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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM COMMISSION FILE NUMBER
TO 0-7871
BB&T FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NORTH CAROLINA 56-1056232
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
223 WEST NASH STREET, 27893
WILSON, NORTH CAROLINA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(919) 399-4291
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE SECURITIES EXCHANGE ACT
OF 1934:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
COMMON STOCK, PAR VALUE $2.50 ON WHICH REGISTERED
PER SHARE NATIONAL ASSOCIATION OF SECURITIES
DEALERS AUTOMATED QUOTATIONS SYSTEM
(NASDAQ)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at January 31, 1994 was approximately $1,006,049,000.
The number of shares of Registrant's Common Stock outstanding on January 31,
1994 was 32,097,247.
Portions of the Proxy Statement of Registrant for the Annual Meeting of
Shareholders to be held on April 26, 1994, are incorporated in Part III of this
report.
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CROSS REFERENCE INDEX
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PART I Item 1 Business
Description 3,4
Average Balance Sheets 16, 17
Net Interest Income Analysis--Taxable
Equivalent Basis 16, 17
Net Interest Income and Volume/Rate
Variance--Taxable Equivalent Basis 14
Investment Portfolio 32, 33
Securities--Maturity/Yield Schedule 21
Types of Loans 18
Maturities and Sensitivities of Loans to
Changes in Interest Rates 20-22
Risk Elements 10, 11, 18-20, 33
Loan Loss Experience 10, 11, 18-20
Average Deposits 16, 17
Maturity Distribution of Large
Denomination Time Deposits 20
Return on Equity and Assets 14
Short-Term Borrowings 34, 35
Item 2 Properties 4
Item 3 Legal Proceedings 40, 41
Item 4 There has been no submission of matters
to a vote of shareholders during the
quarter ended December 31, 1993
PART II Item 5 Market for the Registrant's Common Stock
and Related Shareholder Matters 22, 23
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 4-23
Item 8 Financial Statements and Supplementary
Data
Consolidated Balance Sheets at December
31, 1993 and 1992 24
Consolidated Statements of Income for
each of the years in the three-year
period ended December 31, 1993 25
Consolidated Statements of Shareholders'
Equity for each of the years in the
three-year period ended December 31, 1993 26
Consolidated Statements of Cash Flows for
each of the years in the three-year
period ended December 31, 1993 27
Notes to Consolidated Financial
Statements 28-44
Independent Auditors' Report 45
Quarterly Financial Summary for 1993 and
1992 23
Item 9 There has been no disagreement with
accountants on accounting and financial
disclosures
PART III Item 10 Directors and Executive Officers of the
Registrant *
Item 11 Executive Compensation *
Item 12 Security Ownership of Certain Beneficial
Owners and Management *
Item 13 Certain Relationships and Related
Transactions *
PART IV Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a)(1) Financial Statements (See Item 8
for reference)
(2) Financial Statement Schedules
normally required on Form 10-K are
omitted since they are not applicable
(3) Exhibits have been filed separately
with the Commission and are available
upon written request
(b) On October 29, 1993, the Registrant
filed Form 8-K, including as exhibits
the unaudited interim financial
statements of Old Stone Bank of North
Carolina, Citizens Savings Bank, SSB,
Inc. and Asheville Savings Bank, SSB
and subsidiary for the period ended
June 30, 1993.
On December 10, 1993, the Registrant
filed Form 8-K, reporting the
agreement to acquire all of the
outstanding shares of LSB Bancshares,
Inc. of South Carolina, Lexington,
South Carolina in exchange for
approximately 3,834,625 shares of the
Registrant's common stock. Also the
Registrant reported the termination
of the pending acquisition of Key
Risk Management Services, Inc. by
mutual consent of the parties.
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* Information called for by Part III (Items 10 through 13) is incorporated by
reference to the Registrant's Proxy Statement for the 1994 Annual Meeting of
Shareholders filed with the Securities and Exchange Commission.
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DESCRIPTION OF BUSINESS
REGISTRANT
BB&T Financial Corporation (BB&T) is a bank holding company organized under
the laws of the state of North Carolina. The principal assets of BB&T are all
of the outstanding shares of common stock of Branch Banking and Trust Company;
BB&T Financial Corporation of South Carolina, which in turn owns all of the
outstanding shares of Branch Banking and Trust Company of South Carolina; and
four North Carolina savings institutions. BB&T also has interest-bearing bank
balances with, and loans and advances to, its subsidiaries. The principal
sources of revenue of BB&T are interest income, dividends and management fees
received from its subsidiaries. At December 31, 1993, BB&T had consolidated
assets of $9.17 billion and BB&T and its subsidiaries had 4,437 employees.
BRANCH BANKING AND TRUST COMPANY (BB&T-N.C.)
BB&T-N.C. is chartered under the laws of the state of North Carolina to
engage in the general banking business. BB&T-N.C. is also authorized to operate
trust, insurance and travel departments and is a registered dealer in municipal
securities. BB&T-N.C. had $7.79 billion in assets at December 31, 1993, and was
the fourth largest bank in North Carolina. On December 31, 1993, BB&T-N.C. had
3,882 employees of whom 1,495 were officers, and operated 215 branches in 118
cities in North Carolina. BB&T-N.C. provides a full range of commercial
banking, consumer banking, trust and insurance services, primarily through its
extensive branch network. BB&T-N.C.'s wholly-owned subsidiary, BB&T Investment
Services, Inc., is licensed as a general broker/dealer of securities and at
December 31, 1993 had 23 employees. Currently BB&T Investment Services, Inc.,
is engaged in retailing of mutual funds, U.S. Government securities, municipal
securities, fixed and variable insurance annuity products and unit investment
trusts.
BRANCH BANKING AND TRUST COMPANY OF SOUTH CAROLINA (BB&T-S.C.)
BB&T-S.C. is chartered under the laws of the state of South Carolina to
engage in the general banking business and is authorized to operate a trust
department. BB&T-S.C. had $489 million in assets at December 31, 1993, and was
among the ten largest banks in South Carolina. On December 31, 1993, BB&T-S.C.
had 190 employees of whom 70 were officers, and operated 19 offices in five
counties in the Piedmont region of South Carolina. BB&T-S.C. provides a full
range of commercial banking, consumer banking, trust and investment services
through its branch network.
NORTH CAROLINA SAVINGS INSTITUTIONS
BB&T had four wholly-owned savings institutions in North Carolina at December
31, 1993: Citizens Savings Bank, SSB, Inc., Newton with $254 million in assets;
Mutual Savings Bank of Rockingham County, SSB, Reidsville, with $87 million in
assets; Old Stone Bank of North Carolina, High Point, with $558 million in
assets; and Citizens Savings Bank, SSB, Mooresville, with $64 million in
assets. The savings banks are engaged primarily in the business of attracting
deposits from the public and originating residential mortgage, commercial and
consumer loans. At December 31, the four savings banks had 342 employees of
whom 95 were officers, and operated 30 offices in 20 cities in North Carolina.
ACQUISITIONS
During the past four years BB&T consummated the acquisitions of 14 savings
institutions. On December 31, 1993, BB&T had pending agreements to acquire two
additional savings institutions in North Carolina. Also in 1993, BB&T announced
an agreement to acquire L.S.B. Bancshares, Inc. of South Carolina. For
additional information on acquisition activities, see Management's Discussion
and Analysis and Footnotes 2 and 3 of the Consolidated Financial Statements.
Ten of the acquired savings institutions were merged into BB&T-N.C. subsequent
to their acquisitions, and the four remaining savings institutions have been or
will be merged into BB&T-N.C. in 1994. Acquisitions are expected to be fewer in
coming years because of changing regulatory and economic conditions.
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COMPETITION
Commercial banking in the Carolinas is highly competitive. Both states permit
branch banking, which is widely practiced. Several large interstate bank
holding companies are headquartered in North Carolina and own subsidiary banks
in the Carolinas with substantially greater resources than BB&T and its
subsidiaries. The competition includes both major banks and smaller independent
banks, as well as other financial institutions, such as savings and loan
associations, credit unions and securities firms. In the case of larger
corporate accounts, BB&T's subsidiaries must compete with services offered by
major banking companies from throughout the country.
REGULATION
As a bank holding company, BB&T is subject to supervision, examination and
regulation by the Board of Governors of the Federal Reserve System and the
North Carolina Banking Commission. Both BB&T-N.C. and BB&T-S.C. are subject to
supervision and examination by the Federal Deposit Insurance Corporation and
their respective state banking commissions. BB&T as a savings and loan holding
company is subject to regulation and examination by the Office of Thrift
Supervision. Citizens Savings Bank, SSB, Inc. of Newton, Mutual Savings Bank of
Rockingham County, SSB of Reidsville and Citizens Savings Bank, SSB of
Mooresville are subject to supervision and regulation by the Federal Deposit
Insurance Corporation and the Savings Institutions Division of the North
Carolina Department of Commerce. Old Stone Bank of North Carolina is subject to
supervision and regulation by the FDIC and the Office of Thrift Supervision.
PROPERTIES
The main banking and executive offices of BB&T and BB&T-N.C. are located in a
modern building located in Wilson, North Carolina. BB&T-N.C. operates 215
banking locations, the majority of which are leased premises. BB&T-S.C.
operates from its main offices in Greenville, South Carolina; and has 18 full
service offices and one drive-in facility in Greenville and surrounding
localities. The four savings institutions operate from 30 branches in North
Carolina. Approximately one-half of the offices of BB&T-S.C. and the savings
institutions are leased and one-half are owned.
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
24 of this annual report and the supplemental financial data contained in
tables 1 to 19 found on pages 13 to 23 of this annual report.
During the period 1990-93, BB&T consummated the acquisitions of 14 thrift
institutions with total assets of approximately $3.1 billion. BB&T currently
has 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.
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.
II-4
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SUMMMARY OF RESULTS OF OPERATIONS
BB&T reported record earnings for the eleventh consecutive year in 1993. Net
income totalled $98.2 million in 1993, an increase of $21.8 million or 28.4%
over 1992. Net income for 1992 was $76.5 million and was $11.8 million or 18.2%
over the earnings of $64.7 million recorded in 1991. The five-year compound
annual growth rate of net income has been 18.6%.
Primary net income per share rose 17.0% from 1992 to $3.10 in 1993, and fully
diluted net earnings per share grew 20.1% to $3.05. Primary net income per
share was $2.65 in 1992 and $2.50 in 1991, while fully diluted per share
earnings for those two years were $2.54 and $2.38, respectively. The following
highlights underscore the key elements of performance for 1993.
* Average earning assets increased 13.3% for 1993 and 12.9% for 1992.
Taxable equivalent net interest income rose $37.0 million or 12.1% in
1993. This followed an increase in taxable equivalent net interest
income of $48.3 million or 18.8% in 1992.
* The provision for loan losses was reduced by $12.9 million or 42.5%
in 1993, following a reduction of $8.3 million or 21.3% in 1992. The
provision totalled $17.5 million in 1993, less than half the record
high provision of $38.7 million recorded two years earlier. BB&T
recorded the large provision 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 $22.1 million or 24.7% to a
total of $111.7 million. This followed an increase of $3.8 million or
4.4% in 1992. Noninterest income included gains on sales of
securities of $1.4 million in 1993, $6.0 million in 1992 and $10.8
million in 1991.
* Noninterest expense totalled $276.7 million in 1993. This represented
an increase of $44.0 million or 18.9% from the $232.7 million in
1992, which was an increase of 18.2% over 1991.
* The effective tax rate was 32.7% in 1993, 34.0% in 1992 and 28.3% in
1991.
The return on average assets for 1993 was 1.23%, compared with 1.09% in 1992
and 1.04% in 1991. The returns on average shareholders' equity for each of the
last three years were 14.27%, 13.34% and 13.74%, respectively.
At the end of 1993, the ratio of equity to assets was 8.11%, compared with
8.33% a year earlier and 7.80% at the end of 1991. The risk-adjusted total
capital ratio was 13.61% at the end of the year, compared with 15.27% 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 74.6% of net revenues (net
interest income plus noninterest income), compared with 76.4% in 1992 and 73.7%
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
4.55% in 1993, 4.60% in 1992 and 4.38% in 1991. BB&T has generated higher net
interest margins during the past four years, representing a reversal of
declining margins through much of the 1980s. However, margins are expected to
stabilize or decline in coming quarters.
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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 $100 million in
each of the past two years, while average shareholders' equity increased $102
million in 1992 and $115 million in 1993.
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
$17.5 million, compared with $30.4 million in 1992 and $38.7 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 $111.7 million, compared with
$89.6 million in 1992 and $85.8 million in 1991. Over the past five years,
noninterest income has grown at a compound annual rate of 21.9%. Excluding
gains and losses on securities transactions, the five-year compound annual rate
of increase was 23.1%.
Service charges on deposit accounts have historically represented the largest
single source of noninterest income. This continued to be the case in 1993, as
such revenues totalled $36.4 million, an increase from $30.4 million in 1992
and $27.3 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. Excluding 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 $6.5 million or 58.9% to a 1993 total
of $17.7 million. Mortgage banking income totalled $11.1 million in 1992 and
$11.0 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%
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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 $10.7 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 $11.0 million in 1993. This was
an increase of $1.6 million or 16.8% over the revenues of $9.5 million in 1992,
which in turn was an increase of $1.2 million or 15.0% over the $8.2 million
earned in 1991. Managed assets totalled $2.1 billion 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 the
sale 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 $1.5 million
in 1993, compared with only $579,000 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 $44.0 million or 18.9% to a total of
$276.7 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 17.9% in 1993 and 16.0% in 1992 which includes
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 26.6% from $19.8 million in 1992 to $25.0 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
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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 for life.
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 $1.7 million or
14.0% to a total of $14.0 million for 1993. For 1992 the increase was $1.7
million or 15.6%. Deposit insurance premiums were increased dramatically in the
years 1989-91, as the FDIC looked to premiums received 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 $21.5 million in 1993. This represented an
increase of $3.0 million or 16.1% over the expense of $18.5 million in 1992,
which in turn was 10.1% greater than the expense of $16.8 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 $24.5 million in 1993, compared with
$18.9 million in 1992 and $16.3 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.
Total 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 32.7% in 1993, 34.0% in 1992
and 28.3% 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
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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. Also, the
increase in the federal tax rate from 34% to 35% had no material impact on the
results of operations of BB&T.
FINANCIAL POSITION
Average assets totalled approximately $8.0 billion in 1993, an increase of
approximately 13.7% over the average of $7.0 billion in 1992. Average assets
grew 13.0% in 1992 and 10.7% in 1991. At the end of 1993 assets totalled
approximately $9.2 billion. Excluding the effects of thrift acquisitions,
average assets have increased at an average rate of approximately 5% over the
past three years.
The five-year compound rate of growth in average assets was 10.2%. Over the
same five-year period, the compound annual growth rates based on average
balances have been 10.4% for earning assets, 9.9% for loans, 12.6% for
investment securities and 9.4% for deposits. All growth rates have been
enhanced by the effects of acquisitions accounted for as purchases.
Loans totalled approximately $6.3 billion at the end of 1993. This
represented an increase of approximately $1.4 billion in 1993, following
increases of approximately $287 million in 1992 and $837 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 $500 million in 1993 and $207 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 historically 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 19.5% to a total of $2.2 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 24.0% of assets. BB&T expects the
investment portfolio to continue to represent 21-25% of total assets over the
long-term.
Average deposits increased 8.1% in 1993, following an increase of
approximately 9.0% in 1992. Interest-bearing deposits increased approximately
$357 million in 1993, while noninterest-bearing deposits rose approximately
$108 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 22.6% in 1993 and 13.8% 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%. Thus, the retention of earnings has resulted in an annual contribution of
approximately 10% to the growth in equity.
II-9
<PAGE>
BB&T has traditionally been considered to be strongly capitalized. The ratio
of shareholders' equity to year-end assets was 8.11% at the end of 1993,
compared with 8.33% 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 Tier 1 capital
ratio for BB&T at the end of 1993 was 11.85%, and the total capital ratio was
13.61%. At the end of 1992, those ratios were 12.48% and 15.27%, 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 North Carolina operations. BB&T has not provided credit for highly
leveraged transactions, the energy sector or loans to lesser developed
countries and 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 when
a loan is placed in nonaccrual status. All interest accrued but
II-10
<PAGE>
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 $30.6 million on December 31, 1993,
compared with $27.8 million at the end of 1992 and $57.2 million at the end of
1991. Nonperforming loans equaled .49% of loans at the end of 1993, down from
.56% a year earlier and 1.23% at the end of 1991. Net charge-offs were .23% of
average loans outstanding in 1993, compared with .45% in 1992 and .60% in 1991.
For the same three years, the provisions charged against earnings as a percent
of average loans outstanding were .32%, .63% and .92%, 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 $100,000 or greater
and which are categorized in the highest risk grades. The amount of loans on
the watch list totalled $94.9 million, 1.50% of loans outstanding at December
31, 1993, and $165.7 million, 3.35% 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 $88.2 million or 1.40% of loans
outstanding at the end of 1993. At the end of 1992 the allowance for loan
losses was $73.1 million or 1.48% of outstanding loans. The allowance for loan
losses was 2.88 times nonperforming loans at the end of 1993, up from 2.63
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 19.46 times nonperforming assets at the end of 1993, compared
with 13.88 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 financial
hedging instruments to help manage interest rate risk and reduce its exposure
to sharp changes in market rates of interest. Interest rate swap agreements
provide a hedge against the adverse effects of changing interest rates and,
thereby, contribute to the stabilization of net interest income. This risk
management strategy contributed $17.6 million to pre-tax earnings in 1993 and
$18.2 million in 1992.
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.
II-11
<PAGE>
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 34% of the portfolio matured within one year and approximately
92% 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 $736 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-N.C. 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
1993-1991, funds provided from operations were $123.2 million, $109.0 million
and $91.8 million, respectively.
STOCK PERFORMANCE
BB&T common stock is traded over-the-counter and quoted on the National
Association of Securities Dealers Automated Quotations System (Nasdaq) National
Market System under the symbol BBTF. At the end of 1993, BB&T had approximately
19,121 shareholders and 32,476,387 shares outstanding. Approximately 75% of the
outstanding shares were owned by individual investors.
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 will have no
material impact on the financial position or results of operations 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.
II-12
<PAGE>
TABLE 1
SELECTED FINANCIAL DATA
- - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, Five-Year
---------------------------------------- Compound
1993 1992 1991 1990 1989 Growth Rate
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (thousands)
Interest income, taxable equivalent $573,134 560,220 580,162 567,908 570,238 4.1%
Interest expense 230,408 254,472 322,723 343,385 365,638 (3.8)
- - - ---------------------------------------------------------------------------------------------------------
Net interest income, taxable equivalent 342,726 305,748 257,439 224,523 204,600 12.6
Taxable equivalent adjustment 14,183 16,329 17,431 18,518 21,087 (7.1)
- - - ---------------------------------------------------------------------------------------------------------
Net interest income 328,543 289,419 240,008 206,005 183,513 14.2
Provision for loan losses 17,500 30,447 38,709 19,597 12,878 6.4
- - - ---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 311,043 258,972 201,299 186,408 170,635 14.8
Noninterest income 111,709 89,585 85,789 64,020 57,377 21.9
Noninterest expense 276,678 232,656 196,836 173,567 163,984 13.5
- - - ---------------------------------------------------------------------------------------------------------
Income before income taxes 146,074 115,901 90,252 76,861 64,028 23.6
Income taxes 47,838 39,419 25,533 20,063 15,192 40.2
- - - ---------------------------------------------------------------------------------------------------------
Net income $ 98,236 76,482 64,719 56,798 48,836 18.6
========================================
PER SHARE DATA
Net income:
Primary $ 3.10 2.65 2.50 2.36 2.09 9.3%
Fully diluted 3.05 2.54 2.38 2.26 2.00 9.8
Cash dividends 1.02 .91 .85 .81 .74 8.1
Market price:
High 35.88 32.25 23.63 20.38 24.50 14.5
Low 29.13 21.88 14.50 14.50 16.38 15.4
Close 33.25 31.88 22.00 15.88 20.00 14.4
Book value 22.89 21.05 19.16 17.50 16.38 8.6
- - - ---------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES (millions)
Assets $ 8,013 7,047 6,239 5,634 5,527 10.2%
Earning assets 7,526 6,642 5,881 5,262 5,173 10.4
Securities 1,955 1,784 1,573 1,299 1,259 12.6
Loans 5,536 4,835 4,226 3,850 3,822 9.9
Deposits 6,215 5,749 5,273 4,606 4,395 9.4
Interest-bearing liabilities 6,512 5,771 5,194 4,695 4,630 9.8
Shareholders' equity 688 573 471 395 353 16.5
- - - ---------------------------------------------------------------------------------------------------------
SELECTED YEAR END BALANCES (millions)
Assets $ 9,173 7,280 6,830 5,686 5,721 11.7%
Earning assets 8,596 6,817 6,390 5,302 5,194 11.8
Securities 2,201 1,842 1,710 1,348 1,219 13.8
Loans 6,306 4,947 4,660 3,823 3,868 11.1
Deposits 6,995 5,842 5,719 4,872 4,706 10.1
Interest-bearing liabilities 7,543 5,880 5,590 4,646 4,705 11.8
Shareholders' equity 744 606 533 417 370 17.3
- - - ---------------------------------------------------------------------------------------------------------
NONFINANCIAL
Number of shareholders 19,121 17,630 16,402 14,764 13,463
Number of employees 4,437 3,715 3,515 3,303 3,310
Number of banking offices 264 230 241 221 220
Number of cities 138 123 124 118 117
- - - ---------------------------------------------------------------------------------------------------------
</TABLE>
II-13
<PAGE>
TABLE 2
- - - --------------------------------------------------------------------------------
PROFITABILITY
<TABLE>
- - - --------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- - - --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.23% 1.09 1.04 1.01 .88
Return on average equity 14.27 13.34 13.74 14.38 13.83
Net interest margin 4.55 4.60 4.38 4.27 3.96
Yield to break even(/1/) 2.42 2.61 2.55 2.45 2.31
</TABLE>
(/1/Noninterest)expense plus provision for loan losses less noninterest income,
divided by average earning assets.
TABLE 3
- - - --------------------------------------------------------------------------------
NET INTEREST INCOME AND VOLUME/RATE VARIANCE--TAXABLE EQUIVALENT BASIS
<TABLE>
- - - ---------------------------------------------------------------------------------
<CAPTION>
1993-1992 1992-1991
--------------------------- ---------------------------
Income/ Income/
Expense Volume Rate Expense Volume Rate
(thousands) Variance Variance Variance Variance Variance Variance
- - - ---------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Loans $24,999 58,263 (33,264) (13,681) 58,169 (71,850)
Securities:
U.S. Government and
other (7,485) 13,793 (21,278) 5,765 20,187 (14,422)
State and municipal (4,695) (3,532) (1,163) (7,378) (6,166) (1,212)
- - - ---------------------------------------------------------------------------------
Total securities (12,180) 10,261 (22,441) (1,613) 14,021 (15,634)
Interest-bearing bank
balances 243 566 (323) (3,042) (1,995) (1,047)
Federal funds sold (148) (137) (11) (1,606) (1,026) (580)
- - - ---------------------------------------------------------------------------------
Total interest income 12,914 68,953 (56,039) (19,942) 69,169 (89,111)
- - - ---------------------------------------------------------------------------------
INTEREST EXPENSE
Interest-bearing
deposits:
Savings 2,824 5,263 (2,439) (935) 3,705 (4,640)
Interest checking (493) 4,087 (4,580) (3,987) 4,335 (8,322)
Money rate savings (6,640) (1,062) (5,578) (11,090) 3,597 (14,687)
Certificates of deposit
and other time depos-
its (29,583) 2,119 (31,702) (51,234) 5,880 (57,114)
- - - ---------------------------------------------------------------------------------
Total interest-bearing
deposits (33,892) 10,407 (44,299) (67,246) 17,517 (84,763)
Short-term borrowed
funds 7,497 9,077 (1,580) (572) 7,793 (8,365)
Long-term debt 2,331 4,794 (2,463) (433) 900 (1,333)
- - - ---------------------------------------------------------------------------------
Total Interest Expense (24,064) 24,278 (48,342) (68,251) 26,210 (94,461)
- - - ---------------------------------------------------------------------------------
NET INTEREST INCOME $36,978 44,675 (7,697) 48,309 42,959 5,350
=======================================================
</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.
II-14
<PAGE>
TABLE 4
- - - --------------------------------------------------------------------------------
OPERATING EFFICIENCY
<TABLE>
- - - ------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Percent of average assets:
Noninterest income 1.39% 1.27 1.37 1.14 1.04
Noninterest expense 3.45 3.30 3.15 3.08 2.97
Personnel expense 1.68 1.60 1.55 1.53 1.49
Occupany and equipment expense .57 .53 .53 .54 .50
Other operating expense 1.20 1.18 1.07 1.01 .98
Net noninterest expense (noninterest expense less
noninterest income) 2.06 2.03 1.78 1.94 1.93
Net revenues (net interest income plus noninterest
income) times noninterest expense 1.59X 1.63 1.66 1.56 1.47
Assets per employee (millions) $2.00 1.99 1.89 1.78 1.74
</TABLE>
TABLE 5
- - - --------------------------------------------------------------------------------
INCOME TAXES
<TABLE>
- - - ------------------------------------------------------------------------------
<CAPTION>
(thousands) 1993 1992 1991 1990 1989
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tax expense at 35% in 1993, and 34%
in 1992-1989 $51,126 39,406 30,686 26,133 21,770
Increase (decrease) in taxes result-
ing from:
State income taxes, net of federal
tax benefit 2,361 2,373 1,561 859 --
Tax-exempt interest income, net of
disallowed interest expense (3,679) (4,802) (6,602) (7,557) (8,420)
Other items, net (1,970) 2,442 (112) 628 1,842
- - - ------------------------------------------------------------------------------
Income tax expense $47,838 39,419 25,533 20,063 15,192
======= ====== ====== ====== ======
Effective tax rate 32.7% 34.0 28.3 26.1 23.7
Tax-exempt interest income as a
percent of
pretax income 7.9 13.6 24.8 33.7 44.8
======= ====== ====== ====== ======
</TABLE>
TABLE 6
- - - --------------------------------------------------------------------------------
SECURITIES--CREDIT QUALITY
<TABLE>
- - - ---------------------------------------------------------------
<CAPTION>
Percent of Portfolio
Type of Security 1993 1992
- - - ---------------------------------------------------------------
<S> <C> <C>
U.S. Government Securities 86.25% 81.68
U.S. Agency Obligations:
Mortgage-backed Securities 4.01 2.46
Other 3.51 7.82
State, County and Municipal Securities:
AAA 2.05 3.20
AA .38 .53
A-1 1.25 1.37
A 1.92 2.10
BAA-1 .02 .04
BAA -- .01
Nonrated .01 .33
Other .60 .46
- - - ---------------------------------------------------------------
100.00% 100.00
======================
</TABLE>
II-15
<PAGE>
TABLE 7
- - - --------------------------------------------------------------------------------
AVERAGE BALANCE SHEETS
<TABLE>
- - - --------------------------------------------------------------------------------
<CAPTION>
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) $5,535,830 447,736 8.09% $4,834,835 422,737 8.74%
Securities (3)(4):
U. S. Government and
other 1,831,452 111,050 6.06 1,627,455 118,535 7.28
State and municipal 123,622 13,191 10.67 156,128 17,886 11.46
- - - ------------------------------------------- --------------------
Total securities 1,955,074 124,241 6.35 1,783,583 136,421 7.65
Interest-bearing bank
balances 31,864 1,048 3.29 16,551 805 4.86
Federal funds sold 3,298 109 3.31 7,416 257 3.47
- - - ------------------------------------------- --------------------
Total interest-
earning assets 7,526,066 573,134 7.62 6,642,385 560,220 8.43
- - - ------------------------------------------- --------------------
Allowance for loan
losses (83,155) (71,218)
Cash and due from
banks, noninterest-
bearing 265,851 232,840
Bank premises and
equipment 107,526 81,966
Other assets 196,523 160,594
- - - ------------------------------------------- --------------------
Total assets $8,012,811 $7,046,567
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing de-
posits:
Savings $ 557,020 15,622 2.80% $ 378,980 12,798 3.38%
Interest checking 818,831 16,957 2.07 645,980 17,450 2.70
Money rate savings 743,605 18,033 2.43 778,444 24,673 3.17
Certificates of
deposit and other
time deposits 3,398,733 145,386 4.28 3,357,598 174,969 5.21
- - - ------------------------------------------- --------------------
Total interest-
bearing deposits 5,518,189 195,998 3.55 5,161,002 229,890 4.45
Short-term borrowed
funds 790,281 23,588 2.98 490,050 16,091 3.28
Long-term debt 203,323 10,822 5.32 120,338 8,491 7.06
- - - ------------------------------------------- --------------------
Total interest-
bearing liabili-
ties 6,511,793 230,408 3.54 5,771,390 254,472 4.41
- - - ------------------------------------------- --------------------
Demand deposits, non-
interest-bearing 696,806 588,385
Other liabilities 115,773 113,343
Shareholders' equity 688,439 573,449
- - - ------------------------------------------- --------------------
Total liabilities
and shareholders'
equity $8,012,811 $7,046,567
==================== ====================
Interest income and
rate earned $573,134 7.62% $560,220 8.43%
Interest expense and
rate paid 230,408 3.54 254,472 4.41
Interest rate spread 4.08 4.02
NET INTEREST INCOME
AND NET YIELD ON
AVERAGE EARNING
ASSETS $342,726 4.55% $305,748 4.60%
=========================================================
</TABLE>
(1) Nonaccrual loans are included in average balances for yield computations.
(2) Loan income includes fees of $9,606, $7,273, $3,876, $3,333, and $3,503
for the years of 1993-1989, 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,
and 38.62%, 35.65% or 7%, respectively, for the years of 1990 and 1989.
(4) Includes both securities held to maturity and securities available for
sale.
II-16
<PAGE>
- - - --------------------------------------------------------------------------------
<TABLE>
- - - --------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989
- - - ---------------------------- ---------------------------- ----------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- - - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$4,226,343 436,418 10.33% $3,849,636 433,691 11.27% $3,821,851 444,127 11.62%
1,363,884 112,770 8.27 1,074,819 97,100 9.03 1,033,571 90,428 8.75
209,487 25,264 12.06 223,786 27,505 12.29 225,485 27,347 12.13
- - - -------------------- -------------------- --------------------
1,573,371 138,034 8.77 1,298,605 124,605 9.60 1,259,056 117,775 9.35
51,051 3,847 7.54 110,778 9,359 8.45 86,504 7,908 9.14
30,692 1,863 6.07 3,470 253 7.29 5,228 428 8.19
- - - -------------------- -------------------- --------------------
5,881,457 580,162 9.86 5,262,489 567,908 10.79 5,172,639 570,238 11.02
- - - -------------------- -------------------- --------------------
(55,537) (41,996) (38,521)
212,245 233,325 220,535
69,847 67,571 63,651
131,466 112,884 109,050
- - - -------------------- -------------------- --------------------
$6,239,478 $5,634,273 $5,527,354
==================== ==================== ====================
$ 287,457 13,733 4.78% $ 254,929 13,013 5.10% $ 254,215 13,047 5.13%
523,105 21,437 4.10 472,284 21,995 4.66 403,119 19,304 4.79
701,328 35,763 5.10 620,166 39,228 6.33 585,941 37,652 6.43
3,270,484 226,203 6.92 2,780,625 223,393 8.03 2,673,798 230,747 8.63
- - - -------------------- -------------------- --------------------
4,782,374 297,136 6.21 4,128,004 297,629 7.21 3,917,073 300,750 7.68
302,721 16,663 5.50 454,224 35,522 7.82 597,096 54,034 9.05
108,670 8,924 8.21 112,716 10,234 9.08 115,855 10,854 9.37
- - - -------------------- -------------------- --------------------
5,193,765 322,723 6.21 4,694,944 343,385 7.31 4,630,024 365,638 7.90
- - - -------------------- -------------------- --------------------
490,744 477,822 477,664
83,869 66,637 66,494
471,100 394,870 353,172
- - - -------------------- -------------------- --------------------
$6,239,478 $5,634,273 $5,527,354
==================== ==================== ====================
$580,162 9.86% $567,908 10.79% $570,238 11.02%
322,723 6.21 343,385 7.31 365,638 7.90
3.65 3.48 3.12
$257,439 4.38% $224,523 4.27% $204,600 3.96%
====================================================================================
</TABLE>
II-17
<PAGE>
TABLE 8
- - - --------------------------------------------------------------------------------
TYPES OF LOANS--REGULATORY CLASSIFICATION
<TABLE>
<CAPTION>
December 31,
1993 1992 1991 1990 1989
---------------- --------------- --------------- --------------- ---------------
% OF % of % of % of % of
(thousands) AMOUNT TOTAL Amount Total Amount Total Amount Total Amount Total
- - - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and indus-
trial $1,007,281 16.0% 910,006 18.4 864,280 18.5 890,622 23.3 890,905 23.0
Real estate--construc-
tion 423,601 6.7 364,024 7.4 380,619 8.2 367,402 9.6 440,992 11.4
Real estate--mortgage
(1) 4,216,650 66.8 3,196,618 64.5 2,924,694 62.7 2,081,493 54.4 2,022,337 52.2
Installment and other
loans to individuals 663,278 10.5 481,659 9.7 494,905 10.6 487,363 12.7 518,391 13.4
- - - ---------------------------------------------------------------------------------------------------------
$6,310,810 100.0% 4,952,307 100.0 4,664,498 100.0 3,826,880 100.0 3,872,625 100.0
=================================================================================
</TABLE>
(1) Includes residential mortgage loans of $3.0 billion in 1993 and $2.1
billion in 1992.
TABLE 9
- - - --------------------------------------------------------------------------------
REAL ESTATE LOANS--RISK CATEGORIES
<TABLE>
- - - ----------------------------------------------------------------------------------------------------
<CAPTION>
Nonperforming Loans
Acquisition ----------------------
and % of
1993 (thousands) Permanent Construction Development Total Amount Loan Type
- - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL-NONOWNER OCCUPIED:
Multi-family $288,221 20,486 10,245 318,952 2,147 .67%
Hotels/motels 87,019 6,529 -- 93,548 1,347 1.44
Shopping centers/malls 74,470 2,891 16,390 93,751 -- --
Office buildings 84,816 6,499 6,440 97,755 267 .27
Warehouse/distribution/light
industrial 50,332 4,081 10,811 65,224 467 .72
Acquisition only -- -- 46,643 46,643 3,050 6.54
- - - ----------------------------------------------------------------------------------------
Total commercial-nonowner
occupied 584,858 40,486 90,529 715,873 7,278 1.02
- - - ----------------------------------------------------------------------------------------
RESIDENTIAL-CONSTRUCTION,
ACQUISITION, AND DEVELOPMENT -- 110,971 210,608 321,579 2,021 .63
- - - ----------------------------------------------------------------------------------------
Total real estate $584,858 151,457 301,137 1,037,452 9,299 .90%
==================================================================
TOTAL LOANS $6,310,810 30,631 .49%
TOTAL REAL ESTATE/TOTAL LOANS 16.44% 30.36
- - - ----------------------------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------------------------
<CAPTION>
1992
- - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL-NONOWNER OCCUPIED:
Multi-family $119,207 18,132 9,974 147,313 622 .42%
Hotels/motels 80,713 5,727 -- 86,440 -- --
Shopping centers/malls 49,861 17,642 12,139 79,642 100 .13
Office buildings 85,612 10,255 11,536 107,403 -- --
Warehouse/distribution/light
industrial 44,140 7,083 17,209 68,432 914 1.34
Acquisition only -- -- 44,208 44,208 3,120 7.06
- - - ----------------------------------------------------------------------------------------
Total commercial-nonowner
occupied 379,533 58,839 95,066 533,438 4,756 .89
- - - ----------------------------------------------------------------------------------------
RESIDENTIAL-CONSTRUCTION,
ACQUISITION, AND DEVELOPMENT -- 150,403 175,872 326,275 3,860 1.18
- - - ----------------------------------------------------------------------------------------
Total real estate $379,533 209,242 270,938 859,713 8,616 1.00%
==================================================================
TOTAL LOANS $4,952,307 27,822 .56%
TOTAL REAL ESTATE/TOTAL LOANS 17.36% 30.97
==================================================================
</TABLE>
II-18
<PAGE>
TABLE 10
- - - --------------------------------------------------------------------------------
NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
- - - ---------------------------------------------------------------------
<CAPTION>
December 31,
(thousands) 1993 1992 1991 1990 1989
- - - ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $29,328 26,877 55,123 34,939 13,857
Restructured loans 1,303 945 2,078 3,028 3,128
Foreclosed property 12,105 21,140 25,532 10,995 6,030
- - - ---------------------------------------------------------------------
Total nonperforming assets $42,736 48,962 82,733 48,962 23,015
====================================
Total nonperforming assets to:
Loans and foreclosed property .68% .99 1.77 1.28 .59
Total assets .47 .67 1.21 .86 .40
====================================
Accruing loans past due 90 days $18,940 13,676 15,903 10,107 13,829
====================================
</TABLE>
TABLE 11
- - - --------------------------------------------------------------------------------
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
- - - --------------------------------------------------------------------------------
<CAPTION>
(thousands) 1993 1992 1991 1990 1989
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LOANS OUTSTANDING AT END
OF PERIOD $6,306,443 4,946,608 4,659,721 3,823,352 3,868,251
AVERAGE LOANS OUTSTANDING 5,535,830 4,834,835 4,226,343 3,849,636 3,821,851
===================================================
ALLOWANCE FOR LOAN LOSSES
Balance, beginning of pe-
riod $ 73,085 63,486 43,816 38,416 35,830
Provision for loan losses 17,500 30,447 38,709 19,597 12,878
Allowances of purchased
companies 10,560 825 6,313 -- (933)
- - - --------------------------------------------------------------------------------
101,145 94,758 88,838 58,013 47,775
- - - --------------------------------------------------------------------------------
Loans charged off:
Business 11,352 16,853 16,856 9,373 6,305
Consumer 6,392 7,836 9,955 6,912 5,626
Mortgage 846 861 831 320 309
- - - --------------------------------------------------------------------------------
Total loans charged off 18,590 25,550 27,642 16,605 12,240
- - - --------------------------------------------------------------------------------
Recovery of loans previ-
ously charged off:
Business 3,880 2,492 1,172 1,405 1,910
Consumer 1,759 1,308 1,103 973 921
Mortgage 41 77 15 30 50
- - - --------------------------------------------------------------------------------
Total recoveries 5,680 3,877 2,290 2,408 2,881
- - - --------------------------------------------------------------------------------
Net loans charged off 12,910 21,673 25,352 14,197 9,359
- - - --------------------------------------------------------------------------------
Balance, end of period $ 88,235 73,085 63,486 43,816 38,416
===================================================
Net charge-offs to average
loans outstaning .23% .45 .60 .37 .24
Allowance for loan losses
to loans outstanding 1.40 1.48 1.36 1.15 .99
Allowance for loan losses
to net charge-offs 6.83X 3.37 2.50 3.09 4.10
Allowance for loan losses
to nonperforming loans 2.88 2.63 1.11 1.15 2.26
Allowance for loan losses
plus equity to
nonperforming assets 19.46 13.88 7.21 9.41 17.75
Earnings coverage of net
charge-offs (1) 12.56 6.48 4.66 6.76 8.19
- - - --------------------------------------------------------------------------------
</TABLE>
(1) Net income before taxes, securities gains or losses, and the provision for
loan losses divided by net charge-offs.
II-19
<PAGE>
TABLE 12
- - - --------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
- - - -------------------------------------------------------------------------------
<CAPTION>
December 31,
(thousands) 1993 1992 1991 1990 1989
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial and industrial $22,059 17,606 12,387 9,383 9,980
Real estate--construction 8,824 7,309 7,588 5,102 3,323
Real estate--mortgage 35,293 30,163 24,700 14,654 13,415
Installment and other loans to individuals 13,235 10,964 12,619 9,412 8,002
Unassigned portion of reserve 8,824 7,043 6,192 5,265 3,696
- - - -------------------------------------------------------------------------------
$88,235 73,085 63,486 43,816 38,416
===================================
</TABLE>
TABLE 13
- - - --------------------------------------------------------------------------------
INTEREST SENSITIVITY ANALYSIS
<TABLE>
- - - ------------------------------------------------------------------------------------------------------
<CAPTION>
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 $3,281,076 314,687 99,760 232,718 424,890 4,353,131 1,953,312
Securities 97,738 48,234 22,076 140,465 480,503 789,016 1,411,797
Short-term investments 89,113 -- -- -- -- 89,113 100
Interest rate swaps (250,000) (110,000) (100,000) (100,000) -- (560,000) 560,000
- - - ------------------------------------------------------------------------------------------------------
Total earning assets $3,217,927 252,921 21,836 273,183 905,393 4,671,260 3,925,209
============================================================================
INTEREST-BEARING LIABIL-
ITIES
Time deposits of
$100,000 or more $ 231,804 131,318 107,722 153,054 118,262 742,160 153,208
All other deposits 1,853,217 216,725 215,239 551,372 476,415 3,312,968 2,004,008
Short-term borrowed
funds 984,325 -- -- -- -- 984,325 --
Long-term debt 2,500 50,000 3,333 3,333 9,666 68,832 277,904
Certificate of deposit
swaps -- (100,000) -- (200,000) -- (300,000) 300,000
- - - ------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $3,071,846 298,043 326,294 507,759 604,343 4,808,285 2,735,120
============================================================================
Interest sensitivity gap
per period $ 146,081 (45,122) (304,458) (234,576) 301,050 (137,025) 1,190,089
Cumulative interest sen-
sitivity gap 146,081 100,959 (203,499) (438,075) (137,025) -- --
Cumulative ratio of in-
terest-sensitive assets
to interest-sensitive
liabilities 1.05x 1.03 .94 .90 .97
- - - ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assets and liabilities which are not sensitive to interest changes in a
twelve month period because of maturities or fixed interest rates.
II-20
<PAGE>
TABLE 14
- - - --------------------------------------------------------------------------------
SECURITIES--MATURITY/YIELD SCHEDULE
<TABLE>
- - - -------------------------------------------------------------------------------
<CAPTION>
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 $ 441,527 443,925 4.91%
1 through 5 years 825,341 825,042 4.54
- - - -------------------------------------------------------------
Total 1,266,868 1,268,967 4.67
- - - -------------------------------------------------------------
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 ma-
turity:
Within 1 year 37,152 37,433 11.30
1 through 5 years 29,818 31,868 10.08
6 to 10 years 51,318 56,271 9.79
Over 10 years 5,709 6,509 10.71
- - - -------------------------------------------------------------
Total 123,997 132,081 10.35
- - - -------------------------------------------------------------
Other securities-held to matu-
rity 13,157 20,117 N/A
- - - -------------------------------------------------------------
Total-held to maturity $1,475,727 1,493,719 5.20
============================
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
- - - -------------------------------------------------------------
Total-available for sale $ 725,086 736,039 5.80
============================
Total securities $2,200,813 2,229,758 5.40%
============================
</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.
II-21
<PAGE>
TABLE 15
- - - -------------------------------------------------------------------------------
MATURITY SCHEDULE OF SELECTED LOANS
<TABLE>
- - - ----------------------------------------------------------------------
<CAPTION>
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 $ 87,823 54,221 44,689 186,733
Floating interest rates 820,384 139 25 820,548
- - - ----------------------------------------------------------------------
Total 908,207 54,360 44,714 1,007,281
- - - ----------------------------------------------------------------------
Real estate--construction:
Fixed interest rates 16,462 20,000 2,206 38,668
Floating interest rates 384,933 -- -- 384,933
- - - ----------------------------------------------------------------------
Total 401,395 20,000 2,206 423,601
- - - ----------------------------------------------------------------------
$1,309,602 74,360 46,920 1,430,882
==========================================
</TABLE>
TABLE 16
- - - -------------------------------------------------------------------------------
LIQUIDITY
<TABLE>
- - - -------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans to:
Average deposits 89.07% 84.09 80.15 83.58 86.96
Average deposits and short-term borrowed funds 79.02 77.49 75.80 76.08 76.56
==============================
TABLE 17
- - - -------------------------------------------------------------------------------
CAPITAL ADEQUACY
- - - -------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average equity to average assets 8.59% 8.14 7.55 7.01 6.39
Equity to assets at year-end 8.11 8.33 7.80 7.33 6.47
Risk-based capital ratios:
Tier 1 capital 11.85 12.48 11.38 10.08 N/A
Total capital 13.61 15.27 14.45 13.20 N/A
Leverage ratio 8.08 8.20 7.79 7.23 N/A
==============================
TABLE 18
- - - -------------------------------------------------------------------------------
STOCK PERFORMANCE
- - - -------------------------------------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dividend payout percentage 34.0% 32.7 32.8 31.1 31.6
Dividend yield (based on average high/low price
for the year) 3.1 3.4 4.5 4.6 3.6
Price/earnings ratio (based on year-end stock
price and fully diluted earnings per share) 10.9X 12.6 9.2 7.0 10.0
Price/book ratio (end of year) 1.5 1.5 1.1 .9 1.2
==============================
</TABLE>
II-22
<PAGE>
TABLE 19
- - - --------------------------------------------------------------------------------
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
<TABLE>
- - - ---------------------------------------------------------------------------------------------
<CAPTION>
1993 1992
--------------------------------- ---------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
- - - ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
(thousands)
Interest income, taxable
equivalent $150,411 146,391 141,878 134,454 $137,119 136,357 143,035 143,709
Interest expense 60,286 58,248 56,800 55,074 57,841 60,409 65,190 71,032
- - - ---------------------------------------------------------------------------------------------
Net interest income,
taxable equivalent 90,125 88,143 85,078 79,380 79,278 75,948 77,845 72,677
Taxable equivalent ad-
justment 3,606 3,519 3,637 3,421 3,954 3,912 4,402 4,061
- - - ---------------------------------------------------------------------------------------------
Net interest income 86,519 84,624 81,441 75,959 75,324 72,036 73,443 68,616
Provision for loan
losses 3,893 4,003 4,301 5,303 6,760 7,253 7,711 8,723
- - - ---------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 82,626 80,621 77,140 70,656 68,564 64,783 65,732 59,893
Noninterest income 31,105 28,478 26,470 25,656 20,767 23,559 21,388 23,871
Noninterest expense 75,111 71,405 67,574 62,588 62,997 57,772 56,476 55,411
- - - ---------------------------------------------------------------------------------------------
Income before income
taxes 38,620 37,694 36,036 33,724 26,334 30,570 30,644 28,353
Income taxes 13,171 12,466 11,329 10,872 11,736 9,490 9,465 8,728
- - - ---------------------------------------------------------------------------------------------
Net income $ 25,449 25,228 24,707 22,852 $ 14,598 21,080 21,179 19,625
===================================================================
PER SHARE DATA
Net income:
Primary $ .78 .77 .78 .76 $ .50 .72 .74 .70
Fully diluted .78 .77 .77 .73 .48 .69 .71 .66
Cash dividends .27 .25 .25 .25 .25 .22 .22 .22
Market price:
High 35.88 34.63 35.88 35.38 32.25 29.88 30.13 27.75
Low 29.13 32.25 30.25 31.00 28.75 27.38 25.50 21.88
Close 33.25 33.88 34.38 33.88 31.88 29.13 28.25 27.75
Book value 22.89 22.48 22.12 21.82 21.05 20.81 20.29 19.66
- - - ---------------------------------------------------------------------------------------------
SELECTED AVERAGE
BALANCES
(millions)
Assets $ 8,733 8,224 7,800 7,276 $ 7,338 7,014 6,930 6,901
Securities 2,165 1,997 1,905 1,749 1,910 1,746 1,736 1,742
Loans 5,994 5,693 5,392 5,052 4,974 4,848 4,783 4,732
Earning assets 8,207 7,737 7,326 6,823 6,916 6,615 6,545 6,491
Deposits 6,556 6,255 6,171 5,870 5,771 5,795 5,727 5,703
Interest-bearing liabil-
ities 7,099 6,680 6,325 5,928 5,976 5,712 5,699 5,696
Shareholders' equity 731 712 682 628 603 589 561 541
- - - ---------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average assets 1.16% 1.22 1.27 1.27 .79% 1.20 1.23 1.14
Return on average equity 13.81 14.06 14.54 14.75 9.63 14.24 15.19 14.60
Average equity to aver-
age assets 8.37 8.65 8.74 8.63 8.22 8.40 8.09 7.83
Risk-based capital
ratios:
Tier 1 capital 11.85 12.81 12.96 12.72 12.48 12.32 12.20 11.52
Total capital 13.61 14.79 14.95 15.44 15.27 15.32 15.24 14.56
Average loans to:
Average deposits 91.43 91.03 87.37 86.06 86.19 83.66 83.52 82.97
Average deposits and
short-term borrowed
funds 79.47 79.37 78.19 78.98 76.55 78.31 77.89 77.25
Net interest margin 4.36 4.52 4.66 4.72 4.56 4.57 4.78 4.50
Average earning assets
to interest-bearing
liabilities 1.16X 1.16 1.16 1.15 1.16x 1.16 1.15 1.14
- - - ---------------------------------------------------------------------------------------------
</TABLE>
II-23
<PAGE>
CONSOLIDATED BALANCE SHEETS
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
- - - ------------------------------------------------------------------------------
<CAPTION>
December 31,
<S> <C> <C>
($ in thousands, except per share) 1993 1992
- - - ------------------------------------------------------------------------------
ASSETS
Cash and due from banks, noninterest-bearing $ 318,922 291,365
Interest-bearing bank balances 79,663 27,705
Federal funds sold 9,550 600
Securities-available for sale (market value of $736,039
in 1993, and
$464,482 in 1992) 725,086 456,113
Securities-held to maturity (market value of $1,493,719
in 1993, and
$1,408,876 in 1992) 1,475,727 1,385,984
Loans 6,306,443 4,946,608
Less allowance for loan losses 88,235 73,085
- - - ------------------------------------------------------------------------------
Net loans 6,218,208 4,873,523
Bank premises and equipment 132,794 90,375
Accrued interest receivable 58,504 53,347
Other assets 154,663 101,270
- - - ------------------------------------------------------------------------------
Total assets $9,173,117 7,280,282
====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 782,777 695,446
Interest-bearing 6,212,344 5,146,391
- - - ------------------------------------------------------------------------------
Total deposits 6,995,121 5,841,837
Short-term borrowed funds 984,325 610,183
Long-term debt 346,736 123,442
Other liabilities 103,423 98,439
- - - ------------------------------------------------------------------------------
Total liabilities 8,429,605 6,673,901
- - - ------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock $2.50 par value, 4,000,000 shares autho-
rized; none issued
Common stock $2.50 par value, 50,000,000 shares
authorized; shares issued of 32,476,387 in 1993 and
28,809,891 in 1992 81,191 72,025
Paid-in capital 266,822 198,038
Retained earnings 401,953 339,256
Less loan to employee stock ownership plan 4,419 2,938
Less unvested restricted stock 2,035 --
- - - ------------------------------------------------------------------------------
Total shareholders' equity 743,512 606,381
- - - ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $9,173,117 7,280,282
====================
</TABLE>
See accompanying notes to consolidated financial statements.
II-24
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
- - - -----------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
($ in thousands, except per share) 1993 1992 1991
- - - -----------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans $ 445,659 419,876 432,441
Interest and dividends on securities:
Taxable 103,884 111,622 108,519
Tax exempt 8,251 11,331 16,060
Interest on short-term investments 1,157 1,062 5,710
- - - -----------------------------------------------------------------------------
Total interest income 558,951 543,891 562,730
- - - -----------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 195,998 229,890 297,135
Interest on short-term borrowed funds 23,588 16,091 16,663
Interest on long-term debt 10,822 8,491 8,924
- - - -----------------------------------------------------------------------------
Total interest expense 230,408 254,472 322,722
- - - -----------------------------------------------------------------------------
NET INTEREST INCOME 328,543 289,419 240,008
Provision for loan losses 17,500 30,447 38,709
- - - -----------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 311,043 258,972 201,299
- - - -----------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 36,394 30,425 27,325
Other service charges, commissions and fees 15,853 13,418 11,262
Mortgage banking income 17,658 11,116 10,983
Gains on sales of securities 1,378 6,012 10,759
Trust income 11,045 9,454 8,224
Insurance commissions 10,647 6,653 6,163
Other operating income 18,734 12,507 11,073
- - - -----------------------------------------------------------------------------
Total noninterest income 111,709 89,585 85,789
- - - -----------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and wages 109,232 92,665 79,913
Other personnel expense 25,020 19,761 16,878
Net occupancy expense 21,474 18,494 16,793
Furniture and equipment expense 24,508 18,884 16,273
Deposit insurance premiums 14,017 12,296 10,633
Other operating expense 82,427 70,556 56,346
- - - -----------------------------------------------------------------------------
Total noninterest expense 276,678 232,656 196,836
- - - -----------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 146,074 115,901 90,252
Income taxes 47,838 39,419 25,533
- - - -----------------------------------------------------------------------------
NET INCOME $ 98,236 76,482 64,719
================================
NET INCOME PER SHARE
Primary $ 3.10 2.65 2.50
Fully diluted 3.05 2.54 2.38
=============================================================================
AVERAGE NUMBER OF SHARES AND EQUIVALENT SHARES
Primary 31,724,098 28,848,657 25,932,026
Fully diluted 32,292,555 30,885,333 27,927,549
================================
</TABLE>
See accompanying notes to consolidated financial statements.
II-25
<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 -- -- $373,506
Equity at December 31,
1990 of pooled companies
acquired in 1993 2,493,225 6,234 10,553 26,485 -- -- 43,272
- - - ---------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31,
1990, RESTATED 23,821,394 59,554 113,049 244,175 -- -- 416,778
Net income, 1991 -- -- -- 64,719 -- -- 64,719
Cash dividends paid ($.85
per share) -- -- -- (20,021) -- -- (20,021)
Options exercised by em-
ployees of pooled compa-
nies prior to merger 7,757 19 11 -- -- -- 30
Cash dividends paid by
pooled companies prior
to merger -- -- -- (1,175) -- -- (1,175)
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 27,802,347 69,506 178,235 287,720 (2,841) -- 532,620
Net income, 1992 -- -- -- 76,482 -- -- 76,482
Cash dividends paid ($.91
per share) -- -- -- (23,595) -- -- (23,595)
Options exercised by em-
ployees of pooled compa-
nies prior to merger 43,287 108 243 -- -- -- 351
Cash dividends paid by
pooled companies prior
to merger -- -- -- (1,402) -- -- (1,402)
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 28,809,891 72,025 198,038 339,256 (2,938) -- 606,381
Net income, 1993 -- -- -- 98,236 -- -- 98,236
Cash dividends paid
($1.02 per share) -- -- -- (31,227) -- -- (31,227)
Options exercised by em-
ployees of pooled
companies prior to
merger 78,513 196 547 -- -- -- 743
Cash dividends paid by
pooled companies prior
to merger -- -- -- (2,204) -- -- (2,204)
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 32,476,387 $81,191 266,822 401,953 (4,419) (2,035) $743,512
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
II-26
<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 $ 561,079 554,143 561,520
Noninterest income received 106,891 81,516 71,810
Interest paid (234,399) (260,765) (329,794)
Noninterest expense paid (254,401) (215,207) (181,109)
Income taxes paid (55,985) (50,647) (30,646)
- - - --------------------------------------------------------------------------------
Net cash provided by operating activities 123,185 109,040 91,781
- - - --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities--avail-
able for sale 164,639 -- --
Proceeds from sales of securities--held to
maturity -- 579,416 677,198
Proceeds from maturities or calls of secu-
rities 828,610 645,797 445,550
Purchase of securities (1,157,684) (1,327,138) (1,388,880)
Net increase in loans (519,068) (250,272) (277,867)
Proceeds from sales of premises and equip-
ment 3,140 1,663 477
Purchases of property and equipment (59,159) (29,459) (15,523)
Proceeds from sales of foreclosed proper-
ties 24,174 24,198 12,224
Cash of companies acquired, net 39,013 2,377 62,857
Purchase of officers' life insurance poli-
cies (30,000) -- --
Other (13,179) (7,548) (2,037)
- - - --------------------------------------------------------------------------------
Net cash used in investing activities (719,514) (360,966) (486,001)
- - - --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, interest
checking and savings accounts 259,095 390,585 37,430
Net increase (decrease) in certificates of
deposit and other time deposits (149,595) (360,345) 121,453
Net increase in short-term borrowed funds 369,835 258,749 114,249
Increase in long-term debt 219,934 5,367 11,870
Proceeds from issuance of common stock 47,522 25,819 60,846
Redemption of common stock (30,270) (6,767) (1,386)
Dividends paid (33,432) (24,998) (21,195)
Cash flow of merged company for the quar-
ter ended December 31, 1993 1,705 -- --
- - - --------------------------------------------------------------------------------
Net cash provided by financing activities 684,794 288,410 323,267
- - - --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 88,465 36,484 (70,953)
Cash and cash equivalents on January 1 319,670 283,186 354,139
- - - --------------------------------------------------------------------------------
Cash and cash equivalents on December 31 $ 408,135 319,670 283,186
===================================
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED
BY OPERATING ACTIVITIES
Net income $ 98,236 76,482 64,719
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 14,904 10,893 9,291
Provision for loan losses 17,500 30,447 38,709
Deferred income tax benefits (6,402) (1,705) (5,255)
Net amortization and accretion 7,595 9,115 5,816
Gains on sales of securities (1,378) (6,012) (10,759)
Decrease in taxes payable (1,433) (9,527) (1,065)
Increase in interest receivable 737 7,961 5,251
Decrease in interest payable (4,190) (6,632) (7,533)
Other (2,384) (1,982) (7,393)
- - - --------------------------------------------------------------------------------
Net cash provided by operating activities $ 123,185 109,040 91,781
===================================
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 2,314 644 3,041
Loan to employee stock ownership plan (2,314) (664) (3,041)
Loans transferred to foreclosed properties 12,577 23,740 22,630
===================================
</TABLE>
See accompanying notes to consolidated financial statements.
II-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
AT OR FOR THE YEARS ENDED DECEMBER 31, 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."); and four savings
institutions. 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.
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.
II-28
<PAGE>
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.
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
II-29
<PAGE>
Edenton are included in the consolidated financial statements since the date of
acquisitions. At the date of acquisitions, 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 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.
The following presents on a pro forma basis the contributions of BB&T,
Security and Citizens of Newton to the restated and reported results of BB&T
and certain financial data pertaining to BB&T and the acquisition of the
savings institution acquired 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 acquired 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
II-30
<PAGE>
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.
<TABLE>
<CAPTION>
Contributions of
---------------------
Security and Fully
Citizens BB&T Pro Forma
1993 BB&T of Newton As Reported Combined
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue..................... $670,660 726,500
Net interest income............... 328,543 351,520
Net income........................ 98,236 100,551
Net income per share:
Primary.......................... 3.10 3.10
Fully diluted.................... 3.05 3.06
1992
- - - --------------------------------------------------------------------------------
Total revenue..................... $580,613 52,863 633,476 746,809
Net interest income............... 268,355 21,064 289,419 331,617
Net income........................ 76,076 406 76,482 86,389
Net income per share:
Primary.......................... 2.89 2.65 2.84
Fully diluted.................... 2.75 2.54 2.72
1991
- - - --------------------------------------------------------------------------------
Total revenue..................... $593,779 54,740 648,519 701,223
Net interest income............... 222,163 17,845 240,008 256,888
Net income........................ 60,172 4,547 64,719 72,288
Net income per share:
Primary.......................... 2.57 2.50 2.57
Fully diluted.................... 2.44 2.38 2.47
</TABLE>
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.
At December 31, 1993, BB&T had an agreement to effect a merger with L.S.B.
Bancshares, Inc. of South Carolina, (L.S.B.), Lexington, South Carolina with
assets of approximately $700,000. The acquisition of LSB 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 L.S.B.
II-31
<PAGE>
NOTE 4. SECURITIES
Investment securities at December 31, 1993, 1992, and 1991 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 $1,266,868 4,175 2,076 1,268,967
U.S. Government agencies and cor-
porations 71,705 862 13 72,554
State and municipal 123,997 8,192 108 132,081
Other securities 13,157 6,961 1 20,117
- - - ------------------------------------------------------------------------------
$1,475,727 20,190 2,198 1,493,719
===========================================
1993--AVAILABLE FOR SALE
- - - ------------------------------------------------------------------------------
U.S. Treasury $ 631,237 5,832 221 636,848
U.S. Government agencies and cor-
porations 5,582 5 -- 5,587
Mortgage-backed securities of
U.S. Government agencies 88,267 5,361 24 93,604
- - - ------------------------------------------------------------------------------
$ 725,086 11,198 245 736,039
===========================================
1992--HELD TO MATURITY
- - - ------------------------------------------------------------------------------
U.S. Treasury $1,048,577 10,364 581 1,058,360
U.S. Government agencies and cor-
porations 144,118 2,888 171 146,835
Mortgage-backed securities of
U.S. Government agencies 45,348 2,345 -- 47,693
State and municipal 139,514 7,571 80 147,005
Other securities 8,427 572 16 8,983
- - - ------------------------------------------------------------------------------
$1,385,984 23,740 848 1,408,876
===========================================
1992--AVAILABLE FOR SALE
- - - ------------------------------------------------------------------------------
U.S. Treasury $ 456,113 8,441 72 464,482
- - - ------------------------------------------------------------------------------
$ 456,113 8,441 72 464,482
===========================================
1991--HELD TO MATURITY
- - - ------------------------------------------------------------------------------
U.S. Treasury $ 934,382 26,853 32 961,203
U.S. Government agencies and cor-
porations 138,733 4,368 -- 143,101
Mortgage-backed securities of
U.S. Government agencies 408,217 14,784 104 422,897
State and municipal 187,575 8,615 21 196,169
Other securities 41,352 1,548 11 42,889
- - - ------------------------------------------------------------------------------
$1,710,259 56,168 168 1,766,259
===========================================
</TABLE>
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 $ 744,378 750,934
Due after one year through five years 1,287,675 1,291,908
Due after five years through ten years 59,543 64,606
Due after ten years 20,950 28,706
- - - -------------------------------------------------------------
Mortgage-backed securities 88,267 93,604
- - - -------------------------------------------------------------
$2,200,813 2,229,758
=====================
</TABLE>
II-32
<PAGE>
Securities with aggregate par values of $775,955, $399,672 and $323,460 at
December 31, 1993, 1992 and 1991, 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. Gross gains of $8,400 and gross
losses of $2,388 were realized on securities transactions in 1992. Gross gains
of $11,116 and gross losses of $357 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.
NOTE 5. LOANS
At December 31, 1993 and 1992, loans consisted of the following:
<TABLE>
<CAPTION>
1993 1992
- - - ----------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $1,007,281 910,006
Real estate--construction 423,601 364,024
Real estate--mortgage 4,216,650 3,196,618
Installment and other loans to individuals 663,278 481,659
- - - ----------------------------------------------------------------
6,310,810 4,952,307
- - - ----------------------------------------------------------------
Less:
Deferred fees and costs 3,363 3,816
Unearned interest 1,004 1,883
- - - ----------------------------------------------------------------
$6,306,443 4,946,608
====================
Included in the above:
Nonaccrual loans $ 29,328 26,877
Restructured loans 1,303 945
====================
</TABLE>
Loans classified as "real estate--mortgage" include loans secured by
residential properties of $3,031,282 in 1993 and $2,056,209 in 1992, including
$352,213 and $237,835 held for sale in 1993 and 1992, respectively. The market
values of the loans held for sale were $352,213 and $238,207 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 $1,588, $1,983 and $5,404, respectively. Interest income on
such loans included in the results of operations for each of the years
amounted to approximately $645, $745 and $1,518, 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 $83,468 and $67,824 at December 31, 1993 and 1992, respectively.
During 1993, $37,518 of new loans were made and repayments totalled $21,874.
II-33
<PAGE>
NOTE 6. ALLOWANCE FOR LOAN LOSSES
A summary of transactions affecting the allowance for loan losses follows:
<TABLE>
<CAPTION>
1993 1992 1991
- - - ---------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 73,085 63,486 43,816
Provision for loan losses 17,500 30,447 38,709
Allowances of purchased companies 10,560 825 6,313
- - - ---------------------------------------------------------
Total 101,145 94,758 88,838
- - - ---------------------------------------------------------
Deduct:
Loans charged-off 18,590 25,550 27,642
Less recoveries 5,680 3,877 2,290
- - - ---------------------------------------------------------
Net loans charged-off 12,910 21,673 25,352
- - - ---------------------------------------------------------
Balance at end of year $ 88,235 73,085 63,486
======================
</TABLE>
NOTE 7. BANK PREMISES AND EQUIPMENT
Following is a summary of bank premises and equipment at December 31, 1993
and 1992:
<TABLE>
<CAPTION>
Net
Accumulated Book
1993 COST Depreciation Value
- - - -----------------------------------------------------
<S> <C> <C> <C>
Land $ 17,873 -- 17,873
Buildings 74,474 28,561 45,913
Leasehold improvements 23,326 7,210 16,116
Equipment 109,720 56,828 52,892
- - - -----------------------------------------------------
$225,393 92,599 132,794
=============================
<CAPTION>
1992
- - - -----------------------------------------------------
<S> <C> <C> <C>
Land $ 13,201 -- 13,201
Buildings 46,618 19,521 27,097
Leasehold improvements 16,196 5,534 10,662
Equipment 84,002 44,587 39,415
- - - -----------------------------------------------------
$160,017 69,642 90,375
=============================
</TABLE>
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.
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 $848,710 499,078
Advances from Federal Home Loan Bank of Atlanta 2,500 500
Master notes 133,115 110,605
- - - ------------------------------------------------------------------------------
$984,325 610,183
================
</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.
II-34
<PAGE>
The following table presents certain information for each major category of
short-term borrowings:
<TABLE>
<CAPTION>
Federal Funds Purchased
and Securities
Sold Under Agreements to
Repurchase
-------------------------
1993 1992 1991
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding December 31 $848,710 499,078 221,367
Average outstanding balance 638,718 326,365 139,681
Maximum amount outstanding at end of any month dur-
ing the year 980,414 622,766 260,624
Approximate weighted average interest rate:
During the year 3.0% 3.2 5.9
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 dur-
ing 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>
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 62,167 36,500
Medium-term bank notes 231,868 --
Other 2,701 2,917
- - - ---------------------------------------------------------------------
$346,736 123,442
================
</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
5.52% to 8.95%. The principal maturities of the advances for each of the five
years subsequent to December 31, 1993 are $3,000 in 1994, $24,667 in 1995,
$13,000 in 1996, $14,500 in 1997 and $2,000 in 1998.
II-35
<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 1991
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF THE BENEFIT OBLIGATION
Accumulated benefit obligation:
Vested benefits $ 36,749 28,651 23,553
Nonvested benefits 2,067 1,593 1,188
- - - ------------------------------------------------------------------------------
$ 38,816 30,244 24,741
==========================
Projected benefit obligation for services rendered
to date $(64,033) (49,739) (38,795)
Plan assets at fair value, primarily listed stocks
and U.S. Government securities 53,208 48,636 40,206
- - - ------------------------------------------------------------------------------
Excess (deficit) of plan assets over the projected
benefit obligation (10,825) (1,103) 1,411
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumption 12,032 3,978 3,061
Unrecognized prior service cost 1,890 2,038 709
Unrecognized net asset being amortized over 17.6
years (6,869) (7,587) (8,304)
- - - ------------------------------------------------------------------------------
Accrued pension cost included in other liabilities $ (3,772) (2,674) (3,123)
==========================
COMPONENTS OF NET PERIODIC PENSION EXPENSE
Service cost--benefits earned during the period $ 3,407 3,189 2,543
Interest cost on projected benefit obligation 3,946 3,561 2,740
Actual return on plan assets (4,331) (4,150) (7,143)
Net amortization and deferral (688) (388) 3,629
- - - ------------------------------------------------------------------------------
Net periodic pension expense included in employee
benefits $ 2,334 2,212 1,769
==========================
</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
II-36
<PAGE>
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 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%.
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 $2,334 2,212 1,769
Retiree benefits other than pensions 1,665 430 350
Savings and thrift 2,791 2,288 1,876
- - - --------------------------------------------------------
$6,790 4,930 3,995
==================
</TABLE>
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 had no impact on either the financial
position or results of operations for BB&T.
II-37
<PAGE>
The components of income tax expense (benefit), were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- - - --------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $49,345 37,400 27,533
State 4,895 3,724 3,255
- - - --------------------------------------------
54,240 41,124 30,788
- - - --------------------------------------------
Deferred:
Federal (5,140) (1,576) (4,365)
State (1,262) (129) (890)
- - - --------------------------------------------
(6,402) (1,705) (5,255)
- - - --------------------------------------------
$47,838 39,419 25,533
=======================
</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 $(2,310) (5,016)
Federal Home Loan Bank dividends (1,034) 51
Accrual of deferred income taxes on taxable bad debt reserves 3,800 --
Other (2,161) (290)
- - - -------------------------------------------------------------------------------
$(1,705) (5,255)
===============
</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 $51,126 39,406 30,686
Increase (decrease) resulting from:
State income taxes, net of federal tax benefit 2,361 2,373 1,561
Tax-exempt interest income, net of disallowed inter-
est expense (3,679) (4,802) (6,602)
Other items, net (1,970) 2,442 (112)
- - - ------------------------------------------------------------------------------
Income taxes $47,838 39,419 25,533
=======================
</TABLE>
The tax effects of cumulative temporary differences that resulted in a net
deferred tax asset of $18,405 at December 31, 1993 are presented below:
<TABLE>
- - - --------------------------------------------
<S> <C>
Deferred tax assets:
Bad debt provision $ 14,343
Pension expense 1,938
Deferred directors' compensation 1,538
Net deferred loan fees 1,652
Other 4,486
- - - --------------------------------------------
Total gross deferred assets 23,957
- - - --------------------------------------------
Deferred tax liabilities:
Depreciation (1,607)
Federal Home Loan Bank dividends (1,043)
Other (2,902)
- - - --------------------------------------------
Total gross deferred liabilities (5,552)
- - - --------------------------------------------
Net deferred tax asset $ 18,405
========
</TABLE>
A valuation allowance is not considered necessary because of prior years'
taxable income available for carryback and the probability of future taxable
earnings.
II-38
<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 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.
II-39
<PAGE>
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. Dividends on
shares held in the ESOP are paid 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 $396,834 at December 31, 1993. The
subsidiaries are prohibited by law from paying dividends from their capital
stock and paid-in capital accounts which totalled $417,059 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 totalled $93,434.
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 Net
Bank Operating Rent
Equipment Premises Subleases Expense
- - - ------------------------------------------
<S> <C> <C> <C> <C>
1993 $4,739 10,277 1,073 13,943
1992 4,093 9,239 1,046 12,286
1991 4,519 8,501 387 12,633
</TABLE>
A summary of noncancellable lease commitments for equipment and banking
facilities follows:
<TABLE>
<CAPTION>
Net Lease
Leases Subleases Commitment
- - - ----------------------------------------
<S> <C> <C> <C>
1994 $10,949 314 10,635
1995 10,213 260 9,953
1996 8,914 173 8,741
1997 8,532 107 8,425
1998 7,711 100 7,611
Thereafter 49,296 242 49,054
- - - ----------------------------------------
$95,615 1,196 94,419
============================
</TABLE>
II-40
<PAGE>
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 1,286,591 898,766
Standby letters of credit 117,023 107,479
Commercial and similar letters of credit 10,891 8,451
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 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 also 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.
II-41
<PAGE>
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:
- - - --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
<TABLE>
- - - ----------------------------------------------------------------------------
<CAPTION>
December 31,
1993 1992
- - - ----------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and interest-bearing deposits $136,217 128,751
8 3/4% subordinated capital note receivable from BB&T-N.C. -- 33,128
11% note receivable from BB&T-N.C. 30,000 30,000
Investment in bank and savings bank subsidiaries at under-
lying book value 814,078 603,548
Other assets 7,617 7,262
- - - ----------------------------------------------------------------------------
Total assets $987,912 802,689
================
Liabilities and Shareholders' Equity
Master notes $133,115 110,605
Advance from bank subsidiary 58,250 --
Long-term debt 50,000 84,025
Other liabilities 3,035 1,678
Shareholders' equity 743,512 606,381
- - - ----------------------------------------------------------------------------
Total liabilities and shareholders' equity $987,912 802,689
================
</TABLE>
- - - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
<TABLE>
- - - -------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
1993 1992 1991
- - - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from bank and savings bank subsidiaries $33,029 25,025 24,471
Interest and other income from bank and savings
bank subsidiaries 10,245 14,008 17,688
Other 41 (415) --
- - - -------------------------------------------------------------------------------
Total income 43,315 38,618 42,159
- - - -------------------------------------------------------------------------------
Expenses
Interest on master notes 4,174 5,144 8,791
Interest on long-term debt 3,505 5,921 7,062
Other 3,447 2,356 2,335
- - - -------------------------------------------------------------------------------
Total expenses 11,126 13,421 18,188
- - - -------------------------------------------------------------------------------
Income before income taxes and equity in undis-
tributed income of bank and savings bank subsidi-
aries 32,189 25,197 23,971
Income tax (credit) on parent company only income (387) (132) (384)
- - - -------------------------------------------------------------------------------
Income before equity in undistributed income of
bank and savings bank subsidiaries 32,576 25,329 24,355
Equity in undistributed income of bank and savings
bank subsidiaries 65,660 51,153 40,364
- - - -------------------------------------------------------------------------------
Net income $98,236 76,482 64,719
==========================
</TABLE>
II-42
<PAGE>
- - - -----------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
- - - -----------------------------------------------------------------------------
<CAPTION>
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 33,029 25,025 24,371
Management fees 2,004 2,004 2,004
Interest paid (7,712) (11,076) (15,867)
Other expense (3,151) (980) (1,679)
- - - -----------------------------------------------------------------------------
Net cash provided by operating activities 32,530 26,523 25,048
- - - -----------------------------------------------------------------------------
Cash Flows from Investing Activities:
Sales of securities 180 223 2,007
Purchase of securities (1,761) (800) --
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 -- -- (12,000)
Other (3,513) (1,308) (3,467)
- - - -----------------------------------------------------------------------------
Net cash used in investing activities (92,028) (11,408) (69,288)
- - - -----------------------------------------------------------------------------
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 48,354 25,468 61,017
Redemption of common stock (30,270) (6,767) (830)
Dividends paid (33,431) (24,997) (21,196)
Other 1,551 1,441 (3,002)
- - - -----------------------------------------------------------------------------
Net cash provided (used) by financing activities 66,964 (23,817) 30,252
- - - -----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equiva-
lents 7,466 (8,702) (13,988)
Cash and cash equivalents on January 1 128,751 137,453 151,441
- - - -----------------------------------------------------------------------------
Cash and cash equivalents on December 31 $136,217 128,751 137,453
==========================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
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>
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,
II-43
<PAGE>
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 $408,135 and $319,670, 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 $736,039 and $464,482,
respectively, and the fair values of investments available for sale were
$1,493,719 and $1,408,876, 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 $6,370,161 and $4,926,680,
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 $7,018,303 and
$5,859,384, 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 $984,325 and $610,183, 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 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 $349,437 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.
II-44
<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.
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 provide a reasonable basis
for our opinion.
In our opinion, 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.
(ART)
Raleigh, North Carolina
January 19, 1994
II-45
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
Management of BB&T Financial Corporation is responsible for the content of
the financial information contained herein. In order to meet this
responsibility, the financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances to
reflect, in all material respects, substance of events and transactions that
should be included.
The accounting systems, which record, summarize and report financial data,
and related internal accounting controls of BB&T Financial Corporation and its
subsidiaries are designed to provide reasonable assurance that the financial
records are reliable for preparing financial statements and maintaining
accountability for assets, including safeguarding assets against loss from
unauthorized use or disposition. The system of internal controls is augmented
by written policies, internal audits and staff training programs.
The Audit Committee of BB&T Financial Corporation, composed solely of outside
directors, reviews the internal audit function and meets periodically with
representatives of KPMG Peat Marwick, certified public accountants, whose
selection to express an independent professional opinion as to the fairness of
the presentation of BB&T Financial Corporation's financial statements has been
ratified by the shareholders.
/s/ John A. Allison /s/ Scott E. Reed
John A. Allison Scott E. Reed
Chairman of the Board and Chief Senior Executive Vice President and
Executive Officer Treasurer
BB&T Financial Corporation BB&T Financial Corporation
January 19, 1994
II-46
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
BB&T Financial Corporation
(Registrant)
March 17, 1994 /s/ John A. Allison
John A. Allison,
Chairman of the Board of Directors
and Principal Executive Officer
/s/ Scott E. Reed
March 17, 1994 Scott E. Reed,
Treasurer and Principal Financial
and Accounting Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ John A. Allison Chairman of the February 23,
- - - ------------------------------------- Board and Chief 1994
JOHN A. ALLISON Executive Officer
/s/ Scott E. Reed Treasurer and February 23,
- - - ------------------------------------- Principal Financial 1994
SCOTT E. REED Accounting Officer
/s/ Joseph B. Alala, Jr. Director February 23,
- - - ------------------------------------- 1994
JOSEPH B. ALALA, JR.
/s/ Watson Barnes Director February 23,
- - - ------------------------------------- 1994
W. WATSON BARNES
/s/ Paul B. Barringer Director February 23,
- - - ------------------------------------- 1994
PAUL B. BARRINGER
<PAGE>
SIGNATURES TITLE DATE
/s/ Robert L. Brady Director February 23,
- - - ------------------------------------- 1994
ROBERT L. BRADY
/s/ W.G. Clark III Director February 23,
- - - ------------------------------------- 1994
W. G. CLARK III
/s/ Jesse W. Corbett, Jr. Director February 23,
- - - ------------------------------------- 1994
JESSE W. CORBETT, JR.
Director February 23,
- - - ------------------------------------- 1994
W. R. CUTHBERTSON, JR.
/s/ Fred H. Deaton, Jr. Director February 23,
- - - ------------------------------------- 1994
FRED H. DEATON, JR.
/s/ Joe L. Dudley, Sr. Director February 23,
- - - ------------------------------------- 1994
JOE L. DUDLEY, SR.
/s/ Tom D. Efird Director February 23,
- - - ------------------------------------- 1994
TOM D. EFIRD
/s/ O. William Fenn, Jr. Director February 23,
- - - ------------------------------------- 1994
O. WILLIAM FENN, JR.
/s/ James E. Heins Director February 23,
- - - ------------------------------------- 1994
JAMES E. HEINS
/s/ Raymond A. Jones, Jr. Director February 23,
- - - ------------------------------------- 1994
RAYMOND A. JONES, JR.
/s/ Kelly S. King Director February 23,
- - - ------------------------------------- 1994
KELLY S. KING
/s/ David R. LaFar III Director February 23,
- - - ------------------------------------- 1994
DAVID R. LAFAR III
<PAGE>
SIGNATURES TITLE DATE
/s/ J. Ernest Lathem, M.D. Director February 23,
- - - ------------------------------------- 1994
J. ERNEST LATHEM, M.D.
Director February 23,
- - - ------------------------------------- 1994
JAMES H. MAYNARD
Director February 23,
- - - ------------------------------------- 1994
A. WINNIETT PETERS
/s/ Richard L. Player, Jr. Director February 23,
- - - ------------------------------------- 1994
RICHARD L. PLAYER, JR.
Director February 23,
- - - ------------------------------------- 1994
S. B. TANNER III
/s/ Larry J. Waggoner Director February 23,
- - - ------------------------------------- 1994
LARRY J. WAGGONER
/s/ Henry G. Williamson, Jr. Director February 23,
- - - ------------------------------------- 1994
HENRY G. WILLIAMSON, JR.
/s/ William B. Young, M.D. Director February 23,
- - - ------------------------------------- 1994
WILLIAM B. YOUNG, M.D.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Reference
- - - -------------------------------------------------------------------------------
<C> <S> <C>
(2)(a) Agreement and Plan of Reorganization dated
May 27, 1993 by and between Home Savings Bank
of Albemarle, SSB and Registrant Exhibit (2)(b)/1/
(2)(b) Agreement and Plan of Reorganization dated
June 22, 1993 by and between Asheville
Savings Bank, SSB and Registrant Exhibit (2)(c)/1/
(2)(c) Agreement and Plan of Reorganization and Plan
of Merger, attached as Annex A dated December
7, 1993 by and between LSB Bancshares, Inc.
and Registrant Filed Herewith
(3)(a) Copy of Articles of Incorporation of
Registrant and amendments Exhibit (19)(/2/)
(3)(b) Copy of the Bylaws of the Registrant, as
amended Exhibit (19)(/3/)
(4)(a) Definitive Form of Certificate for common
stock, $2.50 par value, of Registrant Exhibit "B"/4/
(4)(b) Definitive Form of Floating Rate Subordinated
Notes due 1997, issued by Registrant Exhibit (4)(b)/5/
(4)(c) Indenture dated as of December 1, 1985,
between Registrant and Bankers Trust Company,
Trustee, pursuant to which Registrant's
Floating Rate Subordinated Notes due 1997 are
issued and held Exhibit (4)(c)/5/
(10)(a) Form of Branch Banking and Trust Company Long
Term Incentive Plan Exhibit (19)/6/
(10)(b) Form of Branch Banking and Trust Company
Executive Incentive Compensation Plan Exhibit (10)(b)/7/
(10)(c) Form of BB&T Financial Corporation Non-
Employee Director Stock Option Plan Exhibit (10)(c)/8/
(11) Statement re Computation of Per Share
Earnings Filed Herewith
(22) Subsidiaries of Registrant Filed Herewith
</TABLE>
- - - --------
(1) Incorporated by reference to the identified exhibit under Registrant's Form
10-Q, File No. 0-7871, filed August 13, 1993.
(2) Incorporated by reference to the identified exhibit under Registrant's Form
10-Q, File No. 0-7871, filed August 14, 1989.
(3) Incorporated by reference to the identified exhibit under Registrant's Form
10-Q, File No. 0-7871, filed August 3, 1987.
(4) Incorporated by reference to the identified exhibit under Registrant's Form
10-Q, File No. 2-50199, filed October 14, 1979.
(5) Incorporated by reference to the identified exhibit under Registrant's
Registration Statement on Form S-3, No. 33-1965, filed December 5, 1985.
(6) Incorporated by reference to the identified exhibit under Registrant's Form
10-Q, File No. 0-7871, filed May 14, 1991.
(7) Incorporated by reference to the identified exhibit under Registrant's Form
10-K, File No. 0-7871, filed February 22, 1985.
(8) Incorporated by reference to the identified exhibit under Registrant's Form
10-K, File No. 0-7871, filed March 16, 1992.
<PAGE>
Exhibit 2(c)
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION
("Reorganization Agreement" or "Agreement"), dated as of
December 7, 1993, between L.S.B. BANCSHARES, INC. OF
SOUTH CAROLINA ("LSB"), a South Carolina corporation
having its home office at 309 Columbia Avenue, P.O.
Box 8, Lexington, South Carolina 29071, and BB&T
FINANCIAL CORPORATION ("BB&T"), a North Carolina
corporation having its home office at 223 West Nash
Street, Wilson, North Carolina 27893.
W I T N E S S E T H
WHEREAS, the parties hereto desire that LSB shall
be merged with and into BB&T Financial Corporation of
South Carolina ("BB&T-SC"), a South Carolina corporation
which is a wholly owned subsidiary of BB&T (said
transaction being hereinafter referred to as the
"Merger") pursuant to a plan of merger in the form
attached hereto as Annex A ("Plan of Merger");
WHEREAS, the parties hereto desire that The
Lexington State Bank ("Lexington") and The Community
Bank of South Carolina ("Community"), each wholly owned
South Carolina chartered bank subsidiaries of LSB, shall
be merged ("Bank Mergers") with and into Branch Banking
and Trust Company of South Carolina, BB&T-SC's wholly
owned South Carolina chartered bank subsidiary ("Branch
Bank-SC") pursuant to one or more Plans of Merger, in
form or forms to be specified by BB&T and agreeable to
LSB ("Bank Merger Agreement"); and
WHEREAS, the parties desire to provide for
certain undertakings, conditions, representations,
warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises
and of the mutual representations, warranties, covenants
and agreements herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree
as follows:
ARTICLE I
DEFINITIONS
"Bank Holding Company Act" shall mean the Bank
Holding Company Act of 1956, as amended.
<PAGE>
"BB&T Common Stock" shall mean the shares of
common stock, par value $2.50 per share, of BB&T.
"BB&T Average Closing Price" shall mean the
average per share closing price of BB&T Common Stock as
reported on the Nasdaq/National Market System for the
ten consecutive trading days ending on the tenth
business day prior to the Closing Date.
"BB&T Subsidiary" shall mean each of BB&T-SC,
Branch Bank-SC and Branch Banking and Trust Company, a
North Carolina chartered bank subsidiary of BB&T.
"Closing Date" shall mean the date specified
pursuant to Section 4.11 hereof as the date on which the
parties hereto shall close the transactions contemplated
herein.
"Code" shall mean the Internal Revenue Code of
1986, as amended.
"Commission" shall mean the Securities and
Exchange Commission.
"CRA" shall mean the Community Reinvestment Act
of 1977, as amended.
"Effective Date" shall mean the date specified
pursuant to Section 4.11 hereof as the effective date of
the Merger.
"Environmental Claim" means any written notice
from any governmental authority or third party alleging
potential liability (including, without limitation,
potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources
damages, property damages, personal injuries or
penalties) arising out of, based upon, or resulting from
the presence, or release into the environment, of any
Materials of Environmental Concern.
"Environmental Laws" means all applicable
federal, state and local laws and regulations, including
the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, that relate to
pollution or protection of human health or the
environment.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
<PAGE>
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
"FDIA" shall mean the Federal Deposit Insurance
Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance
Corporation.
"Federal Reserve Board" shall mean the Board of
Governors of the Federal Reserve System.
"Financial Statements" shall mean (a) with
respect to BB&T, (i) the consolidated balance sheets
(including related notes and schedules, if any) of BB&T
as of December 31, 1992 and 1991 and the related
consolidated statements of income, shareholders' equity
and cash flows (including related notes and schedules,
if any) for each of the three years ended December 31,
1992, 1991 and 1990 as filed by BB&T in Securities
Documents and (ii) the consolidated balance sheets of
BB&T (including related notes and schedules, if any) and
related statements of income, shareholders' equity and
cash flows (including related notes and schedules, if
any) included in Securities Documents filed by BB&T with
respect to periods ended subsequent to December 31,
1992, and (b) with respect to LSB, (i) the consolidated
balance sheets (including related notes and schedules,
if any) of LSB as of December 31, 1992 and 1991 and the
related consolidated statements of income, changes in
shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the three years
ended December 31, 1992, 1991 and 1990 as filed by LSB
in Securities Documents and (ii) the consolidated
balance sheets of LSB (including related notes and
schedules, if any) and related statements of income,
changes in shareholders' equity and cash flows
(including related notes and schedules, if any) included
in Securities Documents filed by LSB with respect to
periods ended subsequent to December 31, 1992.
"LSB Subsidiaries" shall mean Lexington,
Community and any other corporation, bank, savings
association, partnership, Joint Venture, or other
organization more than 10% of the stock or ownership
interest of which is owned, directly or indirectly, by
LSB, as Previously Disclosed.
"Joint Venture" shall mean any joint venture,
partnership or similar arrangement in which LSB or any
LSB Subsidiary is a member, party to or partner (whether
general or limited), as Previously Disclosed.
<PAGE>
"Material Adverse Effect" shall mean a material
adverse effect on the financial condition, results of
operations, business or prospects of LSB, Lexington and
Community, taken as a whole.
"Materials of Environmental Concern" means
pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products and any other materials
regulated under Environmental Laws.
"Option Agreement" shall mean the Option
Agreement dated as of even date herewith between LSB and
BB&T, which shall be executed immediately following
execution of this Reorganization Agreement.
"Previously Disclosed" shall mean disclosed in
(i) a Securities Document delivered by one party to the
other on or prior to the execution of this
Reorganization Agreement or (ii) a letter from the party
delivered and dated not later than December 14, 1993
making such disclosure specifically referring to this
Agreement and delivered to the other party, provided
that such letter is not materially inconsistent with a
draft of such letter delivered to the other party and
dated on or prior to the date of this Agreement. Any
matter included, whether aggregated or not, in Financial
Statements shall be deemed to be Previously Disclosed.
"Proxy Statement" shall mean the proxy statement
together with any supplements thereto sent to
shareholders of LSB to solicit their votes in connection
with this Agreement and the Plan of Merger.
"Registration Statement" shall mean the
registration statement with respect to the BB&T Common
Stock to be issued in the Merger as declared effective
by the Commission under the Securities Act.
"Rights" shall mean warrants, options, rights,
convertible securities and other arrangements or
commitments which obligate an entity to issue or dispose
of any of its capital stock or other ownership
interests, and stock appreciation rights, performance
units and similar stock-based rights whether or not they
obligate the issuer thereof to issue stock or other
securities or to pay cash.
"SCBCA" shall mean the South Carolina Business
Corporation Act, as amended.
"Securities Act" shall mean the Securities Act of
1933, as amended.
<PAGE>
"Securities Documents" shall mean all reports,
proxy statements, registration statements and all
similar documents filed, or required to be filed,
pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act;
the Exchange Act; the Investment Company Act of 1940, as
amended; the Investment Advisers Act of 1940, as
amended; the Trust Indenture Act of 1939, as amended;
and the rules and regulations of the Commission
promulgated thereunder.
"State Board" shall mean the South Carolina State
Board of Financial Institutions.
"TILA" shall mean the Truth in Lending Act, as
amended.
Other terms used herein are defined in the
preamble and elsewhere in this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF LSB
LSB represents and warrants to BB&T as follows:
2.1 Capital Structure
The authorized capital stock of LSB consists of
5,000,000 shares of common stock, par value $2.50 per
share ("LSB Common Stock"). As of the date hereof,
there were 2,688,028 shares of LSB Common Stock issued
and outstanding and 1,390,838 shares of LSB Common Stock
reserved for issuance in connection with the pending
acquisition of The Dorn Banking Company, LSB Dividend
Reinvestment Plan and the Option Agreement. All
outstanding shares of LSB Common Stock have been duly
issued and are validly outstanding, fully paid and
nonassessable. No other classes of capital stock of LSB
are authorized. There are no Rights authorized, issued
or outstanding with respect to the capital stock of LSB.
Shareholders of LSB do not have preemptive rights.
2.2 Organization, Standing and Authority
LSB is a corporation duly organized, validly
existing and in good standing under the laws of the
State of South Carolina with full corporate power and
authority to carry on its business as now conducted and
does not do business in any other states of the United
States and foreign jurisdictions where its ownership or
<PAGE>
leasing of property or the conduct of its business
requires qualification to do business. LSB is
registered as a bank holding company with the Federal
Reserve Board under the Bank Holding Company Act.
2.3 Ownership of LSB Subsidiaries
LSB does not own, directly or indirectly, any
outstanding capital stock or other voting securities or
ownership interests of any corporation, bank, savings
association, partnership, Joint Venture, or other
organization, except for the LSB Subsidiaries. The
outstanding shares of capital stock or other ownership
interests of the LSB Subsidiaries are validly issued and
outstanding, fully paid and nonassessable and all such
shares are directly or indirectly owned by LSB free and
clear of all liens, claims and encumbrances or
preemptive rights of any person. No Rights are
authorized, issued or outstanding with respect to the
capital stock or other ownership interests of any LSB
Subsidiaries and there are no agreements, understandings
or commitments relating to the right of LSB to vote or
to dispose of said shares or other ownership interests.
None of the shares of capital stock of any LSB
Subsidiary has been issued in violation of the
preemptive rights of any person.
2.4 Organization, Standing and Authority
of the LSB Subsidiaries
Each of the LSB Subsidiaries is a corporation or
partnership duly organized, validly existing and in good
standing under the laws of South Carolina. Lexington
and Community each are duly organized South Carolina
chartered banks. Each of the LSB Subsidiaries: (i) has
full corporate power and authority to carry on its
business as now conducted; (ii) is duly qualified to do
business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property
or the conduct of its business requires such
qualification, except where failure to so qualify would
not have a Material Adverse Effect; and (iii) is not
engaged in any activities that have not been Previously
Disclosed.
2.5 Authorized and Effective Agreement
a. LSB has all requisite corporate power and
authority to enter into and (subject to receipt of all
necessary governmental approvals and the receipt of
approval of shareholders of LSB of the Plan of Merger)
to perform all of its obligations under this
<PAGE>
Reorganization Agreement, the Plan of Merger, the Bank
Merger Agreement and the Option Agreement. The
execution and delivery of this Reorganization Agreement,
the Plan of Merger, the Bank Merger Agreement and the
Option Agreement and consummation of the transactions
contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action in
respect thereof on the part of LSB, and in the case of
the Bank Merger Agreement, Lexington and Community,
except, in the case of this Reorganization Agreement and
the Plan of Merger, the approval of LSB shareholders
pursuant to and to the extent required by applicable
law. This Reorganization Agreement, the Plan of Merger
and the Option Agreement constitute legal, valid and
binding obligations of LSB, each of which is enforceable
against LSB in accordance with its respective terms, in
each such case subject to (i) bankruptcy, fraudulent
transfer, insolvency, moratorium, reorganization,
conservatorship, receivership, or other similar laws
from time to time in effect relating to or affecting the
enforcement of rights of creditors of FDIC-insured
institutions or the enforcement of creditors' rights
generally, (ii) laws relating to the safety and
soundness of depository institutions and their holding
companies, and (iii) general principles of equity, and
except that the availability of equitable remedies or
injunctive relief is within the discretion of the
appropriate court.
b. Neither the execution and delivery of this
Reorganization Agreement, the Plan of Merger and the
Option Agreement in the case of LSB, or the Bank Merger
Agreement in the case of Lexington and Community, nor
consummation of the transactions contemplated hereby or
thereby, nor compliance by LSB or Lexington or Community
with any of the provisions hereof or thereof shall
(i) conflict with or result in a breach of any provision
of the articles of incorporation, charter or by-laws of
LSB or any LSB Subsidiary, (ii) constitute or result in
a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or
encumbrance upon any material property or asset of LSB
or any LSB Subsidiary pursuant to, any note, bond,
mortgage, indenture, license, agreement or other
instrument or obligation, which breach, default, right,
lien, charge, or encumbrance would have a Material
Adverse Effect, or, (iii) subject to receipt of all
required governmental approvals, violate any order,
writ, injunction, decree, statute, rule or regulation
applicable to LSB or any LSB Subsidiary.
<PAGE>
2.6 Securities Documents and Reports
LSB has timely filed all Securities Documents
required by the Securities Laws since December 31, 1987,
and such Securities Documents complied in all material
respects with the Securities Laws as in effect at the
times of such filings. LSB and the LSB Subsidiaries
have in all material respects timely filed all reports
required to be filed with the Federal Reserve Board, the
FDIC and the State Board and such reports complied in
all material respects with applicable law and
regulations as in effect at the times of such filings.
2.7 Financial Statements; Minute Books
The Financial Statements of LSB fairly present or
will fairly present, as the case may be, the
consolidated financial position of LSB and the LSB
Subsidiaries as of the dates indicated and the
consolidated results of operations, changes in
shareholders' equity and statements of cash flows for
the periods then ended (subject, in the case of
unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect)
in conformity with generally accepted accounting
principles applicable to financial institutions applied
on a consistent basis (except as stated therein). The
minute books of LSB and the LSB Subsidiaries contain
legally sufficient records of all meetings and other
corporate actions of its shareholders and Board of
Directors (including committees of its Board of
Directors).
2.8 Material Adverse Change
LSB has not, on a consolidated basis, suffered
any material adverse change in its business, financial
condition, results of operations or prospects since
December 31, 1992.
2.9 Absence of Undisclosed Liabilities
Neither LSB nor any LSB Subsidiary has any
liability (contingent or otherwise) that is material to
LSB on a consolidated basis or that, when combined with
all similar liabilities, would be material to LSB on a
consolidated basis, except as has been Previously
Disclosed and except for liabilities made in the
ordinary course of its business consistent with past
practices since the date of LSB's most recent Financial
Statements.
<PAGE>
2.10 Properties
a. LSB and the LSB Subsidiaries have good and
marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests
to all of the properties and assets, real and personal,
reflected on the consolidated balance sheet included in
the Financial Statements of LSB as of December 31, 1992
or acquired after such date, except (i) liens for
current taxes not yet due and payable, (ii) pledges to
secure deposits and other liens incurred in the ordinary
course of banking business, (iii) such imperfections of
title, easements and encumbrances, if any, as are not
material in character, amount or extent,
(iv) dispositions and encumbrances for adequate
consideration in the ordinary course of business, or
(v) as Previously Disclosed.
b. All material leases pursuant to which LSB or
any LSB Subsidiary, as lessee, leases real or personal
property, are, with respect to LSB or the LSB
Subsidiary, valid and enforceable in accordance with
their respective terms, in each such case subject to (i)
bankruptcy, fraudulent transfer, insolvency, moratorium,
reorganization, conservatorship, receivership, or other
similar laws from time to time in effect relating to or
affecting the enforcement of rights of creditors of
FDIC-insured institutions or the enforcement of
creditors' rights generally, (ii) laws relating to the
safety and soundness of depository institutions and
their holding companies, and (iii) general principles of
equity, and except that the availability of equitable
remedies or injunctive relief is within the discretion
of the appropriate court.
2.11 Environmental Matters
a. LSB and the LSB Subsidiaries are in
substantial compliance with all Environmental Laws.
Neither LSB nor any LSB Subsidiary has received any
communication alleging that LSB or any LSB Subsidiary is
not in such compliance and, to the best knowledge of
LSB, there are no present circumstances that would
prevent or interfere with the continuation of such
compliance.
b. LSB has not received notice of any pending,
and is not aware of any threatened, legal,
administrative, arbitral or other proceedings, asserting
Environmental Claims or other claims, causes of action
or governmental investigations of any nature, seeking to
impose, or that could result in the imposition, on LSB
<PAGE>
or any LSB Subsidiary of any liability arising under any
Environmental Laws upon (i) LSB or any LSB Subsidiary,
(ii) any person or entity whose liability for any
Environmental Claim LSB or any LSB Subsidiary has or may
have retained either contractually or by operation of
law, (iii) any real or personal property owned or leased
by LSB or any LSB Subsidiary, or any real or personal
property which LSB or any LSB Subsidiary has been, or
is, judged to have managed or to have supervised or to
have participated in the management of, or (iv) any real
or personal property in which LSB or any LSB Subsidiary
holds a security interest securing a loan recorded on
the books of LSB or any LSB Subsidiary. Neither LSB nor
any LSB Subsidiary is subject to any agreement, order,
judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party
imposing any such liability.
c. With respect to all real and personal
property owned or leased by LSB or any LSB Subsidiary,
or all real and personal property which LSB or any LSB
Subsidiary has been, or is, judged to have managed or to
have supervised or to have participated in the
management of, LSB has provided BB&T with access to
copies of any environmental audits, analyses and surveys
that have been prepared relating to such properties (a
list of all of which has been Previously Disclosed). To
the best of LSB's knowledge, LSB and the LSB
Subsidiaries are in compliance in all material respects
with all recommendations contained in any such
environmental audits, analyses and surveys.
d. There are no past or present actions,
activities, circumstances, conditions, events or
incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or
governmental investigation that could result in the
imposition of any liability arising under any
Environmental Laws against LSB or any LSB Subsidiary or
against any person or entity whose liability for any
Environmental Claim LSB or any LSB Subsidiary has or may
have retained or assumed either contractually or by
operation of law.
2.12 Allowance for Loan Losses
The allowance for loan losses reflected on the
consolidated balance sheets included in the Financial
Statements of LSB is or will be adequate in the opinion
of LSB's management in all material respects as of their
respective dates under the requirements of generally
accepted accounting principles applicable to banks and
<PAGE>
bank holding companies to provide for reasonably
anticipated losses on outstanding loans net of
recoveries.
2.13 Tax Matters
a. LSB and the LSB Subsidiaries, and each of
their predecessors, have timely filed (or requests for
extensions have been timely filed and any such
extensions have been granted and have not expired) all
federal, state and material local (and, if applicable,
foreign) tax returns required by applicable law to be
filed by them (including, without limitation, estimated
tax returns, income tax returns, information returns,
and withholding and employment tax returns) and have
paid, or where payment is not required to have been
made, have set up an adequate reserve or accrual for the
payment of, all taxes required to be paid in respect of
the periods covered by such returns and, as of the
Effective Date, will have paid, or where payment is not
required to have been made, will have set up an adequate
reserve or accrual for the payment of, all taxes for any
subsequent periods ending on or prior to the Effective
Date. Neither LSB nor any of the LSB Subsidiaries will
have any material liability for any such taxes in excess
of the amounts so paid or reserves or accruals so
established.
b. All federal, state and local (and, if
applicable, foreign) tax returns filed by LSB and the
LSB Subsidiaries are complete and accurate in all
material respects. Neither LSB nor any of the LSB
Subsidiaries is delinquent in the payment of any
material tax, assessment or governmental charge. No
deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed
(tentatively or otherwise) against LSB or any LSB
Subsidiary which have not been settled and paid. There
are currently no agreements in effect with respect to
LSB or any LSB Subsidiary to extend the period of
limitations for the assessment or collection of any tax.
No audit examination or deficiency or refund litigation
with respect to such returns are pending.
2.14 Employee Benefit Plans
a. LSB has Previously Disclosed true and
complete copies of all stock option, employee stock
purchase and stock bonus plans, qualified pension or
profit-sharing plans, deferred compensation, bonus or
group insurance contracts and any other incentive,
welfare or employee benefit plans or agreements
<PAGE>
maintained for the benefit of employees or former
employees of LSB or any LSB Subsidiary together with
(i) the most recent actuarial and financial reports
prepared with respect to any qualified plans, (ii) the
most recent annual reports filed with any government
agency, and (iii) all rulings and determination letters
and any open requests for rulings or letters that
pertain to any qualified plan.
b. Neither LSB nor any other LSB Subsidiary (or
any pension plan maintained by any of them) has incurred
any material liability to the Pension Benefit Guaranty
Corporation or the Internal Revenue Service with respect
to any pension plan qualified under Section 401 of the
Code except liabilities to the Pension Benefit Guaranty
Corporation pursuant to Section 4007 of ERISA, all of
which have been fully paid. No reportable event under
Section 4043(b) of ERISA has occurred with respect to
any such pension plan.
c. Neither LSB nor any LSB Subsidiary
participates in, or has incurred any liability under
Section 4201 of ERISA for a complete or partial
withdrawal from, a multiemployer plan (as such term is
defined in ERISA).
d. A favorable determination letter has been
issued by the Internal Revenue Service with respect to
each "employee pension plan" (as defined in Section 3(2)
of ERISA) of LSB or any LSB Subsidiary to the effect
that such plan is qualified under Section 401 of the
Code and tax exempt under Section 501 of the Code. No
such letter has been revoked or, to LSB's knowledge,
threatened to be revoked and LSB does not know of any
ground on which such revocation may be based. Neither
LSB nor any LSB Subsidiary has a material liability
under any such plan that is not reflected on the
consolidated balance sheet included in the Financial
Statements of LSB as of December 31, 1992.
e. Except as Previously Disclosed, no
prohibited transaction (which shall mean any transaction
prohibited by Section 406 of ERISA and not exempt under
Section 408 of ERISA or Section 4975 of the Code) has
occurred with respect to any employee benefit plan
maintained by LSB or any LSB Subsidiary (i) which would
result in the imposition, directly or indirectly, of a
material excise tax under Section 4975 of the Code, or
(ii) the correction of which would have a Material
Adverse Effect.
<PAGE>
2.15 Certain Contracts
a. Except as Previously Disclosed, neither LSB
nor any LSB Subsidiary is a party to, is bound or
affected by, or receives benefits under (i) any material
agreement, arrangement or commitment whether or not made
in the ordinary course of business (other than loans or
loan commitments or certificates of deposit made in the
ordinary course of banking business by Lexington or
Community), or any agreement materially restricting its
business activities, including, without limitation,
agreements or memoranda of understanding with regulatory
authorities, (ii) any agreement, indenture or other
instrument relating to the borrowing of money by LSB or
any LSB Subsidiary or the guarantee by LSB or any LSB
Subsidiary of any such obligation, which cannot be
terminated within less than 30 days after the Closing
Date by LSB or the LSB Subsidiaries (without payment of
any penalty or cost by LSB or an LSB Subsidiary),
(iii) any agreement, arrangement or commitment relating
to the employment of a consultant or the employment,
election or retention in office of any present or former
director or officer, which cannot be terminated within
less than 30 days after the Closing Date by LSB or the
LSB Subsidiaries (without payment of any penalty or cost
by LSB or an LSB Subsidiary), or (iv) any contract,
agreement or understanding with a labor union, in each
case whether written or oral.
b. Neither LSB nor any LSB Subsidiary is in
default, which default would have a material adverse
effect on LSB on a consolidated basis or the
transactions contemplated herein, under any material
agreement, commitment, arrangement, lease, insurance
policy, or other instrument whether entered into in the
ordinary course of business or otherwise and whether
written or oral, and there has not occurred any event
that, with the lapse of time or giving of notice or
both, would constitute such a default.
2.16 Legal Proceedings; Regulatory Approvals
Except as Previously Disclosed, at the date
hereof, there are no actions, suits, claims,
governmental investigations or proceedings instituted,
pending or, to the best knowledge of LSB, threatened (or
unasserted but considered by LSB to be probable of
assertion and which, if asserted, would have at least a
reasonable probability of an unfavorable outcome)
against LSB or any LSB Subsidiary or against any asset,
interest, or right of LSB or any LSB Subsidiary, or
against any officer, director or employee of any of them
<PAGE>
that in any such case, if decided adversely, might have
a Material Adverse Effect (or, in the case of threatened
actions, suits, claims, governmental investigations or
proceedings, is likely, in the reasonable judgment of
LSB's Chief Executive Officer, after due inquiry of such
other persons as may be necessary to make such a
judgment, to have a Material Adverse Effect). Except as
Previously Disclosed, there are no actions, suits or
proceedings instituted, pending or, to the knowledge of
LSB and each of the directors and executive officers of
LSB and each LSB Subsidiary, threatened (or unasserted
but considered probable of assertion and which if
asserted would have at least a reasonable probability of
an unfavorable outcome) against any present or former
director or officer of LSB or any LSB Subsidiary that
might give rise to a claim for indemnification as
contemplated by Section 4.13(a) hereof, and to the best
of the knowledge of LSB and each of its directors and
executive officers and each of the directors and
executive officers of each LSB Subsidiary, there is no
reasonable basis for any such action, suit or
proceeding. To the knowledge of LSB, there are no
actual or threatened actions, suits or proceedings which
present a claim to restrain or prohibit the transactions
contemplated herein, in the Plan of Merger, the Option
Agreement, or the Bank Merger Agreement. No fact or
condition (including but not limited to compliance with
the CRA) relating to LSB or any LSB Subsidiary known to
LSB exists that would prevent LSB or BB&T from obtaining
all of the federal and state regulatory approvals
contemplated herein.
2.17 Compliance with Laws
Except as Previously Disclosed, each of LSB and
the LSB Subsidiaries is in compliance in all material
respects with all statutes and regulations (including,
but not limited to, the CRA and regulations promulgated
thereunder, the TILA and regulations promulgated
thereunder and other consumer banking laws) applicable
and material to the conduct of its business (except for
any violations not material to the business, operations
or financial condition of LSB and the LSB Subsidiaries
on a consolidated basis), and neither LSB nor any LSB
Subsidiary has received notification that has not
elapsed, been withdrawn or abandoned by any agency or
department of federal, state or local government
(i) asserting a violation or possible violation of any
such statute or regulation and which violation would
have a Material Adverse Effect on a consolidated basis,
(ii) threatening to revoke any license, franchise,
permit or government authorization, or (iii) restricting
<PAGE>
or in any way limiting its operations. Neither LSB nor
any LSB Subsidiary is subject to any regulatory or
supervisory cease and desist order, agreement,
directive, memorandum of understanding or commitment,
and none of them has received any communication
requesting that they enter into any of the foregoing.
Without limiting the generality of the foregoing, each
LSB Subsidiary has timely filed all currency transaction
reports required to be filed and taken all other actions
required under the Currency and Foreign Transactions
Reporting Act, as amended, codified at 31 U.S.C. (S) 5301
et seq., and its implementing regulations.
2.18 Brokers and Finders
Neither LSB nor any LSB Subsidiary nor any of
their respective officers, directors or employees has
employed any broker, finder or financial advisor or
incurred any liability of LSB or the LSB Subsidiaries
for any fees or commissions in connection with the
transactions contemplated herein, in the Plan of Merger
or in the Option Agreement (except for fees to
accountants and lawyers and The Carson Medlin Company).
2.19 Insurance
LSB and the LSB Subsidiaries each currently
maintain insurance in the amounts and for the coverages
Previously Disclosed. Except as Previously Disclosed,
neither LSB nor any LSB Subsidiary has received any
notice of a premium increase or cancellation or a
failure to renew with respect to any insurance policy or
bond, and within the last three years, neither LSB nor
any LSB Subsidiary has been refused any insurance
coverage sought or applied for, and neither LSB nor any
LSB Subsidiary has any reason to believe that existing
insurance coverage cannot be renewed as and when the
same shall expire, upon terms and conditions as
favorable as those presently in effect, other than
possible increases in premiums or unavailability of
coverage that do not result from any extraordinary loss
experience on the part of LSB or any LSB Subsidiary.
2.20 Repurchase Agreements
Except as Previously Disclosed, or where no
Material Adverse Effect would result: (i) with respect
to all agreements currently outstanding pursuant to
which LSB or any LSB Subsidiary has purchased securities
subject to an agreement to resell, LSB and the LSB
Subsidiary have a valid, perfected first lien or
security interest in the securities or other collateral
<PAGE>
securing such agreement, and the value of such
collateral equals or exceeds the amount of the debt
secured thereby; and (ii) with respect to all agreements
currently outstanding pursuant to which LSB or any LSB
Subsidiary has sold securities subject to an agreement
to repurchase, LSB and the LSB Subsidiary have not
pledged collateral materially in excess of the amount of
the debt secured thereby. Neither LSB nor any LSB
Subsidiary has pledged collateral materially in excess
of the amount required under any interest rate swap or
other similar agreement currently outstanding.
2.21 Deposit Accounts of Lexington and Community
The deposit accounts of Lexington and Community
are insured by the Bank Insurance Fund of the FDIC to
the maximum extent permitted by federal law, and
Lexington and Community have paid all premiums and
assessments and filed all reports required to have been
paid or filed under the FDIA.
2.22 Loans
a. With respect to each loan on the books and
records of LSB or any LSB Subsidiary, including unfunded
portions of outstanding lines of credit and loan
commitments: (i) such loan is a valid loan; (ii) its
principal balance as shown on the books and records of
LSB or any LSB Subsidiary is true and correct as of the
last date shown thereon; (iii) all purported signatures
on and executions of any document in connection with
such loan are genuine; (iv) all related documentation
has been signed or executed by all necessary parties;
(v) LSB and the LSB Subsidiaries have custody of all
documents or microfilm records thereof related to such
loan (as such documents relate to the matters described
in clauses (i)-(iv) and (vi)-(vii) hereof); (vi) to the
extent secured, such loan has been secured by valid
liens and security interests which have been perfected;
and (vii) such loan is the legal, valid and binding
obligation of the obligor named therein, subject to
bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting
creditors' rights and to general equity principles. All
loans on the books and records of LSB or any LSB
Subsidiary have been originated and administered in
accordance with the terms of the underlying notes
related thereto. Neither the terms of such loans, nor
<PAGE>
any of the loan documentation, nor the manner in which
such loans have been administered and serviced, violates
any federal, state or local law, rule, regulation or
ordinance applicable thereto, including, without
limitation, Regulation O of the Federal Reserve Board,
12 C.F.R. (S) 563.43, the TILA, Regulation Z of the
Federal Reserve Board, the Equal Credit Opportunity Act,
as amended, and state laws, rules and regulations
relating to consumer protection, installment sales and
usury. Notwithstanding anything else contained in this
Section 2.22(a), the representations and warranties
contained in this Section shall be considered to have
been made only to the extent that nonconformance with
such representation or warranty as to any loan or group
of loans would (i) after giving effect to LSB's reserve
for loan losses, have a Material Adverse Effect, or
(ii) except to the extent Previously Disclosed, cause
BB&T reasonably to conclude that the loan documentation
and records maintained by LSB and the LSB Subsidiaries
are not maintained in accordance with BB&T's lending
procedures and requirements.
b. LSB has Previously Disclosed all investments
and loans, including loan guarantees, to which LSB or
any LSB Subsidiary is a party with any director,
executive, officer or 5% shareholder of LSB or any
person, corporation, or enterprise controlling,
controlled by or under common control with any of the
foregoing.
2.23 Certain Information
When the Proxy Statement is mailed, and at the
time of the meeting of shareholders of LSB to vote upon
the Plan of Merger, the Proxy Statement and all
amendments or supplements thereto, with respect to all
information set forth therein furnished by LSB relating
to LSB and the LSB Subsidiaries, (i) shall comply in all
material respects with the applicable provisions of the
Securities Laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements contained therein, in light of the
circumstances in which they were made, not misleading.
2.24 Effect of Representations and Warranties
The representations and warranties contained in
this Article II are made for the purpose of assigning to
LSB the economic risk of the material falsity or
inaccuracy of those representations and warranties, or
nonconformance of the facts related thereto. Any
<PAGE>
non-material falsity, nonconformity or inaccuracy in any
representation or warranty (except for those expressed
as being within the actual knowledge of LSB or any LSB
Subsidiaries or an officer thereof where such
representation or warranty is made falsely) shall not
form the basis for any claim by BB&T against LSB, any
LSB Subsidiary, or any of their respective officers,
directors or agents, that LSB, any LSB Subsidiary, or
such officers, directors or agents, have made a willful,
reckless or negligent misrepresentation or otherwise
engaged in deceitful conduct. Nothing in this Section
shall otherwise limit the right of BB&T to terminate
this Agreement in accordance with Section 6.1 or take
such other actions as are permitted by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BB&T
BB&T represents and warrants to LSB as follows:
3.1 Capital Structure of BB&T and BB&T-SC
The authorized capital stock of BB&T consists
of (i) 4,000,000 shares of preferred stock, par value
$2.50 per share, and (ii) 50,000,000 shares of BB&T
Common Stock, of which 32,246,028 shares are issued and
outstanding. All outstanding shares of BB&T Common
Stock have been duly issued and are validly outstanding,
fully paid and nonassessable. As of the date of this
Agreement, BB&T has reserved 3,367,843 shares of BB&T
Common Stock for issuance under its benefit plans,
convertible securities and Dividend Reinvestment Plan.
Except as set forth herein, there are no Rights
authorized, issued or outstanding with respect to the
capital stock of BB&T. None of the shares of capital
stock of BB&T has been issued in violation of the
preemptive rights of any person.
The authorized capital stock of BB&T-SC
consists of 20,000,000 shares of common stock, of which
1,427,188 shares are issued and outstanding, and all of
such shares are owned by BB&T. All outstanding shares
of BB&T-SC Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable.
There are no Rights authorized, issued or outstanding
with respect to the capital stock of BB&T-SC. None of
the shares of capital stock of BB&T-SC has been issued
in violation of the preemptive rights of any person.
<PAGE>
3.2 Organization, Standing and
Authority of BB&T
BB&T is a corporation duly organized, validly
existing and in good standing under the laws of the
state of North Carolina, with full corporate power and
authority to carry on its business as now conducted and
is duly qualified to do business in the states of the
United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its
business requires such qualification and where failure
to so qualify would have a material adverse effect on
the financial condition, results of operation, or
business of BB&T on a consolidated basis. BB&T is
registered as a bank holding company under the Bank
Holding Company Act.
3.3 Authorized and Effective Agreement
a. BB&T has all requisite corporate power and
authority to enter into and perform all of its
obligations under this Reorganization Agreement and the
Option Agreement. The execution and delivery of this
Reorganization Agreement and the Option Agreement and
consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all
necessary corporate action in respect thereof on the
part of BB&T. This Reorganization Agreement and the
Option Agreement constitute legal, valid and binding
obligations of BB&T, in each such case enforceable
against it in accordance with their respective terms
subject to (i) bankruptcy, insolvency, moratorium,
reorganization, conservatorship, receivership or other
similar laws in effect from time to time relating to or
affecting the enforcement of the rights of creditors of
FDIC-insured institutions or the enforcement of
creditors' rights generally, (ii) laws relating to the
safety and soundness of depository institutions and
their holding companies, and (iii) general principles of
equity, and except that the availability of remedies or
injunctive relief is within the discretion of the
appropriate court.
b. Neither the execution and delivery of this
Reorganization Agreement nor the Option Agreement, in
the case of BB&T, nor the Plan of Merger in the case of
BB&T and BB&T-SC, nor the Bank Merger Agreement in the
case of Branch Bank-SC, nor consummation of the
transactions contemplated hereby or thereby, nor
compliance by BB&T, BB&T-SC and Branch Bank-SC with any
of the provisions hereof or thereof shall (i) conflict
with or result in a breach of any provision of the
<PAGE>
articles of incorporation or by-laws of BB&T or any BB&T
Subsidiary, (ii) constitute or result in a breach of any
term, condition or provision of, or constitute a default
under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result
in the creation of any lien, charge or encumbrance upon
any property or asset of BB&T or any BB&T Subsidiary
pursuant to any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation
which would have a material adverse effect on the
business, operations or financial conditions of BB&T and
the BB&T Subsidiaries taken as a whole, or (iii) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to BB&T or any BB&T Subsidiary.
3.4 Organization, Standing and
Authority of BB&T Subsidiaries
Each BB&T Subsidiary is a duly organized
corporation, validly existing and in good standing under
applicable laws. Each BB&T Subsidiary (i) has full
power and authority to carry on its business as now
conducted and (ii) is duly qualified to do business in
the states of the United States and foreign
jurisdictions where its ownership or leasing of property
or the conduct of its business requires such
qualification and where failure to so qualify would have
a material adverse effect on the financial condition,
results of operations, business or prospects of BB&T on
a consolidated basis. BB&T-SC is registered as a bank
holding company under the Bank Holding Company Act.
3.5 Securities Documents
BB&T has timely filed all Securities Documents
required by the Securities Laws since December 31, 1987
and such Securities Documents complied in all material
respects with the Securities Laws as in effect at the
times of such filings.
3.6 Financial Statements
The Financial Statements of BB&T fairly present
or will fairly present, as the case may be, the
consolidated financial position of BB&T and the BB&T
Subsidiaries as of the dates indicated and the
consolidated results of operations, changes in
shareholders' equity and changes in cash flows for the
periods then ended in conformity with generally accepted
accounting principles applicable to financial
institutions applied on a consistent basis.
<PAGE>
3.7 Material Adverse Change
BB&T has not, on a consolidated basis, suffered
any material adverse change in its business, financial
condition, results of operations or prospects since
December 31, 1992.
3.8 Legal Proceedings; Regulatory Approvals
At the date hereof, there are no actions, suits,
claims, governmental investigations or proceedings
instituted, pending or, to the best knowledge of BB&T,
threatened against BB&T or any BB&T Subsidiary or
against any asset, interest or right of BB&T or any BB&T
Subsidiary, or against any officer, director or employee
of any of them that, if decided adversely, might have a
material adverse effect on the financial condition,
results of operations, business or prospects of BB&T on
a consolidated basis. To the knowledge of BB&T, there
are no actual or threatened actions, suits or
proceedings which present a claim to restrain or
prohibit the transactions contemplated herein or in the
Plan of Merger. No fact or condition (including but not
limited to CRA compliance) relating to BB&T or any BB&T
Subsidiary known to BB&T exists that would prevent BB&T
from obtaining all of the federal and state regulatory
approvals contemplated herein.
3.9 Ownership of BB&T Subsidiaries
The outstanding shares of capital stock or other
ownership interests of the BB&T Subsidiaries are validly
issued and outstanding, fully paid and nonassessable,
and all such shares are directly or indirectly owned by
BB&T free and clear of all liens, claims and
encumbrances or preemptive rights of any person. No
Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership
interests of any BB&T Subsidiary and there are no
agreements, understandings or commitments relating to
the right of BB&T to vote or to dispose of said shares
or other ownership interests.
3.10 Absence of Undisclosed Liabilities
Neither BB&T nor any BB&T Subsidiary has any
liability (contingent or otherwise) that is material to
BB&T on a consolidated basis or that, when combined with
all similar liabilities, would be material to BB&T on a
consolidated basis, except as disclosed in the Financial
Statements of BB&T and except for liabilities made in
the ordinary course of its business consistent with past
<PAGE>
practices since the date of BB&T's most recent Financial
Statements.
3.11 Allowance for Loan Losses
The allowance for loan losses reflected on the
consolidated balance sheets included in the Financial
Statements of BB&T is or will be in the opinion of
BB&T's management adequate in all material respects as
of their respective dates under the requirements of
generally accepted accounting principles applicable to
banks and bank holding companies to provide for
reasonably anticipated losses on outstanding loans net
of recoveries.
3.12 Tax Matters
a. BB&T and the BB&T Subsidiaries, and each of
their predecessors, have timely filed all federal, state
and local (and, if applicable, foreign) tax returns
required by applicable law to be filed by them
(including, without limitation, estimated tax returns,
income tax returns, information returns, and withholding
and employment tax returns) and have paid, or where
payment is not required to have been made, are
contesting payment thereof in good faith, or have set up
an adequate reserve or accrual for the payment of, all
taxes required to be paid in respect of the periods
covered by such returns and, as of the Effective Date,
will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or
accrual for the payment of, all taxes for any subsequent
periods ending on or prior to the Effective Date which
are not being contested in good faith. Neither BB&T nor
any of the BB&T Subsidiaries will to BB&T's knowledge
have any material liability for any such taxes in excess
of the amounts so paid or reserves or accruals so
established.
b. All federal, state and local (and, if
applicable, foreign) tax returns filed by BB&T and the
BB&T Subsidiaries are complete and accurate in all
material respects. Neither BB&T nor any of the BB&T
Subsidiaries is delinquent in the payment of any tax,
assessment or governmental charge, and none of them has
requested any extension of time within which to file any
tax returns in respect of any fiscal year or portion
thereof which have not since been filed. No
deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed
(tentatively or otherwise) against BB&T or any BB&T
Subsidiary which have not been settled and paid. There
<PAGE>
currently are no agreements in effect with respect to
BB&T or any BB&T Subsidiary to extend the period of
limitations for the assessment or collection of any tax.
3.13 Compliance with Laws
Each of BB&T and the BB&T Subsidiaries is in
material compliance with all statutes and regulations
(including, but not limited to, CRA and regulations
promulgated thereunder, TILA and regulations promulgated
thereunder and other consumer banking laws) applicable
and material to the conduct of its business (except for
any violations not material to the business, operations
or financial condition of BB&T and its subsidiaries
taken as a whole), and neither BB&T nor any BB&T
Subsidiary has received notification that has not
elapsed, been withdrawn or abandoned from any agency or
department of federal, state or local government (i)
asserting a violation or possible violation of any such
statute or regulation, and which violations would have a
material adverse effect on the business, operations or
financial condition of BB&T and the BB&T Subsidiaries
taken as a whole, (ii) threatening to revoke any
license, franchise, permit or government authorization,
or (iii) restricting or in any way limiting its
operations. Neither BB&T nor any BB&T Subsidiary is
subject to any regulatory or supervisory cease and
desist order, agreement, directive, memorandum of
understanding or commitment, and none of them has
received any communication requesting that they enter
into any of the foregoing. Without limiting the
generality of the foregoing, each BB&T Subsidiary has
timely filed all currency transaction reports required
to be filed and taken all other actions required under
the Currency and Foreign Transactions Reporting Act as
amended, codified at 31 U.S.C. (S) 5301 et seq., and its
implementing regulations.
3.14 Certain Information
When the Proxy Statement is mailed, and at all
times subsequent to such mailing up to and including the
time of the meeting of shareholders of LSB to vote on
the Merger, the Proxy Statement and all amendments or
supplements thereto, with respect to all information set
forth therein furnished by BB&T relating to BB&T,
including pro forma information insofar as it relates to
BB&T and entities other than LSB and the LSB
Subsidiaries, (i) shall comply in all material respects
with the applicable provisions of the Securities Laws,
and (ii) shall not contain any untrue statement of a
<PAGE>
material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
contained therein, in light of the circumstances in
which they were made, not misleading.
3.15 Employee Benefit Plans
a. BB&T has Previously Disclosed a list of and
provided LSB with access to true and complete copies of
all stock option, employee stock purchase and stock
bonus plans, qualified pension or profit-sharing plans,
deferred compensation, bonus or group insurance
contracts and any other incentive, welfare or employee
benefit plans or agreements maintained for the benefit
of employees or former employees of BB&T or any BB&T
Subsidiary together with (i) the most recent actuarial
and financial reports prepared with respect to any
qualified plans, (ii) the most recent annual reports
filed with any government agency, and (iii) all rulings
and determination letters and any open requests for
rulings or letters that pertain to any qualified plan.
b. Neither BB&T nor any other BB&T Subsidiary
(or any pension plan maintained by any of them) has
incurred any material liability to the Pension Benefit
Guaranty Corporation or the Internal Revenue Service
with respect to any pension plan qualified under Section
401 of the Code except liabilities to the Pension
Benefit Guaranty Corporation pursuant to Section 4007 of
ERISA, all of which have been fully paid. No reportable
event under Section 4043(b) of ERISA has occurred with
respect to any such pension plan.
c. Neither BB&T nor any BB&T Subsidiary
participates in, or has incurred any liability under
Section 4201 of ERISA for a complete or partial
withdrawal from, a multiemployer plan (as such term is
defined in ERISA).
d. Except as Previously Disclosed, a favorable
determination letter has been issued by the Internal
Revenue Service with respect to each "employee pension
plan" (as defined in Section 3(2) of ERISA) of BB&T or
any BB&T Subsidiary to the effect that such plan is
qualified under Section 401 of the Code and tax exempt
under Section 501 of the Code. No such letter has been
revoked or, to BB&T's knowledge, threatened to be
revoked and BB&T does not know of any ground on which
such revocation may be based. Neither BB&T nor any BB&T
Subsidiary has a material liability under any such plan
that is not reflected on the consolidated balance sheet
<PAGE>
included in the Financial Statements of BB&T as of
December 31, 1992.
e. No prohibited transaction (which shall mean
any transaction prohibited by Section 406 of ERISA and
not exempt under Section 408 of ERISA or Section 4975 of
the Code) has occurred with respect to any employee
benefit plan maintained by BB&T or any BB&T Subsidiary
(i) which would result in the imposition, directly or
indirectly, of a material excise tax under Section 4975
of the Code, or (ii) the correction of which would have
a material adverse effect on the business, operations or
financial condition of BB&T and the BB&T Subsidiaries
taken as a whole.
ARTICLE IV
COVENANTS
4.1 Shareholders' Meeting
LSB shall submit this Reorganization Agreement
and the Plan of Merger to its shareholders for approval
at a special meeting to be held as soon as practicable,
and the Board of Directors of LSB shall recommend that
the shareholders vote for such approval.
4.2 Proxy Statement; Registration Statement
BB&T and LSB shall cooperate in the timely
preparation and filing of the Registration Statement
with the Commission and BB&T shall use its best efforts
to cause such Registration Statement to be declared
effective under the Securities Act, which Registration
Statement, at the time it becomes effective, and on the
Effective Date, shall in all material respects conform
to the requirements of the Securities Act and the
general rules and regulations of the Commission under
the Securities Act. The Registration Statement shall
include the form of Proxy Statement for the meeting of
LSB's shareholders to be held for the purpose of having
such shareholders vote upon approval of this
Reorganization Agreement and the Plan of Merger. LSB
shall cause the Proxy Statement to be mailed to its
shareholders. LSB will furnish to BB&T the information
required to be included in the Registration Statement
with respect to its business and affairs before it is
filed with the Commission and again before any
amendments are filed, and shall have the right to review
and consult with BB&T on the form of, and any
characterizations of such information included in, the
Registration Statement prior to the filing with the
<PAGE>
Commission. BB&T shall take all actions required to
register or obtain exemptions from such registration for
the BB&T Common Stock to be issued in connection with
the transactions contemplated by this Agreement and the
Plan of Merger under applicable state "Blue Sky"
securities laws, as appropriate.
4.3 Bank Merger Agreement; Applications
a. LSB shall cause Lexington and Community to
execute and deliver the Bank Merger Agreement as soon as
practicable following BB&T's request therefor and BB&T
shall cause Branch Bank-SC to execute and deliver the
Bank Merger Agreement at substantially the same time.
b. LSB further agrees to approve, execute and
deliver, and to cause appropriate LSB Subsidiaries to
approve, execute and deliver, any amendment to this
Agreement, the Plan of Merger and the Bank Merger
Agreement and any additional plans and agreements
requested by BB&T to modify the structure of, or to
substitute parties to, the transactions contemplated
hereby, provided that such modifications do not
adversely affect the economic benefits of such
transactions or otherwise abrogate the covenants and
other agreements contained in this Agreement.
c. As promptly as practicable after the date
hereof, BB&T and LSB shall submit applications for prior
approval of the transactions contemplated herein to the
Federal Reserve Board, the FDIC and the State Board,
and/or any other federal, state or local government
agency, department or body the approval of which is
required for consummation of the Merger, the Bank
Mergers and the other transactions contemplated hereby
and thereby. BB&T shall permit LSB to review in advance
all such applications and will consult with LSB on all
characterizations of the information relating to LSB or
the LSB Subsidiaries; provided, however, that any such
advance review by LSB shall be reasonably prompt. BB&T
promptly shall furnish LSB with copies after filing of
applications with these or any other regulatory agencies
filed by BB&T or any BB&T Subsidiary. LSB and BB&T each
represent and warrant to the other that all information
concerning it and its directors, officers and
shareholders and concerning its subsidiaries included
(or submitted for inclusion) in any such application
shall be true, correct and complete in all material
respects as of the date presented.
<PAGE>
4.4 Best Efforts
BB&T and LSB shall each use its best efforts in
good faith, and each of them shall cause its
subsidiaries to use their best efforts in good faith, to
(i) furnish such information as may be required in
connection with and otherwise cooperate in the
preparation and filing of the documents referred to in
Sections 4.2 and 4.3 above or elsewhere herein, and
(ii) take or cause to be taken all action necessary or
desirable on its part so as to permit consummation of
the Merger and the Bank Mergers, at the earliest
possible date, including, without limitation, (a)
obtaining the consent or approval of each individual,
partnership, corporation, association or other business
or professional entity whose consent or approval is
required for consummation of the transactions
contemplated hereby, provided that neither LSB nor any
LSB Subsidiary shall agree to make any payments or
modifications to agreements in connection therewith
without the prior written consent of BB&T, and (b)
requesting the delivery of appropriate opinions,
consents and letters from its counsel and independent
auditors. Neither BB&T nor LSB shall take, or cause or
to the best of its ability permit to be taken, any
action that would substantially delay or impair the
prospects of completing the Merger pursuant to this
Agreement and the Plan of Merger, or the Bank Mergers,
provided that nothing herein contained shall preclude
BB&T from exercising its rights under the Option
Agreement.
4.5 Certain Accounting Matters
a. LSB and BB&T shall consult and cooperate
with each other concerning such accounting and financial
matters as may be necessary or appropriate to facilitate
the Merger and the Bank Mergers (taking into account
BB&T's policies, practices and procedures), including
without limitation issues arising in connection with
record keeping, loan classification, valuation
adjustments, levels of loan loss reserves and other
accounting practices.
b. LSB shall between the date hereof and the
Closing Date maintain (i) the ratio of total loan loss
reserves to non-performing assets at not less than 1.00;
and (ii) its total loan loss reserves at not less than
1.25% of total loans.
c. LSB agrees, subject to its Board of
Directors' fiduciary duties and the limitations of
<PAGE>
federal and state law, to increase its dividend to an
amount consistent with the amount requested by BB&T and
the limitation contained in Section 4.8(b).
4.6 Investigation and Confidentiality
LSB will keep BB&T advised of all material
developments relevant to its business and to
consummation of the Merger and the Bank Mergers, and
BB&T will advise LSB of any material adverse change in
its financial condition or operations and all material
developments that are likely adversely to affect
consummation of the Merger or the Bank Mergers. BB&T
and LSB each may make or cause to be made such
investigation of the financial and legal condition of
the other as such party reasonably deems necessary or
advisable in connection with the transactions
contemplated herein, provided, however, that such
investigation shall be reasonably related to such
transactions and shall not interfere unnecessarily with
normal operations. BB&T and LSB agree to furnish the
other and the other's advisors with such financial data
and other information with respect to its business and
properties as such other party shall from time to time
reasonably request. No investigation pursuant to this
Section 4.6 shall affect or be deemed to modify any
representation or warranty made by, or the conditions to
the obligations hereunder of, either party hereto. Each
party hereto shall, and shall cause each of its
directors, officers, attorneys and advisors to, maintain
the confidentiality of all information obtained in such
investigation which is not otherwise publicly disclosed
by the other party, said undertaking with respect to
confidentiality to survive any termination of this
Agreement pursuant to Section 6.1 hereof. In the event
of the termination of this Agreement, each party shall
return to the furnishing party or, at the request of the
furnishing party, destroy and certify the destruction of
all confidential information previously furnished in
connection with the transactions contemplated by this
Agreement.
4.7 Press Releases
BB&T and LSB shall agree with each other as to
the form and substance of any press release related to
this Reorganization Agreement and the Plan of Merger or
the transactions contemplated hereby and thereby, and
consult with each other as to the form and substance of
other public disclosures related thereto, provided,
however, that nothing contained herein shall prohibit
either party, following notification to the other party,
<PAGE>
from making any disclosure which its counsel deems
necessary.
4.8 Forbearances of LSB
Except with the prior written consent of BB&T,
which consent shall not be withheld on an arbitrary
basis or on a basis inconsistent with BB&T's interests
as an acquiror of LSB, between the date hereof and the
Effective Date, LSB shall not, and shall cause each LSB
Subsidiary not to:
(a) carry on its business other than in the
usual, regular and ordinary course in
substantially the same manner as heretofore
conducted, or establish or acquire any new
subsidiary or cause or permit any subsidiary to
engage in any new activity or expand any existing
activities;
(b) declare, set aside, make or pay any
dividend or other distribution in respect of its
capital stock that would cause the business
combination contemplated hereby not to be
accounted for as a pooling of interests, as
determined by BB&T;
(c) issue any shares of its capital stock
other than pursuant to the Option Agreement or
the merger of Lexington with The Dorn Banking
Company or the LSB Dividend Reinvestment Plan;
(d) issue, grant or authorize any Rights
other than pursuant to the Option Agreement or
effect any recapitalization, reclassification,
stock dividend, stock split or like change in
capitalization;
(e) amend its articles of incorporation or
by-laws; impose, or suffer the imposition, on any
share of stock held by LSB in any LSB Subsidiary
of any material lien, charge or encumbrance or
permit any such lien to exist; or waive or
release any material right or cancel or
compromise any material debt or claim other than
in the ordinary course of business;
(f) other than completion of the merger
with The Dorn Banking Company, merge with any
other corporation or bank or permit any other
corporation, savings institution or bank to merge
into it or consolidate with any other
<PAGE>
corporation, savings institution or bank; acquire
control over any other firm, bank, corporation,
savings institution or organization; or
liquidate, sell or otherwise dispose of any
assets or acquire any assets, other than in the
ordinary course of its business;
(g) fail to comply in any material respect
with any laws, regulations, ordinances or
governmental actions applicable to it and to the
conduct of its business except where LSB or any
LSB Subsidiary is in good faith contesting the
validity of any of the foregoing; or where the
failure to so comply will not have a Material
Adverse Effect;
(h) increase the rate of compensation of
any of its directors, officers or employees, or
pay or agree to pay any bonus to, or provide any
other employee benefit or incentive to, any of
its directors, officers or employees, except in a
manner and amount consistent with past practice;
(i) enter into or substantially modify
(except as may be required by applicable law) any
pension, retirement, stock option, stock
purchase, stock appreciation right, savings,
profit sharing, deferred compensation,
consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement
related thereto, in respect of any of its
directors, officers or other employees; provided,
however, that this subparagraph shall not prevent
renewals of any of the foregoing consistent with
past practice;
(j) solicit or encourage inquiries or
proposals with respect to, furnish any
information relating to, or participate in any
negotiations or discussions concerning, any
acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity
interest in, LSB or any LSB Subsidiary or any
business combination with LSB or any LSB
Subsidiary other than as contemplated by this
Agreement; or authorize any officer, director,
agent or affiliate of it to do any of the above;
or fail to notify BB&T immediately if any such
inquiries or proposals are received by, any such
information is required from, or any such
<PAGE>
negotiations or discussions are sought to be
initiated with, LSB or any LSB Subsidiary;
(k) enter into (i) any material agreement,
arrangement or commitment not made in the
ordinary course of business, including, without
limitation, agreements or memoranda of
understanding with regulatory authorities,
(ii) any agreement, indenture or other instrument
not made in the ordinary course of business
relating to the borrowing of money by LSB or any
LSB Subsidiary or guarantee by LSB or any LSB
Subsidiary of any such obligation, (iii) any
agreement, arrangement or commitment not
cancellable by LSB without penalty or cost within
30 days after the Effective Date relating to the
employment or severance of a consultant or the
employment, severance, election or retention in
office of any present or former director, officer
or employee (this clause shall not apply to the
normal election of directors by shareholders and
the election of officers by directors not
pursuant to a specific agreement, arrangement or
commitment not Previously Disclosed); or (iv) any
contract, agreement or understanding with a labor
union;
(l) change its lending, investment or asset
liability management policies in any material
respect except as may be required by applicable
law, regulation, or directives, and except that
after approval of the Plan of Merger by its
shareholders LSB shall, and shall cause the LSB
Subsidiaries to, cooperate in good faith with
BB&T to adopt policies, practices and procedures
consistent with those utilized by BB&T, effective
on or before the Closing Date;
(m) change its methods of accounting in
effect at December 31, 1992, except as required
by changes in generally accepted accounting
principles concurred in by its independent
certified public accountants, or change any of
its methods of reporting income and deductions
for federal income tax purposes from those
employed in the preparation of its federal income
tax returns for the year ended December 31, 1992,
except as required by changes in law or
regulation; or
(n) agree to do any of the foregoing.
<PAGE>
4.9 Plan of Merger; Reservation of Shares
a. On the Effective Date, the Merger shall be
effected in accordance with the Plan of Merger attached
hereto as Annex A. In this connection, BB&T undertakes
and agrees (i) to adopt and to cause BB&T-SC to adopt
the Plan of Merger; (ii) to vote the shares of BB&T-SC
Common Stock for approval of the Plan of Merger; and
(iii) to pay or cause to be paid when due the number of
shares of BB&T Common Stock to be distributed pursuant
to Article V of the Plan of Merger and any cash required
to be paid for fractional shares pursuant to Article V,
Paragraph 9 of the Plan of Merger.
b. BB&T shall reserve for issuance such number
of shares of BB&T Common Stock as shall be necessary to
pay the consideration to be distributed to LSB's
stockholders as contemplated in Article V, Paragraph 1
of the Plan of Merger. If at any time the aggregate
number of shares of BB&T Common Stock remaining unissued
(or in treasury) shall not be sufficient to effect the
Merger, BB&T shall take all appropriate action to
increase the amount of the authorized BB&T Common Stock.
4.10 Certain Agreements
BB&T shall enter into employment agreements with
those LSB Employees as have been Previously Disclosed on
the terms Previously Disclosed.
4.11 Closing; Articles of Merger
The transactions contemplated by this Agreement,
the Plan of Merger and the Bank Merger Agreement shall
be consummated at one or more closings to be held at the
executive offices of BB&T, or such other place as shall
be agreed to by BB&T and LSB, on the first business day
following satisfaction of the conditions to consummation
of the Merger and the Bank Mergers set forth in
Article V hereof, such later date within 30 days
thereafter as may be specified by BB&T, or such later
date as the parties may otherwise agree. The Merger
shall become effective upon the Effective Date, which
shall be the time and date specified in the Articles of
Merger evidencing the Merger, as filed with the
Secretary of State of South Carolina. The Bank Mergers
may be consummated as of the Effective Date or such
later date as BB&T shall specify.
<PAGE>
4.12 Affiliates
LSB and BB&T shall cooperate and use their best
efforts to identify those persons who may be deemed to
be "affiliates" of LSB within the meaning of Rule 145
promulgated by the Commission under the Securities Act.
LSB shall use its best efforts to cause each person so
identified to deliver to BB&T at least 30 days prior to
the Effective Date a written agreement providing that
such person will not dispose of BB&T Common Stock
received in the Merger except in compliance with the
Securities Act and the rules and regulations promulgated
thereunder.
4.13 Indemnification and Insurance.
a. Prior to the Effective Date, each director
of LSB, Lexington and Community and each officer of LSB,
Lexington and Community who is currently entitled to
indemnification pursuant to South Carolina Law shall be
indemnified in connection with any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, arising out
of or in connection with this Agreement, the Option
Agreement or any of the transactions contemplated hereby
or thereby, by BB&T to the fullest extent permitted by
law in effect at the time the act was committed against
(a) reasonable expenses, including attorney's fees,
actually and necessarily incurred by him or her in
connection therewith, and (b) reasonable payments made
by him in satisfaction of any judgment, money decree,
fine, penalty or settlement for which he may have become
liable in any such action, suit or proceeding; provided,
however, that BB&T will not indemnify any person against
liability or litigation expense such person may incur on
account of activities which were at the time taken known
or believed by such person to be clearly in conflict
with the best interest of LSB or BB&T or, with respect
to any criminal action or proceeding, activities which
the indemnitee had reasonable cause to believe were
unlawful. To the fullest extent permitted by law, for
all sums for which there is a right of indemnification,
BB&T shall pay said sums from time to time in advance of
the final disposition of the action, suit or
proceedings; provided, however, that the payment of
expenses incurred by a director or officer in his
capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such
person while a director or officer) in advance of the
final disposition of a proceeding shall be made only
upon delivery to BB&T of an undertaking, by or on behalf
of such director or officer, to repay all amounts so
<PAGE>
advanced if it shall ultimately be determined that the
director or officer is not entitled to be indemnified
under this Section or otherwise. BB&T agrees to take
all actions as may be necessary and appropriate to
authorize BB&T to pay the indemnification required by
this Section, including without limitation, to the
extent needed, making a good faith evaluation of the
manner in which the claimant for indemnity acted and of
the reasonable amount of indemnity due him and given
notice to, and obtaining approval by, the shareholders
of BB&T to the extent required by law.
b. Following the Effective Date, each director
of LSB, Lexington and Community and each officer of LSB,
Lexington and Community who is currently entitled to
indemnification pursuant to South Carolina law shall be
indemnified, in accordance with BB&T-SC's by-law
provisions, to the maximum extent permitted under South
Carolina and federal law, if applicable.
c. BB&T agrees to purchase and to keep in force
directors' and officers' liability insurance to provide
coverage for actions or omissions by directors and
officers of LSB, Lexington and Community for claims made
for the period commencing with and after the Effective
Date; provided, however, that such insurance will be
provided only if, and to the extent that, any similarly
situated officer or director of BB&T is insured from
time to time.
4.14 Employees and Employee Benefit Plans
a. (i) Upon the Effective Date, each person
who is an employee of LSB or the LSB Subsidiaries as of
such Effective Date (individually an "Employee") shall
automatically become an employee of the Surviving
Corporation (as defined in the Plan of Merger) or Branch
Bank-SC, as the case may be, upon substantially the same
terms and conditions of employment, including
compensation and benefits, and comparable
responsibilities that each Employee had on the day
before the Effective Date.
(ii) Each such Employee shall remain an
Employee for a period of at least two years following
the Effective Date, subject to satisfactory performance
of duties.
(iii) Notwithstanding Section 4.14(ii),
whether before or after the two year period described in
such section, no Employee shall be terminated or have
his or her salary reduced involuntarily as a result of
<PAGE>
the Merger. This Section 4.14(a)(iii) is not intended
to confer, and should not be construed to confer, any
right upon or contract in favor of any Employee of the
Surviving Corporation.
(iv) Notwithstanding Sections
4.14(a)(i)-(iii), nothing contained herein shall
restrict the ability of the Surviving Corporation or
Branch Bank-SC to dismiss any Employee, if such
dismissal is for "Just Cause." For purposes of this
provision, termination for "Just Cause" shall include
personal dishonesty or willful violation of any federal,
state or local law, rule or regulation (other than
traffic violations or similar offenses) or a final cease
and desist order, conviction of a felony or of a
misdemeanor involving moral turpitude, unethical
business practices in connection with the Surviving
Corporation's business, misappropriation of the
Surviving Corporation's assets, incompetence, or
intentional failure to perform stated duties. In
addition to the foregoing, if any Employee is terminated
within the two-year period for any reason and at any
time, such termination shall be effected only if such
termination shall have been approved in writing by any
two of Raymond S. Caughman, Robert N. Hubbs and David S.
Hipp, or, if less than two of them are at the time
employed by Branch Bank-SC, any two members of the Board
of Directors of Branch Bank-SC who were, on the
Effective Date, directors of LSB.
b. Each Employee shall be eligible to receive
group hospitalization, medical, life, disability and
other benefits comparable to those provided to the
present employees of BB&T without the imposition of any
waiting period or limitation on pre-existing conditions;
provided, however, such benefits shall not in the
aggregate to all Employees as a group be less in amount
or value than those presently provided by LSB and the
LSB Subsidiaries; and provided, further, that any
Employee who is, on the Effective Date, entitled to 5
weeks of paid vacation per year shall continue to be
entitled to 5 weeks paid vacation per year for the
duration of the Employee's employment with BB&T and the
BB&T Subsidiaries.
c. Following the Bank Mergers, LSB shall cause
Lexington's pension plan and 401(k) plan to be merged
with the 401(k) plans maintained by BB&T and the BB&T
Subsidiaries or be terminated. The parties shall reach
agreement as to the appropriate method of accomplishing
this result (either termination or merger) as soon as
practicable. If the LSB Plan is terminated, the rights
<PAGE>
and interests of the employees of LSB and the LSB
Subsidiaries in such plans shall become fully vested,
with each participating Employee having the right or
option either to receive the benefits to which they are
entitled as a result of the termination of the Plan or
to have such benefits "rolled" into the 401(k) Plan
maintained by BB&T and the BB&T Subsidiaries for the
benefit of their employees, and on the same basis and
applying the same eligibility standards as would apply
to employees of BB&T and the BB&T subsidiaries.
Following the Bank Mergers, the Employees of LSB and the
LSB Subsidiaries shall be entitled to participate, to
the same extent and on the same terms as the employees
of BB&T, in any retirement, pension or similar plans in
effect for the benefit of the employees of BB&T (other
than any employee stock ownership plan established for
the benefit of certain of BB&T's employees) which when
considered as a whole for all Employees considered as a
group shall be no less favorable in the aggregate than
the benefits currently provided to the Employees of LSB,
Lexington and Community.
d. For purposes of participating in all plans
and benefits of BB&T, such Employees shall receive
credit for their period of service to LSB and the LSB
Subsidiaries for participation and vesting purposes only.
e. Nothing in this Agreement shall detract from
any rights of any Employee under any Previously
Disclosed written employment agreement, except as may
otherwise be agreed to by any Employee.
f. To the extent that this Section 4.14
contemplates or requires the taking of action or
forbearance by any subsidiary of BB&T, BB&T shall cause
such subsidiary to take such action or to so forbear.
4.15 Forbearances of BB&T
Except with the prior written consent of LSB,
which consent shall not be arbitrarily or unreasonably
withheld, between the date hereof and the Effective
Date, neither BB&T nor any BB&T Subsidiary shall:
a. exercise the Option Agreement other than in
accordance with its terms, or dispose of the shares of
LSB Common Stock issuable upon exercise of the option
rights conferred thereby other than as permitted or
contemplated by the terms thereof;
<PAGE>
b. enter into a merger or other business
combination transaction with any other corporation or
person in which BB&T would not be the surviving or
continuing entity after the consummation thereof;
c. sell or lease all or substantially all of
the assets and business of BB&T; or
d. declare an extraordinary or special dividend
or distribution on its common stock in an amount equal
to more than 10% of BB&T's stockholders' equity as
reflected on the Financial Statements of BB&T as of the
three months ended prior to such payment.
4.16 Membership on the Board of Directors
a. Upon consummation of the Merger, BB&T shall
cause each of the members of the Board of Directors of
LSB to become members of the Board of Directors of
Branch Bank-SC and shall use its best efforts to cause
such members to remain members of such board until they
reach age 70, subject to the fiduciary duties of the
members of the Board of Directors of Branch Bank-SC.
Further, BB&T shall cause (i) each such member's
compensation to be the greater of (a) $8,400 per year
(plus $100 for each special meeting not held on the day
of a regular board meeting), plus reasonable travel
expenses, or (b) the compensation paid to the members of
the Branch Bank-SC Board of Directors as of the
Effective Date; and (ii) all benefits as have been
Previously Disclosed which are presently provided to or
made available to such members to be continued.
b. Upon consummation of the Merger, BB&T shall
cause two members of the board of directors of LSB
designated by the board of directors of LSB (the "LSB
Designees") to become members of the Board of Directors
of BB&T. Thereafter, for a period of at least five
years, subject to the fiduciary duties of the members of
the Board of Directors of BB&T, BB&T agrees to recommend
to the Nominating Committee of the BB&T Board of
Directors the nomination of the LSB Designees for
reelection and inclusion as part of the slate of
directors recommended by the Nominating Committee for
the Board of Directors of BB&T. In the event that
either or both of the LSB Designees is unable or
unwilling to serve as a director during such five-year
period, BB&T shall substitute, to the extent practicable
and consistent with the limitations described in this
subparagraph, a person or persons who as of the date
hereof are members of the Board of Directors of LSB.
BB&T further agrees that after such five year period,
<PAGE>
subject to the fiduciary duties of the members of the
BB&T Board of Directors, BB&T will continue to use its
best efforts to recommend to the Nominating Committee of
the BB&T Board of Directors the nomination to the BB&T
Board of Directors of at least one person who resides in
the current LSB market area.
4.17 Community Benefits
a. BB&T will maintain an operations center in
Lexington for at least two years after the Effective
Date. BB&T will also consider locating facilities and
expanding employment opportunities in LSB's current
market area when doing so would not impose an economic
burden on BB&T or be inconsistent with BB&T's business
plans.
b. BB&T will make, or cause to be made,
charitable and civic contributions, consistent with its
philosophy in making charitable or civic contributions,
in the communities served by the LSB Subsidiaries in
amounts of not less than $1 million between the date
hereof and December 31, 1996. Larger contributions may
be made in the form of five-year pledges. BB&T will
consult with the persons who are directors of LSB on the
Effective Date to determine which organizations will
receive such contributions.
4.18 Dissenters' Rights
LSB shall give BB&T prompt notice of any
purported exercise of dissenters' rights and BB&T shall
have the right to participate in all negotiations and
proceedings with respect to any such demands. LSB shall
not, without the prior written consent of BB&T,
voluntarily make any payment with respect to, or settle
or offer or agree to settle, any such demand for payment.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent -- BB&T and LSB
The respective obligations of BB&T and LSB to
effect the transactions contemplated by this Agreement
shall be subject to satisfaction or waiver of the
following conditions at or prior to the Effective Date:
(a) All corporate action necessary to
authorize the execution, delivery and performance
<PAGE>
of this Reorganization Agreement, the Plan of
Merger, the Option Agreement and the Bank Merger
Agreement and consummation of the transactions
contemplated hereby and thereby shall have been
duly and validly taken, including without
limitation the approval of the shareholders of
LSB;
(b) The Registration Statement (including
any post-effective amendments thereto) shall be
effective under the Securities Act, and BB&T and
LSB shall have received all state securities or
"Blue Sky" permits or other authorizations, or
confirmations as to the availability of an
exemption from registration requirements as may
be necessary and no proceedings shall be pending
or to the knowledge of BB&T threatened by the
Commission or any state "Blue Sky" securities
administration to suspend the effectiveness of
such Registration Statement; and the BB&T Common
Stock to be issued as contemplated in the Plan of
Merger shall have either been registered or be
subject to exemption from registration under
applicable state securities laws;
(c) Neither BB&T, any BB&T Subsidiary, LSB
nor any LSB Subsidiary shall be subject to any
order, decree or injunction of a court or agency
of competent jurisdiction which enjoins or
prohibits consummation of the transactions
contemplated by this Reorganization Agreement; and
(d) LSB and BB&T shall have received an
opinion of BB&T's counsel or tax advisor in form
and substance satisfactory to LSB and BB&T
substantially to the effect that the Merger and
the Bank Mergers will constitute one or more
reorganizations under Section 368 of the Code and
that the shareholders of LSB will not recognize
any gain or loss to the extent that such
shareholders exchange shares of LSB Common Stock
for shares of BB&T Common Stock.
5.2 Conditions Precedent -- LSB
The obligations of LSB to effect the transactions
contemplated by this Agreement shall be subject to
satisfaction of the following additional conditions at
or prior to the Effective Date unless waived by LSB
pursuant to Section 6.4 hereof:
<PAGE>
(a) The representations and warranties of
BB&T set forth in Article III hereof shall be
true and correct in all material respects as of
the date of this Agreement and as of the
Effective Date as though made on and as of the
Effective Date (or on the date when made in the
case of any representation and warranty which
specifically relates to an earlier date), except
as otherwise contemplated by this Reorganization
Agreement or consented to in writing by LSB
(which consent may not be unreasonably withheld);
(b) BB&T shall have in all material
respects performed all material obligations and
complied with all material covenants required by
this Agreement;
(c) BB&T shall have delivered to LSB a
certificate, dated the Effective Date and signed
by its Chairman or President, to the effect that
the conditions set forth in Sections 5.1(a),
5.1(b), 5.1(e), 5.2(a), 5.2(c) and 5.2(f), to the
extent applicable to BB&T, have been satisfied
and that there are no actions, suits, claims,
governmental investigations or procedures
instituted, pending or, to the best of his
knowledge, threatened that reasonably may be
expected to have a material adverse effect on
BB&T or that present a claim to restrain or
prohibit the transactions contemplated herein or
in the Plan of Merger or in the Bank Merger
Agreement;
(d) LSB shall have received such opinions
of the General Counsel to BB&T as to matters of
North Carolina, and other counsel as to matters
of federal law, as it shall reasonably request;
(e) All approvals of the transactions
contemplated herein from the Federal Reserve
Board, the FDIC, the State Board and any other
state or federal government agency, department or
body, the approval of which is required for the
consummation of the Merger (but not the Bank
Mergers), shall have been received and all
waiting periods with respect to such approvals
shall have expired; and
(f) LSB shall not have reasonably
determined in good faith that there has been a
material adverse change in the condition,
<PAGE>
operations or prospects of BB&T since
December 31, 1992.
5.3 Conditions Precedent -- BB&T
The obligations of BB&T to effect the
transactions contemplated by this Agreement shall be
subject to satisfaction of the following additional
conditions at or prior to the Effective Date, unless
waived by BB&T pursuant to Section 6.4 hereof:
(a) The representations and warranties of
LSB set forth in Article II hereof shall be true
and correct in all material respects as of the
date of this Agreement and as of the Effective
Date as though made on and as of the Effective
Date (or on the date when made in the case of any
representation and warranty which specifically
relates to an earlier date), except as otherwise
contemplated by this Agreement or consented to in
writing by BB&T (which consent may not be
unreasonably withheld);
(b) The parties hereto shall have received
all regulatory approvals required in connection
with the transactions contemplated by this
Reorganization Agreement, all notice periods and
waiting periods required after the granting of
any such approvals shall have passed, and all
such approvals shall be in effect; provided,
however, that no such approval shall have imposed
any condition or requirement which, in the
reasonable opinion of the Board of Directors of
BB&T, would so materially adversely affect the
business or economic benefits of the transactions
contemplated by this Agreement as to render
consummation of such transactions inadvisable or
unduly burdensome;
(c) LSB shall have in all material respects
performed all material obligations and complied
with all material covenants required by this
Agreement;
(d) LSB shall have delivered to BB&T a
certificate, dated the Effective Date and signed
by its Chairman or President, to the effect that
the conditions set forth in Sections 5.1(a),
5.1(b), 5.3(a), 5.3(b) and 5.3(c), to the extent
applicable to LSB, have been satisfied and that
there are no actions, suits, claims, governmental
investigations or procedures instituted, pending
<PAGE>
or, to the best of his knowledge, threatened that
reasonably may be expected to have a Material
Adverse Effect on LSB or that present a claim to
restrain or prohibit the transactions
contemplated herein or in the Plan of Merger;
(e) BB&T shall have received such opinions
of counsel as it shall reasonably request;
(f) BB&T shall not have reasonably
determined in good faith that there has been a
material adverse change in the condition,
operations or prospects of LSB, Lexington or
Community since December 31, 1992;
(g) BB&T shall have received the written
agreements from affiliates as specified in
Section 4.12 hereof;
(h) BB&T shall have determined that the
transactions contemplated herein qualify for
accounting treatment as a pooling of interests;
and
(i) Dissenters' rights pursuant to Section
33-13-210 of the SCBCA with respect to the Merger
shall not have been exercised by the holders of
more than 10% of the outstanding LSB common stock.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
6.1 Termination
This Agreement may be terminated:
(a) at any time on or prior to the
Effective Date, by the mutual consent in writing
of the parties hereto;
(b) at any time on or prior to the
Effective Date, by BB&T in writing if LSB has, or
by LSB in writing if BB&T has, in any material
respect, breached (i) any covenant or undertaking
contained herein, in the Plan of Merger, in the
Option Agreement or the Bank Merger Agreement, or
(ii) any representation or warranty contained
herein, which breach has been materially adverse,
and, in the case of (i) or (ii), if such breach
<PAGE>
has not been cured by the earlier of 30 days
after the date on which written notice of such
breach is given to the party committing such
breach or the Effective Date;
(c) on the Effective Date, by either party
hereto in writing, if any of the conditions
precedent to the obligations of such party to
consummate the transactions contemplated hereby
have not been satisfied or fulfilled;
(d) at any time, by either party hereto in
writing, if any of the applications for prior
approval referred to in Section 4.3 hereof are
denied, and the time period for appeals and
requests for reconsideration has run;
(e) at any time, by either party hereto in
writing, if the shareholders of LSB do not
approve the transactions contemplated herein;
(f) by either party hereto in writing, if
the Effective Date has not occurred by the close
of business on January 31, 1995;
(g) at any time, by either party hereto in
writing if the BB&T Average Closing Price is less
than $26.00 or higher than $36.00;
(h) at any time prior to April 30, 1994, by
BB&T in writing, if BB&T determines in its sole
good faith judgment that the financial condition,
business or prospects of LSB are materially
adversely different from what was reasonably
expected by BB&T after the performance of its due
diligence prior to the execution of this
Agreement; provided that BB&T shall inform LSB
upon such termination as to the reasons for
BB&T's determination; and, provided further, that
this Section 6.1(h) shall not limit in any way
the due diligence investigation of LSB which BB&T
may perform or otherwise affect any other rights
which BB&T has after the date hereof and after
April 30, 1994, under the terms of this
Agreement; and
(i) at any time prior to April 30, 1994, by
LSB in writing, if LSB determines in its sole
good faith judgment that the financial condition,
business or prospects of BB&T (as such condition,
business or prospects may affect the market price
of BB&T Common Stock) are materially different
<PAGE>
from what was reasonably expected by LSB after
the performance of its due diligence prior to the
execution of this Agreement; provided that LSB
shall inform BB&T upon such determination as to
the reasons for LSB's determination; and
provided, further, that this Section 6.1(i) shall
not limit in any way the due diligence
investigation of BB&T which LSB may perform or
otherwise affect any other rights which LSB has
after the date hereof and after April 30, 1994,
under the terms of this Agreement; and
(j) at any time, by either party hereto in
writing, if such party determines in good faith
that any condition precedent to such party's
obligations to consummate the Merger and/or the
Bank Mergers is or would be impossible to
satisfy, provided that the terminating party has
given the other party notice with respect thereto
at least ten days prior to such termination and
has given the other party a reasonable
opportunity to discuss the matter with a view to
achieving a mutually acceptable resolution.
6.2 Effect of Termination
In the event this Agreement or the Plan of Merger
is terminated pursuant to Section 6.1 hereof, both this
Agreement and the Plan of Merger shall become void and
have no effect, except that (i) the provisions hereof
relating to confidentiality and expenses set forth in
Sections 4.6 and 7.1, respectively, shall survive any
such termination and (ii) a termination pursuant to
Section 6.1(b) hereof shall not relieve the breaching
party from liability for an uncured breach of the
covenant or agreement giving rise to such termination.
6.3 Survival of Representations,
Warranties and Covenants
All representations, warranties and covenants in
this Agreement or the Plan of Merger or in any
instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the
Effective Date other than covenants that by their terms
are to be performed after the Effective Date, provided
that no such representations, warranties or covenants
shall be deemed to be terminated or extinguished so as
to deprive BB&T or LSB (or any director, officer or
controlling person thereof) of any defense at law or in
equity which otherwise would be available against the
claims of any person, including, without limitation, any
<PAGE>
shareholder or former shareholder of either BB&T or LSB,
the aforesaid representations, warranties and covenants
being material inducements to consummation by BB&T and
LSB of the transactions contemplated herein.
6.4 Waiver
Except with respect to any required regulatory
approval, each party hereto by written instrument signed
by an executive officer of such party, may at any time
(whether before or after approval of the Agreement and
the Plan of Merger by the shareholders of LSB) extend
the time for the performance of any of the obligations
or other acts of the other party hereto and may waive
(i) any inaccuracies of the other party in the
representations or warranties contained in this
Agreement, the Plan of Merger or any document delivered
pursuant hereto or thereto, (ii) compliance with any of
the covenants, undertakings or agreements of the other
party, or satisfaction of any of the conditions
precedent to its obligations, contained herein or in the
Plan of Merger, or (iii) the performance by the other
party of any of its obligations set out herein or
therein; provided that no such waiver or amendment or
supplement pursuant to Section 6.5 hereof executed after
approval of this Agreement and the Plan of Merger by the
shareholders of LSB shall reduce either the number of
shares of BB&T Common Stock into which each share of LSB
Common Stock shall be converted in the Merger or the
payment terms for fractional interests.
6.5 Amendment or Supplement
This Agreement and the Plan of Merger may be
amended or supplemented at any time by mutual agreement
of BB&T and LSB subject to the proviso to Section 6.4
hereof. Any such amendment or supplement must be in
writing and approved by their respective boards of
directors.
ARTICLE VII
MISCELLANEOUS
7.1 Expenses
Each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the
transactions contemplated by this Reorganization
Agreement, including fees and expenses of its own
financial consultants, accountants and counsel, except
that BB&T and LSB shall each bear and pay 50 percent for
<PAGE>
the cost of printing the Proxy Statement.
Notwithstanding the foregoing, BB&T shall reimburse LSB
for all reasonable out-of-pocket expenses incurred by
LSB in connection with the transactions contemplated by
this Agreement if this Agreement is terminated;
provided, however, that BB&T's obligation to reimburse
LSB for such expenses shall not apply if LSB materially
breaches any provision of this Agreement, the Plan of
Merger, the Bank Merger Agreement or the Option
Agreement.
7.2 Entire Agreement
This Agreement, the Plan of Merger, the Option
Agreement and the Bank Merger Agreement contain the
entire agreement between the parties with respect to the
transactions contemplated hereunder and thereunder and
supersedes all prior arrangements or understandings with
respect thereto, written or oral, other than documents
referred to herein or therein. The terms and conditions
of this Agreement, the Plan of Merger, the Option
Agreement and the Bank Merger Agreement shall inure to
the benefit of and be binding upon the parties hereto
and thereto and their respective successors. Nothing in
this Agreement, the Plan of Merger, the Option Agreement
and the Bank Merger Agreement, expressed or implied, is
intended to confer upon any party, other than the
parties hereto and thereto, and their respective
successors, any rights, remedies, obligations or
liabilities other than as set forth in Sections 4.10,
4.13, 4.14 and 4.16 hereof.
7.3 No Assignment
Neither of the parties hereto may assign any of
its rights or obligations under this Reorganization
Agreement to any other person.
7.4 Notices
All notices or other communications which are
required or permitted hereunder shall be in writing and
sufficient if delivered personally or sent by overnight
express or by registered or certified mail, postage
prepaid, addressed as follows:
<PAGE>
If to LSB:
L.S.B. Bancshares, Inc. of South Carolina
309 Columbia Avenue
P.O. Box 8
Lexington, South Carolina 29071
Attention: Raymond S. Caughman
With a required copy to:
Sinkler & Boyd, P.A.
Suite 1200, The Palmetto Center
1426 Main Street
Columbia, South Carolina 29201
Attention: George S. King, Jr.
If to BB&T:
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: John A. Allison IV
With a required copy to:
Arnold & Porter
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: L. Stevenson Parker
7.5 Captions
The captions contained in this Reorganization
Agreement are for reference purposes only and are not
part of this Agreement.
7.6 Counterparts
This Reorganization Agreement may be executed in
any number of counterparts, and each such counterpart
shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one
agreement.
7.7 Governing Law
This Reorganization Agreement shall be governed
by and construed in accordance with the laws of the
State of South Carolina applicable to agreements made
and entirely to be performed within such jurisdiction
except to the extent federal law may be applicable.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending
to be legally bound hereby, have caused this
Reorganization Agreement to be executed in counterparts
by their duly authorized officers and their corporate
seal to be hereunto affixed and attested by their
officers thereunto duly authorized, all as of the day
and year first above written.
Attest BB&T FINANCIAL CORPORATION
By
(SEAL)
Attest L.S.B. BANCSHARES, INC.
OF SOUTH CAROLINA
By
(SEAL)
<PAGE>
ANNEX A
PLAN OF MERGER OF
L.S.B. BANCSHARES, INC. OF SOUTH
CAROLINA WITH AND INTO BB&T FINANCIAL
CORPORATION OF SOUTH CAROLINA
PLAN OF MERGER ("Plan of Merger") dated as of
December 7, 1993, by and between L.S.B. BANCSHARES, INC.
OF SOUTH CAROLINA ("LSB"), a South Carolina corporation
having its principal office at 309 Columbia Avenue, P.O.
Box 8, Lexington, South Carolina 29071 and BB&T
FINANCIAL CORPORATION OF SOUTH CAROLINA ("BB&T-SC"), a
South Carolina corporation having its principal office
at 416 East North Street, Greenville, South Carolina,
and joined in by BB&T FINANCIAL CORPORATION ("BB&T"), a
North Carolina corporation having its principal office
at 223 West Nash Street, Wilson, North Carolina 27893.
W I T N E S S E T H
WHEREAS, LSB is a bank holding company
incorporated under the laws of South Carolina, the
authorized capital stock of which consists of 5,000,000
shares of common stock, par value $2.50 per share ("LSB
Common Stock") of which, at the date hereof, 2,688,028
shares are issued and outstanding; and
WHEREAS, BB&T-SC is a bank holding company
incorporated under the laws of South Carolina, the
authorized capital stock of which consists of 20,000,000
shares of common stock, par value $2.50 per share,
1,427,188 of which are issued and outstanding at the
date hereof; and
WHEREAS, BB&T is a bank holding company
incorporated under the laws of North Carolina, the
authorized capital stock of which consists of 50,000,000
shares of common stock, par value $2.50 per share ("BB&T
Common Stock"), __________ of which are issued and
outstanding at the date hereof, and 4,000,000 shares of
preferred stock, par value $2.50 per share, none of
which are issued or outstanding; and
WHEREAS, the respective Boards of Directors of
LSB, BB&T-SC and BB&T deem the merger of LSB with and
into BB&T-SC, under and pursuant to the terms and
conditions herein set forth or referred to, desirable
and in the best interests of the respective corporations
and their respective shareholders, and the respective
<PAGE>
Boards of Directors of LSB, BB&T-SC and BB&T have
adopted resolutions approving this Plan of Merger and,
in the case of BB&T and LSB, an Agreement and Plan of
Reorganization dated as of December 7, 1993
("Reorganization Agreement"); and
WHEREAS, the Board of Directors of LSB has
directed that this Plan of Merger and the Reorganization
Agreement be submitted to its shareholders for approval;
NOW, THEREFORE, in consideration of the premises
and of the mutual agreements herein contained, the
parties hereto do hereby agree that the Plan of Merger
shall be as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
Subject to the terms and conditions of this Plan
of Merger, on the Effective Date (as hereinafter
defined), LSB shall be merged with and into BB&T-SC
pursuant to the provisions of, and with the effect
provided in, Chapter 11 of the South Carolina Business
Corporation Act ("SCBCA") (said transaction being
hereinafter referred to as the "Merger"). On the
Effective Date, the separate existence of LSB shall
cease and BB&T-SC, as the surviving corporation, shall
continue unaffected and unimpaired by the Merger
(BB&T-SC as existing on and after the Effective Date
being hereinafter sometimes referred to as the
"Surviving Corporation"). The name of the Surviving
Corporation shall remain "BB&T Financial Corporation of
South Carolina."
ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS
The Articles of Incorporation and the By-laws of
BB&T-SC in effect immediately prior to the Effective
Date shall be the Articles of Incorporation and the
By-laws of the Surviving Corporation, in each case until
amended in accordance with applicable law.
ARTICLE III
BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of
the Surviving Corporation shall consist of those persons
<PAGE>
serving as directors of BB&T-SC immediately prior to the
Effective Date.
ARTICLE IV
CAPITAL
Each share of capital stock of BB&T-SC issued and
outstanding immediately prior to the Effective Date
shall, on the Effective Date, continue to be issued and
outstanding, and shall be an identical outstanding share
of the Surviving Corporation.
ARTICLE V
CONVERSION AND EXCHANGE OF LSB COMMON STOCK;
FRACTIONAL SHARE INTERESTS
On the Effective Date, except as provided in
paragraphs 5, 8, 9 and 11 of this Article, each share of
LSB Common Stock outstanding immediately prior to the
Effective Date shall by virtue of the Merger be
converted into and exchanged for the following number of
shares of BB&T Common Stock (the "Exchange Ratio"):
(a) in the event that the BB&T Average
Closing Price is equal to or less than $30.50 per
share, that number (rounded to the nearest
ten-thousandth) equal to the Adjustment Factor
divided by $30.50;
(b) in the event that the BB&T Average
Closing Price is greater than $30.50 and equal to
or less than $36.00, that number (rounded to the
nearest ten-thousandth) equal to the Adjustment
Factor divided by the BB&T Average Closing Price;
and
(c) in the event that the BB&T Average
Closing Price is greater than $36.00, that number
(rounded to the nearest ten-thousandth) equal to
the Adjustment Factor divided by 36.00.
In the event that BB&T shall have a record date
between December 7, 1993 and the Effective Date for a
special distribution to stockholders, a stock split,
stock dividend or similar change in capitalization, an
equitable and appropriate adjustment shall be made to
Paragraph 1(a) and 1(c) hereof to reflect the effect of
such distribution or change.
<PAGE>
The "BB&T Average Closing Price," as used
herein, shall refer to the average of the reported
closing price of BB&T Common Stock on the
Nasdaq/National Market System on the ten trading days
("Computation Days") ending on the tenth business day
prior to the Effective Date.
The "Adjustment Factor," as used herein,
shall refer to that number equal to 2.25 times the LSB
Book Value Per Share.
The "LSB Book Value Per Share," as used
herein, shall mean LSB's book value per share as of the
last day of the calendar month immediately preceding the
Effective Date, as determined by Donald G. Jones &
Company, P.A., less any gain attributable to such book
value between September 30, 1993 and the Closing Date as
a result of any extraordinary gain (including, but not
limited to, a sale of securities or other assets not in
the ordinary course of business) recognized by LSB or
The Dorn Banking Company.
On the Effective Date, all shares of LSB
Common Stock owned beneficially by LSB or any subsidiary
of LSB other than in a fiduciary capacity or in
connection with a debt previously contracted and all
shares of LSB Common Stock owned by BB&T or owned
beneficially by any subsidiary of BB&T other than in a
fiduciary capacity or in connection with a debt
previously contracted shall be cancelled and no cash,
stock or other property shall be delivered in exchange
therefor.
On and after the Effective Date, each holder
of a certificate or certificates theretofore
representing outstanding shares of LSB Common Stock (any
such certificate being hereinafter referred to as a
"Certificate") may surrender the same to BB&T or its
agent for cancellation and each such holder shall be
entitled upon such surrender to receive in exchange
therefor certificate(s) representing the number of whole
shares of BB&T Common Stock to which such holder is
entitled as provided herein and a check in an amount
equal to the amount of cash, without interest, to which
such holder is entitled for any fraction of share under
paragraph 9 of this Article. Until so surrendered, each
Certificate shall be deemed for all purposes to evidence
ownership of the number of shares of BB&T Common Stock
into which the shares represented by such Certificates
have been changed or converted as aforesaid. No
dividend or other distribution payable with respect to
<PAGE>
the shares of BB&T Common Stock shall be paid to an
entitled former shareholder of LSB until such
shareholder surrenders his Certificate or Certificates
representing LSB Common Stock for exchange as provided
in this paragraph 6. Certificates surrendered for
exchange by any person constituting an "affiliate" of
LSB for purposes of Rule 145(c) under the Securities Act
of 1933, as amended, shall not be exchanged for
certificates representing whole shares of BB&T Common
Stock until BB&T has received from such person the
written agreement contemplated by Section 4.12 of the
Reorganization Agreement.
Upon the Effective Date, the stock transfer
books of LSB shall be closed and no transfer of LSB
Common Stock by such holder shall thereafter be made or
recognized.
In the event that prior to the Effective
Date the outstanding shares of LSB Common Stock shall
have been increased (other than upon consummation of the
merger with The Dorn Banking Company or sales through
the LSB Dividend Reinvestment Plan), decreased, or
changed into or exchanged for a different number or kind
of shares or securities by reorganization,
recapitalization, reclassification, stock dividend,
stock split, or other like change in capitalization, all
without BB&T receiving consideration therefor, then an
appropriate and proportionate adjustment shall be made
in the number and kind of shares of BB&T Common Stock to
be thereafter delivered pursuant to this Plan of Merger
and the Reorganization Agreement.
Notwithstanding any other provision hereof,
each holder of shares of LSB Common Stock who would
otherwise have been entitled to receive a fraction of a
share of BB&T Common Stock shall receive, in lieu
thereof, cash in an amount equal to such fractional part
of a share of BB&T Common Stock multiplied by the BB&T
Average Closing Price. No such holder shall be entitled
to dividends, voting rights or any other shareholder
right in respect of any fractional share. All
fractional share interests of each holder shall be
aggregated, and no such holder shall receive a cash
payment equal to, or greater than, the BB&T Average
Closing Price.
Promptly after the Effective Date, shares of
LSB Common Stock held by holders who did not vote in
favor of the Merger and who otherwise perfect
dissenters' rights under Section 33-13-210 and 33-13-230
<PAGE>
of the SCBCA shall not be converted into or become
shares of BB&T Common Stock, but such shares of LSB
Common Stock shall represent only the right to receive
the "fair value" of such shares as provided in Section
33-13-250 of the SCBCA. If any such holder shall have
failed to perfect or shall have effectively withdrawn or
lost such dissenters' rights, such shares of LSB Common
Stock shall thereupon be deemed to have been converted
and become the applicable number of shares of BB&T
Common Stock as of the Effective Date without any
interest thereon.
Any other provision in this Plan of Merger
or the Reorganization Agreement notwithstanding, no
party hereto or agent thereof shall be liable to a
holder of LSB Common Stock for any amount paid or
property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat,
or similar law.
ARTICLE VI
EFFECTIVE DATE OF THE MERGER
Articles of Merger evidencing the transactions
contemplated herein shall be delivered for filing to the
Secretary of State of South Carolina. The Merger shall
be effective at the time and on the date specified in
such Articles of Merger (such date and time being herein
referred to as the "Effective Date").
ARTICLE VII
FURTHER ASSURANCES
If at any time the Surviving Corporation shall
consider or be advised that any further assignments,
conveyances or assurances are necessary or desirable to
vest, perfect or confirm in the Surviving Corporation
title to any property or rights of LSB, or otherwise
carry out the provisions hereof, the proper officers and
directors of LSB, as of the Effective Date, and
thereafter the officers of the Surviving Corporation,
acting on behalf of LSB, shall execute and deliver any
and all property or assignments, conveyances and
assurances, and do all things necessary or desirable to
vest, perfect or confirm title to such property or
rights in the Surviving Corporation and otherwise carry
out the provisions hereof.
<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of BB&T, BB&T-SC and LSB to
effect the Merger as herein provided shall be subject to
satisfaction, unless duly waived, of the conditions set
forth in the Reorganization Agreement.
ARTICLE IX
ABANDONMENT AND TERMINATION
Anything contained in this Plan of Merger to the
contrary notwithstanding, and notwithstanding adoption
hereof by the shareholders of LSB, this Plan of Merger
may be terminated and the Merger abandoned as provided
in the Reorganization Agreement.
ARTICLE X
MISCELLANEOUS
1. This Plan of Merger may be amended or
supplemented at any time by mutual agreement of BB&T,
BB&T-SC and LSB. Any such amendment or supplement must
be in writing and approved by their respective Boards of
Directors and shall be subject to the proviso in
Section 6.5 of the Reorganization Agreement.
2. Any notice or other communication required or
permitted under this Plan of Merger shall be given, and
shall be effective, in accordance with the provisions of
the Reorganization Agreement.
3. The headings of the several Articles herein
are inserted for convenience of reference only and are
not intended to be a part of or to affect the meaning or
interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and
construed in accordance with the laws of the State of
South Carolina applicable to agreements made and
entirely to be performed in such jurisdiction, except to
the extent federal law may be applicable.
<PAGE>
EXHIBIT (11)
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
December 31,
(thousands, except per share data) 1993 1992
- - - -------------------------------------------------------------------------------
<S> <C> <C>
Primary
Net income $ 98,236 $ 76,482
=======================
Shares
Weighted average number of common shares outstanding 31,190,355 28,445,692
Add shares assuming exercise of options reduced by the
number of shares which could have been purchased with
the proceeds from exercise of such options 533,743 402,965
- - - -------------------------------------------------------------------------------
Primary weighted average number of common shares and
equivalent shares 31,724,098 28,848,657
Primary income per common share and equivalent shares $ 3.10 $ 2.65
=======================
Assuming full dilution
Net income $ 98,236 $ 76,482
Add after tax interest expense and amortization of is-
sue cost applicable to convertible debentures 380 1,851
- - - -------------------------------------------------------------------------------
Net income adjusted $ 98,616 $ 78,333
=======================
Shares
Weighted average number of common shares outstanding 31,190,355 28,445,692
Add shares assuming exercise of options reduced by the
number of shares which could have been purchased with
the proceeds from exercise of such options 543,544 516,589
Add shares assuming conversion of convertible deben-
tures 558,656 1,923,052
- - - -------------------------------------------------------------------------------
Fully diluted weighted average number of shares and
equivalent shares 32,292,555 30,885,333
Fully diluted income per share $ 3.05 $ 2.54
=======================
</TABLE>
<PAGE>
EXHIBIT (22)
BB&T FINANCIAL CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Branch Banking and Trust Company (a state bank organized under the laws of
North Carolina).
BB&T Financial Corporation of South Carolina (a bank holding company
organized under the laws of South Carolina).
Branch Banking and Trust Company of South Carolina (a state bank organized
under the laws of South Carolina), wholly-owned subsidiary of BB&T Financial
Corporation of South Carolina.
Citizens Savings Bank, SSB, Inc. (a savings bank organized under the laws of
North Carolina).
Mutual Savings Bank of Rockingham County (a savings bank organized under the
laws of North Carolina).
Old Stone Bank of North Carolina (a savings bank organized under the laws of
North Carolina).
Citizens Savings Bank, SSB (a savings bank organized under the laws of North
Carolina).
