UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 24, 1995
Southern National Corporation
(Exact name of registrant as specified in its charter)
Commission file number: 1-10853
North Carolina 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
200 West Second Street 27101
Winston-Salem, North Carolina (Zip Code)
This Form 8-K has 46 pages. The sequential numbering of the pages is indicated
in the lower right corner.
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ITEM 5. OTHER EVENTS
On August 1, 1994, Southern National Corporation ("Southern National")
and BB&T Financial Corporation ("BB&T") jointly announced the signing of a
definitive agreement to merge. The transaction, which was consummated on
February 28, 1995, was accounted for as a pooling-of-interests. BB&T
shareholders received 1.45 shares of the common stock of the resulting
company for each share of BB&T stock held. The transaction had an indicated
total market value of $2.2 billion based on November 8, 1994 closing prices
of the stock of both institutions. Prior to the merger, BB&T completed an
acquisition of Commerce Bank of Virginia Beach, Virginia ("Commerce") on
January 10, 1995. This transaction was also accounted for as a pooling-of-
interests. Commerce shareholders received 1.305 shares of BB&T common stock
for each share of Commerce stock held. Accordingly, the unaudited consolidated
financial statements and supplemental financial information contained herein
have been restated to reflect the results of these companies.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99.1 Southern National Corporation's 1994 Summary Annual Report
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SOUTHERN NATIONAL CORPORATION
(Registrant)
By: /s/ Sherry A. Kellett
Sherry A. Kellett, Controller
Date: May 24, 1995
<PAGE>
1994 SOUTHERN
Annual NATIONAL
Report CORPORATION
COMBINING OVER 200 YEARS
OF TRADITION IN A
MERGER OF EQUALS
BB&T
<PAGE>
Contents
To Our Shareholders 2
A Merger of Equals 7
Board of Directors 18
Principal Officers 19
BB&T's Banking Network 20
Glossary 22
Shareholder Information 24
Financial Review 25
Consolidated Condensed
Financial Statements 38
General Information Inside
Back Cover
SOUTHERN NATIONAL
CORPORATION
Southern National Corporation ("SNC") is a bank holding company organized
under the laws of the State of North Carolina with total assets of $19.9 billion
at December 31, 1994. SNC has seven bank subsidiaries - two in North Carolina,
four in South Carolina and one in Virginia including Branch Banking and Trust
Company, Wilson, North Carolina ("BB&T-NC"), the oldest and fourth largest bank
in North Carolina, and Southern National Bank of North Carolina, which was
founded in 1897 and is the fifth largest bank in North Carolina.
SNC's South Carolina banks include Southern National Bank of South Carolina,
Branch Banking and Trust Company of South Carolina, the Lexington State Bank
and the Community Bank of South Carolina. SNC is also the
parent holding company for the Commerce Bank of
Virginia Beach, Virginia. Based on total deposits, SNC has the largest banking
network in North Carolina and the third largest in South Carolina.
Through its subsidiaries, SNC is engaged in the general banking business in
North Carolina, South Carolina and the Tidewater region of Virginia. SNC's
banking subsidiaries also provide trust, insurance, leasing, international,
investment and travel services to their customers through their branch banking
network. The banks serve a variety of business and consumer customers, and
a concerted, continuing effort is made to provide financial products and
services which meet substantially all of the financial requirements of their
customers.
ABOUT THE REPORT
This 1994 Annual Report is presented in summary format to provide
information regarding the performance of SNC in a manner which is meaningful and
useful to the widest range of readers. The `new' Southern National Corporation
was formed in February 1995 through the merger of SNC and BB&T Financial
Corporation ("BB&T"). BB&T acquired Commerce in January 1995.
All discussion of prior results and future prospects is presented as if SNC,
BB&T and Commerce had been combined December 31, 1994 and for all periods
presented herein. The results might have been different had the companies
actually been combined throughout the periods presented, and the financial
results presented are not necessarily indicative of future performance. The
section in the Financial Review titled The Bank Mergers, found on page 28 of
this report, provides a summary of the historical results achieved by each of
the entities.
The audited financial statements of SNC and more detailed analytical
information are contained in the Southern National Corporation 1994 Annual
Report on Form 10-K.
ANNUAL MEETING
The Annual Meeting of Shareholders of Southern National Corporation will be
held at the University Corporate Center auditorium in Winston-Salem, NC, on May
23, 1995, at 11:00 A.M.
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CONSOLIDATED FINANCIAL HIGHLIGHTS
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
Percent
Increase
1994 1993 (Decrease)
FOR THE YEAR (millions)
Total income $ 1,544 1,420 8.7%
Total expense 1,307 1,334 (2.0)
Net income 237 86 NM
PER COMMON SHARE
Net income:
Primary $ 2.26 .81 NM
Fully diluted 2.21 .81 NM
Cash dividends .74 .64 15.6%
Book value 13.92 13.14 5.9
Closing market price 19.13 19.75 (3.1)
YEAR END (millions)
Assets $ 19,855 18,858 5.3%
Securities 5,425 5,225 3.8
Loans and leases 13,108 12,234 7.1
Deposits 14,314 14,595 (1.9)
Shareholders' equity 1,496 1,399 6.9
AVERAGES (millions)
Assets $ 18,964 17,067 11.1%
Securities at amortized cost 5,340 4,670 14.3
Loans and leases 12,195 11,029 10.6
Deposits 14,300 13,546 5.6
Shareholders' equity 1,453 1,377 5.5
SHARES OUTSTANDING (thousands)
Weighted average shares:
Primary 102,349 99,180 3.2%
Fully diluted 107,399 105,064 2.2
End of year 102,215 100,823 1.4
SIGNIFICANT RATIOS
Return on average assets 1.25% .50
Return on average common equity 16.80 6.19
Average equity to average assets 7.66 8.07
NM -- Not Meaningful
NOTE: SOUTHERN NATIONAL CORPORATION RECORDED CHARGES FOR THE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES IN 1993. THE AMOUNT OF THE CHARGES, NET OF
INCOME TAXES, WAS $34.3 MILLION OR $.35 PER SHARE, BOTH ON A PRIMARY AND FULLY
DILUTED BASIS. 6 INCOME BEFORE THE CUMULATIVE EFFECT OF THE CHANGES IN
ACCOUNTING PRINCIPLES IN 1993 WAS $120.1 MILLION OR $1.16 PER SHARE, BOTH
PRIMARY AND FULLY DILUTED.
(3 Bar charts appear here)
The plot points are as follows:
Earnings Per Share
$
1990 1991 1992 1993 1994
Primary 1.14 1.36 1.53 .81 2.26
Fully Diluted 1.12 1.33 1.48 .81 2.21
RETURN ON AVERAGE ASSETS
% BASED ON NET INCOME
1990 1991 1992 1993 1994
.73 .85 .96 .50 1.25
RETURN ON AVERAGE COMMON EQUITY
% BASED ON NET INCOME
1990 1991 1992 1993 1994
11.38 12.50 12.63 6.19 12.80
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To Our
Shareholders
With this first annual report of the `new' Southern National Corporation, I
welcome you and our nearly 44,000 other shareholders to its exciting future. As
you are well aware, the `new' Southern National Corporation is the result of a
merger-of-equals between Southern National and BB&T Financial Corporation. I
want to discuss with you the concept underlying this merger-of-equals and why we
believe it is more likely to be successful than others; the benefits to our
shareholders; the challenges in its execution; and some key thoughts on our
future strategy.
The concept behind the BB&T/Southern National merger was to take two high
performance companies and create a `world-class' organization - an organization
that cannot only survive, but prosper in a rapidly changing, highly competitive,
globally integrated economy. The consolidated 1994 financial results of the new
company support the premise that we are beginning with a high performance
organization. For the year ended 1994, consolidated net income totalled $237
million. The return on assets was 1.25% and the return on common equity was
16.80%. In addition, consolidated shareholders' equity was $1.5 billion ($13.92
per common share) and market capitalization approximated $2 billion at the end
of 1994. The equity ratio of 7.5% and Tier 1 capital ratio of 12.3% are
extremely strong. Probably the most outstanding characteristic, from a financial
perspective, is our excellent asset quality. In 1994 net loan losses were only
.14% of outstanding loans, and nonperforming assets represented only .30% of
total assets at year-end. These are clearly high performance results.
In this merger the whole is more than the sum of its parts. There are four
basic advantages in the combined entity which were not available to either of
the predecessor companies. First, there is the opportunity for substantial cost
savings. We are estimating annualized cost savings of $65-$68 million, of which
approximately $40 million can be realized in 1995. When these cost savings are
fully achieved, the
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efficiency ratio of the combined company should be in the 53-55% range, one of
the best in banking. To achieve these future annual savings, we recorded
nonrecurring charges of approximately $88 million during the first quarter of
1995.
Second, there are material opportunities for revenue enhancements. While
BB&T and Southern National serve the same core customer categories - retail,
small business and commercial middle market - each of the predecessor companies
had specialized expertise in certain business segments. For example, Southern
National has a much stronger leasing operation; BB&T has a larger insurance
agency system and a more significant trust business. We believe the expertise of
each of the respective companies can be brought to the customer base of the
other, thereby increasing revenues and profitability of the combined company.
Third, the combined entity has substantially increased market power. We will
have the largest market share in North Carolina, the third largest share in
South Carolina, and a healthy presence in the Tidewater region of Virginia. The
combination substantially enhances the quality of our retail/small business
branch distribution system in the major metropolitan markets, bringing improved
convenience to our customers. The increased market power will also make our
advertising programs more cost-effective.
Finally, we have the opportunity to combine two high performance management
teams. The new leadership team is extremely talented and capable of both
managing and growing the `new' company.
(Photo of John A. Allison appears here with the following caption)
JOHN A. ALLISON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mergers-of-equals have been somewhat controversial and have experienced
mixed results. We believe that this one is better than others for four basic
reasons. First, the leadership issue has been resolved. The typical pattern in
mergers such as ours is to have an interim chief executive officer for a period
of time as well as a designated heir apparent, who eventually assumes the top
leadership role for the combined organization. During this transitional period,
people simply are not sure of the one to follow. This lack of leadership
definition produces frustration and anxiety among employees in both predecessor
companies, resulting in long delays in realizing cost savings and operating
efficiencies the merger was designed to achieve in the first place. We believe
the resolution of the leadership issue - before our merger-of-equals was
completed - has significantly accelerated the efficient integration of the two
companies into the `new' Southern National Corporation.
Second, the operating systems problem has been resolved. Many mergers-of-
equals have floundered because of internal debates about which company had the
better operating systems. In some cases, a third system was chosen,
necessitating that all employees and customers experience systems changes.
Because of a greater investment in systems, the BB&T computer systems were
chosen. By picking one set of systems, we have eliminated the issue of trying
to resolve which systems are best. In addition, over half our employees will
not have to learn new systems and can support the training of the other
employees. Also, over half of our
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customers will not experience any change in the way we do business with them.
Third, there are substantial economies in this merger-of-equals because this
is an in-market transaction. Such transactions in a common geographic market
afford the combined organization much greater cost savings opportunities, such
as the elimination of overlapping positions, consolidation of branch offices and
the complete integration of all back office systems and operations. Many
mergers-of-equals have not provided the inherent cost savings which are
available to the `new' Southern National.
Finally, while there are cultural differences between BB&T and Southern
National, the core culture is the same. Both grew up as Eastern North Carolina
farm banks; both have been aggressively involved in thrift acquisitions; and
both have been financially successful. This commonality of culture eliminates
many potential conflicts.
We believe that this merger-of-equals should be to the long benefit of our
shareholders in three primary ways. First, due to the improved efficiencies,
revenue enhancement, increased market power and combined management talent, the
new company's earnings will be greater than either company could have achieved
separately. The combined company's ability to generate higher earnings should be
reflected in higher valuations in the marketplace.
Second, we have the potential to create a truly high performance company
with substantial market capitalization. If we can produce consistency of
performance at higher levels of returns on assets and equity than is typical
for the industry, we can achieve a higher price/ earnings ratio for the common
stock of the `new' Southern National.
(Bar chart appears here)
The plot points are as follows:
NET INCOME
MILLION $
1990 1991 1992 1993 1994
93 116 147 86 237
Finally, and importantly, while the Boards of both Southern National and
BB&T reaffirmed the commitment to remain indepen dent, it was agreed that a
merger-of-equals should not be done to prevent the sale of the bank should the
shareholders decide to do so in the future. Our objective is to create a high
performance organization which can remain independent, but we acknowledge that
we have, by far, the most valuable - and acquirable franchise in the Carolinas.
A logical argument can be made that, over the next ten years, eight to ten
banking firms will attempt to develop nationwide franchises. These
companies will want to be in markets such as the Carolinas and Virginia. North
Carolina is the tenth most populous and the fifth fastest growing state, while
both South Carolina and Virginia have excellent demographics and economics. Our
primary competitors (Wachovia, First Union and NationsBank) are too large to be
acquired. An interesting economic reality is the fact that you do not
necessarily have to sell an asset for it to appreciate if the underlying
economics justify that appreciation. This merger has clearly enhanced our
underlying franchise value and should, therefore, be to the shareholders'
benefit.
The inherent advantages in this merger were obvious. Turning the economic
potential into economic reality, however, is a huge challenge. This challenge is
about the human systems - employees and customers. For this merger to work,
employees and customers of the `new' Southern National must believe that this
transaction is to their long-term benefit.
We have worked very hard to deal with the employee issue, because focused
and committed employees are necessary to create value for shareholders. Probably
the most difficult reality was the necessity of some staff reductions in order
to achieve the potential cost savings. We are now expecting to reduce employment
by approximately 1,000 people from our original employment of 8,700 employees.
However, we
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have worked very hard to minimize any negative impact of this reduction.
Through a `no-hire' policy and an attractive early retirement program, it
appears that actual layoffs will be limited to 250 to 300 employees. Many will
have been offered other job opportunities in the bank, but will have declined
for geographic or other reasons. An excellent outplacement service has been
established to aid these displaced employees. We have made every effort to keep
employees informed as the merger progressed. The organizational structure for
the new company was in place by mid-December, two months before the merger was
done instead of worrying about what their jobs would be. The good news is that
90% of our employees will have significantly better career and personal growth
opportunities as a result of the merger.
While the cultures of BB&T and Southern National are similar in many ways,
there are some differences. We are trying to learn from both cultures to bring
the best aspects of each to the new company. If we are successful in learning
from each other, we will indeed create a superior culture. We have already
established two cultural imperatives. First is the concept of establishing a
rational foundation for all our decisions. A merger of equals generates
many emotions. During periods of change such emotional apprehension can be
self-defeating. Therefore, we are trying rigorously to apply sound rules of
logic throughout our decision-making processes. The second cultural
imperative is to establish a participatory/team-based management system.
This is designed to ensure that the information we need to make decisions
is developed; that a consensus is achieved to improve the quality of
execution; and that learning is optimized through participation in the
decision process.
(Bar chart appears here)
The plot points are as follows:
TOTAL AVERAGE ASSETS
BILLION $
1990 1991 1992 1993 1994
13 14 15 17 19
The other great challenge in a merger-of-equals is being sure that our
customers feel comfortable with the process of change. This merger is
unequivocally to the long-term benefit of our customers because they will be
provided with better products at lower prices. However, it is unrealistic to
expect a change of this magnitude to go unnoticed by our customers.
Consequently, we are taking a number of steps to ensure minimal customer
disruption and to enhance our long-term customer relationships during this
transition. First, we are making a highly-focused effort to minimize systems
problems that can be temporarily disruptive. Second, a pro-active calling
program is being established for our customers. Our goal is to call or visit
with our top 200,000 customers, explain our progress during the transition, and
make sure they know we care about them. Third, we acknowledge that there will
be mistakes. In this regard, if a customer brings an issue to our attention, we
are going to apologize, fix it, and provide the customer with a `token of
atonement' for the mistake we have made. Finally, the `new' Southern National
will be particularly price competitive on both deposit and loan rates during
this transition. We will not give any customer a reason to leave us over price
while the integration process is occurring.
Practically all the effort and energy of our company will be focused on the
merger process through the summer of 1995. After the integration is complete,
there is great potential for future growth. Probably the most economically
productive opportunity is to increase the services utilized per customer. BB&T
and Southern National were both involved in thrift acquisitions. In general,
thrift customers did not have as many services as bank customers enjoyed. In
order to achieve better penetration of our customer base, we are establishing
a high performance sales management system that has already been
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successfully tested at BB&T. Known as Cohen-Brown, it enabled BB&T to increase
its services sold by nearly 85% during 1994.
It is clear that the role of the traditional branch system is in
transition. More and more of our best customers are no longer branch-
dependent. They use technology-based systems to meet their financial
transaction needs. Over time there are likely to be fewer branch locations, and
the locations that remain will be larger and offer more services. Our service
offerings will be supported by advanced technology, which will eliminate much
of the transaction activity that takes place today in the branches. Future
branches will be sales/service centers where branch employees will be
aggressively involved in outbound calling and financial counseling as our
customers' financial needs become more complex and as convenience through
technology is enhanced. The `new' Southern National will have several product
lines, such as mortgage origination and servicing
through internal expansion, technology investments and acquisitions.
There are some bank and thrift acquisition opportunities available to us in
the Carolinas and, particularly, in Virginia. However, it is appropriate to
acknowledge that our need for acquisitions now is substantially less than either
BB&T or Southern National had in the past. Frankly, neither BB&T nor Southern
National was originally blessed with a first-class franchise. To create a first-
class franchise, each needed to make acquisitions. The combined company now has
a first-class franchise. Any acquisitions we make in the future should have
excellent economic paybacks and clearly be beneficial to the shareholders.
Conceptually, we believe that our business is changing with an increased
need to provide customers with better financial decision-making advice. Over
time, we will probably have fewer employees relative to the assets we manage,
but those employees will be better trained. Therefore, we will be focusing on
creating a knowledge-based learning organization that has a high level of
teamwork with the objective of ensuring that our customers receive the greatest
value.
In many ways, 1995 will be a challenging year from a financial perspective.
Rising interest rates will put pressure on margins. Nonrecurring charges of
$88 million, together with $20 million in bond losses, were taken in the first
quarter of 1995 to lay the groundwork for the future. However, the long-term
economic prospects for the `new' Southern National are very bright.
This merger-of-equals has been an interesting learning process. I am
confident that the new organization will be successful. Please give us a
little time, because this is a major undertaking. Your support, as reflected in
the proxy vote for the merger as well as for our predecessor companies over the
years, is greatly appreciated.
Sincerely,
(Signature of John A. Allison appears here)
John A. Allison
Chairman and Chief Executive Officer
April 28, 1995
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A MERGER OF EQUALS
Who Will Make It Work
(Photograph of the Executive Management Team appears here with the
caption following)
THE EXECUTIVE MANAGEMENT TEAM OF SOUTHERN NATIONAL CORPORATION - FRONT ROW,
FROM LEFT: JOHN A. ALLISON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER; SCOTT E. REED,
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER; AND W. KENDALL CHALK,
EXECUTIVE VICE PRESIDENT. SECOND ROW, FROM LEFT: MICHAEL W. SPERRY, MORRIS D.
MARLEY AND KELLY S. KING, EXECUTIVE VICE PRESIDENTS; HENRY G. WILLIAMSON, JR.,
EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER; AND ROBERT E. GREENE,
EXECUTIVE VICE PRESIDENT.
The `new' Southern National has selected the best people from both
predecessor organizations to forge a bright future for customers, shareholders
and employees of the new company. In addition, an organizational system
employing a proven `community bank' focus will provide the infrastructure and
framework to capitalize on our strengths and to leverage our enlarged
capabilities.
The executive management team will be led by John A. Allison, the `new'
Southern National Corporation's chairman and chief executive officer. Mr.
Allison held the same positions at BB&T Financial Corporation. Glenn Orr, who
led Southern
<PAGE>
(Photograph of key members of the Western Region appears here
with the caption following)
THE REGIONAL ORGANIZATIONAL STRUCTURE WILL MAINTAIN ITS COMMUNITY BANK FOCUS
ON CUSTOMERS. PICTURED ARE KEY MEMBERS OF THE WESTERN REGION, HEADQUARTERED IN
ASHEVILLE, NC: FROM LEFT ARE FRED GROCE, JR., REGIONAL PRESIDENT; SHARON
HAMILTON, RETAIL BANKING MANAGER; REBECCA HUGHES, MORTGAGE LOAN MANAGER; DEREK
LANE, SENIOR CREDIT OFFICER; CHERYL SIGMON, ANALYST; AND JILL HEFNER, BRANCH
OPERATIONS MANAGER.
National Corporation and designed the strategy for that institution's rapid
growth over recent years, will serve as a member of the Board of Directors of
the `new' Southern National. The Board of Directors will have 24 members,
equally divided between the two former organizations.
The executive management team under Mr. Allison is comprised of seven
senior managers, three of whom came from Southern National backgrounds and four
from BB&T-based careers. They are Henry Williamson, Executive Vice President
and Chief Administrative Officer, who will direct operations, data processing
and marketing; Scott Reed, Executive Vice President and Chief Financial
Officer, who will be responsible for accounting and reporting, strategic
planning,
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trust, insurance and investment services; Kelly King, Executive Vice
President of the branching network, who will be in charge of administering the
branch banking system and will continue as president of the North Carolina bank
subsidiary; Mike Sperry, Executive Vice President in charge of corporate
banking, who will supervise commercial lending and cash management and
international services; Ken Chalk, Executive Vice President, who will head
retail and mortgage lending and will also oversee sales finance and loan
operations; Morris Marley, Executive Vice President of funds management, who
will manage the investment portfolio, together with the asset-liability and
leasing functions; and Rob Greene, who as Executive Vice President of
Administrative Services, will direct all human resource activities, the legal
and audit functions, and compliance and community reinvestment activities. In
addition, Mr. Greene will supervise the quality support, support services,
security and training functions.
The operating structure will maintain its community bank focus through
sixteen regions, including Commerce Bank, designed to serve the specific needs
of those geographically clustered customers. This community-type orientation has
several purposes. First, each region is empowered with the autonomy of a
community bank, enabling it to meet customer needs promptly and efficiently.
Second, it strives to keep bank-customer relationships on a personal basis,
enabling us to know our customer needs, while giving the customer the assurance
of a personal banker over a long period of time. Third, it places us face to
face with our customers, making us a part of the neighborhood and its people and
reinforcing our awareness of community citizenship.
Each of our sixteen `community bank' management teams is headed by a
regional president, who has both line and staff support. Each of the regions
will have four functional lines of business - business lending, corporate
banking, mortgage banking and retail banking.
The city executive within each region will manage the staff responsible for
providing credit and other services to small and medium sized businesses;
corporate lenders will manage credit and other relationships with large
businesses; the retail banking manager will serve as sales manager for the
region; and the regional mortgage lending manager will be responsible for
developing and expanding our mortgage lending business. Each region will also
have a senior credit officer and a regional branch operations manager to
support the line functions.
We believe that this organization will allow us to achieve our goals of
moving decision-making close to the customer in order to provide quality
service, while at the same time making operational support readily available to
the line personnel who have direct relationships with our customers.
Each region is empowered with pricing discretion and liberal lending
authority, creating rapid decision-making and quick response time. We believe
this organizational structure - built around a `community bank' focus - not only
is the most effective for our customers, but enhances the public profile of our
people and contributes to our long-term involvement in the civic and cultural
affairs of the places we work, serve and call our homes.
(Photograph of 2 women standing outside a building appears here)
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A MERGER OF EQUALS
When
It Will
Be
Done
Legally and financially, the `new' Southern National came into being on
February 28, 1995 with the merger of the two holding companies -Southern
National Corporation and BB&T Financial Corporation. This merger-of-equals was
accomplished as a pooling-of-interests, with each BB&T shareholder receiving
1.45 shares of Southern National Corporation stock. Three major investment
banking firms provided fairness opinions on the exchange ratio to both
Southern National and BB&T in connection with the transaction. The indicated
annual cash dividend on the new shares -totalling about 102
(Photograph of hand turning pages appears here)
million - will be 80 cents per share. Both the common and preferred stock
are listed on the New York Stock Exchange under the symbols SNB and SNBPFA.
Headquarters for the holding company will be in Winston-Salem, NC, although
the communities in which each of the predecessor institutions were formed -
Lumberton, NC, for Southern National and Wilson, NC, for BB&T - will play
important administrative and operational roles for the new organization.
The other major aspect of the merger process will be completed in the spring
of 1995. The North and South Carolina banking subsidiaries of both predecessor
holding companies will be merged into Branch Banking and Trust Company. This
consolidation process, including staff functions, headquarters, personnel
reloca-
(Photograph of a woman and a man appears here with caption to follow)
SCORES OF TASK FORCE GROUPS WERE REQUIRED TO INTEGRATE OPERATIONS AND
SYSTEMS OF THE TWO PREDECESSOR COMPANIES INTO A UNITED NETWORK. HERE, REVOLVING
CREDIT OPERATIONS MANAGER KEN PAUL AND CONNI BEST, GROUP MANAGER IN LOAN
SERVICES MARKETING, LEAD A DISCUSSION ON REVOLVING CREDIT POLICIES AND
PROCEDURES FOR THE `NEW' SOUTHERN NATIONAL.
<PAGE>
tions and systems conversions, will be completed by June 1.
While Southern National Corporation will be the name of the holding company,
Branch Banking and Trust Company will be the name of the subsidiary banks in
both North and South Carolina. The name under which products and services would
be marketed posed a difficult choice. While both BB&T and Southern National had
good name recall and recognition, managements from both predecessor companies
concluded that BB&T projected the best customer profile going forward and that
the brevity of the nomenclature heightened both recognition and awareness.
Consequently, all products and services of the `new' Southern National
Corporation will be marketed under the BB&T logo.
The new company profile will look like this: The `new' Southern National
will employ 7,700 people, have nearly $20 billion in assets, with a market
capitalization approximating $2 billion. The 535 branch banks
(Photograph of a man and woman appears here with the caption to follow)
AT LEFT ARE TASK FORCE MEMBERS MICHELLE LAVENDER, CUSTOMER SERVICE MANAGER;
AND DAVID SHULL, SYSTEMS CONSULTANT. BELOW, FROM LEFT, ARE CARLOS GOODRICH, LOAN
PLATFORM AUTOMATION MANAGER; DENNIS BOTTOMS, LOAN SYSTEMS SERVICES MANAGER; AND
DELORES DAVIS, CREDIT INSURANCE ADMINISTRATION MANAGER.
before consolidation will be reduced to approximately 450. The new company's
major markets will resemble those of the predecessor companies, and will include
retail, small and middle-market commercial, trust and investment management,
mortgage banking, insurance, investment services and leasing.
There have been - and will be - personnel dislocations as a result of the
merger process. Through consolidation of functions and mandated divestitures, an
estimated 1,000 people from both predecessor organizations will be affected.
Taken in perspective, this will be less than 5 percent of total employment after
normal turnover and early retirement options have been exercised. The important
thing to remember, however, is that 90% of the `new' Southern National's
employees will be better off for the long-term.
(Photograph of 2 men and a woman appears here)
11
<PAGE>
A MERGER OF EQUALS
What
It
Means
The `new' Southern National represents the creation of a large, well-
capitalized financial institution with unprecedented marketing leverage in its
traditional markets and the capability to expand its influence throughout the
Southeast and the United States. The new organization ranks sixth in size in the
Southeast and 38th among bank holding companies in the country. In North
Carolina, it will be number one in market share of deposits, and in South
Carolina it will command a firm third place in this category. In the fast
growing Greenville-
(Photograph of a man and woman appears here with the caption to follow)
NETWORK CONTROL TECHNICIANS CAROL STREET AND STEVE PETTY
ARE SHOWN MONITORING DAILY OPERATIONS FUNCTIONS OF THE `NEW'
SOUTHERN NATIONAL.
Spartanburg area of South Carolina, it will be first in market share of
deposits. Both North and South Carolina are two of the fastest growing states in
the country. Both are astride the I-85 corridor, which BUSINESS WEEK describes
as the "preferred megacorridor for business in the '90s." North Carolina's
present unemployment rate of 3.7 percent is the lowest of the 11 largest states,
and it boasts a population growth of nearly 5 percent. It also has one of the
nation's most diversified economies, with the eighth largest manufacturing base.
South Carolina ranks fourth among the states in global investment and is home to
the BMW North American manufacturing complex. Finally, our acquisition in
January 1995 of Commerce Bank in Virginia Beach, Virginia, gives us a bridgehead
for rapid expansion in the Old Dominion state.
For shareholders, the merger means enhanced long-term value in a world-class
organization that will be more competitive in its traditional markets as well as
in future new markets. It also means greater profits in the future as in-market
redundancies are eliminated, technology-driven delivery systems are put on line,
and cost efficiencies are realized. For employees it means greater potential for
personal growth in a larger company, and an expanded career field for creative
self-expression and growth. For customers, it means a wide selection of products
and services and faster response time as a result of the community bank
organizational focus and technology-
12
<PAGE>
(Photograph of people working appears here with the caption to follow)
TECHNOLOGY-DRIVEN SYSTEMS WILL PLAY A VITAL ROLE IN PRODUCING THE MANY
BENEFITS INHERENT IN ECONOMIES OF SCALE, PROVIDING SERVICES AND CONVENIENCE AT
HIGHLY COMPETITIVE PRICES.
driven delivery systems. Our customers will not only have enhanced product
and service offerings, but highly competitive ones as a result of improved cost
effectiveness. Most of all, perhaps, it means enhancing our partnership with our
customers as we help them achieve their financial goals and secure their
financial future.
For our communities throughout the three-state area, it means the
continuation of our regional and community focus which has fostered an active
presence as corporate and individual citizens. Our predecessor organizations
grew up with many of the cities and towns we still call home, and we remain
their neighbor as much as their hometown bank. Our increased size and financial
strength will also guarantee our continued capability to support the many
worthwhile charities and civic endeavors we have been involved in over the
years.
(Blurred photograph of 3 men and 2 women working behind computers in
Computer Data Room appears here with caption to follow)
TECHNOLOGY-DRIVEN SYSTEMS WILL PLAY A VITAL ROLE IN PRODUCING THE MANY
BENEFITS INHERENT IN ECONOMIES OF SCALE, PROVIDING SERVICES AND
CONVENIENCE AT HIGHLY COMPETITIVE PRICES.
13
<PAGE>
(Photograph of 3 women and a man standing in front of newly built houses
appears here with the caption to follow)
ADVENTURA EAST IN WILSON, NC, IS A GOOD EXAMPLE OF OUR COMMITMENT TO FOSTER
IMPROVEMENT IN RESIDENTIAL HOUSING FOR LOW AND MODERATE INCOME SEGMENTS IN THE
COMMUNITIES WE SERVE. SHOWN AT A CONSTRUCTION SITE ARE, FROM LEFT, JANIE
JOHNSON, CORPORATE LENDING COMPLIANCE OFFICER; CATHY KAUFMANN, MARKET MANAGER OF
THE BANK'S COMMUNITY REINVESTMENT ACT PROGRAM; BRIAN COYLE, COMMUNITY
DEVELOPMENT MANAGER; AND BARBARA BLACKSTON, HOUSING COORDINATOR OF THE WILSON
COMMUNITY IMPROVEMENT ASSOCIATION.
Why It 's Good
For Our
Communities
The `new' Southern National is expected to have combined financial resources
significantly greater than those possessed by its two predecessor companies
operating separately. This financial power will result from increased earnings
potential generated through consolidation of functions, combination of
processes, enhanced market presence and the operating efficiencies achieved
through economies of scale. While we have discussed the expected impact these
resources will have on shareholders, employees and customers, they will also
afford expanded opportunities and benefits for the many communities we serve in
North and South Carolina, as well as the Tidewater region of Virginia.
Both Southern National and BB&T already had established Community
Reinvestment Act (CRA) plans to guide their respective programs directed at
community development activities in the two Carolinas. The CRA plan of the `new'
Southern National will contain elements of both as it projects an even larger
presence in these communities. Each had already achieved success in a variety of
outreach, lending and deposit programs, as well as charitable endeavors designed
to meet the total banking needs of their communities.
Both predecessor companies, for example, had been active participants in
government lending programs, such as
14
<PAGE>
those under the auspices of the Farmers Home Administration and Small
Business Administration ("SBA"), as well as the Federal Housing Administration
and Veterans Administration. Southern National and BB&T were leaders in the
banking industry in the number of SBA loans originated in North Carolina.
One of the key objectives of the `new' Southern National will be to foster
growth in services to low and moderate income and minority segments in its
communities. Each of the predecessor companies had already established flexible
underwriting criteria to meet these needs. For example, BB&T initiated the
Community Home Ownership Incentive Program (CHIP) to originate affordable
housing loans for low and moderate income individuals and families. Southern
National had a similar program called Home Ownership Made Easy (HOME). Over
3,000 mortgage loans were originated through these programs in 1994 alone.
The `new' Southern National will also be focused on the construction and
improvement of residential housing in the communities it serves -programs
originated by its predecessor companies. For example, BB&T already had become
known as an expert in community development lending, employing a full-time
community development manager. One such development is Adventura East, a 68-unit
single-family affordable housing subdivision in Wilson, NC. Adventura East has
won numerous awards as an outstanding example of single-family housing
initiatives. BB&T is also involved in three other similar housing projects in
the North Carolina communities of Hillsborough, Shelby and Raleigh. For
its part, Southern National has committed over $100 million for low and
moderate income housing, including a senior citizens project. These
developments are being built in the North Carolina communities of
Southern Pines, Henderson, Goldsboro and Charlotte.
Through direct investment and investment pools, both Southern National and
BB&T have been involved in the Habitat for Humanity program, which constructs
affordable new housing for low and moderate income individuals throughout the
Southeast. The new company will continue to support this worthwhile program.
The `new' Southern National also plans to enhance its presence in the many
charitable endeavors begun by its predecessors. Charitable programs sponsored by
SNC and BB&T totalled $4.0 million in 1994, and included - in addition to the
community development programs described - day care centers, educational
programs and scholarship funds.
The management and Board of Directors of the `new' Southern National are
pledged to continue and expand the community investment strategies begun by our
two predecessor companies. We believe that community involvement is a dynamic
process involving evolution and refinement. As a result, we will continue to be
sensitive to the needs of our communities by evaluating and implementing
policies and initiatives that honor our corporate commitments.
(Photograph of woman and boy playing ball appears here with the
caption to follow)
BARBARA BLACKSTON TAKES TIME OUT TO ENTERTAIN A YOUNG RESIDENT OF ADVENTURA
EAST.
<PAGE>
A MERGER OF EQUALS
Where
It Will
Take
Us
(Photograph of BB&T and Southern National certificates being exchanged appears
here with the caption to follow)
THE EXCHANGE OF BB&T STOCK CERTIFICATES FOR SHARES IN THE `NEW' SOUTHERN
NATIONAL SYMBOLIZES NOT ONLY A MERGER-OF-EQUALS, BUT A POWERFUL NEW PARTNERSHIP
FOR THE TWENTY-FIRST CENTURY.
16
<PAGE>
The enhanced size, capital strength and market power of the `new' Southern
National gives us a new dimension of potential in the rapidly changing financial
services environment. We are large enough to employ our economies of scale to
deliver more imaginative products and services at highly competitive prices, yet
small enough not to forget our roots and the loyal customers who made us what we
are. We have the size to provide a broader career field of opportunity for our
employees, yet retain the mutual respect that fosters the interpersonal
relationships that have always set our people apart from the competition. This
merger-of-equals has enhanced our shareholders' investment in the new franchise,
yet we remember the names and faces that supported our predecessor companies
throughout their histories. Our superior earnings enhance our ability to fund
the many worthwhile civic and cultural activities in our communities, yet our
employee citizen-ship in these communities is as important to us as our
corporate citizenship.
Where will the `new' Southern National take us? As far as the vision and
imagination of its people - but always within the horizons framed by its
principles. By leveraging the best creative talent of both predecessor banks,
our vision on the future is truly unlimited. From our new positions of size and
strength we look out on the promise of performance, proficiency and progress -
the tangibles we prominently display on the bottom line of our income statement.
But we understand only too well that such tangibles are never given or taken;
they are always exchanged through partnership. Partnership, by definition,
implies an exchange of trust as well as an exchange of goods and services. This
is our principle. And while our policies will change many times over the coming
years, our principles will never change.
Wherever the `new' Southern National takes us, we will make the journey as
partners... with our employees, shareholders, customers and the communities in
which we operate. This is how it has always been at Southern National and BB&T
for over 200 collective years of proud banking tradition. And this is how the
`new' Southern National Corporation will navigate its way into the twenty-first
century.
(Photograph of 2 women and a man looking over papers at a desk appears here
with the caption to follow)
PARTNERSHIP IMPLIES AN EXCHANGE OF TRUST AS WELL AS THE EXCHANGE OF GOODS
AND SERVICES. IN OUR SHELBY, NC OFFICE, CUSTOMER SERVICE IS COORDINATED WITH
COMMUNITY NEEDS. FROM LEFT ARE LAURA SMITH, CUSTOMER SERVICE REPRESENTATIVE;
LYNN DEAN, ASSISTANT VICE PRESIDENT AND FINANCIAL CENTER MANAGER; AND HAZELENE
SMITH, OFFICE MANAGER AND CRA SPECIALIST.
17
<PAGE>
Board
Of
Directors
<TABLE>
<S> <C> <C> <C> <C>
(Photo) (Photo)
JOHN A. ALLISON PAUL B. BARRINGER
Chairman and Chief President and Chief
Executive Officer Executive Officer
Southern National Coastal Lumber Company
Corporation Weldon, NC
Branch Banking and Trust
Company
Winston-Salem, NC
(Photo) (Photo) (Photo) (Photo) (Photo)
W. R. CUTHBERTSON, JR. RONALD E. DEAL ALBERT J. DOOLEY, SR. JOE L. DUDLEY, SR. TOM D. EFIRD
Senior Vice President Investor Partner President and Chief President
Branch Banking and Trust Chairman Dooley, Dooley, Spence & Executive Officer Standard Distributors, Inc.
Company Wesley Hall Parker, P.A. Dudley Products, Inc. Gastonia, NC
Charlotte, NC Hickory, NC Attorneys-at-Law Greensboro, NC
Lexington, SC
</TABLE>
<TABLE>
<S> <C> <C> <C>
(Photo) (Photo) (Photo) (Photo)
O. WILLIAM FENN, JR. PAUL S. GOLDSMITH DR. LLOYD VINCENT HACKLEY ERNEST F. HARDEE
Director President President President
Furniture Export Office William Goldsmith Co., Inc. NC System of Community Hardee Realty Corporation
International Trade Division Greenville, SC Colleges Portsmouth, VA
NC Department of Raleigh, NC
Commerce
High Point, NC
</TABLE>
(Photo)
DR. RICHARD JANEWAY
Executive Vice President for
Health Affairs and Executive
Dean
Bowman Gray School of
Medicine
Wake Forest University
Winston-Salem, NC
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
DR. J . ERNEST LATHEM JAMES H. MAYNARD JOSEPH A. MCALEER , JR. ALBERT O. MCCAULEY
Personal Investments Chairman and Chief Chief Executive Officer Secretary and Treasurer
Retired Director of Prostate Executive Officer Krispy Kreme Quick Stop Food Marts, Inc.
Diagnostic Center Investors Management Doughnut Corporation McCauley Moving & Storage
Greenville, SC Corporation Winston-Salem, NC of Fayetteville, Inc.
Raleigh, NC Fayetteville, NC
JAMES DICKSON MCLEAN, JR. CHARLES E. NICHOLS L. GLENN ORR, JR. A. WINNIETT PETERS
President Consulting Counsel Chairman Emeritus Consultant of Government
McLean, Stacy, Henry, Nichols, Caffrey , Hill & Southern National Affairs
McLean, McIntyre & Evans, P .L.L.C. Corporation Standard Commercial
Ramseur, P.A. Attorneys-at-Law Winston-Salem, NC Tobacco Company
Attorneys-at-Law Greensboro, NC Wilson, NC
Lumberton, NC
RICHARD L. PLAYER, JR. C. EDWARD PLEASANTS, JR. NIDO R. QUBEIN A. TAB WILLIAMS, JR.
President President and Chief Chief Executive Officer Chairman and Chief
Player, Inc. Executive Officer Creative Services, Inc. Executive Officer
Fayetteville, NC Pleasants Hardware High Point, NC A. T. Williams Oil Company
Company Winston-Salem, NC
Winston-Salem, NC
</TABLE>
PRINCIPAL OFFICERS
OF SOUTHERN
NATIONAL
CORPORATION
JOHN A. ALLISON
Chairman and Chief
Executive Officer
HENRY G. WILLIAMSON, JR.
Executive Vice President and
Chief Administrative Officer
W. KENDALL CHALK
Executive Vice President
ROBERT E. GREENE
Executive Vice President
KELLY S. KING
Executive Vice President
MORRIS D. MARLEY
Executive Vice President
SCOTT E. REED
Executive Vice President and
Chief Financial Officer
MICHAEL W. SPERRY
Executive Vice President
19
<PAGE>
BB&T's
Banking
Network
(Map of North and South Carolina appears here)
NORTH CAROLINA
319 OFFICES, 161 CITIES,
66 COUNTIES
BRANCH BANKING AND
TRUST COMPANY
CAPE FEAR
COLUMBUS COUNTY
Chadbourn(1)
Tabor City(1)
Whiteville(3)
CUMBERLAND COUNTY
Fayetteville(11)
Hope Mills(1)
Spring Lake(1)
ROBESON COUNTY
Fairmont(1)
Lumberton(4)
Red Springs(2)
Rowland(1)
SAMPSON COUNTY
Clinton(3)
Newton Grove(1)
Roseboro(1)
CATAWBA
ALEXANDER COUNTY
Bethlehem(1)
Taylorsville(1)
ALLEGHANY COUNTY
Sparta(1)
CATAWBA COUNTY
Hickory(7)
Newton(2)
Maiden(1)
Claremont(1)
Catawba(1)
Conover(1)
IREDELL COUNTY
Statesville(3)
LINCOLN COUNTY
Lincolnton(2)
Denver(1)
SURRY COUNTY
Elkin(2)
Mount Airy(2)
Pilot Mountain(1)
WILKES COUNTY
N. Wilkesboro(1)
Wilkesboro(1)
EASTERN
JOHNSTON COUNTY
Benson(1)
Clayton(1)
Micro(1)
Princeton(1)
Selma(1)
Smithfield(1)
LENOIR COUNTY
Kinston(4)
PITT COUNTY
Ayden(1)
Farmville(1)
Fountain(1)
Greenville(4)
WAYNE COUNTY
Fremont(1)
Goldsboro(4)
Pikeville(1)
WILSON COUNTY
Black Creek(1)
Elm City(1)
Stantonsburg(1)
Wilson(4)
METRO
GASTON COUNTY
Cherryville(2)
Cramerton(1)
Dallas(1)
Gastonia(9)
Lowell(1)
Mount Holly(1)
Ranlo(1)
Stanley(1)
IREDELL COUNTY
Mooresville(2)
MECKLENBURG COUNTY
Charlotte(16)
Huntersville(1)
Matthews(3)
Mint Hill(1)
Pineville(1)
NORTHEAST
CHOWAN COUNTY
Edenton(1)
DARE COUNTY
Kitty Hawk(1)
EDGECOMBE COUNTY
Tarboro(3)
GRANVILLE COUNTY
Oxford(2)
HALIFAX COUNTY
Enfield(1)
Littleton(1)
Roanoke Rapids(2)
Halifax(1)
Weldon(1)
Scotland Neck(1)
MARTIN COUNTY
Williamston(1)
Jamesville(1)
Oak City(1)
NASH COUNTY
Rocky Mount(2)
PASQUOTANK COUNTY
Elizabeth City(1)
VANCE COUNTY
Henderson(2)
WARREN COUNTY
Warrenton(2)
WASHINGTON COUNTY
Plymouth(2)
Roper(1)
PIEDMONT
DAVIDSON COUNTY
Denton(1)
Lexington(2)
Thomasville(3)
Welcome(1)
DAVIE COUNTY
Mocksville(2)
FORSYTH COUNTY
Clemmons(1)
Kernersville(1)
Lewisville(1)
Winston-Salem(15)
STOKES COUNTY
King(1)
YADKIN COUNTY
Yadkinville(1)
SANDHILLS
ANSON COUNTY
Morven(1)
Wadesboro(2)
CHATHAM COUNTY
Goldston(1)
Siler City(1)
HARNETT COUNTY
Angier(1)
Coats(1)
Lillington(1)
HOKE COUNTY
Raeford(1)
LEE COUNTY
Broadway(1)
Sanford(3)
MONTGOMERY COUNTY
Mt. Gilead(1)
20
<PAGE>
MOORE COUNTY
Aberdeen(2)
Carthage(2)
Pinehurst(2)
Seven Lakes(1)
Southern Pines(1)
Vass(1)
RICHMOND COUNTY
Hamlet(1)
Rockingham(2)
SCOTLAND COUNTY
Laurinburg(2)
SOUTHEAST
BRUNSWICK COUNTY
Shallotte(1)
CARTERET COUNTY
Beaufort(1)
Morehead City(3)
CRAVEN COUNTY
Havelock(1)
New Bern(4)
DUPLIN COUNTY
Wallace(2)
Warsaw(1)
Faison(1)
Magnolia(1)
JONES COUNTY
Trenton(1)
NEW HANOVER COUNTY
Wilmington(6)
Carolina Beach(1)
TRIAD
ALAMANCE COUNTY
Burlington(2)
Graham(1)
GUILFORD COUNTY
Greensboro(11)
High Point(5)
Jamestown(1)
RANDOLPH COUNTY
Liberty(1)
Ramseur(1)
ROCKINGHAM COUNTY
Eden(1)
Madison(1)
Reidsville(2)
TRIANGLE
DURHAM COUNTY
Durham(8)
ORANGE COUNTY
Chapel Hill(2)
PERSON COUNTY
Roxboro(1)
WAKE COUNTY
Apex(1)
Cary(5)
Fuquay-Varina(1)
Garner(1)
Knightdale(1)
Raleigh(11)
WESTERN
BUNCOMBE COUNTY
Asheville(3)
BURKE COUNTY
Hildebran(1)
Morganton(1)
Valdese(1)
CALDWELL COUNTY
Lenoir(1)
CLEVELAND COUNTY
Kings Mountain(1)
Boiling Springs(1)
Fallston(1)
Lawndale(1)
Shelby(3)
HAYWOOD COUNTY
Maggie Valley(1)
HENDERSON COUNTY
Fletcher(1)
MCDOWELL COUNTY
Old Fort(1)
RUTHERFORD COUNTY
Forest City(2)
Ellenboro(1)
Spindale(1)
Rutherfordton(2)
WATAUGA COUNTY
Boone(1)
SOUTH CAROLINA
110 OFFICES, 51 CITIES,
23 COUNTIES
BRANCH BANKING AND TRUST
COMPANY OF SOUTH CAROLINA
LOWLANDS
BEAUFORT COUNTY
Beaufort(2)
Parris Island(1)
Yemassee(1)
BERKELEY COUNTY
Goose Creek(1)
CALHOUN COUNTY
St. Matthews(1)
CHARLESTON COUNTY
Charleston(4)
James Island(1)
Johns Island(1)
Mount Pleasant(1)
North Charleston(2)
COLLETON COUNTY
Walterboro(1)
DORCHESTER COUNTY
Summerville(1)
HAMPTON COUNTY
Brunson(1)
Estill(1)
Hampton(1)
Varnville(1)
ORANGEBURG COUNTY
Orangeburg(2)
MIDLANDS
LEXINGTON COUNTY
Batesburg(1)
Cayce(2)
Chapin(1)
Irmo(3)
Lexington(5)
Swansea(1)
West Columbia(5)
MCCORMICK COUNTY
McCormick(1)
NEWBERRY COUNTY
Newberry(2)
RICHLAND COUNTY
Columbia(13)
PEE DEE
CHESTER COUNTY
Chester(1)
FLORENCE COUNTY
Florence(2)
HORRY COUNTY
Little River(1)
Loris(1)
Myrtle Beach(2)
N. Myrtle Beach(1)
LANCASTER COUNTY
Lancaster(2)
SUMTER COUNTY
Sumter(3)
YORK COUNTY
Rock Hill(2)
UPSTATE
ANDERSON COUNTY
Anderson(2)
Belton(2)
Honea Path(1)
Piedmont(1)
Williamston(1)
GREENVILLE COUNTY
Greenville(16)
Greer(2)
Mauldin(1)
Simpsonville(1)
Taylor(1)
OCONEE COUNTY
Seneca(1)
PICKENS COUNTY
Clemson(2)
Easley(2)
SPARTANBURG COUNTY
Spartanburg(4)
Lyman(1)
VIRGINIA
21 OFFICES,
7 INDEPENDENT CITIES,
1 COUNTY
COMMERCE BANK
Chesapeake(5)
Hampton(1)
Newport News(2)
Norfolk(2)
Portsmouth(3)
Suffolk(2)
Virginia Beach(5)
YORK COUNTY(1)
21
<PAGE>
Glossary
ALLOWANCE FOR LOAN LOSSES:
A valuation allowance offset against total loans, which represents the
amount considered by management to be adequate to absorb estimated losses
inherent in the loan portfolios.
BOOK VALUE PER COMMON SHARE:
The value of a share of common stock determined by dividing common
shareholders' equity by the number of common shares outstanding.
DERIVATIVES:
Financial instruments or contracts, including interest rate swaps, floors
and ceilings, and futures and forward contracts, the characteristics and values
of which are derived from or related to other financial instruments such as
bonds, stocks and market indices.
EARNING ASSETS:
Loans, investment securities and short-term investments that generate
interest and yield related fee income.
FEDERAL FUNDS SOLD/PURCHASED:
Excess balances of depository institutions which are loaned to each other,
generally on an overnight basis.
FULLY DILUTED EARNINGS PER SHARE:
Earnings per share reflecting the dilutive effect of all contingently
issuable shares.
GOODWILL/NEGATIVE GOODWILL:
The excess of cost over net assets acquired/the excess of net assets
acquired over cost resulting from a business combination accounted for as a
purchase. The excess recorded in the combination is amortized as a debit or
credit to income over the periods to be benefited.
HEDGING:
The use of agreements such as swaps, floors and ceilings, and futures and
forward contracts to protect net interest income against the adverse effects of
sharp movements, either up or down, in market rates of interest.
INTEREST-BEARING LIABILITIES:
Deposits and borrowed funds on which interest is paid.
INTEREST RATE SPREAD:
The difference between the average rate earned on earning assets on a
taxable equivalent basis and the average rate paid for interest-bearing
liabilities.
INTEREST RATE SWAPS:
Agreements entered into with other financial intermediaries in which one
party agrees to pay/receive a fixed payment over the term of the agreement and
the other party agrees to receive/pay a payment which varies with changes in
market interest rate indices, such as LIBOR, the Federal Funds overnight rate or
Prime. Interest rate swaps are used to manage the impact of changes in market
interest rates on interest income and interest expense.
LEVERAGE RATIO:
The ratio of Tier 1 capital to total tangible assets.
22
<PAGE>
NET CHARGE-OFFS:
The amount of loans written off as uncollectible, less recoveries of loans
previously written off.
NET INTEREST MARGIN:
Net taxable equivalent interest income divided by average interest-earning
assets. It is a measure of how effectively a corporation utilizes its earning
assets in relation to the interest cost of funding.
NONPERFORMING ASSETS:
Loans on which interest income is not being accrued, restructured loans on
which interest rates or terms of repayment have been materially revised, and
real properties acquired through foreclosure.
PRIMARY EARNINGS PER SHARE:
Net income available to common shareholders divided by the weighted average
number of common shares and equivalent shares outstanding.
PROVISION FOR LOAN LOSSES:
The period charges against earnings required to maintain the allowance for
loan losses at a level considered by management to be adequate to absorb
estimated losses inherent in the loan portfolios.
RETURN ON AVERAGE ASSETS:
A measure that indicates how effectively an entity uses its total
resources. It is calculated by dividing annual net income by average assets.
RETURN ON COMMON EQUITY:
A measure of how productively an entity's equity is employed. It is
calculated by dividing annual net income by average common shareholders' equity.
RISK-BASED CAPITAL RATIOS:
Regulatory ratios of capital to assets, including assets not reflected on
the balance sheet, which have been adjusted to reflect the risk profile of such
assets. Tier 1 capital consists of shareholders' equity reduced by goodwill,
while total capital is Tier 1 capital plus the allowance for loan losses and
subordinated debt.
SUPERIOR BALANCED PERFORMANCE:
The achievement of superior performance in customer service quality,
balance sheet quality, profitability and growth.
TAXABLE EQUIVALENT INCOME:
Income which has been adjusted by increasing tax exempt income to a level
that is comparable to taxable income before any taxes are applied.
TOTAL QUALITY MANAGEMENT (TQM):
A management approach to long-term success through customer satisfaction.
TQM is based on the participation of all members of an organization in improving
processes, products, services and the culture in which they work.
TOTAL RETURN TO SHAREHOLDERS:
The change in the market stock price for a year, plus the annual dividend
received.
YIELD TO BREAK EVEN:
Noninterest expense plus provision for loan losses, less noninterest
income, divided by average earning assets.
23
<PAGE>
Shareholder
Information
<TABLE>
<CAPTION>
Stock Performance 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Dividend payout percentage 32.74% 79.01 32.68 33.82 36.84
Dividend yield (based on average high/low price for
the year) 3.8 3.0 3.1 3.7 3.7
Price/earnings ratio (based on year-end stock price
and fully diluted earnings per share) 8.7x NM 13.3 10.4 8.9
Price/book ratio (end of year) 1.37 1.50 1.48 1.14 .91
</TABLE>
NM -- Not Meaningful
<TABLE>
<CAPTION>
Common Stock Statistics 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Stock price ranges:
High $ 21.88 23.38 19.75 16.25 14.50
Low 17.13 18.88 13.00 8.75 8.00
Close 19.13 19.75 19.63 13.88 10.00
</TABLE>
Quarterly Common Stock Price Ranges and Dividends
<TABLE>
<CAPTION>
1994 1993
Quarter High Low Dividend High Low Dividend
<S> <C> <C> <C> <C> <C> <C>
1st $ 20.50 18.38 .17 $ 22.50 19.63 .15
2nd 21.88 18.88 .17 23.38 19.25 .15
3rd 21.88 20.00 .20 23.38 19.75 .17
4th 21.13 17.13 .20 21.88 18.88 .17
</TABLE>
<TABLE>
<CAPTION>
Standard Fitch
Ratings Moody's & Poor's Investors
<S> <C> <C> <C>
Southern National Corporation
Commercial Paper Prime 1 A-2
Preferred Stock a2 BBB
Branch Banking and Trust Company
Certificates of Deposit A1/P1 A/A-1 A/F-1
Letters of Credit A1/P1 A/A-1
Medium-Term Notes A1 A
</TABLE>
SHAREHOLDER INFORMATION
Shareholders seeking information regarding stock transfer, lost
certificates, dividends and address changes should contact the BB&T Corporate
Trust Department in Wilson, NC at 919-399-4606.
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan enables shareholders to reinvest dividends
and/or invest additional cash in full or fractional shares of Southern National
Corporation on a regular basis. For more information, contact the Shareholder
Relations Department in Lumberton, NC at 910-671-2273 or in Wilson, NC at 919-
399-4248.
STOCK EXCHANGE
The common and preferred stocks of Southern National Corporation are traded
on the New York Stock Exchange under the symbols SNB and SNBPFA.
24
<PAGE>
Financial
Review
<PAGE>
SELECTED FINANCIAL DATA
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (millions)
Interest income $ 1,318 1,199 1,208 1,243 1,239 1,202
Interest expense 581 506 590 743 802 807
Net interest income 737 693 618 500 437 395
Provision for loan losses 18 53 63 76 54 33
Net interest income after provision for loan losses 719 640 555 424 383 362
Noninterest income 226 220 186 178 138 125
Noninterest expense 583 663 510 435 393 360
Income before income taxes 362 197 231 167 128 127
Income taxes 125 77 84 51 35 36
Net income before cumulative effect of changes in
accounting principles $ 237 120 147 116 93 91
PER SHARE
Net income before cumulative effect:
Primary $ 2.26 1.16 1.53 1.36 1.14 1.15
Fully diluted 2.21 1.16 1.48 1.33 1.12 1.14
Cash dividends .74 .64 .50 .46 .42 .39
Market price:
High 21.88 23.38 19.75 16.25 14.50 15.50
Low 17.13 18.88 13.00 8.75 8.00 12.00
Close 19.13 19.75 19.63 13.88 10.00 13.50
Book value 13.92 13.14 13.22 12.17 11.03 10.36
SELECTED AVERAGE BALANCES (millions)
Assets $ 18,964 17,067 15,363 13,676 12,765 12,260
Earning assets 17,842 16,000 14,353 12,500 11,702 11,454
Securities at amortized cost 5,340 4,670 3,999 3,337 2,826 2,749
Loans and leases, net 12,195 11,029 10,025 9,087 8,733 8,382
Deposits 14,300 13,546 12,602 11,398 10,365 9,810
Interest-bearing liabilities 15,559 13,936 12,682 11,319 10,689 10,499
Shareholders' equity 1,453 1,377 1,191 928 817 744
SELECTED YEAR END BALANCES (millions)
Assets $ 19,855 18,858 15,967 14,436 13,013 12,655
Earning assets 18,687 17,653 14,838 13,372 11,547 11,080
Securities 5,425 5,225 4,208 3,585 2,612 2,303
Loans and leases, net 12,936 12,064 10,384 9,657 8,733 8,619
Deposits 14,314 14,595 13,044 12,166 10,848 10,378
Interest-bearing liabilities 16,284 15,452 13,029 12,010 10,607 10,193
Shareholders' equity 1,496 1,399 1,267 1,024 848 777
</TABLE>
<TABLE>
<CAPTION>
Five-Year
Growth Rate
<S> <C>
SUMMARY OF OPERATIONS (millions)
Interest income 1.86%
Interest expense (6.36)
Net interest income 13.3
Provision for loan losses (11.4)
Net interest income after provision for loan losses 14.7
Noninterest income 12.6
Noninterest expense 10.1
Income before income taxes 23.3
Income taxes 28.3
Net income before cumulative effect of changes in
accounting principles 21.1%
PER SHARE
Net income before cumulative effect:
Primary 14.5%
Fully diluted 14.2
Cash dividends 13.7
Market price:
High 7.1
Low 7.4
Close 7.2
Book value 6.1
SELECTED AVERAGE BALANCES (millions)
Assets 9.1%
Earning assets 9.3
Securities at amortized cost 14.2
Loans and leases, net 7.8
Deposits 7.8
Interest-bearing liabilities 8.2
Shareholders' equity 14.3
SELECTED YEAR END BALANCES (millions)
Assets 9.4%
Earning assets 11.0
Securities 18.7
Loans and leases, net 8.5
Deposits 6.6
Interest-bearing liabilities 9.8
Shareholders' equity 14.0
</TABLE>
NOTE: SOUTHERN NATIONAL CORPORATION RECORDED CHARGES FOR THE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLES IN 1993. THE AMOUNT OF THE CHARGES, NET OF
INCOME TAXES, WAS $34.3 MILLION OR $.35 PER SHARE BOTH ON A PRIMARY AND FULLY
DILUTED BASIS. NET INCOME AFTER GIVING EFFECT TO THE CHANGES IN ACCOUNTING
PRINCIPLES IN 1993 WAS $85.8 MILLION OR $.81 PER SHARE, BOTH PRIMARY AND FULLY
DILUTED.
26
<PAGE>
CHIEF FINANCIAL
OFFICER'S
COMMENTS
As explained elsewhere in this annual report, the `new' Southern National
Corporation ("SNC") was formed on February 28, 1995 through the merger of SNC
with BB&T Financial Corporation ("BB&T") in a transaction accounted for as a
pooling-of-interests. On January 10, 1995, BB&T and Commerce Bank ("Commerce")
merged in a separate transaction also accounted for as a pooling-of-interests.
This report, including this financial review, is presented as if SNC, BB&T and
Commerce had been combined throughout all periods presented. The results
reported herein do not necessarily represent the results which would have been
achieved had SNC, BB&T and Commerce actually been combined for the periods
presented and are not necessarily indicative of future results.
In this review, individual results are included where necessary for a
clearer understanding of the combined results. Further,
<TABLE>
<CAPTION>
Selected Ratios 1994 1993 1992
<S> <C> <C> <C>
PROFITABILITY
Return on average assets 1.25% .50 .96
Return on average common equity 16.80 6.19 12.63
Net interest margin 4.29 4.50 4.49
OPERATING EFFICIENCY
Percent of average assets:
Noninterest income 1.19% 1.29 1.21
Noninterest expense 3.07 3.89 3.32
Net noninterest expense (noninterest expense less noninterest income) 1.88 2.60 2.11
Efficiency ratio 58.7 63.6 60.7
Yield to break even 2.10 3.10 2.70
LIQUIDITY
Average loans to average deposits 85.3% 81.4 79.6
CAPITAL ADEQUACY
Average equity to average assets 7.66% 8.07 7.75
Equity to assets at year-end 7.54 7.42 7.94
Risk-based capital ratios:
Tier 1 capital 12.3 11.4 13.1
Total capital 13.6 13.1 15.5
Leverage ratio 7.8 7.2 8.2
</TABLE>
27
<PAGE>
certain adjustments have been made to conform accounting methodology, and
certain amounts for prior years have been reclassified to conform statement
presentations. The primary adjustment required was to conform BB&T's accounting
for postretirement benefits other than pensions to that of SNC. In adopting the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 106,
"Accounting for Postretirement Benefits Other Than Pensions", in 1993, BB&T
elected to amortize the accumulated postretirement obligation related to the
adoption over a period of 21 years, while SNC elected to reflect the adoption
through the recording of a cumulative charge for this change in accounting
principle. In conforming BB&T's transition methodology to that elected by SNC,
the cumulative charge resulting from a change in accounting principle recorded
for the year 1993 was increased by $7.0 million, net of related income taxes,
while noninterest expenses were reduced by $559,000 for both 1994 and 1993.
During the period 1991 through 1993, SNC acquired two financial institutions
in transactions accounted for as purchases, while BB&T acquired ten financial
institutions in such transactions. SNC added $531 million in assets in these
transactions, while BB&T added $2.17 billion of assets. During this same period,
SNC purchased other assets totalling approximately $340 million, while BB&T
purchased other assets totalling approximately $192 million. Over the same
period, SNC merged with six savings institutions with $3.0 billion in assets at
the respective dates of merger, and BB&T merged with four savings institutions
and one commercial bank with total assets of $1.7 billion at the respective
dates of merger in transactions accounted for as poolings-of-interests.The
results of companies acquired in transactions accounted for as poolings-of-
interests are included for all periods presented, while the results of
companies acquired in purchase transactions are included from the respective
dates of acquisition. The effects of these transactions should be considered in
analyzing growth rates of the combined organization. The table below presents a
summary of purchased assets during the period 1991-1993.
For a more detailed discussion and analysis, the reader may refer to SNC's
1994 Annual Report on Form 10-K filed with the Securities and Exchange
Commission. SNC plans to file a Current Report on Form 8-K with the SEC in the
second quarter of 1995 which will include restated audited financial statements
of SNC, a restated management's discussion and analysis, and combined
supplemental financial information.
THE BANK MERGERS
On August 1, 1994, SNC and BB&T jointly announced the signing of a
definitive agreement to merge. The merger of the bank holding companies was
completed on February 28, 1995 and the merger of the banks in North and South
Carolina is expected to be completed during May of 1995. The combined companies
have an estimated total market value in excess of $2.0 billion. The surviving
<TABLE>
<CAPTION>
ASSET PURCHASES
($ IN MILLIONS) MERGERS
<S> <C> <C> <C> <C>
OTHER ASSETS TOTAL ASSETS
YEAR NUMBER TOTAL ASSETS PURCHASED PURCHASED
1991 3 $ 794 285 1,079
1992 2 366 55 421
1993 7 1,542 192 1,734
Total 12 $2,702 532 3,234
</TABLE>
28
<PAGE>
THE BANK MERGERS
<TABLE>
<CAPTION>
HISTORICAL BASIS `NEW'
($ IN THOUSANDS, EXCEPT PER SHARE) SNC BB&T COMMERCE SNC
<S> <C> <C> <C> <C>
1994
Net interest income $322,717 385,186 28,863 736,766
Net income 109,644 119,882 7,011 236,872
Earnings per share:
Primary 2.38 3.27 2.48 2.26
Fully diluted 2.27 3.27 2.37 2.21
Assets 8,756,140 10,394,330 700,343 19,855,063
Deposits 6,165,080 7,520,324 628,750 14,314,154
Shareholders' equity 632,344 822,644 47,865 1,496,477
1993
Net interest income $310,463 356,789 26,264 693,516
Net income (loss) (19,024) 105,012 6,551 85,828
Earnings (loss) per share:
Primary (.57) 2.95 2.38 .81
Fully diluted NM 2.91 2.28 .81
Assets 8,274,470 9,867,398 689,630 18,858,370
Deposits 6,394,871 7,565,940 634,141 14,594,952
Shareholders' equity 564,864 796,984 43,589 1,398,726
1992
Net interest income $279,646 316,033 22,525 618,204
Net income 59,163 82,621 4,942 146,726
Earnings per share:
Primary 1.34 2.53 2.05 1.53
Fully diluted 1.31 2.43 1.97 1.48
Assets 7,379,988 7,931,660 644,849 15,966,986
Deposits 6,040,928 6,405,261 597,984 13,044,173
Shareholders' equity 575,455 654,030 37,413 1,266,898
</TABLE>
NM - NOT MEANINGFUL
Carolinas banks will be Branch Banking and Trust Company in North Carolina
and Branch Banking and Trust Company of South Carolina, with the "BB&T" logo
serving as the communicative name.
In conjunction with the merger, certain material, non-recurring charges of
approximately $88 million were recorded. These adjustments include approximately
$50 million for settlement of obligations under existing employment contracts,
severance pay, early retirement and related employee benefits; approximately $12
million associated with branch closings and divestitures; approximately $6
million associated with consolidation of bank operations and systems; and
approximately $13 million of expenses related to effecting the merger.
The accompanying unaudited presentation reflects key line items on an
historical basis for SNC, BB&T and Commerce and on a pro forma combined basis
assuming the mergers were effective as of and for the periods presented.
RESULTS OF OPERATIONS
Consolidated net income for 1994 totalled $237 million, which produced
primary net income per share of $2.26 and fully diluted net income per share of
$2.21. Net income was $86 million in 1993 and $147 million in 1992. In 1993
income before the cumulative effect of changes in accounting principles, net of
income taxes, totalled $120 million. Primary net income per share was $.81 in
1993 and $1.53 in 1992, while fully diluted per share earnings were $.81 and
$1.48, respectively. Before the cumulative effect of changes in accounting
principles in 1993, both primary and fully diluted
29
<PAGE>
(2 bar charts appear here)
The plot points of these charts are as follows:
AVERAGE EARNING ASSETS
BILLIONS $
1990 1991 1992 1993 1994
11.7 12.5 14.4 16.0 17.8
AVERAGE SECURITIES
BILLIONS $
1990 1991 1992 1993 1994
2.8 3.3 4.0 4.7 5.3
per share earnings were $1.16.
The cumulative effect of changes in accounting principles, net of related
income taxes, recorded in 1993 included approximately $12.6 million to record
the accumulated post-retirement obligation related to the adoption of SFAS No.
106, and $28.0 million as a result of the adoption of SFAS No. 72, "Accounting
For Certain Acquisitions of Banking and Thrift Institutions" by a merged
company, less a $6.4 million gain resulting from the adoption of SFAS No. 109,
"Accounting for Income Taxes", implemented as of January 1, 1993. The following
highlights underscore key elements of performance for 1994 and 1993.
(bullet) Total assets increased 5.3% for 1994 and 18.1% for 1993. Assets
totalled $19.9 billion at the end of 1994.
(bullet) Average earning assets increased 11.5% both for 1994 and 1993. Taxable
equivalent net interest income rose $44.9 million or 6.2% in 1994. This
followed an increase in taxable equivalent net interest income of $75.7 million
or 11.8% in 1993.
(bullet) The provision for loan losses was reduced further in
1994 to a total of $17.8 million for the year. This followed a reduction of $9.6
million or 15.2% in 1993. The provision recorded in 1993 was $53.3 million,
compared with $62.9 million in 1992. The banks have been able to reduce the
provisions for loan losses because of continuing improvements in asset quality.
(bullet) Noninterest income for 1994 increased $5.7 million or 2.6% to a total
of $226.0 million. This followed an increase of $34.4 million or 18.5% in
1993. Noninterest income included gains on sales of securities of $3.1 million
in 1994, $16.8 million in 1993 and $9.3 million in 1992.
(bullet) Noninterest expense totalled $583.3 million in 1994. This compared
with $663.2 million in 1993 and $510.2 million in 1992. Noninterest expense in
1993 included a loss of $49.1 million incurred on the bulk sale of assets
recorded in 1993 and completed in 1994.
(bullet) The effective tax rates were 34.5% in 1994, 39.1% in 1993 and 36.5% in
1992.
The returns on average assets were 1.25% for 1994, .50% for 1993 and .96%
for 1992. For the same years, the returns on average common equity were 16.8%,
6.2% and 12.6%, respectively.
At the end of 1994, the ratio of equity to assets on a consolidated basis
was 7.5%, compared with 7.4% a year earlier and 7.9% at the end of 1992. The pro
forma risk-adjusted total capital ratio was 13.6% at the end of the year,
compared with 13.1% twelve months earlier. The equity and capital ratios have
declined
30
<PAGE>
AVERAGE YIELDS AND RATES - TAXABLE EQUIVALENT BASIS
1994 1993 1992
Loans 8.31% 8.24 9.05
Investment securities 5.85 6.43 7.68
Other earning assets 3.97 2.89 3.99
Total interest-earning assets 7.54% 7.66 8.60
Interest-bearing deposits 3.52% 3.57 4.62
Short-term borrowed funds 4.24 3.23 3.42
Long-term debt 6.04 5.76 8.36
Total interest-bearing liabilities 3.74% 3.63 4.65
Interest rate spread 3.80% 4.03 3.95
Net yield on earning assets 4.29 4.50 4.49
slightly over the past two years because of leverage created by the purchase
of assets, unusual costs and expenses incurred in consummating mergers, the
recording of the cumulative effects resulting from changes in accounting
principles, and declines in the market value of securities available for sale,
which are recorded as a reduction of equity.
NET INTEREST INCOME
Net interest income represents the principal source of earnings for SNC.
Net interest income equals the amount by which interest income exceeds interest
expense. For 1994 net interest income represented 76.5% of net revenues (net
interest income plus noninterest income), compared with 75.9% in 1993 and 76.9%
in 1992.
Net interest income totalled $737 million in 1994, compared with $694
million in 1993 and $618 million in 1992. There was a compression both in the
interest rate spread and margin in 1994. The growth in net interest income in
1994 and 1993 was a result of growth in average earning assets.
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
4.29% in 1994, 4.50% in 1993 and 4.49% in 1992. The margin decline during the
past year was caused by higher interest rates. SNC is liability sensitive over
the short-term (that is, greater amounts of liabilities reprice within specified
periods than do assets). As market rates of interest have risen, increases in
the average cost of funds have been more pronounced than increases in the
average yields on earning assets.
SNC uses synthetic instruments commonly known as derivatives to hedge specified
assets and liabilities. These hedges contributed $900,000 to net interest
income in 1994, compared with $17.1 million in 1993 and $23.7 million in 1992.
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 SNC in 1994 was
$17.8 million, compared with $53.3 million in 1993 and $62.9 million in 1992.
During the period 1990-1991, a persistent economic slowdown and a deterioration
of real estate markets and values led to higher levels of net charge-offs and
nonperforming assets. As a result, SNC recorded historically high provisions for
loan and lease losses - although not as great as
31
<PAGE>
those of the banking industry in general.
Beginning in 1992, SNC has experienced steady and significant improvements
in asset quality which have led to steady declines in net charge-offs. As a
result, SNC has been able to significantly lower its provisions for loan and
lease losses. Still, the allowance for loan and lease losses was 1.31% of loans
and leases outstanding at the end of 1994 and was 3.65 times nonperforming loans
and leases at the end of the year.
NONINTEREST INCOME
Noninterest income includes service charges on deposit accounts, trust
revenues, mortgage origination and servicing revenues, insurance commissions,
gains and losses on investment securities transactions, and other commissions
and fees derived from banking and bank-related activities. Noninterest income
for 1994 totalled $226.0 million, compared with $220.3 million in 1993 and
$185.9 million in 1992. Over the past five years, noninterest income has grown
at a compound annual rate of 12.6%.
Service charges on deposit accounts still represent the largest single
source of noninterest revenue. Such revenues totalled $82.8 million in 1994, an
increase of $3.1 million or 3.9% from 1993, which in turn represented an
increase of $8.0 million or 11.2% from 1992. Deposit services are repriced
annually to reflect current costs and competitive factors.
The ability to generate significant additional amounts of noninterest
revenues in the future will be a requisite to the ultimate success of the `new'
Southern National. Through its subsidiaries, SNC will focus on four primary
areas - mortgage banking, trust, insurance and investment brokerage activities.
A primary element of the merger of SNC and BB&T was the additional marketing
capability provided by merging the aforementioned operations of the
(Line graph appears here)
The plot points are as follows:
ALLOWANCE AND PROVISION FOR LOAN LOSSES
AND NET CHARGE-OFFS
MILLIONS $
1990 1991 1992 1993 1994
ALLOWANCE FOR LOAN LOSSES 87 116 136 169 172
PROVISION FOR LOAN LOSSES 54 76 63 53 18
NET CHARGE-OFFS 39 54 47 35 17
banks. SNC and BB&T both had mortgage banking, trust, insurance and broker
dealer offices strategically placed throughout their networks, but the
operations often were not of such a magnitude as to allow either to achieve its
full potential. By combining these operations, the `new' Southern National will
have a greater concentration of offices closer to a larger number of customers.
Also, SNC will continue to make investments necessary to meet future challenges
and take advantage of future opportunities.
Mortgage banking income (which includes servicing fees and profits and
losses from the origination and sale of loans) decreased $3.0 million or 11.8%
to a total of $22.1 million for 1994. Mortgage banking income totalled $25.1
million in 1993 and $30.1 million in 1992. Home mortgage interest rates were
unusually low in 1993 and 1992, and, as a result, originations were heavy as
homeowners prepaid existing mortgages and refinanced with new mortgages. SNC
recorded losses from the origination and sale of mortgages
32
<PAGE>
totalling approximately $1.0 million in 1994 and gains of $13.0 million in
1993. Because of the increase in interest rates in 1994, the rate of prepayment
slowed and the volume of new loans was not as great as in the previous two
years. This, combined with increases in interest rates, resulted in only
marginal profits from the origination and sale of home mortgage loans. SNC
originated approximately $2.0 billion in home mortgage loans in 1994, $3.0
billion in 1993 and $2.0 billion in 1992. SNC was servicing mortgage loans for
investors with principal balances of approximately $4.9 billion at the end of
1994.
General insurance commissions increased approximately $3.4 million or 29% in
1994 to a total of $14.9 million. Insurance commissions totalled $11.5 million
in 1993 and $7.4 million in 1992. The insurance agencies have become an
increasingly important source of noninterest revenue, and this trend is expected
to accelerate in the future. The network of insurance agencies has been expanded
through acquisitions in recent years. Two agencies were
(Bar chart appears here)
The plot points are as follows:
EFFICIENCY RATIO
%
1990 1991 1992 1993 1994
60 62 61 64 58
acquired in 1994 and five in 1993. SNC intends to continue to expand its
insurance agency operations through both acquisition and internally generated
growth.
The offering of trust services has been a traditional service of both SNC
and BB&T. Both have had trust departments for many years. Trust revenues from
corporate and personal trust services totalled $17.2 million in 1994. This was
an increase of $2.1 million or 14.3% over the revenues of $15.1 million in 1993,
which in turn was an increase of $2.2 million or 16.7% over the $12.9 million
earned in 1992. Managed assets totalled $2.9 billion at the end of 1994. A
strong effort is being made to expand the corporate trust business, particularly
employee benefit plans. BB&T also offers its own family of mutual funds. BB&T
now manages seven mutual funds, which will provide investment alternatives both
for trust clients and for other customers of BB&T. The funds totalled $395
million at the end of 1994. The broker dealer subsidiaries will be the principal
marketing agents of BB&T's proprietary mutual funds.
As a state bank, BB&T has been a registered dealer in securities for many
years, with activities limited to the sale of securities of the U.S. Treasury,
U.S. government agencies and state and municipal governments as an accommodation
for customers. In the mid 1980s, BB&T added its first salesperson devoted
exclusively to the sale of securities. Still, its role was only to provide
service to customers as requested. In recent years both SNC and BB&T established
broker dealer subsidiary corporations. Both began to take a more active role in
selling various securities to their customers, with an emphasis being placed on
the sale of fixed rate debt securities, shares of BB&T's proprietary mutual
funds and annuities. Investment sales commissions totalled $7.3 million in 1994,
compared with $5.5 million in
33
<PAGE>
1993 and $802,000 in 1992. SNC anticipates additional growth in investment
sales activities in 1995.
Finally, noninterest income included approximately $6.3 million in negative
goodwill amortization in 1994, $4.8 million in 1993 and $4.0 million in 1992.
Negative goodwill (excess of net assets acquired over cost) totalling
approximately $68.7 million was recorded in purchase acquisitions of thrift
institutions from 1991-1993.
NONINTEREST EXPENSE
Noninterest expense for 1994 decreased $79.9 million or 12.0% to a total of
$583.3 million. This followed an increase of 30.0% in 1993. The acquisitions of
seven savings associations in 1993 and two in 1992 were accounted for as
purchases, and, accordingly, prior period history was not restated. The growth
in expenses for 1993 included the incremental cost of operations related to
these acquisitions and the cost of conforming their operating systems and
procedures to those of SNC. In addition, certain material nonrecurring
adjustments related to mergers accounted for as poolings-of-interests were
recorded in 1993.
Salaries and wages increased only .6% in 1994 , after an increase of 16.7%
in 1993. The increase in 1993 included compensation of employees who were added
with the consummation of the aforementioned thrift acquisitions. Other personnel
expense increased 4.9% from $53.5 million in 1993 to $56.1 million in 1994. The
increase was 19.7% in 1993. Categories contributing to the increases in other
personnel expense include the increased cost of providing employee health
insurance and retirement benefits.
SNC 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 $100,000 to a total of $3.8 million for 1994. This followed an
increase of $1.1 million in 1993.
Premiums paid to the FDIC for deposit insurance increased $2.0 million or
6.4% to a total of $32.7 million for 1994. For 1993 the increase was $3.3
million or 12.2%. 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. SNC has not experienced any additional rate increases in its deposit
insurance premium rates for 1994. Further, the bank insurance fund of the FDIC
will become fully funded in 1995, and it is anticipated that the rate will be
reduced in the second half of 1995 to a rate of $.04 per $100 of deposits.
Net occupancy expense totalled $43.8 million in 1994. This represented an
increase of only $1.2 million or 2.8% over the expense of $42.6 million in 1993,
which in turn was 11.5% greater than the expense of $38.2 million in 1992.
Furniture and equipment expense totalled $47.2 million in 1994, compared
with $48.0 million in 1993 and $38.9 million in 1992. Much of the increase in
1993 furniture and equipment expense provided improved technological
capabilities. During 1993, loan platform automation for the retail lending
function was completed at BB&T, and platform automation for the commercial
lending function was completed in 1994. Capital expenditures totalled
approximately $71 million in 1994 and $101 million in 1993. Capital expenditures
for 1995 will include $27 million related to the consolidation of 70 branches in
the bank mergers, the replacement of signs, and the purchase of equipment
necessary to conform operations.
INCOME TAXES
The maximum combined incremental federal and state statutory tax rate for
SNC was 40.04%. Because of its investments in tax-exempt loans and investment
securities, the effective tax rates were 34.5% in 1994, 39.1% in
34
<PAGE>
(2 Bar charts appear here)
The plot points are as follows:
AVERAGE DEPOSITS
BILLION $
1990 1991 1992 1993 1994
10 11 12 13 15
AVERAGE SHAREHOLDERS' EQUITY
BILLION $
1990 1991 1992 1993 1994
.8 .9 1.2 1.4 1.5
1993 and 36.5% in 1992. The effective tax rate was higher in 1993 due to the
recapture of tax bad debt reserves by merged savings institutions.
SNC adopted the provisions of SFAS No. 109 in 1993. The adoption of the
provisions of this statement necessitated a change 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
enabled SNC to record a tax benefit of approximately $6.4 million as the
cumulative effect of changes in accounting principles. The increase in the
federal tax rate from 34% to 35% in 1993 had no material impact on SNC.
FINANCIAL POSITION
Average assets totalled approximately $19.0 billion in 1994, an increase of
approximately 11.1% over the average of $17.1 billion in 1993. Average assets
also grew 11.1% in 1993 and rose 12.3% in 1992. At the end of 1994 assets
totalled approximately $19.9 billion.
The five-year compound rate of growth in average assets was 9.1%. Over the
same five-year period, the compound annual growth rates based on average
balances have been 9.3% for earning assets, 7.8% for loans, 14.2% for securities
and 7.8% for deposits. All growth rates have been enhanced by the effects of
acquisitions accounted for as purchases.
Net loans and leases totalled approximately $12.9 billion at the end of
1994. This represented an increase of approximately $872 million in 1994,
following increases of approximately $1.7 billion in 1993 and $727 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 historically be expected in
a growing economy. The long-range objective of SNC is to maintain a rate of
internal growth which approximates that of its markets in the Carolinas and
Virginia. SNC believes that this will result in a rate of increase which will
be sustainable and profitable.
Securities increased 3.8% to a total of $5.4 billion at the end of 1994.
This followed an increase of 24.2% in 1993.
SNC historically has maintained a securities portfolio of 21-25% of total
assets. However, securities have been 25-28% of assets in recent years because
of reduced demand for
35
<PAGE>
ASSET QUALITY
1994 1993 1992
Net charge-offs to average loans outstanding .14% .31 .47
Nonperforming loans to loans outstanding .36 .50 .89
Total nonperforming assets to:
Loans and foreclosed property .45 .70 1.53
Total assets .30 .45 .98
Allowance for loan losses to:
Loans outstanding 1.31 1.40 1.31
Net charge-offs 10.7x 4.8 2.9
Nonperforming loans and leases 3.7 2.7 1.5
loans. At the end of 1994, securities represented 27.9% of assets. SNC
expects the securities portfolio to account for 21-25% of total assets over the
long-term.
Average deposits increased 5.6% in 1994, following an increase of
approximately 7.5% in 1993. Interest-bearing deposits decreased approximately
$339 million in 1994. 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 acquisition.
USE OF DERIVATIVES
SNC uses hedging instruments to manage interest rate sensitivity and net
interest income. These instruments, commonly referred to as derivatives,
primarily consist of interest rate swaps and collars, floors and ceilings. SNC
does not trade or deal in derivatives, but uses them only as part of its
asset/liability management strategy.
Derivatives contracts are written in amounts referred to as notional
amounts. Notional amounts do not represent amounts to be exchanged between
parties and are not a measure of financial risks, but only provide the basis for
calculating interest payments between the counterparties. On December 31, 1994,
SNC had outstanding derivatives contracts with notional amounts totalling
approximately $2.4 billion.
The derivatives used at SNC provide for the exchange of interest payments
between counterparties - either variable for fixed or fixed for variable. Thus,
the credit risk arises when amounts receivable from a counterparty exceed those
payable. The risk of loss with any counterparty is limited to a small fraction
of the notional amount. SNC deals only with national market makers with strong
credit ratings in its derivatives activities. SNC further controls the risk of
loss by subjecting counter-parties to credit reviews and approvals similar to
those used in making loans and other extensions of credit. All of the
derivatives contracts to which SNC is a party settle monthly, quarterly or
semiannually. Accordingly, the amount of off-balance sheet credit exposure to
which SNC is exposed at any time is immaterial. Further, SNC has netting
agreements with the dealers with which it does business. Because of the netting
agreements, SNC had a minimal amount of off-balance sheet credit exposure at
December 31, 1994.
The fair value of derivatives contracts is equal to the difference between
the amounts to be received over the lives of the contracts and the amounts to be
paid. The estimated fair value of open contracts used for asset/liability
management purposes at December 31, 1994 reflected net unrealized losses of
$32.6 million. Increases in
36
<PAGE>
interest rates resulted in the unrealized loss in 1994. The unrealized loss
does not include the impact of changes in interest rates, either favorable or
unfavorable, on the values of assets and liabilities being hedged.
CAPITAL RESOURCES
Shareholders' equity grew 7.0% in 1994 and 10.4% in 1993. Through stock
offerings undertaken to acquire mutual thrift institutions, SNC generated $27.3
million in equity in 1994 and $9.7 million in 1993. Additional 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. The
conversion of convertible debentures to common stock generated an additional
$33.3 million in 1993. SNC adopted SFAS 115, "Accounting for Certain Investments
in Debt and Equity Securities", in 1994. The provisions of this Statement
require that securities available for sale be carried at fair value with net
unrealized appreciation or depreciation recorded as an adjustment of
shareholders' equity. At the end of 1994, SNC had
(Bar chart appears here)
The plot points are as follows:
AVERAGE LOANS
BILLION $
1990 1991 1992 1993 1994
8 9 10 11 12
recorded net unrealized depreciation of $72.6 million.
Traditionally SNC has been considered to be strongly capitalized. The ratio
of shareholders' equity to year-end assets was 7.5% at the end of 1994, compared
with 7.4% a year earlier. While management views the equity-to-assets ratio as
the principal indicator of capital strength, additional measures are used by
regulators. Bank holding companies and their subsidiaries are subject to risk-
based capital measures. The risk-based capital ratios measure the relationship
of capital to a combination of balance sheet and off-balance sheet credit risk.
The values of both balance sheet and off-balance sheet items are adjusted to
reflect credit risk.
Tier 1 capital is required to be at least 4% of risk-weighted assets, and
the total capital must be at least 8% of risk-weighted assets. The Tier 1
capital ratio for SNC at the end of 1994 was 12.3%, and the total capital ratio
was 13.6%. At the end of 1993, those ratios were 11.4% and 13.1%, respectively.
Another measure used by regulators is the leverage ratio which is the ratio
of tangible equity to tangible assets. The minimum required leverage ratio for a
well-capitalized bank is 3%, while the leverage ratio for SNC was 7.8% at the
end of 1994 and 7.2% at the end of 1993.
37
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
($ in thousands, except per share) 1994
<S> <C>
ASSETS
Cash and due from banks, noninterest-bearing $ 637,794
Interest-bearing bank balances 20,962
Federal funds sold and securities purchased under resale agreements 13,021
Securities available for sale (at market for 1994, market value in 1993 of $1,948,606) 3,459,698
Loans held for sale 136,351
Securities held to maturity (market value: $1,889,911 in 1994 and $3,355,251 in 1993) 1,965,419
Loans and leases 12,971,751
Less allowance for loan and lease losses (171,734)
Net loans and leases 12,800,017
Premises and equipment, net 333,069
Other assets 488,732
Total assets $ 19,855,063
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 1,843,019
Interest-bearing 12,471,135
Total deposits 14,314,154
Short-term borrowed funds 2,902,528
Long-term debt 910,755
Other liabilities 231,149
Total liabilities 18,358,586
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares authorized,
770,000 issued and outstanding in 1994 and 1993 3,850
Common stock, $5 par, 300,000,000 shares authorized,
102,215,032 issued in 1994 and 100,823,294 in 1993 511,075
Paid-in capital 285,599
Retained earnings 775,979
Less unvested stock (7,442)
Net unrealized depreciation on securities available for sale (72,584)
Total shareholders' equity 1,496,477
Total liabilities and shareholders' equity $ 19,855,063
</TABLE>
<TABLE>
<CAPTION>
($ in thousands, except per share) 1993
<S> <C>
ASSETS
Cash and due from banks, noninterest-bearing 665,527
Interest-bearing bank balances 145,617
Federal funds sold and securities purchased under resale agreements 48,488
Securities available for sale (at market for 1994, market value in 1993 of $1,948,606) 1,920,888
Loans held for sale 682,097
Securities held to maturity (market value: $1,889,911 in 1994 and $3,355,251 in 1993) 3,304,594
Loans and leases 11,551,742
Less allowance for loan and lease losses (169,345)
Net loans and leases 11,382,397
Premises and equipment, net 302,278
Other assets 406,484
Total assets 18,858,370
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing 1,785,160
Interest-bearing 12,809,792
Total deposits 14,594,952
Short-term borrowed funds 1,804,532
Long-term debt 837,241
Other liabilities 222,919
Total liabilities 17,459,644
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares authorized,
770,000 issued and outstanding in 1994 and 1993 3,850
Common stock, $5 par, 300,000,000 shares authorized,
102,215,032 issued in 1994 and 100,823,294 in 1993 504,116
Paid-in capital 275,426
Retained earnings 626,149
Less unvested stock (10,815)
Net unrealized depreciation on securities available for sale --
Total shareholders' equity 1,398,726
Total liabilities and shareholders' equity 18,858,370
</TABLE>
38
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
SOUTHERN NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands, except per share) 1994 1993
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases $ 1,021,056 915,570
Interest and dividends on securities 291,805 279,728
Interest on short-term investments 5,184 4,410
Total interest income 1,318,045 1,199,708
INTEREST EXPENSE
Interest on deposits 441,876 428,194
Interest on borrowed funds 139,403 77,998
Total interest expense 581,279 506,192
NET INTEREST INCOME 736,766 693,516
Provision for loan and lease losses 17,846 53,311
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 718,920 640,205
NONINTEREST INCOME 226,047 220,318
NONINTEREST EXPENSE
Personnel 293,433 289,487
Occupancy and equipment 90,983 91,631
Other 198,920 282,126
Total noninterest expense 583,336 663,244
INCOME BEFORE INCOME TAXES 361,631 197,279
Income taxes 124,759 77,188
Income before cumulative effect of changes in accounting principles 236,872 120,091
Less cumulative effect of changes in accounting principles, net of income taxes -- 34,263
NET INCOME $ 236,872 85,828
NET INCOME PER COMMON SHARE
Primary
Income before cumulative effect $ 2.26 1.16
Less cumulative effect -- 0.35
Net income $ 2.26 0.81
Fully diluted
Income before cumulative effect $ 2.21 1.16
Less cumulative effect -- 0.35
Net income $ 2.21 0.81
AVERAGE NUMBER OF SHARES AND EQUIVALENT SHARES
Primary 102,349 99,180
Fully diluted 107,399 105,064
</TABLE>
<TABLE>
<CAPTION>
(in thousands, except per share) 1992
<S> <C>
INTEREST INCOME
Interest and fees on loans and leases 913,593
Interest and dividends on securities 286,243
Interest on short-term investments 8,153
Total interest income 1,207,989
INTEREST EXPENSE
Interest on deposits 522,893
Interest on borrowed funds 66,892
Total interest expense 589,785
NET INTEREST INCOME 618,204
Provision for loan and lease losses 62,871
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES 555,333
NONINTEREST INCOME 185,873
NONINTEREST EXPENSE
Personnel 246,998
Occupancy and equipment 77,124
Other 186,036
Total noninterest expense 510,158
INCOME BEFORE INCOME TAXES 231,048
Income taxes 84,322
Income before cumulative effect of changes in accounting principles 146,726
Less cumulative effect of changes in accounting principles, net of income taxes --
NET INCOME 146,726
NET INCOME PER COMMON SHARE
Primary
Income before cumulative effect 1.53
Less cumulative effect --
Net income 1.53
Fully diluted
Income before cumulative effect 1.48
Less cumulative effect --
Net income 1.48
AVERAGE NUMBER OF SHARES AND EQUIVALENT SHARES
Primary 92,766
Fully diluted 100,433
</TABLE>
39
<PAGE>
Statement Of
Management
Responsibility
Management of Southern National Corporation is responsible for the content
of the financial information contained herein. In order to meet this
responsibility, the pro forma financial statements have been prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances to reflect, in all material respects, the 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 Southern National 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 accompanying consolidated condensed balance sheets of Southern National
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated condensed statements of income for each of the years in the three-
year period ended December 31, 1994, as well as the financial review and
supplemental financial information presented throughout the report, have been
prepared on a pro forma basis to include the results of Southern National
Corporation, BB&T Financial Corporation and Commerce Bank as if they had been
combined for all periods presented. The pro forma earnings are not necessarily
indicative of the results had the combinations occurred at the beginning of each
period presented, nor are they necessarily indicative of the results of future
operations.
(Signature of John A. Allison (Signature of Scott E. Reed
appears here) appears here)
John A. Allison Scott E. Reed
Chairman of the Board and Executive Vice President
Chief Executive Officer and Chief Financial Officer
Southern National Corporation Southern National Corporation
40
<PAGE>
General
Information
FORM 10-K
Southern National Corporation files with the Securities and Exchange
Commission each year an Annual Report on Form 10-K. A copy of this report may be
obtained upon written request to Scott E. Reed, Executive Vice President and
Chief Financial Officer, Southern National Corporation.
EQUAL OPPORTUNITY EMPLOYER
Southern National Corporation is an equal opportunity employer. All matters
regarding recruiting, hiring, training, compensation, benefits, promotions,
transfers and all other personnel policies will continue to be free from all
discriminatory practices.
FINANCIAL INFORMATION
Analysts, investors and others
seeking additional financial infor-
mation should contact:
B. Gloyden Stewart, Jr.
Senior Vice President
Investor Relations
Southern National Corporation
919-399-4219 or
Scott E. Reed
Executive Vice President and
Chief Financial Officer
Southern National Corporation
910-773-7396
MAILING ADDRESS
Southern National Corporation
200 West Second Street
Winston-Salem, NC 27101
Telephone 910-773-7200
<PAGE>
SOUTHERN
NATIONAL
CORPORATION
200 West Second Street
Winston-Salem, NC 27101
