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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT TO FORM 8-K
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 1993
BB&T FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
North Carolina 0-7871 56-1056232
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(State or other jurisdiction (Commission (I.R.S. employer
of incorporation) file number) identification no.)
223 West Nash Street, Wilson, North Carolina 27893
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (919)399-4291
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Not Applicable
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(Former name or former address, if changed since last report)
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) Exhibits
99.1 BB&T's 1993 restated Management's Discussion and Analysis, and BB&T's
1993 restated Securities Act Guide 3 statistical disclosures, to
include L.S.B. Bancshares, Inc.
99.2 BB&T's 1993 restated audited financial statements and notes thereto,
to include L.S.B. Bancshares, Inc.
99.3 Opinion of Donald G. Jones and Company, P.A., auditors for L.S.B.
Bancshares, Inc. of Soouth Carolina
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BB&T FINANCIAL CORPORATION
DATE: August 31,1994 BY: Scott E. Reed
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/S/ Scott E. Reed
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Exhibit 99.1
PAGE
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is intended to assist readers in
understanding BB&T's results of operations and changes in financial position for
the past three years. This review should be read in conjunction with the
consolidated financial statements, and accompanying footnotes beginning on page
25 of this report and the supplemental financial data contained in tables
1 to 13 found on pages 11 to 24 of this report.
During the period 1990-93, BB&T consummated the acquisitions of 14 thrift
institutions with total assets of approximately $3.1 billion. At the end of
1993, BB&T had pending the acquisitions of two additional thrift institutions,
as well as L.S.B Bancshares, Inc., of South Carolina, a multi-bank holding
company. The assets of these three institutions totalled approximately $1.2
billion at the end of 1993. The acquisition of L.S.B. was subsequently
consummated on June 30, 1994. The audited consolidated financial statements,
notes thereto and supplementary financial information contained herein, as well
as the discussion and analysis, have been restated to reflect the results of
L.S.B. for all periods presented.
Ten of the completed acquisitions were accounted for using the purchase
method of accounting. The other four acquisitions were accounted for using the
pooling-of-interests method of accounting, and all financial data has been
restated to include the results of the pooled companies. Period to period
comparisons of financial positions and results of operations (and the components
thereof) are not necessarily indicative of the results that might have been
obtained had all acquisitions been consummated at the beginning of the reporting
periods. Selected pro forma financial data is contained in Footnote 2 of the
consolidated financial statements.
SUMMARY OF RESULTS OF OPERATIONS
BB&T reported record earnings for the eleventh consecutive year in 1993.
Net income totalled $105.0 million in 1993, an increase of $22.4 million or
27.1% over 1992. Net income for 1992 was $82.6 million and was $14.3 million or
20.9% over the earnings of $68.3 million recorded in 1991.
Primary net income per share rose 16.6% from 1992 to $2.95 in 1993, and
fully diluted net earnings per share grew 19.8% to $2.91. Primary net income
per share was $2.53 in 1992 and $2.30 in 1991, while fully diluted per share
earnings for those two years were $2.43 and $2.21, respectively. The following
highlights underscore the key elements of performance for 1993.
. Average earning assets increased 13.0% for 1993 and 12.9%
for 1992. Taxable equivalent net interest income rose $38.6
million or 11.6% in 1993. This followed an increase in taxable
equivalent net interest income of $53.7 million or 19.2% in
1992.
. The provision for loan losses was reduced by $13.9 million
or 42.2% in 1993, following a reduction of $9.3 million or 22.1%
in 1992. The provision totalled $19.0 million in 1993, less
than half the provision of $42.3 million recorded two years
earlier. Large provisions were recorded in 1991 because of
unusually high levels of both nonperforming assets and actual
loan losses. Improved asset quality has allowed BB&T to reduce
its provision for loan losses during the past two years.
. Noninterest income for 1993 increased $24.0 million or 25.1% to
a total of $119.5 million. This followed an increase of $4.7
million or 5.1% in 1992. Noninterest income included gains on
sales of securities of $1.7 million in 1993, $6.3 million in 1992
and $10.9 million in 1991.
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PAGE
. Noninterest expense totalled $301.6 million in 1993. This
represented an increase of $47.4 million or 18.7% from the
$254.1 million in 1992, which was an increase of 18.2% over 1991.
The return on average assets for 1993 was 1.21%, compared with 1.08% in
1992 and 1.01% in 1991. The returns on average shareholders' equity for each of
the last three years were 14.21%, 13.36% and 13.32%, respectively.
At the end of 1993, the ratio of equity to assets was 8.08%, compared with
8.25% a year earlier and 7.79% at the end of 1991. The risk-adjusted total
capital ratio was 13.73% at the end of the year, compared with 15.37% twelve
months earlier. The equity and capital ratios of BB&T declined marginally in
1993 because of the acquisition of Old Stone Bank of North Carolina (total
assets of approximately $537 million) in a cash purchase. Table 2 provides
highlights of key profitability measures for each of the past five years.
NET INTEREST INCOME
Net interest income represents the principal source of earnings for BB&T.
Net interest income equals the amount by which interest income exceeds interest
expense. For 1993 net interest income represented 74.9% of net revenues (net
interest income plus noninterest income), compared with 76.8% in 1992 and 74.2%
in 1991. This ratio was unusually low in 1991 because of gains on sales of
securities included in noninterest income, and, more importantly, was
substantially lower in 1993 because of substantial increases in noninterest
revenues from BB&T's mortgage banking, insurance agency, trust and investment
sales activities.
The taxable equivalent net yield on average earning assets is a primary
measure used in evaluating the effectiveness of the management of earning assets
and funding liabilities. The net yield on average earning assets was 4.57% in
1993, 4.63% in 1992 and 4.39% in 1991. Although the margin was slightly lower in
1993, BB&T has generated higher net interest margins during the past four years,
reversing a trend of declining margins through much of the 1980s. However,
margins are expected to stabilize or decline in coming quarters.
Several factors have contributed to the improved net interest margins in
recent years. A slower rate of growth in earning assets, particularly loans
(excluding the effect of acquisitions), has enabled BB&T to improve the rate
structure of its funding liabilities. Also, as interest rates have declined in
recent years, market factors have resulted in increased spreads between the
rates earned on earning assets and rates paid for interest-bearing liabilities.
This has been particularly beneficial to BB&T as rates paid for deposits and
other funds used to finance investments in fixed rate mortgages acquired with
the thrifts have been declining. The refinancing boom in home mortgage lending
eliminated much of this advantage by the end of 1993.
Another factor in the improved net interest margins has been the benefits
realized from hedging instruments, particularly interest rate swaps, used as
tools in managing net interest income and margins. BB&T realized benefits of
$17.6 million in 1993 and $18.2 million in 1992 from its hedges. Finally,
growth in noninterest-bearing deposits and increased levels of shareholders'
equity have provided additional funding with no related interest cost. This has
resulted in greater amounts of net interest income and improved margins.
Average noninterest-bearing deposits increased by approximately $121 million in
1993 and $110 million in 1992, while average shareholders' equity increased $121
million in 1993 and $105 million in 1992.
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PROVISION FOR LOAN LOSSES
An annual provision for loan losses is charged against earnings in order to
maintain the allowance for loan losses at a level considered adequate by
management to absorb existing and potential losses in the loan portfolio. As a
result of improved asset quality, the provision recorded by BB&T in 1993 was
$19.0 million, compared with $33.0 million in 1992 and $42.3 million in 1991.
The greater provision recorded in 1991 reflected increased levels of net charge-
offs and nonperforming assets resulting from a persistent economic slowdown and
a deterioration in real estate markets and values during the period 1990-91.
For a more detailed discussion of loan credit qualities, see "RISK MANAGEMENT",
particularly, the section "Nonperforming Loans and Allowance for Loan Losses".
NONINTEREST INCOME
Noninterest income for BB&T primarily consists of service charges on
deposit accounts, trust revenues, mortgage origination and servicing revenues,
insurance commissions, gains and losses on investment securities sales, and
other commissions and fees derived from various banking and bank-related
activities. Noninterest income for 1993 totalled $119.5 million, compared with
$95.5 million in 1992 and $90.9 million in 1991.
Historically, service charges on deposit accounts have represented the
largest single source of noninterest income. This continued to be the case in
1993, as such revenues totalled $40.8 million, an increase from $33.6 million in
1992 and $30.4 million in 1991. Deposit services are repriced annually to
reflect current costs and competitive factors. The ability to generate
significant additional amounts of noninterest revenues will be increasingly
important in the future. In addition to service charges on deposit accounts,
BB&T will focus on four primary areas for growth--mortgage banking, trust
operations, insurance agency, and investment sales and brokerage activities.
BB&T is making significant investments in each of these areas to assure future
success.
Mortgage banking income (which includes servicing fees and profits from the
origination and sale of loans) increased $6.6 million or 57.1% to a 1993 total
of $18.1 million. Mortgage banking income totalled $11.5 million in 1992 and
$11.1 million in 1991. Home mortgage interest rates declined substantially in
both 1992 and 1993. As a result, there was a heavy volume of prepayments by
homeowners in both of those years and the simultaneous originations of
replacement mortgage loans. BB&T realized gains from the origination and sale
of mortgages totalling approximately $14.8 million in 1993, an increase of $6.1
million or 69.8% over 1992. This followed an increase of $5.7 million in 1992.
The increased gains from mortgage originations and sales were partially offset
by a write-off of approximately $5.0 million in excess servicing receivable in
1993, resulting from accelerated prepayments. BB&T originated approximately
$1.5 billion in home mortgage loans in 1993 and $1.1 billion in 1992. At the
end of 1993 BB&T was servicing mortgage loans with principal balances of
approximately $3.9 billion.
General insurance commissions increased approximately $4.0 million or 60.0%
in 1993 to a total of $10.6 million. Insurance commissions totalled $6.7
million in 1992 and $6.2 million in 1991. BB&T's insurance agencies have become
an increasingly important source of noninterest revenue, and this trend is
expected to accelerate in the future. BB&T has expanded its network of
insurance agencies through acquisitions in recent years, and acquired four
agencies in 1993 and two in 1992.
The offering of trust services has been a traditional service of many
banks. BB&T has had a trust department for over 80 years. Trust revenues from
corporate and personal trust services totalled $11.4 million in 1993. This was
an increase of $1.7 million or 17.7% over the revenues of $9.7 million in 1992,
which in turn was an increase of $1.3 million or 14.9% over the $8.4 million
earned in 1991. Managed assets totalled $2.1 billion
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at the end of 1993. BB&T is placing an emphasis on its corporate trust
activities, particularly the management of employee benefit plans. In 1992 the
trust division established its own family of proprietary mutual funds. BB&T
now manages six mutual funds, which will provide investment alternatives both
for its trust clients and for other customers of BB&T.
As a state bank, BB&T has been a registered dealer in securities for many
years. Historically, BB&T served a passive role, with activities limited to
sales of securities of the U.S. Treasury, U.S. government agencies and state and
municipal governments to customers. In the mid 1980s BB&T added its first
salesperson devoted exclusively to the sale of securities. Still, its only role
was to provide a service to customers as requested. In 1993 BB&T Investment
Services, Inc. was incorporated as a subsidiary of BB&T-N.C. BB&T began to take
a more active role in selling various securities to its customers, with an
emphasis being placed on the sale of fixed rate debt securities and shares of
BB&T's proprietary mutual funds. At the end of 1993 the broker/dealer
subsidiary had 23 employees. Investment sales commissions totalled $1.7 million
in 1993, compared with only $609,000 in 1992.
Finally, noninterest income included approximately $4.5 million in negative
goodwill amortization in 1993, $4.0 million in 1992 and $1.5 million in 1991.
Negative goodwill (excess of net assets acquired over cost) totalling
approximately $52 million was recorded in the purchase acquisitions of thrift
institutions in the years 1991-93.
NONINTEREST EXPENSE
Noninterest expense for 1993 increased $47.4 million or 18.7% to a total of
$301.6 million. This followed an increase of 18.2% in 1992. The acquisitions
of six savings associations in 1993, one in 1992 and three in 1991 were
accounted for as purchases, and, accordingly, prior period history was not
restated. The growth in expenses for 1993 and 1992 includes the incremental
cost of operations related to these acquisitions and the cost of standardizing
their operating systems and procedures to those of BB&T.
Salaries and wages increased 17.8% in 1993 and 16.1% in 1992 including
approximately 5% annual merit pay increases in each year and the compensation of
additional employees who joined BB&T with the consummation of the aforementioned
thrift acquisitions. The financial performance of 1993 and 1992 also resulted
in increased amounts of incentive compensation. Other personnel expense
increased 25.8% from $22.0 million in 1992 to $27.7 million in 1993. Other
personnel expense increased 17.1% in 1992. Categories contributing to the
increases in other personnel expense include the cost of providing employee
health insurance, pension plan expense and additional social security taxes
created by higher levels of employee salaries and wages. Also, in 1993 BB&T
adopted the provisions of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions". BB&T
has historically provided hospitalization insurance coverage to its retirees.
BB&T incurred an increase in expense of approximately $1.2 million in adopting
the provisions of Statement No. 106. In order to manage the cost of providing
postretirement benefits, BB&T changed its policy to provide a fixed benefit for
employees who retire subsequent to 1992. For those employees who retired prior
to 1993, BB&T will continue to provide the full hospitalization insurance
benefit.
BB&T has made a major commitment to employee training and education in
recent years. As a result of this emphasis, the total cost of training
increased approximately $658,000 to a total of $2.7 million for 1993, in part
due to training provided employees of acquired savings institutions. This
followed an increase of $545,000 in 1992.
Premiums paid to the FDIC for deposit insurance increased $1.9 million or
13.9% to a total of $15.3 million for 1993. For 1992 the increase was $1.9
million or 16.2%. Growth in insured deposits was the primary reason for the
increases. Deposit insurance premiums were increased dramatically in the years
1989-91, as the FDIC looked to premiums received
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from healthy banks to cover the costs of actual or pending failures of
unhealthy institutions. The rate increased from an annual rate of $.12 per $100
of deposits in 1990 to $.23 per $100 of deposits for the period beginning July
1, 1991. BB&T has not experienced any additional rate increases since that
date, and does not anticipate increases in its deposit insurance premium rates
for 1994.
Net occupancy expense totalled $22.8 million in 1993. This represented an
increase of $3.2 million or 16.1% over the expense of $19.6 million in 1992,
which in turn was 10.4% greater than the expense of $17.8 million in 1991.
During 1993, BB&T added 65 new offices (including 63 through acquisitions),
closed 11 offices and relocated three. Each of the new offices involved a
relocation and/or consolidation of existing offices. During 1993 BB&T
increased the number of locations from 210 to 264.
Furniture and equipment expense totalled $26.6 million in 1993, compared
with $20.6 million in 1992 and $18.0 million in 1991. Much of the increase in
furniture and equipment expense provided improved technological capabilities.
During the year, loan platform automation for the retail lending function was
completed and advances were made in implementing platform automation for the
commercial lending function. A new mainframe was added, 720 personal computers
were added (most of which are terminals to the mainframe), and 50 automated
teller machines were purchased.
Capital expenditures totalled approximately $40 million in 1993. Capital
expenditures for 1994 are planned at $50 million, including $22 million for
furniture and equipment and $28 million for facilities. The plan includes a
continuation of the expansion and replacement of terminals with microcomputers,
and the addition of 33 automated teller machines and replacement of 29 automated
teller machines.
INCOME TAXES
The combined incremental federal and state statutory tax rate for BB&T,
after giving effect to the 1% increase in the federal tax rate to 35% in 1993,
was 40.14%. Because of its investments in tax exempt loans and investment
securities, the effective tax rate for BB&T was 32.6% in 1993, 33.6% in 1992 and
27.9% in 1991. The effective rate was higher in 1992 because of a change in the
tax status of a merged thrift institution prior to acquisition by BB&T and the
resultant recording of a tax liability of approximately $3.8 million due to the
recapture of its statutory bad debt reserve.
BB&T adopted the provisions of Financial Accounting Standards Board
Statement Number 109, "Accounting for Income Taxes" in 1993. The adoption of
the provisions of this statement resulted in BB&T changing from the deferral
method of accounting for income taxes to the asset and liability method. The
objective of the asset and liability method is to establish deferred tax assets
and liabilities for the temporary differences between the financial reporting
basis and the tax basis of pretax income at enacted tax rates expected to be in
effect when such amounts are realized or settled. The change in accounting
method had no material impact on either the financial position or reported
results of operations for BB&T. The increase in the federal tax rate from
34% to 35% also had no material impact on the results of operations of BB&T.
FINANCIAL POSITION
Average assets totalled approximately $8.7 billion in 1993, an increase of
approximately 13.3% over the average of $7.7 billion in 1992. Average assets
grew 13.1% in 1992 and 10.4% in 1991. At the end of 1993 assets totalled
approximately $9.9 billion. Excluding the effects of thrift acquisitions,
average assets have increased at an average rate of approximately 5% over the
past three years.
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Loans totalled approximately $6.7 billion at the end of 1993. This
represented an increase of approximately $1.4 billion in 1993, following
increases of approximately $337 million in 1992 and $858 million in 1991. The
six thrifts acquired in 1993 and accounted for as purchases had approximately
$860 million of loans at the respective dates of acquisition, while the thrift
added in 1992 had approximately $80 million in loans at acquisition. Thus, the
internally generated loan growth was only $503 million in 1993 and $257 million
in 1992. While the economy has expanded at a moderate rate over the past two
years, loan demand has not been as strong as might be expected in a growing
economy. The long-range objective of BB&T is to maintain a rate of internal
growth which approximates that of its markets in the Carolinas. BB&T believes
that this will result in a rate of increase which will be sustainable and
profitable.
Investment securities increased 20.6% to a total of $2.4 billion at the end
of 1993. This followed an increase of 7.7% in 1992. BB&T historically has
maintained an investment portfolio of 21-25% of total assets. At the end of
1993, investment securities represented 24.6% of assets. BB&T expects the
investment portfolio to continue to represent 21-25% of total assets over the
long-term.
Average deposits increased 8.0% in 1993, following an increase of
approximately 9.5% in 1992. Interest-bearing deposits increased approximately
$379 million in 1993, while noninterest-bearing deposits rose approximately $121
million. BB&T has experienced a renewed growth in noninterest-bearing deposits
over the past two years following several years of little or no growth.
Substantially all of the growth in interest-bearing deposits was in lower cost
core deposits. The acquired thrifts accounted for as purchases had
approximately $1.8 billion in deposits (principally interest-checking, savings
and retail certificates of deposits) at the respective dates of acquisitions.
The slower overall growth rate experienced in recent years has been an enabling
factor to improving the funding mix and, thereby, net interest margins and
income.
Shareholders' equity grew 21.9% in 1993 and 13.7% in 1992. Through stock
offerings undertaken to acquire mutual thrift institutions, BB&T generated $27.3
million in equity in 1993, $9.7 million in 1992 and $50.2 million in 1991.
Additionally equity has come from the retention of earnings and from new shares
of stock issued under employee benefit and stock option plans and the dividend
reinvestment plan. Also, BB&T issued common stock with a value of approximately
$22.8 million in consummating the acquisition of a savings bank in 1993 and
added approximately $33.3 million through the conversion of convertible
debentures to common stock. In recent years the return on average equity has
been in the 13-14% range and the dividend payout ratio has been 31-33%. The
dividend payout ratio was 33.6%, 32.3% and 33.5% in 1993, 1992 and 1991,
respectively. Thus, the retention of earnings has resulted in an annual
contribution of approximately 9-10% to the growth in equity.
BB&T has traditionally been considered to be strongly capitalized. The
ratio of shareholders' equity to year-end assets was 8.08% at the end of 1993,
compared with 8.25% a year earlier. While management views the equity-to-assets
ratio as the principal indicator of capital strength, additional measures are
used by regulators. Bank holding companies, and their subsidiaries, are subject
to risk-based capital measures. The risk-based capital ratios measure the
relationship of capital to a combination of balance sheet and off-balance sheet
credit risk. The values of both balance sheet and off-balance sheet items are
adjusted to reflect credit risk.
Tier 1 capital is required to be at least 4% of risk-weighted assets, and
the total capital must be at least 8% of risk-weighted assets. The
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Tier 1 capital ratio for BB&T at the end of 1993 was 11.94%, and the total
capital ratio was 13.73%. At the end of 1992, those ratios were 12.43% and
15.37%, respectively. BB&T leveraged its equity and capital in 1993 through the
acquisition of Old Stone Bank of North Carolina in a cash transaction. BB&T
added approximately $537 million in assets through the acquisition of Old Stone,
which was acquired for a cash price of $58.25 million.
RISK MANAGEMENT
The business of banking is basically one of managing risks. In managing
the portfolios of assets and liabilities, the primary objective is to manage the
inherent credit risk and interest rate risk, in a context which also provides
ongoing profitability and meets customer needs. Prudent balance sheet
management also requires the maintenance of liquidity and a strong capital
position.
CREDIT RISK MANAGEMENT
A key component of balance sheet management is the management of credit
risk. In recent years, this represented a particular risk for lenders,
requiring a most concerted effort to minimize loss exposure. Credit risk is
inherent in the portfolios of both investment securities and loans. However,
the majority of credit risk at BB&T is in the loan portfolio.
The Loan Policy Committee, which establishes loan policy and reviews and
approves larger credits, provides overall direction to the administration of
BB&T's loan portfolios. The Loan Administration Division is responsible for the
ongoing loan operations and oversees larger credits and problem credits.
The loan review process is intended to ensure that sound and consistent
credit decisions are made. The loan function is administered by personnel who
have depth of experience and are provided with continuous training. Over the
years the methods for analyzing business financial performance and the ability
to repay loans has been refined. A detailed financial analysis is prepared
prior to the funding of larger business credits and the analyses are updated on
a regular basis.
A key element in minimizing the risk of loss in a business loan portfolio
is the diversification of such risk. While the legal lending limit of the North
Carolina chartered bank is in excess of $100 million, BB&T operates with in-
house limits of $37.5 million or less. Additional lower limits are established
based on risk grades, the business or industry of the borrower, type of
collateral (non-real estate versus real estate) and other considerations,
including the ability of the borrower to meet obligations with funds generated
from normal operations. Currently, no borrower has loans and/or commitments
equal to the in-house limit. Although the ability of the borrower to repay is
the critical element in any lending decision, substantially all loans at BB&T,
other than those of the very highest quality, are, in BB&T's view, well
collateralized. Independent appraisals are required for properties securing
loans in excess of $100,000.
A vast majority of loans made by BB&T-N.C. and BB&T-S.C. are to businesses
with operations headquartered in the two Carolinas; however, a limited number of
loans have been made to businesses which are domiciled in other states but have
operations in North and/or South Carolina. BB&T has not provided credit for
highly leveraged transactions, the energy sector or loans to lesser developed
countries, has not been a purchaser of loan participations and does not have
a high concentration of loans in any industry.
NONPERFORMING LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are placed on nonaccrual status when collection of interest and
principal is doubtful. There are three negative implications for earnings
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when a loan is placed in nonaccrual status. All interest accrued but unpaid at
the date the loan goes on nonaccrual status is either deducted from interest
income or written off as a loss. Secondly, future accruals of interest are not
made until it becomes certain that both loan principal and interest can be paid.
Finally, there may be actual losses which necessitate additional provisions for
loan losses charged against earnings.
BB&T experienced increases in both nonperforming assets and actual losses
in 1991 and 1990. Accordingly, the provisions and allowances for loan losses
were increased in those years. BB&T intensified its loan review processes in
order to minimize credit problems in that difficult environment, and there were
considerable improvements in both nonperforming assets and actual losses in 1993
and 1992.
For BB&T, nonperforming loans totalled $33.8 million on December 31, 1993,
compared with $30.7 million at the end of 1992 and $60.7 million at the end of
1991. Nonperforming loans equaled .50% of loans at the end of 1993, down from
.58% a year earlier and 1.22% at the end of 1991. Net charge-offs were .24% of
average loans outstanding in 1993, compared with .45% in 1992 and .63% in 1991.
For the same three years, the provisions charged against earnings as a percent
of average loans outstanding were .32%, .64% and .93%, respectively. In 1993
and 1992, both the amount of actual charge-offs and the provision for loan
losses declined significantly from 1991 levels, which were the highest in the
history of BB&T.
BB&T maintains a watch list for credits with balances of $250,000 or
greater and which are categorized in the highest risk grades. The amount of
loans on the watch list totalled $94.9 million, 1.42% of loans outstanding at
December 31, 1993, and $165.7 million, 3.11% of loans outstanding, a year
earlier. The $94.9 million includes $20.7 million in nonaccruing status and
$74.2 million which are currently performing, but in the opinion of management,
represent other potential problem loans.
As a result of increased provisions for loan losses in recent years, the
allowance for loan losses increased to $93.3 million or 1.40% of loans
outstanding at the end of 1993. At the end of 1992 the allowance for loan
losses was $77.9 million or 1.46% of outstanding loans. The allowance for loan
losses was 2.76 times nonperforming loans at the end of 1993, up from 2.53 times
nonperforming loans as of December 31, 1992, 1.11 times nonperforming loans as
of December 31, 1991 and 1.15 times at the end of 1990. The allowance plus
equity was 18.62 times nonperforming assets at the end of 1993, compared with
13.65 a year earlier.
Management continually reviews the loan portfolio for signs of
deterioration. In making their evaluation of the portfolio, factors considered
include the individual strength of borrowers, the strength of the individual
industries, the value and marketability of collateral, specific market strengths
and weaknesses, and general economic conditions. Management believes that the
allowance for loan losses at December 31, 1993 is adequate to cover potential
loan losses inherent in the loan portfolio.
INTEREST RATE RISK MANAGEMENT
The primary assets of banks are portfolios of investment securities and
loans, while liabilities are primarily composed of interest-bearing deposits and
borrowed funds. Assets and liabilities have varying maturities from one day to
several years and the associated interest rates may be fixed or variable. The
objective in managing maturities and rates is to optimize net interest income to
the extent possible, while minimizing the risk associated with significant,
often unforeseen shifts in interest rates.
Sensitivity to interest rate changes is one of the manageable risks assumed
by banks. When assets and liabilities reprice at different intervals, earnings
become sensitive to changes in market interest rates. BB&T uses hedging
instruments to manage interest rate sensitivity and net interest income. These
instruments, commonly referred to as derivatives, primarily consist of interest
rate swaps, collars, floors and cellings. BB&T does not trade or speculate in
derivatives, but uses them only as part of its asset/liability management
strategy.
Derivative contracts are written in amounts referred to as notional
amounts. Notional amounts do not represent amounts to be exchanged between
parties and are not a measure of financial risk, but only provide the basis for
calculating interest payments between the counterparties. On December 31, 1993,
BB&T had outstanding derivative contracts with notional amounts totalling
approximately $2 billion.
The derivatives used at BB&T provide for the exchange of interest payments
between counterparties--either variable for fixed or fixed for variable. Thus,
the credit risk arises when amounts receivable from a counterparty exceed those
payable. The risk of loss with any counterparty is limited to a small fraction
of the notional amount. BB&T deals only with national market makers with strong
credit ratings in its derivative 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. This risk management
strategy contributed $17.6 million to pre-tax earnings in 1993 and $18.2 million
in 1992.
<PAGE>
LIQUIDITY
For BB&T the principal source of asset liquidity is marketable investment
securities, particularly those maturing within one year. The objective in the
management of the investment securities portfolio is to maximize yields within a
framework which emphasizes shorter maturities and a managed assets/liabilities
interest rate sensitivity position. Such a strategy minimizes the possibility
of earnings losses associated with sharp swings in market rates of interest.
Through a strategy of securitizing internally originated residential
mortgage loans, the average maturity in the investment portfolio was lengthened
in 1989-1991. The securitized mortgages were sold in the latter part of 1991
and early 1992 in anticipation of large scale refinancing, which, in fact, did
occur in 1992-93. The average maturities of the portfolios at the end of both
1993 and 1992 were approximately one and one-half years. At the end of 1993,
approximately 33% of the portfolio matured within one year and approximately 90%
matured within a five-year period.
The portfolio includes investments in obligations of the U.S. Treasury, and
Government agency obligations, mortgage-backed securities and higher grade
municipal securities. In addition to the liquidity provided by normal
maturities, liquidity is also provided by the marketability of securities
available for sale, which had a market value of approximately $738 million at
the end of 1993.
Asset liquidity is also provided by scheduling maturities within the loan
portfolio, although the probability of conversion is not so certain as with
investment securities. At the end of 1993 approximately 69% or $4.4 billion of
loans would mature or reprice within a one-year period.
Liquidity is provided by sizable core deposits and other sources of funds
generated from the normal customer base. Liquidity is also provided by the
capacity to borrow additional funds when the need arises. BB&T has a strong
credit rating. In 1993 BB&T-NC had federal funds lines with many major banks
totalling approximately $1 billion and BB&T issues commercial paper under a
master agreement backed by bank lines of credit in the amount of $55 million.
The retention of earnings also is a major source of liquidity. For the
years 1993-91, funds provided from operations were $132.6 million, $120.9
million and $99.2 million, respectively.
OTHER ACCOUNTING AND REGULATORY MATTERS
The FASB has issued Statement No. 112, "Employers' Accounting for
Postemployment Benefits", which requires accrual of a liability for all types of
benefits paid to former or inactive employees after employment but before
retirement. The periodic effect on net income, if any, will not be material for
BB&T. Adoption of the Statement is required for fiscal years beginning after
December 15, 1993.
The FASB has issued Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", that requires a change in the method of
accounting and reporting for debt and equity securities. Securities that are
held to maturity would be classified as such and reported at amortized cost.
Securities for current resale would be classified as trading securities and
reported at fair value, with unrealized gains and losses included in current
earnings. Securities that are to be held for indefinite periods would be
classified as securities available for sale and reported at fair value, with
unrealized gains and losses excluded from current earnings and reported as a
separate component of shareholders' equity. It is to be adopted for fiscal years
beginning after December 15, 1993. Adoption of the provisions of this Statement
by BB&T in 1994 will
<PAGE>
have no material impact on the financial position or results of operation of
BB&T.
The FASB also has issued Statement No. 114, "Accounting by Creditors for
Impairment of a Loan", which proposes that creditors value all loans for which
it is probable that the creditor will be unable to collect all amounts due
according to the terms of the loan agreement based on the discounted expected
future cash flows. This discounting would be at the loan's effective interest
rate. This Statement would apply for fiscal years beginning after December 15,
1994. Adoption of the provisions of this Statement is not expected to have a
material impact on either the financial position or results of operations of
BB&T.
SUBSEQUENT EVENTS
On July 29, 1994, BB&T and Southern National Corporation (SNC) of
Winston-Salem, North Carolina agreed to merge the two companies. The merger
will be effected through the issuance of 1.45 shares of common stock of the
surviving corporation for each outstanding share of BB&T common stock and 1.00
shares of common stock of the surviving corporation for each outstanding share
of SNC common stock. The merger will be accounted for as a pooling-of-interests.
At the end of June, SNC had total assets of approximately $8.2 billion and total
shareholders' equity of approximately $594 million.
The combined corporation will be named Southern National Corporation, while
the combined subsidiary banks will be named Branch Banking and Trust Company and
operate using the BB&T logo. The new corporation would become the 35th largest
bank holding company in the United States and the sixth largest bank holding
company in the Southeastern United States. Based on the FDIC Deposit Survey of
June 30, 1993, (the latest date for which information is available), the
combined bank would have the largest deposit share in North Carolina and the
third largest deposit share in South Carolina.
On June 24, 1994, BB&T announced plans to acquire Commerce Bank of
Virginia Beach, Virgina a $692 million commercial bank. BB&T will effect
that merger by issuing approximately 4,000,000 shares of its common stock
for all of the outstanding shares of Commerce. The transaction will be accounted
for as a pooling-of-interests. Upon consummation, Commerce will become BB&T's
first banking subsidiary in Virginia.
<PAGE>
TABLE 1
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- - ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (thousands)
Interest income, taxable equivalent $620,529 609,180 630,177 618,179 615,689
Interest expense 248,362 275,583 350,266 373,272 393,139
- - ------------------------------------------------------------------------------------------------------------------------
Net interest income, taxable equivalent 372,167 333,597 279,911 244,907 222,550
Taxable equivalent adjustment 15,378 17,564 18,678 19,611 22,094
- - ------------------------------------------------------------------------------------------------------------------------
Net interest income 356,789 316,033 261,233 225,296 200,456
Provision for loan losses 19,048 32,975 42,317 21,718 14,620
- - ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 337,741 283,058 218,916 203,578 185,836
Noninterest income 119,527 95,549 90,888 68,404 61,319
Noninterest expense 301,574 254,133 214,999 189,761 177,757
- - ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 155,694 124,474 94,805 82,221 69,398
Income taxes 50,682 41,853 26,470 20,912 16,383
- - ------------------------------------------------------------------------------------------------------------------------
Net income $105,012 82,621 68,335 61,309 53,015
============================================================================
PER SHARE DATA
Net income:
Primary $ 2.95 2.53 2.30 2.20 2.02
Fully diluted 2.91 2.43 2.21 2.13 1.95
Cash dividends 1.02 0.91 0.85 0.81 0.74
Market price:
High 35.88 32.25 23.63 20.38 24.50
Low 29.13 21.88 14.50 14.50 16.38
Close 33.25 31.88 22.00 15.88 20.00
Book value 21.90 20.01 18.18 16.55 15.43
- - ------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES (millions)
Assets $ 8,686 7,667 6,781 6,144 5,980
Earning assets 8,139 7,202 6,378 5,729 5,587
Securities 2,169 1,961 1,729 1,443 1,369
Loans 5,914 5,190 4,546 4,150 4,104
Deposits 6,787 6,287 5,741 5,044 4,785
Interest-bearing liabilities 7,056 6,280 5,641 5,111 4,995
Shareholders' equity 739 618 513 434 389
- - ------------------------------------------------------------------------------------------------------------------------
SELECTED YEAR END BALANCES (millions)
Assets $ 9,867 7,932 7,390 6,204 6,204
Earning assets 9,231 7,406 6,896 5,772 5,632
Securities 2,428 2,013 1,868 1,494 1,344
Loans 6,688 5,325 4,989 4,131 4,163
Deposits 7,566 6,405 6,216 5,325 5,119
Interest-bearing liabilities 8,102 6,412 6,054 5,069 5,094
Shareholders' equity 797 654 575 457 407
- - ------------------------------------------------------------------------------------------------------------------------
NONFINANCIAL
Number of shareholders 21,538 19,941 18,656 16,941 15,621
Number of employees 4,910 4,202 3,931 3,703 3,681
Number of banking offices 283 250 261 241 239
Number of cities 155 140 138 132 131
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE 2
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
PROFITABILITY
- - -----------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.21 % 1.08 1.01 1.00 0.89
Return on average equity 14.21 13.36 13.32 14.14 13.62
Net interest margin 4.57 4.63 4.39 4.28 3.98
Yield to break even (1) 2.47 2.66 2.61 2.50 2.35
</TABLE>
(1) Noninterest expense plus provision for loan losses less noninterest
income, divided by average earning assets.
<PAGE>
TABLE 3
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AND VOLUME/RATE VARIANCE-TAXABLE EQUIVALENT BASIS
- - ---------------------------------------------------------------------------------------------------------------------------------
1993-1992 1992-1991
----------------------------------------- -----------------------------------------
Income/ Income/
Expense Volume Rate Expense Volume Rate
(thousands) Variance Variance Variance Variance Variance Variance
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
- - ---------------------------------------------------------------------------------------------------------------------------------
Loans $24,423 60,701 (36,278) (14,633) 61,891 (76,524)
Securities:
U.S. Government and other (7,600) 16,393 (23,993) 6,237 21,980 (15,743)
State and municipal (5,116) (3,890) (1,226) (7,688) (6,278) (1,410)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total securities (12,716) 12,503 (25,219) (1,451) 15,702 (17,153)
Interest-bearing bank balances 241 565 (324) (3,054) (2,005) (1,049)
Federal funds sold (599) (326) (273) (1,859) (848) (1,011)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 11,349 73,443 (62,094) (20,997) 74,740 (95,737)
- - ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing deposits:
Savings 2,931 5,623 (2,692) (982) 4,118 (5,100)
Interest checking (1,085) 4,346 (5,431) (4,869) 5,465 (10,334)
Money rate savings (6,746) (905) (5,841) (11,558) 4,219 (15,777)
Certificates of deposit and other
time deposits (32,308) 2,078 (34,386) (55,842) 6,175 (62,017)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (37,208) 11,142 (48,350) (73,251) 19,977 (93,228)
Short-term borrowed funds 7,737 9,484 (1,747) (1,027) 7,965 (8,992)
Long-term debt 2,250 4,751 (2,501) (405) 994 (1,399)
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense (27,221) 25,377 (52,598) (74,683) 28,936 (103,619)
- - ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME $38,570 48,066 (9,496) 53,686 45,804 7,882
==========================================================================================
</TABLE>
The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the relationship
of the absolute dollar change in each.
<PAGE>
TABLE 4
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE ANALYSIS
- - -----------------------------------------------------------------------------------------------------------------------------------
1993 1992
------------------------------ --------------------------------
Average Average
Average Income/ Yield/ Average Income/ Yield/
(thousands) Balance Expense Rate Balance Expense Rate
- - -------------------------------------------------------------------------------- --------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1)(2)(3) $5,914,161 481,580 8.14 % $5,189,551 457,157 8.81 %
Investment securities (3)(4):
U.S. Government and other 2,020,756 121,569 6.02 1,776,601 129,169 7.27
State and municipal 148,225 15,712 10.60 184,361 20,828 11.30
- - ------------------------------------------------------------- --------- ----------- ---------
Total securities 2,168,981 137,281 6.33 1,960,962 149,997 7.65
Interest-bearing bank balances 31,864 1,048 3.29 16,588 807 4.86
Federal funds sold 23,882 620 2.60 34,697 1,219 3.51
- - ------------------------------------------------------------- --------- ----------- ---------
Total interest-earning assets 8,138,888 620,529 7.62 7,201,798 609,180 8.46
- - ------------------------------------------------------------- --------- ----------- ---------
Allowance for loan losses (88,095) (75,760)
Cash and due from banks, noninterest-bearing 300,748 268,309
Bank premises and equipment 122,356 94,298
Other assets 211,897 178,436
- - ------------------------------------------------------------- --------- ----------- ---------
Total assets $8,685,794 $7,667,081
=========== ========= =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Savings $ 606,319 17,059 2.81 % $ 416,974 14,128 3.39 %
Interest checking 950,016 20,186 2.12 771,808 21,271 2.76
Money rate savings 814,735 20,073 2.46 844,105 26,819 3.18
Certificates of deposit and other time deposits 3,645,170 155,350 4.26 3,604,828 187,658 5.21
- - ------------------------------------------------------------- --------- ----------- ---------
Total interest-bearing deposits 6,016,240 212,668 3.53 5,637,715 249,876 4.43
Short-term borrowed funds 833,681 24,733 2.97 518,500 16,996 3.28
Long-term debt 205,734 10,961 5.33 123,649 8,711 7.04
- - ------------------------------------------------------------- --------- ----------- ---------
Total interest-bearing liabilities 7,055,655 248,362 3.52 6,279,864 275,583 4.39
- - ------------------------------------------------------------- --------- ----------- ---------
Demand deposits, noninterest-bearing 770,617 649,190
Other liabilities 120,263 119,640
Shareholders' equity 739,259 618,387
- - ------------------------------------------------------------- --------- ----------- ---------
Total liabilities and shareholders' equity $8,685,794 $7,667,081
=========== ========= =========== =========
Interest income and rate earned $620,529 7.62 % $609,180 8.46 %
Interest expense and rate paid 248,362 3.52 275,583 4.39
Interest rate spread 4.10 4.07
NET INTEREST INCOME AND NET YIELD ON
AVERAGE EARNING ASSETS $372,167 4.57 % $333,597 4.63 %
=========== ========= ====== =========== ========= =========
<CAPTION>
1991
------------------------------
Average
Average Income/ Yield/
(thousands) Balance Expense Rate
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Loans (1)(2)(3) $4,546,141 471,790 10.38 %
Investment securities (3)(4):
U.S. Government and other 1,489,151 122,932 8.26
State and municipal 239,383 28,516 11.91
- - ------------------------------------------------------------- ---------
Total securities 1,728,534 151,448 8.76
Interest-bearing bank balances 51,260 3,861 7.53
Federal funds sold 52,375 3,078 5.88
- - ------------------------------------------------------------- ---------
Total interest-earning assets 6,378,310 630,177 9.88
- - ------------------------------------------------------------- ---------
Allowance for loan losses (59,517)
Cash and due from banks, noninterest-bearing 237,964
Bank premises and equipment 81,423
Other assets 143,063
- - ------------------------------------------------------------- ---------
Total assets $6,781,243
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
Savings $ 315,439 15,110 4.79 %
Interest checking 620,430 26,140 4.21
Money rate savings 752,983 38,377 5.10
Certificates of deposit and other time deposits 3,513,561 243,500 6.93
- - ------------------------------------------------------------- ---------
Total interest-bearing deposits 5,202,413 323,127 6.21
Short-term borrowed funds 328,205 18,023 5.49
Long-term debt 110,750 9,116 8.23
- - ------------------------------------------------------------- ---------
Total interest-bearing liabilities 5,641,368 350,266 6.21
- - ------------------------------------------------------------- ---------
Demand deposits, noninterest-bearing 539,028
Other liabilities 87,796
Shareholders' equity 513,051
- - ------------------------------------------------------------- ---------
Total liabilities and shareholders' equity $6,781,243
=========== =========
Interest income and rate earned $630,177 9.88 %
Interest expense and rate paid 350,266 6.21
Interest rate spread 3.67
NET INTEREST INCOME AND NET YIELD ON
AVERAGE EARNING ASSETS $279,911 4.39 %
=========== ========= =======
</TABLE>
(1) Nonaccrual loans are included in average balances for yield computations.
(2) Loan income includes fees of $10,085, $7,699, and $4,061 for the years of
1993-1991, respectively.
(3) Yields related to loans and securities exempt from both federal and state
income taxes, federal income taxes only, or state income taxes only are
stated on a taxable equivalent basis assuming tax rates of 40.14%, 36.90%
or 7.91%, respectively, for 1993, and 39.27%, 35.89% or 7.98%, respectively
for 1992, and 39.32%, 35.91% or 8.06%, respectively for 1991.
(4) Includes both securities held to maturity and securities available for
sale.
<PAGE>
TABLE 5
- - --------------------------------------------------------------------------------
TYPES OF LOANS---REGULATORY CLASSIFICATION
<TABLE>
<CAPTION>
December 31
1993 1992 1991
-----------------------------------------------------------------------------
% of % of % of
(thousands) Amount Total Amount Total Amount Total
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,055,394 15.8% $ 967,401 18.1 911,108 18.2
Real estate-construction 436,781 6.5 379,271 7.1 397,394 8.0
Real estate-mortgage (1) 4,473,883 66.8 3,436,586 64.5 3,121,956 62.4
Installment and other loans to
individuals 727,822 10.9 550,193 10.3 567,706 11.4
- - ----------------------------------------------------------------------------------------------------------------------
$6,693,880 100.0% $5,333,451 100.0 4,998,164 100.0
=============================================================================
<CAPTION>
1990 1989
-------------------------------------------------
% of % of
(thousands) Amount Total Amount Total
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial 933,511 22.5 931,910 22.3
Real estate-construction 378,862 9.1 455,491 10.9
Real estate-mortgage (1) 2,259,404 54.7 2,184,635 52.3
Installment and other loans to
individuals 569,175 13.7 603,442 14.5
- - ------------------------------------------------------------------------------------------
4,140,952 100.0 4,175,478 100.0
=================================================
</TABLE>
(1) Includes residential mortgage loans of $3.2 billion in 1993 and $2.2
billion in 1992.
<PAGE>
TABLE 6
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
- - -------------------------------------------------------------------------------------------------------------------------
December 31
(thousands) 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 32,447 29,791 58,667 38,641 17,411
Restructured loans 1,303 945 2,078 3,028 3,128
Foreclosed property 14,074 22,887 28,863 12,630 6,648
- - -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 47,824 53,623 89,608 54,299 27,187
=================================================================
Total nonperforming assets to:
Loans and foreclosed property 0.71% 1.00 1.79 1.31 0.65
Total assets .48 .68 1.21 .88 .44
=================================================================
Accruing loans past due 90 days $ 19,222 13,974 17,139 11,429 14,580
=================================================================
</TABLE>
<PAGE>
TABLE 7
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
- - -------------------------------------------------------------------------------------------------------------------------------
(thousands) 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS OUTSTANDING AT END OF PERIOD $6,688,332 5,325,106 4,988,539 4,130,681 4,163,368
- - -------------------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS OUTSTANDING 5,914,161 5,189,551 4,546,141 4,149,548 4,104,149
===============================================================================================================================
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of period $ 77,889 67,586 47,723 42,055 39,041
Provision for loan losses 19,048 32,975 42,317 21,718 14,620
Adjustment of purchased companies 10,560 825 6,313 - (933)
- - -------------------------------------------------------------------------------------------------------------------------------
107,497 101,386 96,353 63,773 52,728
- - -------------------------------------------------------------------------------------------------------------------------------
Loans charged off:
Business 12,016 17,922 18,641 10,521 7,078
Consumer 6,811 8,390 11,107 7,704 6,176
Mortgage 1,360 1,356 1,532 437 445
- - -------------------------------------------------------------------------------------------------------------------------------
Total loans charged off 20,187 27,668 31,280 18,662 13,699
- - -------------------------------------------------------------------------------------------------------------------------------
Recovery of loans previously charged off:
Business 4,007 2,558 1,257 1,459 1,953
Consumer 1,930 1,487 1,238 1,107 1,009
Mortgage 68 126 18 46 64
- - -------------------------------------------------------------------------------------------------------------------------------
Total recoveries 6,005 4,171 2,513 2,612 3,026
- - -------------------------------------------------------------------------------------------------------------------------------
Net loans charged off 14,182 23,497 28,767 16,050 10,673
- - -------------------------------------------------------------------------------------------------------------------------------
Balance, end of period $ 93,315 77,889 67,586 47,723 42,055
=======================================================
Net charge-offs to average loans outstanding 0.24% 0.45 0.63 0.39 0.26
Allowance for loan losses to loans outstanding 1.40 1.46 1.35 1.16 1.01
Allowance for loan losses to net charge-offs 6.58 3.31 2.35 2.97 3.94
Allowance for loan losses to nonperforming loans 2.76 2.53 1.11 1.15 2.05
Allowance for loan losses plus equity to nonperforming assets 18.62 13.65 7.18 9.30 16.53
Earnings coverage of net charge-offs (1) 12.20 6.43 4.39 6.45 7.84
</TABLE>
(1) Net income before taxes, securities gains or losses, and the provision for
loan losses divided by net charge-offs.
<PAGE>
<TABLE>
<CAPTION>
TABLE 8
- - ------------------------------------------------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- - ------------------------------------------------------------------------------------------------------------------------------
December 31,
(thousands) 1993 1992 1991 1990 1989
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $23,574 18,401 13,140 10,207 10,595
Real estate-construction 9,669 7,990 8,071 5,459 3,664
Real estate-mortgage 36,456 31,056 25,434 15,517 14,356
Installment and other loans to individuals 13,746 11,075 12,831 10,310 9,065
Unassigned portion of reserve 9,870 9,367 8,110 6,230 4,375
- - ------------------------------------------------------------------------------------------------------------------------------
$93,315 77,889 67,586 47,723 42,055
=============================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
- - ---------------------------------------------------------------------------------------------------------------------------
SECURITIES - MATURITY/YIELD SCHEDULE
- - ---------------------------------------------------------------------------------------------------------------------------
As of December 31, 1993
Approximate Taxable
Market Equivalent
(thousands) Book Value Value Yield (1)
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury-held to maturity:
Within 1 year $ 485,205 487,919 4.95 %
1 through 5 years 920,243 921,361 4.62
6 to 10 years 8,715 9,396 6.55
- - -------------------------------------------------------------------------------------------------------
Total 1,414,163 1,418,676 4.74
- - -------------------------------------------------------------------------------------------------------
U.S. Government agencies and corporations-held
to maturity:
Within 1 year 18,450 18,766 6.64
1 through 5 years 44,528 44,955 5.33
6 to 10 years 8,225 8,335 6.13
Over 10 years 502 498 6.09
- - -------------------------------------------------------------------------------------------------------
Total 71,705 72,554 5.76
- - -------------------------------------------------------------------------------------------------------
State and municipal-held to maturity:
Within 1 year 43,267 43,597 11.03
1 through 5 years 40,852 43,149 10.02
6 to 10 years 58,216 63,713 9.66
Over 10 years 6,039 6,851 10.58
- - -------------------------------------------------------------------------------------------------------
Total 148,374 157,310 10.19
- - -------------------------------------------------------------------------------------------------------
Mortgage-backed securities-held to maturity 17,596 17,536 6.78
- - -------------------------------------------------------------------------------------------------------
Other securities-held to maturity 49,479 56,208 N/A
- - -------------------------------------------------------------------------------------------------------
Total-held to maturity $1,701,317 1,722,284 5.27
===========================================
U.S. Treasury-available for sale:
Within 1 year $ 247,249 250,810 6.72
1 through 5 years 383,988 386,038 4.96
- - -------------------------------------------------------------------------------------------------------
Total 631,237 636,848 5.65
- - -------------------------------------------------------------------------------------------------------
U.S. Government agencies and corporations-available for sale:
1 through 5 years 4,000 4,005 3.96
Over 10 years 1,582 1,582 4.13
- - -------------------------------------------------------------------------------------------------------
Total 5,582 5,587 4.01
- - -------------------------------------------------------------------------------------------------------
Mortgage-backed securities-available for sale 88,267 93,604 6.96
- - -------------------------------------------------------------------------------------------------------
Other securities-available for sale 1,572 1,572
- - -------------------------------------------------------------------------------------------------------
Total-available for sale $ 726,658 $ 737,611 5.80
===========================================
Total Securities $2,427,975 2,459,895 5.43 %
===========================================
</TABLE>
(1) Yields related to securities exempt from both federal and state income
taxes, federal income taxes only, or state income taxes only are stated on
a taxable equivalent basis assuming tax rates of 40.14%, 36.90% or 7.91%,
respectively.
<PAGE>
TABLE 10
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------
MATURITY SCHEDULE OF SELECTED LOANS
- - -------------------------------------------------------------------------------------------------
As of December 31, 1993
One
Within Through Over
(thousands) One Year Five Years Five Years Total
- - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial:
Fixed interest rates $ 98,264 63,941 59,397 221,602
Floating interest rates 829,554 708 3,530 833,792
- - -------------------------------------------------------------------------------------------------
Total 927,818 64,649 62,927 1,055,394
- - -------------------------------------------------------------------------------------------------
Real estate-construction:
Fixed interest rates 24,371 21,748 2,242 48,361
Floating interest rates 388,284 136 - 388,420
- - -------------------------------------------------------------------------------------------------
Total 412,655 21,884 2,242 436,781
- - -------------------------------------------------------------------------------------------------
$1,340,473 86,533 65,169 1,492,175
=======================================================================
</TABLE>
<PAGE>
TABLE 11
- - --------------------------------------------------------------------------------
CAPITAL ADEQUACY
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average equity to average assets 8.51% 8.07 7.57 7.06 6.51
Equity to assets at year-end 8.08 8.25 7.79 7.37 6.56
Risk-based capital ratios:
Tier I capital 11.94 12.43 11.46 10.26 N/A
Total capital 13.73 15.37 14.45 13.29 N/A
Leverage ratio 8.05 8.09 7.77 7.27 N/A
==========================================================================
</TABLE>
<PAGE>
TABLE 12
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
- - ---------------------------------------------------------------------------------------------------------------------------------
1993 1992
- - ------------------------------------------------------------------------------------- ------------------------------------
Fourth Third Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(thousands)
Interest income $158,216 154,316 150,018 142,601 $145,158 144,552 150,680
Interest expense 64,693 62,736 61,378 59,555 62,571 65,544 70,681
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 93,523 91,580 88,640 83,046 82,587 79,008 79,999
Provision for loan losses 4,279 4,363 4,663 5,743 7,375 8,033 8,343
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision 89,244 87,217 83,977 77,303 75,212 70,975 71,656
for loan losses
Noninterest income 33,454 30,671 28,172 27,230 22,327 25,245 22,837
Noninterest expense 81,643 77,683 73,818 68,430 68,721 63,441 61,877
- - ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,055 40,205 38,331 36,103 28,818 32,779 32,616
Income taxes 14,004 13,183 11,941 11,554 12,509 10,131 9,982
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income $27,051 27,022 26,390 24,549 $16,309 22,648 22,634
===========================================================================================
PER SHARE DATA
Net income:
Primary $ 0.74 0.74 0.74 0.73 $ 0.49 0.69 0.70
Fully diluted 0.74 0.74 0.73 0.70 0.48 0.66 0.67
Cash dividends 0.27 0.25 0.25 0.25 0.25 0.22 0.22
- - ----------------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES
(millions)
Assets $ 9,413 8,898 8,475 7,939 $ 7,980 7,645 7,550
Securities 2,388 2,215 2,121 1,947 2,091 1,928 1,912
Loans 6,375 6,072 5,767 5,430 5,352 5,214 5,127
Earning assets 8,826 8,353 7,941 7,420 7,492 7,184 7,108
Deposits 7,128 6,829 6,748 6,435 6,323 6,339 6,267
Interest-bearing liabilities 7,643 7,222 6,873 6,469 6,486 6,213 6,248
Shareholders equity 784 763 732 677 649 634 605
- - ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets 1.14% 1.20 1.25 1.25 0.81% 1.18 1.20
Return on average equity 13.69 14.05 14.47 14.71 9.96 14.17 15.00
Average equity to average assets 8.33 8.58 8.63 8.53 8.14 8.30 8.01
- - ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1992
--------
First
Quarter
--------
<S> <C>
SUMMARY OF OPERATIONS
(thousands)
Interest income 151,226
Interest expense 76,787
- - -------------------------------------------------
Net interest income 74,439
Provision for loan losses 9,224
- - -------------------------------------------------
Net interest income after provision 65,215
for loan losses
Noninterest income 25,140
Noninterest expense 60,094
- - -------------------------------------------------
Income before income taxes 30,261
Income taxes 9,231
- - -------------------------------------------------
Net income 21,030
========
PER SHARE DATA
Net income:
Primary 0.65
Fully diluted 0.63
Cash dividends 0.22
- - -------------------------------------------------
SELECTED AVERAGES
(millions)
Assets 7,488
Securities 1,911
Loans 5,063
Earning assets 7,020
Deposits 6,218
Interest-bearing liabilities 6,170
Shareholders equity 585
- - -------------------------------------------------
FINANCIAL RATIOS
Return on average assets 1.14
Return on average equity 14.60
Average equity to average assets 7.80
- - -------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 13
- - ------------------------------------------------------------------------------------------------------------------------------------
INTEREST SENSITIVITY ANALYSIS
- - ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1993
Interest Sensitive
--------------------------------------------------------------------
1-30 31-60 61-90 91-180 181-365 Total Noninterest
(thousands) Days Days Days Days Days Sensitive Sensitive (1)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans $3,435,385 314,687 99,760 252,911 446,492 4,549,235 2,139,097
Securities 151,603 48,234 22,076 149,369 505,735 877,017 1,550,958
Short-term investments 114,613 --- --- --- --- 114,613 100
Interest rate swaps (250,000) (110,000) (100,000) (100,000) --- (560,000) 560,000
- - ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets $3,451,601 252,921 21,836 302,280 952,227 4,980,865 4,250,155
===================================================================================
INTEREST-BEARING LIABILITIES
Time deposits of $100,000 or more $ 258,600 131,318 107,722 163,334 125,225 786,199 158,399
All other deposits 2,188,392 216,725 215,239 600,657 510,530 3,731,543 2,028,013
Short-term borrowed funds 1,046,789 --- --- --- --- 1,046,789 ---
Long-term debt 2,643 50,000 3,333 3,333 9,809 69,118 281,618
Certificate of deposit swaps --- (100,000) --- (200,000) --- (300,000) 300,000
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $3,496,424 298,043 326,294 567,324 645,564 5,333,649 2,768,030
===================================================================================
Interest sensitivity gap per period $ (44,823) (45,122) (304,458) (265,044) 306,663 (352,784) 1,482,125
Cumulative interest sensitivity gap (44,823) (89,945) (394,403) (659,447) (352,784) --- ---
Cumulative ratio of interest-sensitive assets to
interest-sensitive liabilities .99x .98 .90 .86 .93
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assets and Liabilities which are not sensitive to interest changes in a
twelve month period because of maturities or fixed interest rates.
<PAGE>
Exhibit 99.2
CONSOLIDATED BALANCE SHEETS
BB&T Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
- - --------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share) 1993 1992
- - ------------------------------------------------------------------------------------------ ------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks, noninterest-bearing $ 355,818 332,322
Interest-bearing bank balances 79,663 27,705
Federal funds sold 35,050 39,725
Securities-available for sale (market value of $737,611 in 1993, and $464,482 in 1992) 726,658 456,113
Securities-held to maturity (market value of $1,722,284 in 1993, and $1,583,899 in 1992) 1,701,317 1,557,254
Loans 6,688,332 5,325,106
Less allowance for loan losses 93,315 77,889
- - --------------------------------------------------------------------------------------------------------------------
Net loans 6,595,017 5,247,217
Bank premises and equipment 147,666 103,854
Accrued interest receivable 63,607 58,505
Other assets 162,602 108,965
- - --------------------------------------------------------------------------------------------------------------------
Total assets $9,867,398 7,931,660
========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 861,786 763,743
Interest-bearing 6,704,154 5,641,518
- - --------------------------------------------------------------------------------------------------------------------
Total deposits 7,565,940 6,405,261
Short-term borrowed funds 1,046,789 642,811
Long-term debt 350,736 127,442
Other liabilities 106,949 102,116
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities 9,070,414 7,277,630
- - --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock $2.50 par value, 4,000,000 shares authorized; none issued -- --
Common stock $2.50 par value, 50,000,000 shares authorized; shares issued
of 36,398,619 in 1993, and 32,684,930 in 1992 90,997 81,713
Paid-in capital 286,774 217,223
Retained earnings 425,667 358,032
Less loan to employee stock ownership plan 4,419 2,938
Less unvested restricted stock 2,035 --
- - --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 796,984 654,030
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,867,398 7,931,660
========================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
BB&T Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------
Year Ended December 31,
($ in thousands, except per share) 1993 1992 1991
- - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans $ 479,212 454,061 467,671
Interest and dividends on securities:
Taxable 114,404 122,256 118,681
Tax exempt 9,867 13,273 18,207
Interest on short-term investments 1,668 2,026 6,939
- - ------------------------------------------------------------------------------------------------
Total interest income 605,151 591,616 611,498
- - ------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 212,668 249,876 323,126
Interest on short-term borrowed funds 24,733 16,996 18,023
Interest on long-term debt 10,961 8,711 9,116
- - ------------------------------------------------------------------------------------------------
Total interest expense 248,362 275,583 350,265
- - ------------------------------------------------------------------------------------------------
NET INTEREST INCOME 356,789 316,033 261,233
Provision for loan losses 19,048 32,975 42,317
- - ------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 337,741 283,058 218,916
- - ------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 40,764 33,606 30,413
Other service charges, commissions and fees 17,847 15,058 12,601
Mortgage banking income 18,068 11,499 11,139
Gains on sales of securities 1,720 6,268 10,949
Trust income 11,401 9,684 8,425
Insurance commissions 10,647 6,653 6,163
Other operating income 19,080 12,781 11,198
- - ------------------------------------------------------------------------------------------------
Total noninterest income 119,527 95,549 90,888
- - ------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 119,920 101,775 87,682
Other personnel expense 27,724 22,039 18,820
Net occupancy expense 22,771 19,607 17,764
Furniture and equipment expense 26,573 20,603 17,954
Deposit insurance premiums 15,327 13,456 11,584
Other operating expense 89,259 76,653 61,195
- - ------------------------------------------------------------------------------------------------
Total noninterest expense 301,574 254,133 214,999
- - ------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 155,694 124,474 94,805
Income taxes 50,682 41,853 26,470
- - ------------------------------------------------------------------------------------------------
NET INCOME $ 105,012 82,621 68,335
=========================================
NET INCOME PER SHARE
Primary $ 2.95 2.53 2.30
Fully diluted 2.91 2.43 2.21
=================================================================================================
AVERAGE NUMBER OF SHARES AND EQUIVALENT SHARES
Primary 35,619,953 32,704,634 29,760,298
Fully diluted 36,188,410 34,741,310 31,755,821
=========================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BB&T Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Loan to
Employee
Common Stock Unvested Total
Shares Common Paid-In Retained Ownership Restricted Shareholders'
($ in thousands, except per share) Outstanding Stock Capital Earnings Plan Stock Equity
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 AS
ORIGINALLY REPORTED 21,328,169 $53,320 102,496 217,690 --- --- $373,506
Equity at December 31, 1990 of pooled companies
acquired in 1993 and 1994 6,309,441 15,775 29,213 38,891 --- --- 83,879
- - ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1990,
RESTATED 27,637,610 69,095 131,709 256,581 --- --- 457,385
Net income, 1991 --- --- --- 68,335 --- --- 68,335
Cash dividends paid ($.85 per share) --- --- --- (20,021) --- --- (20,021)
Common stock issued by pooled companies prior to
merger 36,153 90 231 --- --- --- 321
Cash dividends paid by pooled companies prior to
merger --- --- --- (2,847) --- --- (2,847)
Redemption of common stock by pooled company
prior to merger (46,293) (116) (440) --- --- --- (556)
Common stock issued:
Dividend reinvestment plan 238,885 597 4,114 --- --- --- 4,711
Employee benefit and stock option plans 326,586 817 5,292 --- --- --- 6,109
Acquisitions 813,275 2,033 10,352 --- --- --- 12,385
Offerings 2,528,441 6,321 43,896 --- --- --- 50,217
Employee stock ownership plan 150,613 377 2,664 --- --- --- 3,041
Conversion of debentures 1,689 4 27 --- --- --- 31
Loan to employee stock ownership plan --- --- --- 22 (2,841) (2,819)
Redemption of common stock (40,000) (100) (730) --- --- --- (830)
- - ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 31,646,959 79,118 197,115 302,070 (2,841) --- 575,462
Net income, 1992 --- --- --- 82,621 --- --- 82,621
Cash dividends paid ($.91 per share) --- --- --- (23,595) --- --- (23,595)
Common stock issued by pooled companies prior to
merger 73,714 184 548 --- --- --- 732
Cash dividends paid by pooled companies prior to
merger --- --- --- (3,115) --- --- (3,115)
Common stock issued:
Dividend reinvestment plan 250,866 627 6,206 --- --- --- 6,833
Employee benefit and stock option plans 507,211 1,268 10,904 --- --- --- 12,172
Acquisitions 34,297 86 (364) --- --- --- (278)
Offerings 382,395 956 8,709 --- --- --- 9,665
Conversion of debentures 19,488 49 297 --- --- --- 346
Loan to employee stock ownership plan --- --- --- 51 (97) (46)
Redemption of common stock (230,000) (575) (6,192) --- --- --- (6,767)
- - ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 32,684,930 81,713 217,223 358,032 (2,938) --- 654,030
Net income, 1993 --- --- --- 105,012 --- --- 105,012
Cash dividends paid ($1.02 per share) --- --- --- (31,227) --- --- (31,227)
Common stock issued by pooled companies prior to
merger 125,706 314 1,314 --- --- --- 1,628
Cash dividends paid by pooled companies prior to
merger --- --- --- (4,042) --- --- (4,042)
Common stock issued:
Dividend reinvestment plan 263,090 658 7,631 --- --- --- 8,289
Employee benefit and stock option plans 563,273 1,408 14,426 --- --- --- 15,834
Acquisitions 829,344 2,073 20,707 --- --- --- 22,780
Offerings 940,192 2,351 24,912 --- --- --- 27,263
Conversion of debentures 1,916,084 4,790 28,521 --- --- --- 33,311
Loan to employee stock ownership plan --- --- --- --- (1,481) (1,481)
Unvested restricted stock --- --- --- --- --- (2,035) (2,035)
Redemption of common stock (924,000) (2,310) (27,960) --- --- --- (30,270)
Equity adjustment of merged company for the
quarter ended December 31, 1993 (2,108) (2,108)
- - ---------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 36,398,619 $90,997 286,774 425,667 (4,419) (2,035) $796,984
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T Financial Corporation and Subsidiaries
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
(thousands) 1993 1992 1991
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 608,876 603,138 611,114
Noninterest income received 112,557 88,381 75,265
Interest paid (252,892) (282,459) (357,630)
Noninterest expense paid (276,894) (235,210) (197,317)
Income taxes paid (59,012) (52,920) (32,274)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 132,635 120,930 99,158
- - ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities--available for sale 164,639 -- --
Proceeds from sales of securities--held to maturity 10,717 667,169 693,077
Proceeds from maturities or calls of securities 901,480 734,629 490,020
Purchase of securities (1,296,653) (1,516,699) (1,461,001)
Net increase in loans (530,078) (282,070) (306,153)
Proceeds from sales of premises and equipment 3,140 1,663 477
Purchases of property and equipment (62,078) (32,815) (16,221)
Proceeds from sales of foreclosed properties 26,072 26,872 13,943
Cash of companies acquired, net 39,013 2,377 62,857
Purchase of officers' life insurance policies (30,000) -- --
Other (13,180) 8,264 (1,937)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (786,928) (390,610) (524,938)
- - ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, interest checking and savings accounts 260,046 430,613 77,892
Net increase (decrease) in certificates of deposit and other time deposits (143,151) (373,983) 125,418
Net increase in short-term borrowed funds 399,671 276,692 111,006
Increase in long-term debt 223,934 7,365 11,420
Proceeds from issuance of common stock 48,407 26,200 61,137
Redemption of common stock (30,270) (6,767) (1,386)
Dividends paid (35,270) (26,711) (22,867)
Cash flow of merged company for the quarter ended December 31, 1993 1,705 -- --
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 725,072 333,409 362,620
- - ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 70,779 63,729 (63,160)
Cash and cash equivalents on January 1 399,752 336,023 399,183
- - ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents on December 31 $ 470,531 399,752 336,023
=========================================
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net income $ 105,012 82,621 68,335
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 16,430 12,123 10,333
Provision for loan losses 19,048 32,975 42,317
Deferred income tax benefit (6,518) (2,135) (5,294)
Net amortization and accretion 8,699 9,466 6,278
Gain on sales of securities (1,820) (6,409) (10,946)
Decrease in taxes payable (1,616) (9,366) (1,756)
Increase in interest receivable 1,053 8,880 5,615
Decrease in interest payable (4,551) (7,215) (7,826)
Other (3,102) (10) (7,898)
- - ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 132,635 120,930 99,158
=========================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Securitization of mortgage loans -- 8,775 11,300
Common stock issued: -- -- --
Employee benefit plans $ 2,263 2,260 --
Conversion of debentures 33,311 346 31
Purchased company 22,298 -- 12,606
Employee stock ownership plan 2,314 664 3,041
Loan to employee stock ownership plan (2,314) (664) (3,041)
Loans transferred to foreclosed properties 14,779 25,508 26,459
=========================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PAGE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BB&T Financial Corporation and Subsidiaries
At or for the years ended December 1993, 1992 and 1991
($ in thousands, except per share)
NOTE 1. ACCOUNTING POLICIES
CONSOLIDATION: The accompanying consolidated financial statements include
the accounts of BB&T Financial Corporation ("BB&T") and its wholly-owned
subsidiaries, Branch Banking and Trust Company ("BB&T-N.C."); BB&T Financial
Corporation of South Carolina and its wholly-owned subsidiary, Branch Banking
and Trust Company of South Carolina ("BB&T-S.C."); L.S.B. Bancshares, Inc. of
South Carolina ("L.S.B.") and its wholly-owned subsidiaries, The Lexington State
Bank and The Community Bank of South Carolina; and four savings institutions.
L.S.B. and its subsidiaries were acquired on June 30, 1994 and their results are
included for all periods presented. All significant intercompany balances and
transactions have been eliminated in consolidation.
Prior years consolidated financial statements have been restated to include
the accounts of companies acquired and accounted for as poolings-of-interests.
Certain amounts for prior years have been reclassified to conform with statement
presentations for 1993. These reclassifications had no impact on either the
financial position or results of operations previously reported.
STATEMENTS OF CASH FLOWS: For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, interest-bearing and noninterest-bearing
amounts due from banks, and federal funds sold.
SECURITIES: Debt securities acquired with both the intent and ability to
hold to maturity are classified as investment securities. Investment
securities are carried at cost less amortization of premiums plus accretion of
discounts. Securities, which may be used to meet liquidity needs arising from
unanticipated deposit and loan fluctuations, changes in regulatory capital and
investment requirements, or unforeseen changes in market conditions, including
interest rates, market values or inflation rates, are classified as available
for sale. Securities available for sale are carried at the lower of cost or
market. The cost of securities sold is determined by the identified certificate
method.
LOANS HELD FOR SALE: Residential mortgage loans held for sale are carried
at the lower of cost or market.
BANK PREMISES AND EQUIPMENT: Bank premises, equipment and leasehold
improvements are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using primarily the straight-line
method. Buildings and equipment are depreciated over their estimated useful
lives. Leasehold improvements are amortized over the shorter of the terms of
the respective leases or the estimated useful lives of the improvements.
FORECLOSED PROPERTY: Foreclosed property consists of real estate and other
assets acquired through customers' loan defaults. Foreclosed property is
carried at the lower of fair value, less the estimated cost to sell, or cost.
Routine maintenance costs, declines in market value and net losses on disposal
are included in other operating expense.
PROVISION FOR LOAN LOSSES: The annual provision for loan losses charged
against earnings is based on management's continuing review and evaluation of a
number of factors, including overall portfolio quality and size, loan loss
experience, potential losses on known problem loans, as well as prevailing and
anticipated economic conditions. While management uses the best information
available in establishing the allowance for losses, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluations or if required by regulators.
<PAGE>
PAGE
FINANCIAL INSTRUMENTS-OFF-BALANCE SHEET: BB&T enters into interest rate
swap, floor and cap agreements to manage the overall interest rate risk
exposure of identified assets and liabilities. Income or expense associated
with interest rate swap, floor or cap agreements is recognized as a component of
net interest income based upon anticipated settlement payments.
INCOME TAXES: Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109") was effective for years beginning
after December 15, 1992. BB&T adopted SFAS 109 as of January 1, 1993 with no
impact on the financial statements. Under the asset and liability method of
SFAS 109, deferred income taxes are recognized for the future tax consequences
attributed to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the temporary differences are expected to
be recovered or settled. Under SFAS 109, the effect on deferred assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Prior to 1993, BB&T used the deferral method of
accounting for income taxes.
INCOME AND EXPENSE: BB&T and its subsidiaries utilize the accrual method
of accounting. Fees and costs associated with originating loans are deferred
and recognized as an adjustment of yield over the lives of the loans. Loans
generally earn interest on the level yield method based on the daily
outstanding balance. The accrual of interest is discontinued when, in the
opinion of management, the collection of all or a portion of interest becomes
doubtful.
INCOME PER SHARE: Primary net income per common share is based upon the
weighted average number of shares of common stock outstanding and common stock
equivalents of dilutive stock options. Fully diluted net income per common
share reflects the maximum dilutive effect of common stock issuable upon
conversion of convertible debt and exercise of stock options.
EXCESS OF COST OVER NET ASSETS ACQUIRED AND EXCESS OF NET ASSETS ACQUIRED
OVER COST: The excess of cost over net assets acquired (goodwill) and the
excess of net assets acquired over cost (negative goodwill) of purchased
companies is amortized on the straight-line method over the estimated periods to
be benefited, normally ten years.
<PAGE>
PAGE
NOTE 2. MERGERS
During the years ended December 31, 1993, 1992 and 1991, BB&T was a party
to several business combinations.
On February 24, 1993, BB&T completed the acquisition of First Fincorp, Inc.
(Fincorp), and its wholly-owned subsidiary, First Financial Savings Bank, Inc.
of Kinston, North Carolina. The merger was consummated through the issuance of
673,148 shares of BB&T common stock for all of the outstanding common stock of
Fincorp for a total purchase price of $22,300, which was approximately the same
as the fair value of the net assets acquired. The merger was accounted for as a
purchase, and, accordingly, the results of Fincorp are included in the
consolidated financial statements since the date of acquisition. At the date of
acquisition, Fincorp had assets of approximately $322,000.
On February 25, 1993, BB&T completed the acquisition of Security Financial
Holding Company, (Security), and its wholly-owned subsidiary, Security Federal
Savings Bank of Durham, North Carolina. The merger was consummated through the
issuance of 1,408,178 shares of BB&T common stock for all of the outstanding
common stock of Security. The merger was accounted for as a pooling-of-
interests, and, accordingly, the consolidated financial statements include the
results of Security for all periods presented. At the date of acquisition,
Security had assets of approximately $316,000.
On May 18, 1993, BB&T completed the acquisitions of Carolina Savings Bank
(Carolina) of Wilmington, North Carolina and Edenton Savings and Loan
Association (Edenton) of Edenton, North Carolina. The transactions involved
simultaneous conversions from mutual to stock associations and acquisition by
BB&T. BB&T sold 507,182 shares of its common stock to eligible members of the
institutions, natural persons in the communities in which they operated and the
public. The net proceeds of approximately $15,300 were used to purchase all of
the stock of Carolina and Edenton. Negative goodwill of approximately $5,700
resulted from the transactions. The mergers were accounted for as purchases,
and, accordingly, the results of Carolina and Edenton are included in the
consolidated financial statements since the date of acquisitions. At the date
of acquisition, Carolina and Edenton had assets of approximately $142,000 and
$40,000, respectively.
On October 25, 1993, BB&T completed the acquisition of Citizens Savings
Bank, SSB, Inc., (Citizens of Newton) of Newton, North Carolina. The merger was
consummated through the issuance of 1,168,311 shares of BB&T common stock for
all of the outstanding common stock of Citizens of Newton. The merger was
accounted for as a pooling-of-interests, and, accordingly, the consolidated
financial statements include the results of Citizens of Newton for all periods
presented. At the date of acquisition, Citizens of Newton had assets of
approximately $263,000.
On October 29, 1993, BB&T completed the acquisition of Mutual Savings Bank
of Rockingham County, SSB (Mutual) of Reidsville, North Carolina. The
transaction involved simultaneous conversion from a mutual to a stock
association and acquisition by BB&T. BB&T sold 216,539 shares of its common
stock to eligible members of the institution and natural persons in the
community in which they operated. The net proceeds of approximately $6,200 were
used to purchase all of the stock of Mutual. Negative goodwill of approximately
$2,900 resulted from the transaction. The merger was accounted for as a
purchase, and, accordingly, the results of Mutual are included in the
consolidated financial statements since the date of acquisition. At the date of
acquisition, Mutual had assets of approximately $87,000.
On November 24, 1993, BB&T completed the acquisition of Old Stone Bank of
North Carolina (Old Stone) of High Point, North Carolina. The merger
<PAGE>
PAGE
was consummated for a cash payment of $58,250 for all of the outstanding common
stock of Old Stone. Goodwill of approximately $27,700 resulted from the
transaction. The merger was accounted for as a purchase, and, accordingly, the
results of Old Stone are included in the consolidated financial statements
since the date of acquisition. At the date of acquisition, Old Stone had assets
of approximately $537,000.
On December 23, 1993, BB&T completed the acquisition of Citizens Savings
Bank, SSB (Citizens Savings) of Mooresville, North Carolina. The transaction
involved a simultaneous conversion from a mutual to a stock association and
acquisition by BB&T. BB&T sold 216,471 shares of its common stock to eligible
members of the institution and natural persons in the community in which they
operated. The net proceeds of approximately $5,800 were used to purchase all
of the stock of Citizens Savings. Negative goodwill of approximately $1,900
resulted from the transaction. The merger was accounted for as a purchase,
and, accordingly, the results of Citizens Savings are included in the
consolidated financial statements since the date of acquisition. At the date
of acquisition, Citizens Savings had assets of approximately $63,000.
During 1992, BB&T acquired one savings institution through the issuance of
382,395 shares of its common stock. Assets of approximately $107,000 were
acquired and the merger was accounted for as a purchase. Negative goodwill of
approximately $6,600 resulted from the transaction. During 1991, BB&T acquired
three savings institutions through the issuance of 3,343,800 shares of its
common stock and cash payment of $13,800. Assets acquired in such acquisitions
totalled approximately $798,000 and all were accounted for as purchases.
Negative goodwill of approximately $33,400 resulted from these acquisitions.
The results of the companies acquired in 1992 and 1991 are included in the
consolidated financial statements since the respective dates of acquisition.
During 1993, 1992 and 1991, BB&T acquired several small insurance agencies.
BB&T issued 156,196 shares in 1993 to acquire four agencies, 34,297 shares in
1992 to acquire two agencies and 19,121 shares in 1991 to acquire one agency.
All of the acquisitions were accounted for as poolings-of-interests. In the
aggregate they were not material, and, accordingly, prior period financial
statements have not been restated.
On June 30, 1994, BB&T completed the acquisition of L.S.B. Bancshares,
Inc., ("L.S.B.") of Lexington, South Carolina and its wholly-owned subsidiaries
the Lexington State Bank and the Community Bank of South Carolina. The merger
was consummated through the issuance of 3,936,341 shares of BB&T common stock
for all of the common stock of L.S.B. The merger was accounted for as a
pooling-of-interests, and, accordingly, the consolidated financial statements
include the results of L.S.B. for all periods presented. At the date of
acquisition, L.S.B. had assets of approximately $707,000.
The following presents the contributions of BB&T, and the pooled entities
Security, Citizens of Newton, and L.S.B. to the restated and reported results
of BB&T and certain pro forma financial data pertaining to BB&T and the
acquisition of the institution purchased in 1992 as if it had been acquired at
the beginning of each of the years 1992 and 1991, and the acquisitions of the
six savings institutions purchased in 1993 as if each had been acquired at the
beginning of each of the years 1993 and 1992. The unaudited pro forma summary
does not necessarily reflect the results of operations as they would have been
if the acquisitions had been consummated at the beginning of the periods
presented.
<PAGE>
PAGE
<TABLE>
<CAPTION>
Contributions of
-------------------------------
Security and Fully
Citizens BB&T Pro forma
1993 BB&T of Newton L.S.B. As Reported Combined
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenue $670,660 54,197 724,678 780,518
Net interest income 328,543 28,246 356,789 379,766
Net income 98,236 6,776 105,012 107,327
Net income per share:
Primary 3.10 2.95 2.95
Fully diluted 3.05 2.91 2.92
1992
- - --------------------------------------------------------------------------------
Total revenue $580,613 52,863 53,689 687,165 800,498
Net interest income 268,355 21,064 26,614 316,033 358,231
Net income 76,076 406 6,139 82,621 92,528
Net income per share:
Primary 2.89 2.53 2.70
Fully diluted 2.75 2.43 2.60
1991
- - --------------------------------------------------------------------------------
Total revenue $593,779 54,740 53,867 702,386 755,090
Net interest income 222,163 17,845 21,225 261,233 278,113
Net income 60,172 4,547 3,616 68,336 75,904
Net income per share:
Primary 2.57 2.30 2.38
Fully diluted 2.44 2.21 2.29
</TABLE>
<PAGE>
PAGE
NOTE 3. PENDING ACQUISITIONS
At December 31, 1993, BB&T had pending agreements to acquire Home Savings
Bank of Albemarle, SSB, ("Home"), Albemarle, North Carolina with assets of
approximately $157,000 and Asheville Savings Bank, SSB ("Asheville), Asheville,
North Carolina with assets of approximately $321,000. Home and Asheville are
both mutual savings banks, and their acquisitions require their conversions from
mutual to stock corporations with simultaneous acquisition by BB&T. BB&T will
sell shares of its $2.50 par value common stock in offerings in order to effect
the acquisitions. The total estimated value of Home and Asheville and the
market value of the stock to be offered by BB&T are both approximately $54,000.
It is anticipated that the acquisitions of Home and Asheville will be accounted
for using the purchase method of accounting.
On June 20, 1994, BB&T announced the mutual agreements to terminate merger
plans between BB&T and Home and Asheville.
<PAGE>
NOTE 4. SECURITIES
Investment securities at December 31, 1993 and 1992 were:
<TABLE>
<CAPTION>
Gross Gross Approximate
Book Unrealized Unrealized Market
1993 -- Held to Maturity Value Gains Losses Value
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $1,414,163 6,659 2,146 1,418,676
U.S. Government agencies
and corporations 89,301 926 137 90,090
State and municipal 148,374 9,423 487 157,310
Other securities 49,479 6,961 232 56,208
- - --------------------------------------------------------------------------------
$1,701,317 23,969 3,002 1,722,284
==================================================
1993 -- Available for Sale
- - --------------------------------------------------------------------------------
U.S. Treasury $ 631,237 5,832 221 636,848
U.S. Government agencies
and corporations 5,582 5 -- 5,587
Mortgage-backed securities
of U.S. Government
agencies 88,267 5,361 24 93,604
Other securities 1,572 -- -- 1,572
- - --------------------------------------------------------------------------------
$ 726,658 11,198 245 737,611
==================================================
1992 -- Held to Maturity
- - --------------------------------------------------------------------------------
U.S. Treasury $1,155,633 13,264 646 1,168,251
U.S. Government agencies
and corporations 144,118 2,888 171 146,835
Mortgage-backed securities
of U.S. Government
agencies 61,296 2,565 169 63,692
State and municipal 167,156 8,527 112 175,571
Other securities 29,051 572 73 29,550
- - --------------------------------------------------------------------------------
$1,557,254 27,816 1,171 1,583,899
==================================================
1992 -- Available for Sale
- - --------------------------------------------------------------------------------
U.S. Treasury $ 456,113 8,441 72 464,482
- - --------------------------------------------------------------------------------
$ 456,113 8,441 72 464,482
==================================================
</TABLE>
At December 31, 1991, the book value of U.S. Treasury securities was
$1,043,772; U.S. Government agencies and corporations was $138,733; state and
municipal securities was $219,289; mortgage-backed securities of U.S. Government
agencies was $415,812; and other securities was $41,352.
The aggregate value of securities at December 31, 1993 by
contractual maturity were:
<TABLE>
<CAPTION>
Approximate
Market
Book Value Value
- - --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 795,743 802,664
Due after one year through five years 1,393,611 1,399,508
Due after five years through ten years 75,156 81,444
Due after ten years 57,602 65,139
- - --------------------------------------------------------------------------------
Mortgage-backed securities 105,863 111,140
- - --------------------------------------------------------------------------------
$2,427,975 2,459,895
==========================
</TABLE>
Securities with aggregate par values of $923,727 and $526,395 at
December 31, 1993 and 1992, respectively, were pledged as collateral to
secure public deposits and for other purposes.
In 1993 gross gains of $1,411 and gross losses of $33 were realized on
securities available for sale transactions, and gross gains of $337 were
realized on investment securities by a pooled company prior to merger. Gross
gains of $8,782 and gross losses of $2,388 were realized on securities
transactions in 1992. Gross gains of $11,306 and gross losses of $360 were
realized on securities transactions in 1991.
BB&T will adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", as of January 1, 1994. It is anticipated that the implementation
of the provisions of this statement will have no material impact on either the
results of operations or financial condition of BB&T.
<PAGE>
NOTE 5. LOANS
At December 31, 1993 and 1992, loans consisted of the following:
<TABLE>
<CAPTION>
1993 1992
- - ----------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $1,055,394 967,401
Real estate -- construction 436,781 379,271
Real estate -- mortgage 4,473,883 3,436,586
Installment and other loans to
individuals 727,822 550,193
- - ----------------------------------------------------------------
6,693,880 5,333,451
- - ----------------------------------------------------------------
Less:
Deferred fees and costs 3,363 3,816
Unearned interest 2,185 4,529
- - ----------------------------------------------------------------
$6,688,332 5,325,106
========================
Include in the above:
Nonaccrual loans $ 32,447 29,791
Restructured loans 1,303 945
========================
</TABLE>
Loans classified as real estate--mortgage include loans secured by
residential properties of $3,173,658 in 1993 and $2,197,582 in 1992, including
$353,122 and $238,912 held for sale in 1993 and 1992, respectively. The market
values of the loans held for sale were $353,122 and $239,284 at December 31,
1993 and 1992, respectively.
Interest income that would have been recorded on nonaccrual and
restructured loans for the years ended December 31, 1993, 1992 and 1991 had
they performed in accordance with the original terms throughout each of the
periods amounted to approximately $1,860, $2,305 and $5,834, respectively.
Interest income on such loans included in the results of operations for each of
the years amounted to approximately $731, $847 and $1,770, respectively.
The Banks make loans to executive officers and directors of BB&T and the
Banks and to their associates. Such loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. The aggregate dollar amount of these loans was
$87,165 and $70,718 at December 31, 1993 and 1992, respectively. During 1993,
$39,578 of new loans were made and repayments totalled $23,131.
NOTE 6. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
A summary of transactions affecting the allowance for loan
losses follows:
1993 1992 1991
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 77,889 67,586 47,723
Provision for loan losses 19,048 32,975 42,317
Allowances of purchased companies 10,560 825 6,313
- - ---------------------------------------------------------------------------
Total 107,497 101,386 96,353
- - ---------------------------------------------------------------------------
Deduct:
Loans charged-off 20,187 27,668 31,280
Less recoveries 6,005 4,171 2,513
- - ---------------------------------------------------------------------------
Net loans charged-off 14,182 23,497 28,767
- - ---------------------------------------------------------------------------
Balance at end of year $ 93,315 77,889 67,586
===================================
</TABLE>
<PAGE>
NOTE 7. BANK PREMISES AND EQUIPMENT
Following is a summary of bank premises and equipment
at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
- - ------------------------------------------------------------
<S> <C> <C>
Land $ 21,107 15,883
Buildings 84,528 56,255
Leasehold improvements 23,840 16,425
Equipment 120,436 93,865
- - ------------------------------------------------------------
Total 249,911 182,428
Less accumulated depreciation and
amortization 102,245 78,574
- - ------------------------------------------------------------
Bank premises and equipment -- Net $147,666 103,854
====================
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1993, 1992 and 1991 totalled $16,430, $12,123 and $10,333, respectively.
Estimated useful lives of depreciable assets used for calculating depreciation
and amortization are: buildings, 40 years; leasehold improvements, 10-40
years; and equipment, 3-10 years.
<PAGE>
PAGE
NOTE 8. SHORT-TERM BORROWED FUNDS
At December 31, 1993 and 1992, short-term borrowed funds consisted
of the following:
<TABLE>
<CAPTION>
1993 1992
- - ------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold under
agreements to repurchase $ 910,174 530,706
Master Notes 133,115 110,605
Other 3,500 1,500
- - ------------------------------------------------------------------------
$1,046,789 642,811
=====================
</TABLE>
Master notes are commercial paper issued by BB&T under a master agreement
with a term not to exceed 270 days. Borrowings under the agreement generally
mature on a daily basis.
On December 31, 1993, BB&T had $55,000 of unused bank lines of credit.
Annual commitment fees of approximately 3/16 of 1% of these lines are paid by
BB&T to unaffiliated banks.
The following table presents certain information for each major category of
short-term borrowings:
<TABLE>
<CAPTION>
Federal Funds Purchased
and Securties
Sold Under Agreements to
Repurchase
----------------------------
1993 1992 1991
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding December 31 $ 910,174 530,706 235,097
Average outstanding balance 681,212 353,295 163,696
Maximum amount outstanding at end
of any month during the year 1,046,578 659,546 284,639
Approximate weighted average
interest rate:
During the year 3.0% 3.2 5.8
End of year 3.0 2.9 4.0
</TABLE>
<TABLE>
<CAPTION>
Master Notes
----------------------------
1993 1992 1991
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding December 31 $ 133,115 110,605 129,567
Average outstanding balance 150,079 155,877 163,040
Maximum amount outstanding at end
of any month during the year 163,216 159,728 185,660
Approximate weighted average
interest rate:
During the year 2.8% 3.3 5.4
End of year 2.7 2.7 3.7
</TABLE>
<PAGE>
NOTE 9. LONG-TERM DEBT
At December 31, 1993 and 1992, long-term debt consisted of
the following:
<TABLE>
<CAPTION>
1993 1992
- - ---------------------------------------------------------------
<S> <C> <C>
Floating rate subordinated notes due
1997 $ 50,000 50,000
8 3/4% convertible subordinated
debentures due 2005 -- 34,025
Advances from Federal Home Loan Bank of
Atlanta 66,167 40,500
Medium-term bank notes 231,868 --
Other 2,701 2,917
- - ---------------------------------------------------------------
$350,736 127,442
=====================
</TABLE>
On April 15, 1993, BB&T called for redemption all of its outstanding
8 3/4% convertible subordinated debentures due March 15, 2005. The redemption
date was May 17, 1993 and the debentures were converted into 1,916,084 shares
of common stock.
The interest rate on the floating rate subordinated notes is adjusted
quarterly to 1/4% above the London interbank offered quotations. At
December 31, 1993, the interest rate was 5.25%. The notes are redeemable, at
par plus accrued interest, at the option of BB&T, in whole or in part.
In the third quarter of 1993, BB&T-N.C. put in place a program which will
allow it to issue $500,000 of medium-term notes as needed to meet ongoing
funding and operational needs. At December 31, 1993, BB&T had outstanding
$231,868 of the notes with a weighted average interest rate of 4.76% and
maturing in 1996.
Advances from the Federal Home Loan Bank of Atlanta are collateralized by
Treasury securities and real estate loans. The advances have remaining
maturities of up to eight years and have fixed interest rates varying from 5.37%
to 8.95%. The principal maturities of the advances for the next five years
subsequent to December 31, 1993 are $3,000 in 1994, $24,667 in 1995, $13,000 in
1996, $14,500 in 1997, $2,000 in 1998 and $4,000 in 2000.
<PAGE>
NOTE 10. EMPLOYEE BENEFIT PLANS
The Banks sponsor a noncontributory defined benefit pension plan covering
substantially all of their employees. The benefits are based on years of
service, age at retirement and the employee's compensation during the last five
years of employment. Contributions to the plan are based upon the Frozen
Initial Liability actuarial funding method and comply with the funding
requirements of the Employee Retirement Income Security Act.
The following table sets forth the funded status of the pension plan and
amounts recognized in BB&T's consolidated financial statements at
December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
1993 1992
- - ---------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF THE BENEFIT OBLIGATION
Accumulated benefit obligation:
Vested benefits $ 39,320 30,923
Nonvested benefits 2,128 1,675
- - ----------------------------------------------------------------------
$ 41,448 32,598
=====================
Projected benefit obligation for services
rendered to date $(69,141) (53,813)
Plan assets at fair value, primarily listed
stocks and U.S. Government securities 55,499 50,662
- - ----------------------------------------------------------------------
Excess (deficit) of plan assets over the
projected benefit obligation (13,642) (3,151)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumption 13,098 4,796
Unrecognized prior service cost 3,727 3,438
Unrecognized net asset being amortized over
17.6 years (7,209) (7,914)
- - ----------------------------------------------------------------------
Accrued pension cost included in other
liabilities $ (4,026) (2,831)
=====================
</TABLE>
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC PENSION EXPENSE 1993 1992 1991
- - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during the $ 3,749 3,471 2,919
period
Interest cost on projected benefit obligation 4,282 3,789 2,830
Actual return on plan assets (4,435) (4,219) (7,185)
Net amortization and deferral (587) (347) 3,591
- - ------------------------------------------------------------------------------
Net periodic pension expense included in
employee benefits $ 3,009 2,694 2,155
==============================
</TABLE>
Plan assets included 100,000 shares of BB&T's common stock at December 31,
1993, 1992 and 1991. The weighted-average discount rate and rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7% and 5.5%, respectively for 1993 and 8%
and 6%, respectively for 1992 and 1991. The expected long-term rate of return
on pension plan assets was 9% for each of the years reported.
Effective January 1, 1993, BB&T adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), which requires the accrual of nonpension benefits over
the employees' active service period, defined as the date of employment up to
the date of the employees' eligibility for such benefits. Prior to 1993, BB&T
provided health care benefits to retirees and expensed those costs as incurred.
Retiree health care costs totalling approximately $430 were paid during 1992.
Effective January 1, 1993, BB&T revised the retiree health care plan to provide
a flexible benefit amount which retirees can use to purchase health care and
life insurance benefits. BB&T has elected to amortize the accumulated
postretirement benefit
<PAGE>
PAGE
obligation of approximately $11,744 over a period of 21 years as a component of
the postretirement benefit cost. The weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation was
7%. The assumed initial rate of increase in medical costs was 15%, declining to
6%, with a general inflation rate of 4%. A 1% increase in assumed health cost
would have no effect on the service and interest cost, but would increase the
accumulated postretirement benefit obligation by 3%. Prior to its affiliation
with BB&T, L.S.B. did not provide postretirement benefits other than pension
benefits to its employees. It is anticipated that the cost of providing health
care and life insurance benefits to employees of L.S.B. will have no material
effects on either the financial position or future results of operations of
BB&T.
The following table sets forth the components of the retiree benefit plan
and the amount recognized in BB&T's consolidated financial statements at
December 31, 1993.
<TABLE>
<CAPTION>
1993
- - -------------------------------------------------------------
<S> <C>
NET PERIODIC POSTRETIREMENT BENEFIT COST
Service cost $ 191
Interest cost 915
Amortization of transition obligation 559
- - -------------------------------------------------------------
Total Expense $ 1,665
============
RECONCILIATION OF FUNDED STATUS
Accumulated postretirement benefit obligation:
Retirees and beneficiaries eligible for
benefits $ 7,080
Active employees fully eligible for benefits 4,491
Active employees, not fully eligible for
benefits 2,323
- - -------------------------------------------------------------
Total 13,894
- - -------------------------------------------------------------
Funded status $(13,894)
Unrecognized transition obligation 11,185
Unrecognized net loss 1,478
- - -------------------------------------------------------------
Balance sheet (liability) $ (1,231)
============
</TABLE>
The Savings and Thrift Plan permits eligible employees to make
contributions up to 16% of base compensation, with the Banks' matching
contributions up to four percent of the employee's base compensation.
Amounts expensed for employee benefit plans were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- - -------------------------------------------------------------
<S> <C> <C> <C>
Pension $3,009 2,694 2,155
Retiree benefits other than pensions 1,665 430 350
Savings and thrift 2,791 2,288 1,876
- - -------------------------------------------------------------
$7,465 5,412 4,381
=======================
</TABLE>
<PAGE>
PAGE
NOTE 11. INCOME TAXES
Effective January 1, 1993, BB&T adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). BB&T applied the
provisions of SFAS 109 prospectively and did not restate previously reported
results of operations. For years prior to 1993, BB&T used the deferral method
of accounting for income taxes. The cumulative effect of the change in the
method of accounting for income taxes was immaterial to both the financial
position and results of operations for BB&T.
The components of income tax expense (benefit), were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- - ----------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $51,962 39,965 28,344
State 5,238 4,023 3,420
- - ----------------------------------------------------------------------
57,200 43,988 31,764
- - ----------------------------------------------------------------------
Deferred:
Federal (5,250) (1,980) (4,404)
State (1,268) (155) (890)
- - ----------------------------------------------------------------------
(6,518) (2,135) (5,294)
- - ----------------------------------------------------------------------
$50,682 41,853 26,470
==============================
</TABLE>
The sources of timing differences resulting in deferred income taxes and
the tax effect of each were as follows:
<TABLE>
<CAPTION>
1992 1991
- - ----------------------------------------------------------------------
<S> <C> <C>
Provision for loan losses $(2,788) (4,951)
Federal Home Loan Bank dividends (1,034) 51
Accrual of deferred income taxes on
taxable bad debt reserves 3,800 --
Other (2,113) (394)
- - ----------------------------------------------------------------------
$(2,135) (5,294)
====================
</TABLE>
Total income tax expense was less than the amount computed by applying the
federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income before
income taxes. The reasons for the difference were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at statutory rate $54,397 42,321 32,234
Increase (decrease) resulting from:
State income taxes, net of federal tax
benefit 2,584 2,549 1,678
Tax-exempt interest income, net of
disallowed interest expense (4,455) (5,617) (7,426)
Other items, net (1,844) 2,600 (16)
- - ------------------------------------------------------------------------
Income taxes $50,682 41,853 26,470
=============================
</TABLE>
<PAGE>
PAGE
The tax effects of cumulative temporary differences that resulted in a net
deferred tax asset of $18,993 at December 31, 1993 are presented below:
<TABLE>
<CAPTION>
- - ------------------------------------------------------
<S> <C>
Deferred tax assets:
Bad debt provision $ 15,957
Pension expense 1,877
Deferred directors' compensation 1,784
Net deferred loan fees 1,583
Other 4,857
- - ------------------------------------------------------
Total gross deferred assets 26,058
- - ------------------------------------------------------
Deferred tax liabilities:
Depreciation (2,278)
Federal Home Loan Bank dividends (1,043)
Other (3,744)
- - ------------------------------------------------------
Total gross deferred liabilities (7,065)
- - ------------------------------------------------------
Net deferred tax asset $ 18,993
======================================================
</TABLE>
A valuation allowance is not considered necessary because of prior year's
taxable income available for carryback and the probability of future taxable
earnings.
<PAGE>
PAGE
NOTE 12. COMMON STOCK
Pursuant to provisions of the Long Term Incentive Plan, options to
purchase up to 1,000,000 shares of BB&T's common stock may be granted to key
personnel. The current plan is a successor to the plans of 1983 and 1988. As
of December 31, 1993, 483,791 shares have been issued for options granted and
exercised under the plans. In August 1991, BB&T adopted the Special Purpose
Option and Restricted Stock Plan. Pursuant to the provisions of the plan, up
to 1,000,000 shares of BB&T's common stock may be granted to selected employees
and directors of thrifts acquired through purchase conversions. As of December
31, 1993, 38,518 shares have been issued for options granted and exercised
under this Plan. Under all option plans, the option price is the fair market
value of the stock at the date of grant. Options normally vest over a
five-year period, beginning one year from the date granted. All options
expire not more than 10 years from the date of the grant, if not previously
exercised.
Activity in the stock option plans for the past three years was as follows:
<TABLE>
<CAPTION>
Shares Under Option
- - ---------------------------------------------------------------------------------
1993 Range of Year Ended
Exercise Prices December 31,
- - ---------------------------------------------------------------------------------
High Low 1993 1992 1991
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outstanding at
beginning of year $26.88 13.75 1,331,112 1,166,062 815,308
Add (deduct):
Granted 34.63 30.63 329,639 265,290 507,257
Options of acquired
companies 16.30 8.53 52,949 -- --
Cancelled or
expired 33.25 17.00 (14,842) (7,905) (69,531)
Exercised 26.88 8.53 (112,621) (92,335) (86,972)
- - ---------------------------------------------------------------------------------
Outstanding at end of
year 34.63 8.53 1,586,237 1,331,112 1,166,062
=====================================
Average price per
share:
Exercised during
year $15.94 17.12 17.49
Outstanding at end
of year 22.41 19.77 17.43
=====================================
Options exercisable 676,844 423,953 247,883
======================================
</TABLE>
The Special Purpose Option and Restricted Stock Plan also provides for
shares of BB&T's common stock to be awarded to selected employees and directors
of thrifts acquired through purchase conversions. The awarded shares are
subject to the terms, conditions and restrictions of the Plan, which prohibit
the sale or assignment of the shares during the restricted period. In the
event, the Grantee's employment with BB&T terminates, other than by death,
disability or retirement, prior to the lapse of the restriction period, such
awarded shares shall be forfeited by the Grantee. During 1991 through 1993,
173,938 shares of BB&T's common stock were awarded to employees of acquired
companies.
BB&T also has a Non-Employee Directors Stock Option Plan. Pursuant to the
provisions of the Plan, Directors of BB&T Financial Corporation may elect to
receive stock options in lieu of cash for annual retainers. Options to purchase
up to 250,000 shares of BB&T's common stock may be granted under this Plan. Six
months after each election date, options are granted at an exercise price of 75%
of the fair market value of a share on
<PAGE>
PAGE
the date of grant. An option may be exercised six months from the date of
grant. Each option share expires ten years from its date of grant. At December
31, 1993, options have been granted for 32,211 shares under this Plan and
217,789 shares were reserved for future use.
BB&T has reserved shares of its common stock for issuance under the
Dividend Reinvestment and Shareholder Savings Service. As of December 31,
1993, 11,836 shares of BB&T's common stock were reserved and unissued under the
Plan. During the years 1993, 1992 and 1991, respectively, 263,090, 250,866 and
238,885 shares were issued through the dividend reinvestment program.
BB&T has reserved shares of its common stock to be issued under the Savings
and Thrift Plan. During the years 1993, 1992 and 1991, respectively, 375,583,
303,088 and 232,306 shares were issued under this Plan. As of December 31,
1993, 183,760 shares of BB&T's common stock were reserved and unissued for use
under the Savings and Thrift Plan.
In August, 1991, BB&T established an Employee Stock Ownership Plan (ESOP).
The ESOP borrowed $3,041 in 1991, $664 in 1992 and $2,314 in 1993 from BB&T to
purchase 150,613, 26,000 and 79,285 shares, respectively of BB&T common stock
for the benefit of employees of acquired thrifts. The loans were guaranteed by
BB&T-N.C. Eligible employees of the thrifts acquired through purchase
conversions, are allocated shares based upon years of service and level of
compensation. Shares vest equally over a period of five years. Participants have
full voting rights and dividends on shares held in the ESOP are paid directly to
participants.
NOTE 13. REGULATORY RESTRICTIONS
Subject to restrictions imposed by state laws and federal regulations, the
Boards of Directors of the subsidiary Banks and savings Banks may declare
dividends from their retained earnings up to $422,057 at December 31, 1993.
The subsidiaries are prohibited by law from paying dividends from their capital
stock and paid-in capital accounts which totalled $449,324 at December 31,
1993, and are required by regulatory authorities to maintain minimum capital
levels.
The subsidiary Banks and savings Banks are required to maintain reserve
balances with the Federal Reserve Bank. The amounts of these reserve balances
at December 31, 1993 were $106,090.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Banks have entered into leases for bank premises and equipment which
are accounted for as operating leases. Leases for equipment generally have 1
to 5 year terms. Leases for real property vary in terms from 3 to 25 years with
additional options for renewal of the leases generally from 5 to 20 years. Real
estate taxes, insurance and maintenance expenses are obligations of the Banks.
The Banks expect to renew leases or replace leases as they expire with leases on
other property.
A summary of rent expense charged to operations follows:
<TABLE>
<CAPTION>
Leases
------------------- Less
Bank Operating Net Rent
Equipment Premises Subleases Expense
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 $4,739 10,341 1,073 14,007
1992 4,093 9,302 1,046 12,349
1991 4,519 8,766 387 12,898
</TABLE>
<PAGE>
PAGE
A summary of noncancellable lease commitments for equipment and banking
facilities follows:
<TABLE>
<CAPTION>
Net Lease
Leases Subleases Commitment
- - -----------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 $11,044 314 10,730
1995 10,301 260 10,041
1996 8,970 173 8,797
1997 8,583 107 8,476
1998 7,762 100 7,662
Thereafter 49,771 242 49,529
- - -----------------------------------------------------------------------------------
$96,431 1,196 95,235
=======================================
</TABLE>
In the normal course of business, commitments are outstanding that are not
reflected in the financial statements. A summary of these commitments at
December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1993 1992
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Credit card and other consumer lines $ 520,565 488,456
Commercial and industrial 1,362,183 959,057
Standby letters of credit 119,677 109,230
Commercial and similar letters of credit 10,891 8,451
Securities lent 8,335 8,059
Interest rate contracts:
Forward commitments to sell loans 185,000 --
Swaps 1,410,000 1,025,000
</TABLE>
BB&T's exposure to credit loss is represented by the contractual amount of
the commitments to extend credit, standby letters of credit and commercial
letters of credit. The notional amounts of interest rate swap and option
agreements express only the extent of involvement of BB&T and, amounts subject
to risk (cash flows from gains at settlement) are significantly smaller than the
notional or contractual values.
BB&T makes contractual commitments to extend credit so long as there is no
violation of any condition established in the contract. Since many of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. In making
the commitments, BB&T applies the same credit standards used in the lending
process, and periodically reassesses the customers' creditworthiness through
ongoing credit reviews. The majority of the outstanding lines of credit have
stated interest rates that are directly related to the prime rate of interest.
BB&T provides standby letters of credit and guarantees, which are issued on
behalf of customers in connection with contracts between the customers and third
parties. The majority of the standby letters of credit consist of performance
assurances made on behalf of customers who have a contractual commitment to
produce or deliver goods or services. The business ventures for which these
credits are employed vary widely and frequently require long periods of time for
completion. BB&T applies the same credit standards used in the lending process,
and, once issued, the commitment is irrevocable and remains valid until its
expiration. Credit risk arises from the obligation of BB&T to make payment in
the event of the customers' contractual default.
BB&T issues commercial letters of credit to facilitate foreign and domestic
trade transactions. The instruments are short-term commitments to pay a third
party beneficiary under certain contractual conditions for the
<PAGE>
PAGE
shipment of goods. The contracts are subject to the same credit standards used
in the lending process and are generally collateralized by the merchandise being
shipped.
BB&T extends credit to customers through its subsidiary Banks in North and
South Carolina. A vast majority of loans are to businesses with operations
headquartered in the two Carolinas, although a limited number of loans have been
made to businesses which are domiciled in other states but have operations in
the Carolinas. The loan portfolios are well diversified within industry
segments and secured loans are well collateralized.
BB&T utilizes interest rate contracts, primarily swaps and collars, in the
management of the interest rate sensitivity of BB&T's net interest income.
Interest rate contracts generally have terms of one year or longer. The risks
associated with such contracts are exposure to movements in interest rates and
the ability of counterparties to meet the terms of the contracts. Credit risk
exposure is managed through BB&T's standard credit approval and review process.
Various legal proceedings against BB&T and its subsidiaries have arisen
from time to time in the normal course of business. Management believes
liabilities arising from these proceedings, if any, will have no material
adverse effect on the financial position of BB&T or its subsidiaries.
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION
BB&T's (parent company only) condensed balance sheets as of December 31,
1993 and 1992, and the related condensed statements of income and cash flows
for each of the years in the three-year period ended December 31, 1993, were as
follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
- - -----------------------------------------------------------------------
December 31,
1993 1992
- - -----------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and interest-bearing deposits $ 136,753 128,922
8 3/4% subordinated capital note receivable -- 33,128
from BB&T-N.C.
11% note receivable from BB&T-N.C. 30,000 30,000
Investment in bank and savings bank
subsidiaries at underlying book value 870,205 654,311
Other assets 8,810 8,262
- - -----------------------------------------------------------------------
Total assets $1,045,768 854,623
======================
Liabilities and Shareholders' Equity
Master notes $ 133,115 110,605
Advance from bank subsidiary 58,250 --
Long-term debt 54,000 88,025
Other liabilities 3,419 1,963
Shareholders' equity 796,984 654,030
- - -----------------------------------------------------------------------
Total liabilities and shareholders equity $1,045,768 854,623
======================
</TABLE>
<PAGE>
PAGE
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
- - ------------------------------------------------------------------------
Year Ended December 31,
1993 1992 1991
- - ------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiaries $ 34,856 26,732 26,145
Interest and other income from bank
and savings bank subsidiaries 10,265 14,047 17,786
Other 50 (415) 2
- - ------------------------------------------------------------------------
Total income 45,171 40,364 43,933
- - ------------------------------------------------------------------------
Expenses
Interest on master notes 4,174 5,144 8,791
Interest on long-term debt 3,742 6,123 7,229
Other 3,731 2,642 2,429
- - ------------------------------------------------------------------------
Total expenses 11,647 13,909 18,449
- - ------------------------------------------------------------------------
Income before income taxes and equity in
undistributed income of bank and savings
bank subsidiaries 33,524 26,455 25,484
Income tax(credit) on parent company only
income (523) (285) (439)
- - ------------------------------------------------------------------------
Income before equity in undistributed
income of bank and savings bank
subsidiaries 34,047 26,740 25,923
Equity in undistributed income of bank
and savings bank subsidiaries 70,965 55,881 42,412
- - ------------------------------------------------------------------------
Net income $105,012 82,621 68,335
==============================
</TABLE>
<PAGE>
PAGE
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
- - ---------------------------------------------------------------------------
Year Ended December 31,
1993 1992 1991
- - ---------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from bank and savings bank
subsidiaries:
Interest $ 8,360 11,550 16,219
Dividends 34,856 26,732 26,145
Management fees 2,004 2,004 2,004
Interest paid (7,749) (11,062) (15,866)
Other expense (3,473) (1,385) (1,943)
- - ---------------------------------------------------------------------------
Net cash provided by operating
activities 33,998 27,839 26,559
- - ---------------------------------------------------------------------------
Cash Flows from Investing Activities:
Sales of securities 230 1,174 3,004
Purchase of securities (1,961) (900) (1,307)
Investments in joint ventures and
partnerships 134 167 (542)
Cash payment for purchased companies (58,250) -- (13,422)
Cash payment for stock acquired through
purchase conversions (28,818) (9,690) (41,864)
Capital investment in bank subsidiary -- (2,900) (12,000)
Other (3,513) (1,113) (3,416)
- - ---------------------------------------------------------------------------
Net cash used in investing
activities (92,178) (13,262) (69,547)
- - ---------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net increase (decrease) in short-term
borrowed funds 22,510 (18,962) (5,737)
Advances from bank subsidiary 58,250 -- --
Proceeds from issuance of common stock 49,239 25,849 61,308
Proceeds from long-term debt 4,000 2,000 --
Repayment of long-term debt (4,000) -- --
Redemption of common stock (30,270) (6,767) (830)
Dividends paid (35,269) (26,710) (22,868)
Other 1,551 1,441 (3,002)
- - ---------------------------------------------------------------------------
Net cash provided (used) by
financing activities 66,011 (23,149) 28,871
- - ---------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 7,831 (8,572) (14,117)
Cash and cash equivalents on January 1 128,922 137,494 151,611
- - ---------------------------------------------------------------------------
Cash and cash equivalents on December 31 $136,753 128,922 137,494
==================================
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<S> <C> <C> <C>
Common stock issued:
Employee benefit plans $ 2,263 2,260 --
Conversion of debentures 33,311 346 31
Purchased company 22,298 -- 12,606
Employee stock ownership plan 2,314 664 2,841
Loan to employee stock ownership plan (2,314) (664) (2,841)
==================================
</TABLE>
<PAGE>
PAGE
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement Number 107 of the Financial Accounting Standard Board requires
all entities to disclose the fair value of financial instruments, both assets
and liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The fair value
estimates are made at a discreet point and time based on relevant market
information and information about the financial instruments. Because no market
exists for a significant portion of BB&T's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and such other factors. These estimates are subjective in nature
and involve uncertainties in matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.
The estimated fair values of BB&T's financial instruments follow, together
with descriptions of methods and assumptions used to estimate the fair value of
each class of financial instrument for which it is practical to estimate such
value.
The carrying amount of cash and short-term investments is a reasonable
estimate of fair value. The fair values of such instruments at December 31,
1993, and 1992 were $470,532 and $399,752, respectively.
For investment securities and securities available for sale, fair values
are based on quoted market prices or dealer quotes. At December 31, 1993 and
1992 the fair values of investment securities were $1,722,284 and $1,583,899,
respectively, and the fair values of investments available for sale were
$737,611 and $464,482, respectively.
For floating rate loans, credit card receivables, home equity lines and
other consumer lines of credit, the carrying amount less an estimate of credit
losses inherent in the portfolio is a reasonable estimate of fair value. The
fair value of other types of loans is estimated by discounting the future cash
flows using the current rates at which similar loans of similar maturities
would be made to borrowers with similar credit ratings, reduced by an estimate
of credit losses inherent in the portfolio. Fair value does not include the
value of customer relationships or unused consumer lines of credits. The
estimated fair values of loans at December 31, 1993 and 1992 were $6,764,562
and $5,309,663, respectively.
For demand deposits, savings accounts and certain money market deposits
payable on demand the carrying amounts are the fair values. The fair values of
fixed-maturity certificates of deposit and individual retirement accounts are
estimated using the rates currently offered for deposits of similar remaining
maturities. For variable rate individual retirement accounts, the carrying
amount is a reasonable estimate of fair value. The fair values of deposit
liabilities at December 31, 1993 and 1992 are estimated to be $7,590,584 and
$6,424,496, respectively.
The carrying amount of short-term borrowed funds, including federal funds
purchased, securities sold under agreements to repurchase and master notes, is a
reasonable estimate of fair value. The fair values of short-term borrowed funds
at December 31, 1993 and 1992 were $1,046,789 and $642,811, respectively.
Long-term debt included convertible subordinated debentures, floating rate
subordinated notes, advances from the Federal Home Loan Bank and medium-term
bank notes. The convertible subordinated debentures were callable at 102.65 at
December 31, 1992, which was considered a reasonable estimate of fair value.
The convertible subordinated debentures were redeemed in 1993. The floating
rate subordinated notes reprice quarterly and the carrying amount is a
reasonable estimate of fair value. The fair
<PAGE>
PAGE
values of the advances from the Federal Home Loan Bank are based on the
discounted value of contractual cash flows, using the rates currently offered
for borrowings of similar remaining maturities. The fair values of the medium-
term bank notes are based on the market price of the notes on December 31, 1993.
The fair values of long-term debt at December 31, 1993 and 1992 were $353,472
and $124,902, respectively.
The fair value of interest rate contracts (used for hedging purposes) is
the estimated amount that BB&T would receive or pay to terminate the contract
agreements at the reported date, taking into account current interest rates and
the current credit-worthiness of the contract counterparties. The fair values
of interest rate contract agreements at December 31, 1993 and 1992 are estimated
to be $16,383 and $20,263, respectively.
The fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date. The fair
values of letters of credit at December 31, 1993 and 1992 are estimated to be
$1,919 and $1,710, respectively.
NOTE 17. SUBSEQUENT EVENTS (Unaudited)
At June 24, 1994, BB&T entered into an agreement to merge with Commerce
Bank of Virginia Beach, Virginia. The merger of Commerce will be accounted for
as a pooling-of-interests and approximately 4,000,000 shares of BB&T common
stock will be issued for all of the outstanding stock of Commerce. At the end of
June, Commerce had total assets of approximately $692 million and shareholders'
equity of approximately $47 million.
On July 29, 1994, BB&T and Southern National Corporation (SNC) of Winston-
Salem, North Carolina entered a definitive agreement of merger providing for the
merger of the two companies. The merger will be accounted for as a pooling-of-
interests. To effect the merger, BB&T shareholders will receive 1.45 shares of
common stock of the surviving company for each outstanding share of BB&T common
stock and SNC shareholders will receive 1.00 shares for each outstanding share
of SNC common stock. At June 30, SNC had total assets of approximately $8.2
billion and total shareholders' equity of approximately $594 million.
<PAGE>
PAGE
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
BB&T FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of BB&T
Financial Corporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1993.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
have been restated to give retroactive effect to the merger of BB&T Financial
Corporation and L.S.B. Bancshares, Inc. ("LSB") on June 30, 1994, which has been
accounted for as a pooling-of-interests as described in Note 2 to the
consolidated financial statements. We did not audit the financial statements of
LSB for the years ended December 31, 1993, 1992 and 1991, which statements
reflect total assets constituting 7.1 percent and 8.2 percent as of December 31,
1993 and 1992, respectively, and total interest income constituting 7.7 percent,
8.1 percent, and 8.0 percent for the years ended December 31, 1993, 1992 and
1991, respectively, of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for LSB is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of BB&T Financial Corporation and
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Raleigh, North Carolina
January 19, 1994, except as to
Note 2 which is as of
June 30, 1994
<PAGE>
Exhibit 99.3
CONSOLIDATED FINANCIAL STATEMENTS OF LSB
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of L.S.B. Bancshares, Inc. of South Carolina
We have audited the consolidated balance sheet of L.S.B. Bancshares, Inc. of
South Carolina and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1993.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of L.S.B. Bancshares, Inc. of
South Carolina and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As described in Note 4 to the consolidated financial statements, the Company
changed, effective December 31, 1993, its method of accounting for certain
investments in debt securities and equity securities that have a readily
determinable market value.
Donald G. Jones and Company, P.A.
Columbia, South Carolina
March 16, 1994
