of the impairment of mortgage servicing rights, and gains or losses on mortgage servicing rights-related derivatives. Cash basis and operating ratios also exclude merger-related charges or credits and nonrecurring items, where applicable. See Reconciliation Tables included herein. (5) Cash basis performance information excludes the effect on earnings of amortization expense applicable to intangible assets, the unamortized balances of intangibles from assets and equity, and the net amortization of purchase accounting mark-to-market adjustments. See Reconciliation Tables included herein. QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands) As of / For the Percent Six Months Ended Increase 6/30/05 6/30/04 (Decrease) CONSOLIDATED BALANCE SHEETS End of period balances Cash and due from banks $2,030,082 $1,967,249 3.2 % Interest-bearing deposits with banks 434,772 314,229 38.4 Federal funds sold and other earning assets 364,038 176,509 106.2 Securities available for sale 20,123,465 17,477,628 15.1 Securities held to maturity - 125 (100.0) Trading securities 675,146 388,998 73.6 Total securities 20,798,611 17,866,751 16.4 Commercial loans and leases 35,995,233 33,397,400 7.8 Direct retail loans 14,532,369 13,314,629 9.1 Sales finance loans 6,466,960 6,288,337 2.8 Revolving credit loans 1,271,397 1,204,479 5.6 Mortgage loans 13,474,657 12,831,806 5.0 Total loans and leases 71,740,616 67,036,651 7.0 Allowance for loan and lease losses 809,318 816,330 (.9) Total earning assets 93,512,746 85,745,148 9.1 Premises and equipment, net 1,263,467 1,270,680 (.6) Goodwill 4,233,719 4,076,888 3.8 Core deposit and other intangibles 535,965 586,199 (8.6) Other assets 5,243,372 4,869,459 7.7 Total assets 105,835,324 97,348,285 8.7 Noninterest-bearing deposits 13,197,792 12,017,270 9.8 Savings and interest checking 4,641,866 4,506,042 3.0 Money rate savings 23,075,292 22,428,015 2.9 CDs and other time deposits 30,915,409 27,711,563 11.6 Total deposits 71,830,359 66,662,890 7.8 Fed funds purchased, repos and other borrowings 7,137,762 6,232,126 14.5 Long-term debt 11,955,683 10,524,646 13.6 Total interest-bearing liabilities 77,726,012 71,402,392 8.9 Other liabilities 3,821,153 3,403,910 12.3 Total liabilities 94,744,957 86,823,572 9.1 Total shareholders' equity $11,090,367 $10,524,713 5.4 % Average balances Securities, at amortized cost $20,113,282 $17,783,393 13.1 % Commercial loans and leases 35,004,796 32,272,966 8.5 Direct retail loans 14,198,071 12,682,083 12.0 Sales finance loans 6,306,353 6,208,974 1.6 Revolving credit loans 1,250,225 1,176,648 6.3 Mortgage loans 12,727,462 12,701,144 0.2 Total loans and leases 69,486,907 65,041,815 6.8 Allowance for loan and lease losses 809,513 802,704 0.8 Other earning assets 639,001 625,977 2.1 Total earning assets 90,239,190 83,451,185 8.1 Total assets 102,080,134 94,699,382 7.8 Noninterest-bearing deposits 12,506,333 11,204,341 11.6 Savings and interest checking 4,910,182 4,804,957 2.2 Money rate savings 23,069,230 21,015,740 9.8 CDs and other time deposits 27,650,534 26,745,650 3.4 Total deposits 68,136,279 63,770,688 6.8 Fed funds purchased, repos and other borrowings 7,655,154 6,640,017 15.3 Long-term debt 11,495,647 10,644,980 8.0 Total interest-bearing liabilities 74,780,747 69,851,344 7.1 Total shareholders' equity $10,977,777 $10,413,329 5.4 % NOTES: All items referring to loans and leases include loans held for sale and are net of unearned income. QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands, except per share data) For the Three Months Ended 6/30/05 6/30/04 RECONCILIATION TABLE Net income $386,805 $400,106 Merger-related items, net of tax (249) 351 Other, net of tax (3) 26,619 - Operating earnings 413,175 400,457 Amortization of intangibles, net of tax 18,026 18,135 Amortization of mark-to-market adjustments, net of tax 4,758 3,874 Cash basis operating earnings 435,959 422,466 Return on average assets 1.50 % 1.65 % Effect of merger-related items, net of tax - .01 Effect of other, net of tax (3) .10 - Operating return on average assets 1.60 1.66 Effect of amortization of intangibles, net of tax (1) .15 .16 Effect of amortization of mark-to- market adjustments, net of tax .02 .01 Cash basis operating return on average tangible assets 1.77 1.83 Return on average equity 14.04 % 15.17 % Effect of merger-related items, net of tax (.01) .01 Effect of other, net of tax (3) .97 - Operating return on average equity 15.00 15.18 Effect of amortization of intangibles, net of tax (1) 12.52 12.97 Effect of amortization of mark-to- market adjustments, net of tax .30 .26 Cash basis operating return on average tangible equity 27.82 28.41 Efficiency ratio (taxable equivalent) (2) 55.4 % 52.6 % Effect of merger-related items - - Effect of other (3) (2.9) - Operating efficiency ratio (2) 52.5 52.6 Effect of amortization of intangibles (1.9) (2.0) Effect of amortization of mark-to- market adjustments (.3) (.3) Cash basis operating efficiency ratio (2) 50.3 50.3 Basic earnings per share $.71 $.72 Effect of merger-related items, net of tax - - Effect of other, net of tax (3) .05 - Operating basic earnings per share .76 .72 Diluted earnings per share $.70 $.72 Effect of merger-related items, net of tax - - Effect of other, net of tax (3) .05 - Operating diluted earnings per share .75 .72 Effect of amortization of intangibles, net of tax .03 .03 Effect of amortization of mark-to- market adjustments, net of tax .01 .01 Cash basis operating diluted earnings per share .79 .76 NOTES: Applicable ratios are annualized. (1) Reflects the effect of excluding average intangible assets from average assets and average equity to calculate cash basis ratios. (2) Excludes securities gains (losses), foreclosed property expense, provisions for or recaptures of the impairment of mortgage servicing rights, and gains or losses on mortgage servicing rights-related derivatives. Operating and cash basis ratios also exclude merger-related items and nonrecurring charges, where applicable. (3) Reflects a one-time charge related to the accounting for leases totaling $26.6 million, net of tax, in the second quarter of 2005. QUARTERLY PERFORMANCE SUMMARY BB&T Corporation (Dollars in thousands, except per share data) For the Six Months Ended 6/30/05 6/30/04 RECONCILIATION TABLE Net income $782,189 $728,606 Merger-related items, net of tax (1,876) 6,495 Other, net of tax (3) 26,619 - Operating earnings 806,932 735,101 Amortization of intangibles, net of tax 35,731 33,349 Amortization of mark-to-market adjustments, net of tax 9,125 8,981 Cash basis operating earnings 851,788 777,431 Return on average assets 1.55 % 1.55 % Effect of merger-related items, net of tax (.01) .01 Effect of other, net of tax (3) .05 - Operating return on average assets 1.59 1.56 Effect of amortization of intangibles, net of tax (1) .16 .15 Effect of amortization of mark-to- market adjustments, net of tax .01 .02 Cash basis operating return on average tangible assets 1.76 1.73 Return on average equity 14.37 % 14.07 % Effect of merger-related items, net of tax (.04) .13 Effect of other, net of tax (3) .49 - Operating return on average equity 14.82 14.20 Effect of amortization of intangibles, net of tax (1) 12.30 11.67 Effect of amortization of mark-to- market adjustments, net of tax .29 .30 Cash basis operating return on average tangible equity 27.41 26.17 Efficiency ratio (taxable equivalent) (2) 54.1 % 54.1 % Effect of merger-related items .1 (.4) Effect of other (3) (1.5) - Operating efficiency ratio (2) 52.7 53.7 Effect of amortization of intangibles (2.0) (1.9) Effect of amortization of mark-to- market adjustments (.2) (.3) Cash basis operating efficiency ratio (2) 50.5 51.5 Fee income ratio 38.4 % 37.5 % Effect of other (3) (.1) - Operating fee income ratio 38.3 37.5 Basic earnings per share $1.43 $1.32 Effect of merger-related items, net of tax (.01) .02 Effect of other, net of tax (3) .05 - Operating basic earnings per share 1.47 1.34 Diluted earnings per share $1.42 $1.32 Effect of merger-related items, net of tax (.01) .01 Effect of other, net of tax (3) .05 - Operating diluted earnings per share 1.46 1.33 Effect of amortization of intangibles, net of tax .07 .06 Effect of amortization of mark-to- market adjustments, net of tax .01 .01 Cash basis operating diluted earnings per share 1.54 1.40 NOTES: Applicable ratios are annualized. (1) Reflects the effect of excluding average intangible assets from average assets and average equity to calculate cash basis ratios. (2) Excludes securities gains (losses), foreclosed property expense, provisions for or recaptures of the impairment of mortgage servicing rights, and gains or losses on mortgage servicing rights-related derivatives. Operating and cash basis ratios also exclude merger-related items and nonrecurring charges, where applicable. (3) Reflects a one-time charge related to the accounting for leases totaling $26.6 million, net of tax, in the second quarter of 2005.