<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
Form 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
May 12, 1995
AMENDMENT NO. 1
Date of Report (Date of earliest event reported)
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
Winston-Salem, North Carolina 27101
----------------------------- -----
(Address of principal executive offices) (Zip Code)
(910) 773-7500
(Registrant's telephone number, including area code)
--------------
This Form 8-K has 37 pages. The sequential numbering of the pages is indicated
in the lower right corner.
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<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
March 14, 1995 as set forth in the pages attached hereto.
Pursuant to Items 7(a) and 7(b) of the registrant's Current Report on Form
8-K dated March 14, 1995, the registrant hereby files the following financial
statements and pro forma information:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- ------- ---------------------------------
a. Financial Statements of Business Acquired:
BB&T Financial Corporation (BB&T)
Independent Auditors' Report
Consolidated Balance Sheets as of December 31,
1994 and 1993
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
b. Pro Forma Financial Information
Pro Forma Consolidated Statements of Condition as of December 31,
1994 and 1993 (unaudited)
Pro Forma Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992 (unaudited)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN NATIONAL CORPORATION
/s/ SHERRY A. KELLETT
Date: May 15, 1995 -----------------------------
Sherry A. Kellett
Controller
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BB&T Financial Corporation
We have audited the accompanying consolidated balance sheets of BB&T Financial
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BB&T Financial
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
On January 1, 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Raleigh, North Carolina
January 17, 1995
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands, except per share)
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1993
---- ----
Assets
------
<S> <C> <C>
Cash and due from banks, noninterest-bearing $ 340,036 355,818
Interest-bearing bank balances 19,000 79,663
Federal funds sold 4,011 35,050
Securities available for sale (cost of $2,438,316
in 1994 and fair value of $737,611 in 1993) 2,369,371 726,658
Securities held to maturity (fair value of $103,870 in
1994 and $1,722,284 in 1993) 102,067 1,701,317
Loans 7,199,569 6,688,332
Less allowance for loan losses 93,504 93,315
---------- ---------
Net loans 7,106,065 6,595,017
---------- ---------
Bank premises and equipment 149,240 147,666
Accrued interest receivable 83,359 63,607
Other assets 221,181 162,602
---------- ---------
Total assets $ 10,394,330 9,867,398
========== =========
<CAPTION>
Liabilities and Shareholders' Equity
------------------------------------
<S> <C> <C>
Deposits:
Noninterest-bearing $ 941,594 861,786
Interest-bearing 6,578,730 6,704,154
---------- ---------
Total deposits 7,520,324 7,565,940
Short-term borrowed funds 1,234,063 1,046,789
Long-term debt 706,471 350,736
Other liabilities 110,828 106,949
---------- ---------
Total liabilities 9,571,686 9,070,414
---------- ---------
Shareholders' equity:
Preferred stock $2.50 par value, 4,000,000 shares
authorized; none issued - -
Common stock $2.50 par value, 100,000,000 shares
authorized; shares issued of 36,450,776 in 1994 and
36,398,619 in 1993 91,127 90,997
Paid-in capital 282,535 286,774
Retained earnings 495,427 425,667
Less loan to employee stock ownership plan 3,265 4,419
Less unvested restricted stock 1,527 2,035
Net unrealized (losses) on securities available for sale (41,653) -
---------- ---------
Total shareholders' equity 822,644 796,984
---------- ---------
Total liabilities and shareholders' equity $ 10,394,330 9,867,398
========== =========
Commitments and Contingencies (note 14)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
($ in thousands, except per share)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest on loans $ 561,564 479,212 454,061
Interest and dividends on securities:
Taxable 118,530 114,404 122,256
Tax exempt 7,609 9,867 13,273
Interest on short-term investments 2,396 1,668 2,026
------- ------- -------
Total interest income 690,099 605,151 591,616
------- ------- -------
Interest expense:
Interest on deposits 230,917 212,668 249,876
Interest on short-term borrowed funds 49,461 24,733 16,996
Interest on long-term debt 24,535 10,961 8,711
------- ------- -------
Total interest expense 304,913 248,362 275,583
------- ------- -------
Net interest income 385,186 356,789 316,033
Provision for loan losses 8,000 19,048 32,975
------- ------- -------
Net interest income after provision for loan losses 377,186 337,741 283,058
------- ------- -------
Noninterest income:
Service charges on deposit accounts 44,906 40,764 33,606
Other service charges, commissions and fees 21,414 17,847 15,058
Mortgage banking income 13,752 18,068 11,499
Net gains on sales of securities 2,120 1,720 6,268
Trust income 12,938 11,401 9,684
Insurance commissions 13,016 10,647 6,653
Other operating income 22,337 19,080 12,781
------- ------- -------
Total noninterest income 130,483 119,527 95,549
------- ------- -------
Noninterest expense:
Salaries and wages 130,753 119,920 101,775
Other personnel expense 32,572 27,724 22,039
Net occupancy expense 23,682 22,771 19,607
Furniture and equipment expense 26,579 26,573 20,603
Deposit insurance premiums 16,886 15,327 13,456
Other operating expense 93,637 89,259 76,653
------- ------- -------
Total noninterest expense 324,109 301,574 254,133
------- ------- -------
Income before income taxes 183,560 155,694 124,474
Income taxes 63,678 50,682 41,853
------- ------- -------
Net income $ 119,882 105,012 82,621
======= ======= =======
Net income per share:
Primary $3.27 2.95 2.53
Fully diluted 3.27 2.91 2.43
Average number of shares and equivalent shares:
Primary 36,665,699 35,619,953 32,704,634
Fully diluted 36,665,699 36,188,410 34,741,310
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
($ in thousands, except per share)
<TABLE>
<CAPTION>
Common
Shares Common Paid-In Retained
Outstanding Stock Capital Earnings
----------- ----- ------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 as originally reported 25,347,658 $ 63,369 168,111 257,863
Equity at December 31, 1991 of pooled companies acquired in 1993 and 1994 6,299,301 15,749 29,004 44,207
---------- -------- ------- -------
Balance at December 31, 1991, restated 31,646,959 79,118 197,115 302,070
Net income, 1992 - - - 82,621
Cash dividends paid ($.91 per share) - - - (23,595)
Common stock issued by pooled companies prior to merger 73,714 184 548 -
Cash dividends paid by pooled companies prior to merger - - - (3,115)
Common stock issued:
Dividend reinvestment plan 250,866 627 6,206 -
Employee benefit and stock option plans 507,211 1,268 10,904 -
Acquisitions 34,297 86 (364) -
Offerings 382,395 956 8,709 -
Conversion of debentures 19,488 49 297 -
Loan to employee stock ownership plan - - - 51
Redemption of common stock (230,000) (575) (6,192) -
---------- -------- ------- -------
Balance, December 31, 1992 32,684,930 81,713 217,223 358,032
Net income, 1993 - - - 105,012
Cash dividends paid ($1.02 per share) - - - (31,227)
Common stock issued by pooled companies prior to merger 125,706 314 1,314 -
Cash dividends paid by pooled companies prior to merger - - - (4,042)
Common stock issued:
Dividend reinvestment plan 263,090 658 7,631 -
Employee benefit and stock option plans 563,273 1,408 14,426 -
Acquisitions 829,344 2,073 20,707 -
Offerings 940,192 2,351 24,912 -
Conversion of debentures 1,916,084 4,790 28,521 -
Loan to employee stock ownership plan - - - -
Unvested restricted stock - - - -
Redemption of common stock (924,000) (2,310) (27,960) -
Equity adjustment of merged company for the quarter ended December 31, 1993 - - - (2,108)
---------- -------- ------- -------
Balance, December 31, 1993 36,398,619 90,997 286,774 425,667
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Loan to Gains
Employee (Losses) on
Stock Unvested Securities Total
Ownership Restricted Available Shareholders'
Plan Stock for Sale Equity
---- ----- -------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 as originally reported (2,841) - - 486,502
Equity at December 31, 1991 of pooled companies acquired in 1993 and 1994 - - - 88,960
---------- -------- ------- -------
Balance at December 31, 1991, restated (2,841) - - 575,462
Net income, 1992 - - - 82,621
Cash dividends paid ($.91 per share) - - - (23,595)
Common stock issued by pooled companies prior to merger - - - 732
Cash dividends paid by pooled companies prior to merger - - - (3,115)
Common stock issued:
Dividend reinvestment plan - - - 6,833
Employee benefit and stock option plans - - - 12,172
Acquisitions - - - (278)
Offerings - - - 9,665
Conversion of debentures - - - 346
Loan to employee stock ownership plan (97) - - (46)
Redemption of common stock - - - (6,767)
---------- -------- ------- -------
Balance, December 31, 1992 (2,938) - - 654,030
Net income, 1993 - - - 105,012
Cash dividends paid ($1.02 per share) - - - (31,227)
Common stock issued by pooled companies prior to merger - - - 1,628
Cash dividends paid by pooled companies prior to merger - - - (4,042)
Common stock issued:
Dividend reinvestment plan - - - 8,289
Employee benefit and stock option plans - - - 15,834
Acquisitions - - - 22,780
Offerings - - - 27,263
Conversion of debentures - - - 33,311
Loan to employee stock ownership plan (1,481) - - (1,481)
Unvested restricted stock - (2,035) - (2,035)
Redemption of common stock - - - (30,270)
Equity adjustment of merged company for the quarter ended December 31, 1993 - - - (2,108)
---------- -------- ------- -------
Balance, December 31, 1993 (4,419) (2,035) - 796,984
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity, Continued
($ in thousands, except per share)
<TABLE>
<CAPTION>
Common
Shares Common Paid-In Retained
Outstanding Stock Capital Earnings
----------- ----- ------- --------
<S> <C> <C> <C> <C>
Adjustment of securities available for sale to fair value on January 1 - $ - - -
Net income, 1994 - - - 119,882
Cash dividends declared and paid ($1.12 per share) - - - (38,477)
Cash dividends declared ($.29 per share) - - - (10,585)
Common stock issued by pooled company prior to merger 14,409 36 393 -
Cash dividends paid by pooled company prior to merger - - - (1,060)
Common stock issued:
Dividend reinvestment plan 204,531 511 5,039 -
Employee benefit and stock option plans 508,675 1,272 12,274 -
Acquisitions 73,842 184 (256) -
Repayment of loan to employee stock ownership plan - - - -
Vesting of restricted stock - - - -
Redemption of common stock (749,300) (1,873) (21,689) -
Change in net unrealized gains (losses) on securities available for sale - - - -
---------- ------- ------- --------
Balance, December 31, 1994 36,450,776 $ 91,127 282,535 495,427
========== ======== ======= =======
<CAPTION>
Net
Unrealized
Loan to Gains
Employee (Losses) on
Stock Unvested Securities Total
Ownership Restricted Available Shareholders'
Plan Stock for Sale Equity
---- ----- -------- ------
<S> <C> <C> <C> <C>
Adjustment of securities available for sale to fair value on January 1 - - 9,286 9,286
Net income, 1994 - - - 119,882
Cash dividends declared and paid ($1.12 per share) - - - (38,477)
Cash dividends declared ($.29 per share) - - - (10,585)
Common stock issued by pooled company prior to merger - - - 429
Cash dividends paid by pooled company prior to merger - - - (1,060)
Common stock issued:
Dividend reinvestment plan - - - 5,550
Employee benefit and stock option plans - - - 13,546
Acquisitions - - - (72)
Repayment of loan to employee stock ownership plan 1,154 - - 1,154
Vesting of restricted stock - 508 - 508
Redemption of common stock - - - (23,562)
Change in net unrealized gains (losses) on securities available for sale - - (50,939) (50,939)
----- ----- ------ -------
Balance, December 31, 1994 (3,265) (1,527) (41,653) 822,644
===== ===== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 673,108 608,876 603,138
Noninterest income received 114,533 112,557 88,381
Interest paid (305,612) (252,892) (282,459)
Noninterest expense paid (299,247) (276,894) (235,210)
Income taxes paid (84,442) (59,012) (52,920)
---------- ---------- ----------
Net cash provided by operating activities 98,340 132,635 120,930
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales of securities--available for sale 446,830 164,639 -
Proceeds from sales of securities--held to maturity - 10,717 667,169
Proceeds from maturities or calls of securities 612,906 901,480 734,629
Purchase of securities (1,181,455) (1,296,653) (1,516,699)
Net increase in loans (526,340) (530,078) (282,070)
Proceeds from sales of premises and equipment 2,592 3,140 1,663
Purchases of property and equipment (23,346) (62,078) (32,815)
Proceeds from sales of foreclosed properties 14,552 26,072 26,872
Cash of companies acquired, net - 39,013 2,377
Purchase of officers' life insurance policies - (30,000) -
Other 10,004 (13,180) 8,264
---------- ---------- ----------
Net cash used in investing activities (644,257) (786,928) (390,610)
---------- ---------- ----------
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
interest checking and savings accounts (105,625) 260,046 430,613
Net increase (decrease) in certificates of deposit
and other time deposits 59,472 (143,151) (373,983)
Net increase in short-term borrowed funds 172,425 399,671 276,692
Increase in long-term debt 355,735 223,934 7,365
Proceeds from issuance of common stock 19,525 48,407 26,200
Redemption of common stock (23,562) (30,270) (6,767)
Dividends paid (39,537) (35,270) (26,711)
Cash flows of merged company for the quarter
ended December 31, 1993 - 1,705 -
---------- ---------- ----------
Net cash provided by financing activities 438,433 725,072 333,409
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (107,484) 70,779 63,729
Cash and cash equivalents on January 1 470,531 399,752 336,023
---------- ---------- ----------
Cash and cash equivalents on December 31 $ 363,047 470,531 399,752
========== ========== ==========
</TABLE>
(Continued)
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net income $ 119,882 105,012 82,621
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 19,776 16,430 12,123
Provision for loan losses 8,000 19,048 32,975
Deferred income tax benefit (2,034) (6,518) (2,135)
Net amortization and accretion (4,387) 8,699 9,466
Net gain on sales of securities (2,120) (1,820) (6,409)
Decrease in taxes payable (18,730) (1,616) (9,366)
(Increase) decrease in interest receivable (15,908) 1,053 8,880
(Decrease) increase in interest payable 82 (4,551) (7,215)
Net change in other accrued deferred income
and expense (6,221) (3,102) (10)
------- ------- -------
Net cash provided by operating activities $ 98,340 132,635 120,930
======= ======= =======
Supplemental disclosure of noncash investing and
financing activities:
Securitization of mortgage loans $ - - 8,775
Common stock issued:
Employee benefit plans - 2,263 2,260
Conversion of debentures - 33,311 346
Purchased company - 22,298 -
Employee stock ownership plan - 2,314 664
Loan to employee stock ownership plan - (2,314) (664)
Loans transferred to foreclosed properties 11,529 14,779 25,508
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1994, 1993 and 1992
($ in thousands, except per share)
(1) Accounting Policies
-------------------
Consolidation
-------------
The accompanying consolidated financial statements include the accounts of
BB&T Financial Corporation ("BB&T") and its wholly-owned subsidiaries,
Branch Banking and Trust Company ("BB&T-N.C."); BB&T Financial Corporation
of South Carolina and its wholly-owned subsidiaries, Branch Banking and
Trust Company of South Carolina ("BB&T-S.C."), The Lexington State Bank and
The Community Bank of South Carolina. All significant intercompany balances
and transactions have been eliminated in consolidation.
Prior years consolidated financial statements have been restated to include
the accounts of companies acquired and accounted for as poolings-of
interests. Certain amounts for prior years have been reclassified to
conform with statement presentations for 1994. These reclassifications had
no impact on either shareholders' equity or results of operations
previously reported.
Statements of Cash Flows
------------------------
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, interest-bearing amounts due from banks, and federal funds
sold.
Securities
----------
BB&T adopted the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"), as of January 1, 1994. SFAS 115 addresses the accounting and
reporting for investments in debt securities and readily marketable equity
securities. Debt securities acquired with both the intent and ability to
hold to maturity are classified as held to maturity. Securities held to
maturity are carried at cost less amortization of premiums plus accretion
of discounts. Securities which may be used to meet liquidity needs arising
from unanticipated deposit and loan fluctuations, changes in regulatory
capital and investment requirements, or unforeseen changes in market
conditions, including interest rates, market values or inflation rates, are
classified as available for sale. Securities available for sale are carried
at fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders' equity. Prior to adoption
of SFAS 115, securities available for sale were carried at the lower of
cost or market value with any adjustments reflected in the statement of
income. The cost of securities sold is determined by the identified
certificate method.
Loans Held for Sale
-------------------
Residential mortgage loans held for sale are carried at the lower of cost
or market.
Bank Premises and Equipment
---------------------------
Bank premises, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization
are computed using primarily the straight-line method. Buildings and
equipment are depreciated over the shorter of the terms of the respective
leases or the estimated useful lives of the improvements.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Accounting Policies, Continued
------------------------------
Foreclosed Property
-------------------
Foreclosed property consists of real estate and other assets acquired
through customers' loan defaults. Foreclosed property is carried at the
lower of fair value, less the estimated cost to sell, or cost. Routine
maintenance costs, declines in market value and net losses on disposal are
included in other operating expense.
Provision for Loan Losses
-------------------------
The annual provision for loan losses charged against earnings is based on
management's continuing review and evaluation of a number of factors,
including overall portfolio quality and size, loan loss experience,
potential losses on known problem loans, as well as prevailing and
anticipated economic conditions. While management uses the best information
available in establishing the allowance for losses, future adjustments to
the allowance may be necessary if economic conditions differ substantially
from the assumptions used in making the valuations or if required by
regulators based upon information at the time of their examinations.
Financial Instruments-Off-Balance Sheet
--------------------------------------
BB&T enters into interest rate swap, floor and cap agreements to manage
the overall interest rate risk exposure of identified assets and
liabilities. Income or expense associated with interest rate swap, floor or
cap agreements is recognized as a component of net interest income based
upon anticipated settlement payments. BB&T holds no derivative instruments
for trading purposes.
Income Taxes
------------
BB&T adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), as of January 1, 1993 with no
impact on the financial statements. Under the asset and liability method of
SFAS 109, deferred income taxes are recognized for the future tax
consequences attributed to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which the
temporary differences are expected to be recovered or settled. Under SFAS
109, the effect on deferred assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Prior to 1993, BB&T used the deferral method of accounting for income
taxes.
Income and Expense
------------------
BB&T and its subsidiaries utilize the accrual method of accounting. Fees
and costs associated with originating loans are deferred and recognized as
an adjustment of yield over the lives of the loans. Loans generally earn
interest on the level yield method based on the daily outstanding balance.
The accrual of interest is discontinued when, in the opinion of management,
the collection of all or a portion of interest becomes doubtful.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(1) Accounting Policies, Continued
------------------------------
Income Per Share
----------------
Primary net income per common share is based upon the weighted average
number of shares of common stock outstanding and common stock equivalents
of dilutive stock options. Fully diluted net income per common share
reflects the maximum dilutive effect of common stock issuable upon
conversion of convertible debt and exercise of stock options.
Excess of Cost Over Net Assets Acquired and Excess of Net Assets Acquired
-------------------------------------------------------------------------
Over Cost
---------
The excess of cost over net assets acquired (goodwill) and the excess of
net assets acquired over cost (negative goodwill) of purchased companies is
amortized on the straight-line method over the estimated periods to be
benefited, normally ten years.
(2) Mergers
-------
During the years ended December 31, 1994, 1993 and 1992, BB&T was a party
to several business combinations.
On June 30, 1994, BB&T completed the acquisition of L.S.B. Bancshares, Inc.
("L.S.B.") of Lexington, South Carolina and its wholly-owned subsidiaries
The Lexington State Bank and The Community Bank of South Carolina. The
merger was consummated through the issuance of 3,936,341 shares of BB&T
common stock for all of the common stock of L.S.B. The merger was accounted
for as a pooling-of-interests, and, accordingly, the consolidated
financial statements include the results of L.S.B. for all periods
presented. At the date of acquisition, L.S.B. had assets of approximately
$707,000.
On February 24, 1993, BB&T completed the acquisition of First Fincorp, Inc.
(Fincorp), and its wholly-owned subsidiary, First Financial Savings Bank,
Inc. of Kinston, North Carolina. The merger was consummated through the
issuance of 673,148 shares of BB&T common stock for all of the outstanding
common stock of Fincorp for a total purchase price of $22,300, which was
approximately the same as the fair value of the net assets acquired. The
merger was accounted for as a purchase, and, accordingly, the results of
Fincorp are included in the consolidated financial statements since the
date of acquisition. At the date of acquisition, Fincorp had assets of
approximately $322,000.
On February 25, 1993, BB&T completed the acquisition of Security Financial
Holding Company (Security), and its wholly-owned subsidiary, Security
Federal Savings Bank of Durham, North Carolina. The merger was consummated
through the issuance of 1,408,178 shares of BB&T common stock for all of
the outstanding common stock of Security. The merger was accounted for as a
pooling-of-interests, and, accordingly, the consolidated financial
statements include the results of Security for all periods presented. At
the date of acquisition, Security had assets of approximately $316,000.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Mergers, Continued
------------------
On May 18, 1993, BB&T completed the acquisitions of Carolina Savings Bank
(Carolina) of Wilmington, North Carolina and Edenton Savings and Loan
Association (Edenton) of Edenton, North Carolina. The transactions involved
simultaneous conversions from mutual to stock associations and acquisition
by BB&T. BB&T sold 507,182 shares of its common stock to eligible members
of the institutions, natural persons in the communities in which they
operated and the public. The net proceeds of approximately $15,300 were
used to purchase all of the stock of Carolina and Edenton. Negative
goodwill of approximately $5,700 resulted from the transactions. The
mergers were accounted for as purchases, and, accordingly, the results of
Carolina and Edenton are included in the consolidated financial statements
since the date of acquisition. At the date of acquisition, Carolina and
Edenton had assets of approximately $142,000 and $40,000, respectively.
On October 25, 1993, BB&T completed the acquisition of Citizens Savings
Bank, SSB, Inc., (Citizens of Newton) of Newton, North Carolina. The merger
was consummated through the issuance of 1,168,311 shares of BB&T common
stock for all of the outstanding common stock of Citizens of Newton. The
merger was accounted for as a pooling-of-interests, and, accordingly, the
consolidated financial statements include the results of Citizens of Newton
for all periods presented. At the date of acquisition, Citizens of Newton
had assets of approximately $263,000.
On October 29, 1993, BB&T completed the acquisition of Mutual Savings Bank
of Rockingham County, SSB (Mutual) of Reidsville, North Carolina. The
transaction involved simultaneous conversion from a mutual to a stock
association and acquisition by BB&T. BB&T sold 216,539 shares of its common
stock to eligible members of the institution and natural persons in the
community in which they operated. The net proceeds of approximately $6,200
were used to purchase all of the stock of Mutual. Negative goodwill of
approximately $2,900 resulted from the transaction. The merger was
accounted for as a purchase, and, accordingly, the results of Mutual are
included in the consolidated financial statements since the date of
acquisition. At the date of acquisition, Mutual had assets of approximately
$87,000.
On November 24, 1993, BB&T completed the acquisition of Old Stone Bank of
North Carolina (Old Stone) of High Point, North Carolina. The merger was
consummated for a cash payment of $58,250 for all of the outstanding common
stock of Old Stone. Goodwill of approximately $27,700 resulted from the
transaction. The merger was accounted for as a purchase, and, accordingly,
the results of Old Stone are included in the consolidated financial
statements since the date of acquisition. At the date of acquisition, Old
Stone has assets of approximately $537,000.
On December 23, 1993, BB&T completed the acquisition of Citizens Savings
Bank, SSB (Citizens Savings) of Mooresville, North Carolina. The
transaction involved a simultaneous conversion from a mutual to a stock
association and acquisition by BB&T. BB&T sold 216,471 shares of its common
stock to eligible members of the institution and natural persons in the
community in which they operated. The net proceeds of approximately $5,800
were used to purchase all of the stock of Citizens Savings. Negative
goodwill of approximately $1,900 resulted from the transaction. The merger
was accounted for as a purchase, and, accordingly, the results of Citizens
Savings are included in the consolidated financial statements since the
date of acquisition. At the date of acquisition, Citizens Savings had
assets of approximately $63,000.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Mergers, Continued
------------------
During 1992, BB&T acquired one savings institution through the issuance of
382,395 shares of its common stock. The transaction involved a simultaneous
conversion from a mutual to a stock association and acquisition by BB&T.
Assets of approximately $107,000 were acquired and the merger was accounted
for as a purchase. Negative goodwill of approximately $6,600 resulted from
the transaction. The results of the company acquired in 1992 are included
in the consolidated financial statements since the respective date of
acquisition.
During 1994, 1993 and 1992, BB&T acquired several small insurance agencies.
BB&T issued 34,353 shares in 1994 to acquire one agency, 156,196 shares in
1993 to acquire four agencies and 34,297 shares in 1992 to acquire two
agencies. All of the acquisitions were accounted for as poolings-of-
interests. In the aggregate they were not material, and, accordingly, prior
period financial statements have not been restated.
The following presents on a pro forma basis the contributions of BB&T,
Security, Citizens of Newton, and L.S.B. to the restated and reported
results of BB&T and certain pro forma financial data pertaining to BB&T and
the acquisition of the savings institution acquired in 1992 as if it had
been acquired at the beginning of 1992 and the acquisitions of the six
savings institutions acquired in 1993 as if each had been acquired at the
beginning of each of the years 1993 and 1992. The unaudited pro forma
summary does not necessarily reflect the results of operations as they
would have been if the acquisitions had been consummated at the beginning
of the periods presented.
<TABLE>
<CAPTION>
Contributions of
------------------------
Security and BB&T Fully
Citizens As Pro forma
1993 BB&T of Newton L.S.B. Reported Combined
- ---- ---- --------- ------ -------- --------
<S> <C> <C> <C> <C>
Total revenue $ 670,660 54,018 724,678 780,518
Net interest income 328,543 28,246 356,789 379,766
Net income 98,236 6,776 105,012 107,327
Net Income per share:
Primary 3.10 2.95 2.95
Fully diluted 3.05 2.91 2.92
1992
- ----
Total revenue $ 580,613 52,863 53,689 687,165 800,498
Net interest income 268,355 21,064 26,614 316,033 358,231
Net income 76,076 406 6,139 82,621 92,528
Net income per share:
Primary 2.89 2.53 2.70
Fully diluted 2.75 2.43 2.60
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Pending Acquisitions
--------------------
At December 31, 1994, BB&T had a pending agreement to acquire Commerce
Bank, Virginia Beach, Virginia with assets of $700 million. The merger was
consummated on January 10, 1995 through the issuance of 3,593,432 shares of
BB&T common stock for all of the outstanding stock of Commerce. The merger
will be accounted for a pooling-of-interests.
On August 1, 1994, BB&T and Southern National Corporation ("SNC or Southern
National") jointly announced the signing of a definitive agreement to
merge. The merger was subsequently consummated on February 28, 1995 through
the issuance of 1.45 shares of SNC common stock for each outstanding share
of BB&T common stock. The merger will be accounted for as a pooling-of-
interests.
The following unaudited presentation reflects key line items on an
historical basis for BB&T, Southern National, and Commerce and on a pro
forma combined basis assuming the mergers with BB&T were effective as of
and for the periods presented with Southern National as the surviving
restated registrant.
<TABLE>
<CAPTION>
BB&T Southern
as originally Southern National
reported National Commerce restated
-------- -------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
1994:
Net interest income $ 385,186 322,717 28,863 736,766
Net income 119,882 109,644 7,011 236,537
Earnings per share:
Primary 3.27 2.38 2.48 2.26
Fully diluted 3.27 2.27 2.37 2.21
Assets 10,394,330 8,719,580 700,343 19,814,253
Deposits 7,520,324 6,165,080 628,750 14,314,154
Shareholders' equity 822,644 632,344 47,865 1,502,853
1993:
Net interest income 356,789 310,463 26,264 693,516
Net (loss) income 105,012 (19,024) 6,551 92,539
Earnings (loss) per share:
Primary 2.95 (.57) 2.38 .88
Fully diluted 2.91 NM 2.28 .88
Assets 9,867,398 8,274,470 689,630 18,831,498
Deposits 7,565,940 6,394,871 634,141 14,594,952
Shareholders' equity 796,984 564,864 43,589 1,405,437
1992:
Net interest income 316,033 279,646 22,525 618,204
Net income 82,621 59,163 4,942 146,726
Earnings per share:
Primary 2.53 1.34 2.05 1.53
Fully diluted 2.43 1.31 1.97 1.46
Assets 7,931,660 7,379,988 644,849 15,956,497
Deposits 6,405,261 6,040,928 597,984 13,044,173
Shareholders' equity 654,030 575,455 37,413 1,266,898
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements. Continued
(4) Securities
----------
Investment securities at December 31, 1994 and 1993 were:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Market
1994 -- Held to Maturity Cost Gains Losses Value
- ------------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
State and municipal $ 102,067 2,497 694 103,870
======= ===== === =======
1994 -- Available for Sale
- --------------------------
U.S. Treasury $ 2,237,764 70 61,739 2,176,095
U.S. Government agencies
and corporations 85,076 90 2,963 82,203
Mortgage-backed securities
of U.S. Government agencies 34,607 217 1,999 32,825
State and municipal 17,500 -- 1,513 15,987
Other securities 63,369 -- 1,108 62,261
--------- --- ------ ---------
$ 2,438,316 377 69,322 2,369,371
========= === ====== =========
1993 -- Held to Maturity
- ------------------------
U.S. Treasury $ 1,414,163 6,659 2,146 1,418,676
U.S. Government agencies
and corporations 89,301 926 137 90,090
State and municipal 148,374 9,423 487 157,310
Other securities 49,479 6,961 232 56,208
--------- ------ ----- ---------
$ 1,701,317 23,969 3,002 1,722,284
========= ====== ===== =========
1993 -- Available for Sale
- --------------------------
U.S. Treasury $ 631,237 5,832 221 636,848
U.S. Government agencies
and corporations 5,582 5 -- 5,587
Mortgage-backed securities
of U.S. Government agencies 88,267 5,361 24 93,604
Other securities 1,572 -- -- 1,572
------- ------ --- -------
$ 726,658 11,198 245 737,611
======= ====== === =======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) Securities, Continued
---------------------
The aggregate value of securities at December 31, 1994 by contractual
maturity were:
<TABLE>
<CAPTION>
Approximate
Amortized Market
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ 860,929 848,832
Due after one year through five years 1,501,745 1,450,559
Due after five years through ten years 74,666 73,984
Due after ten years 68,436 67,041
Mortgage-backed securities 34,607 32,825
--------- ---------
$ 2,540,383 2,473,241
========= =========
</TABLE>
Securities with aggregate par values of $885,810 and $923,727 at December
31, 1994 and 1993, respectively, were pledged as collateral to secure
public deposits and for other purposes.
In 1994 gross gains of $2,449 and gross losses of $329 were realized on
securities available for sale transactions. Gross gains of $1,411 and gross
losses of $33 were realized on securities available for sale transactions,
and gross gains of $342 were realized on investment securities by a pooled
company prior to merger in 1993. Gross gains of $8,656 and gross losses of
$2,388 were realized on securities transactions in 1992.
(5) Loans
-----
At December 31, 1994 and 1993, loans consisted of the following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Commercial and industrial $ 1,160,435 1,055,394
Real estate -- construction 563,945 436,781
Real estate -- mortgage 4,736,368 4,473,883
Installment and other loans to individuals 742,003 727,822
--------- ---------
7,202,751 6,693,880
Less:
Deferred fees and costs 2,520 3,363
Unearned interest 662 2,185
--------- ---------
$ 7,199,569 6,688,332
========= =========
Include in the above:
Nonaccrual loans $ 21,520 32,447
Restructured loans 402 1,303
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Loans, Continued
----------------
Loans classified as real estate--mortgage include loans secured by
residential properties of $3,204,977 in 1994 and $3,173,658 in 1993,
including $113,494 and $353,122 held for sale in 1994 and 1993,
respectively, which approximates their market value.
Interest income that would have been recorded on nonaccrual and
restructured loans for the years ended December 31, 1994, 1993 and 1992 had
they performed in accordance with the original terms throughout each of the
periods amounted to approximately $1,598, $1,860 and $2,305, respectively.
Interest income on such loans included in the results of operations for
each of the years amounted to approximately $778, $731 and $847,
respectively.
The Banks make loans to executive officers and directors of BB&T and the
Banks and to their associates. Such loans are made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated persons and do not
involve more than normal risk of collectibility. The aggregate dollar
amount of these loans was $44,601 and $74,971 at December 31, 1994 and
1993, respectively. During 1994, $22,845 of new loans were made and
repayments totaled $53,215.
At the end of 1994 and 1993, BB&T was servicing mortgage loans with
principal balances of approximately $4.8 billion and $3.9 billion,
respectively.
(6) Allowance for Loan Losses
-------------------------
A summary of transactions affecting the allowance for loan losses follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 93,315 77,889 67,586
Provision for loan losses 8,000 19,048 32,975
Allowance of purchased companies - 10,560 825
-------- -------- --------
Total 101,315 107,497 101,386
-------- -------- --------
Deduct:
Loans charged-off 14,734 20,187 27,668
Less recoveries 6,923 6,005 4,171
-------- -------- --------
Net loans charged-off 7,811 14,182 23,497
-------- -------- --------
Balance at end of year $ 93,504 93,315 77,889
======== ======== ========
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Bank Premises and Equipment
---------------------------
Following is a summary of bank premises and equipment at December 31, 1994
and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ 21,312 21,107
Buildings 87,967 84,528
Leasehold improvements 29,023 23,840
Equipment 124,552 120,436
------- -------
Total 262,854 249,911
Less accumulated depreciation and
amortization 113,614 102,245
------- -------
Bank premises and equipment -- net $ 149,240 147,666
======= =======
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1994, 1993 and 1992 totaled $19,776, $16,430 and $12,123, respectively.
Estimated useful lives of depreciable assets used for calculating
depreciation and amortization are: buildings, 40 years; leasehold
improvements, 10-40 years; and equipment, 3-10 years.
(8) Short-Term Borrowed Funds
-------------------------
At December 31, 1994 and 1993, short-term borrowed funds consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Federal funds purchased and securities sold
under agreements to repurchase $ 1,076,952 910,174
Master notes 152,667 133,115
Other 4,444 3,500
--------- ---------
$ 1,234,063 1,046,789
========= =========
</TABLE>
Master notes are commercial paper issued by BB&T under a master agreement
with a term not to exceed 270 days. Borrowings under the agreement
generally mature on a daily basis.
On December 31, 1994, BB&T had $55,000 of unused bank lines of credit.
Annual commitment fees of approximately 3/16 of 1% of these lines are paid
by BB&T to unaffiliated banks.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Short-Term Borrowed Funds, Continued
------------------------------------
The following table presents certain information for each major category of
short-term borrowings:
<TABLE>
<CAPTION>
Federal Funds Purchased
and Securities
Sold Under Agreements to
Repurchase
--------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Amount outstanding December 31 $ 1,076,952 910,174 530,706
Average outstanding balance 1,005,534 681,212 353,295
Maximum amount outstanding at end of
any month during the year 1,108,853 1,046,578 659,546
Approximate weighted average interest rate:
During the year 4.3% 3.0 3.2
End of year 5.0 3.0 2.9
Master Notes
--------------------------------------------
1994 1993 1992
---- ---- ----
Amount outstanding December 31 $ 152,667 133,115 110,605
Average outstanding balance 179,919 150,079 155,877
Maximum amount outstanding at end of
any month during the year 196,139 163,216 159,728
Approximate weighted average interest rate:
During the year 3.6% 2.8 3.3
End of year 4.6 2.7 2.7
(9) Long-Term Debt
--------------
At December 31, 1994 and 1993, long-term debt consisted of the following:
1994 1993
---- ----
<S> <C> <C>
Floating rate subordinated notes due 1997 $ -- 50,000
Advances from Federal Home Loan Bank
of Atlanta 369,548 66,167
Medium-term bank notes 336,923 231,868
Other -- 2,701
------- -------
$ 706,471 350,736
======= =======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Long-Term Debt, Continued
-------------------------
BB&T redeemed the $50 million variable note issue in May of 1994. The
interest rate of the floating rate subordinated notes was adjusted
quarterly to 1/4% above the London interbank offered quotations.
In the third quarter of 1993, BB&T-N.C. put in place a program which will
allow it to issue $500,000 of medium-term notes as needed to meet ongoing
funding and operational needs. At December 31, 1994, BB&T had outstanding
$202,000 of the notes with a weighted average interest rate of 4.76% and
$134,923 of the notes had variable rates tied to LIBOR and the federal
funds rate. The notes have remaining maturities varying from six months to
twenty months.
Advances from the Federal Home Loan Bank of Atlanta are collateralized by
Treasury securities and real estate loans. The advances have remaining
maturities of up to seven years and have fixed interest rates varying from
5.52% to 8.95%. The principal maturities of the advances for the next five
years subsequent to December 31, 1994 are $113,619 in 1995, $231,286 in
1996, $14,786 in 1997, $2,286 in 1998, and $1,286 in 1999.
(10) Employee Benefit Plans
----------------------
The Banks sponsor a noncontributory defined benefit pension plan covering
substantially all of their employees. The benefits are based on years of
service, age at retirement and the employee's compensation during the last
five years of employment. Contributions to the plan are based upon the
Frozen Initial Liability actuarial funding method and comply with the
funding requirements of the Employee Retirement Income Security Act.
The following table sets forth the funded status of the pension plan and
amounts recognized in BB&T's consolidated financial statements at December
31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF THE
BENEFIT OBLIGATION
Accumulated benefit obligation:
Vested benefits $ 39,776 39,320
Nonvested benefits 2,097 2,128
------ ------
$ 41,873 41,448
====== ======
Projected benefit obligation for services
rendered to date $(70,938) (69,141)
Plan assets at fair value, primarily listed
stocks and U.S. Government securities 56,643 55,499
------ ------
Projected benefit obligation in excess of plan
assets (14,295) (13,642)
Unrecognized net loss from past experience
different from that assumed and effects
of changes in assumptions 12,781 13,098
Unrecognized prior service cost 3,458 3,727
Unrecognized net asset being amortized over
17.6 years (6,151) (6,869)
------ ------
Accrued pension cost included in other
liabilities $ (4,207) (3,686)
====== ======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Employee Benefit Plans, Continued
---------------------------------
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC
PENSION EXPENSE 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 5,311 3,749 3,471
Interest cost on projected benefit obligation 4,787 4,282 3,789
Loss (return) on plan assets 1,679 (4,435) (4,219)
Net amortization and deferral (6,204) (587) (347)
-------- -------- --------
Net periodic pension expense included in
employee benefits $ 5,573 3,009 2,694
======== ======== ========
</TABLE>
Plan assets included 135,271 and 131,411 shares of BB&T's common stock at
December 31, 1994 and 1993, respectively. The weighted-average discount
rate and rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligation were 7.75%
and 6%, respectively, for 1994, 7% and 5.5%, respectively, for 1993 and 8%
and 6%, respectively for 1992. The expected long-term rate of return on
pension plan assets was 8% in 1994 and 9% in 1993 and 1992.
Effective January 1, 1993, BB&T adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"), which requires the accrual of nonpension
benefits over the employees' active service period, defined as the date of
employment up to the date of the employees' eligibility for such benefits.
Prior to 1993, BB&T provided health care benefits to retirees and expensed
those costs as incurred. Retiree health care costs totaling approximately
$430 were paid during 1992. Effective January 1, 1993, BB&T revised the
retiree health care plan to provide a flexible benefit amount which
retirees can use to purchase health care and life insurance benefits. BB&T
has elected to amortize the accumulated postretirement benefit obligation
of approximately $11,744 over a period of 21 years as a component of the
postretirement benefit cost. The weighted-average discount rate used in
determining the actuarial present value of the projected benefit obligation
was 7.75% in 1994 and 7% in 1993. The assumed initial rate of increase in
medical costs was 12% in 1994 and 13% in 1993, declining to 5%. A 1%
increase in assumed health cost would have no effect on the service and
interest cost, but would increase the accumulated postretirement benefit
obligation by 3%.
The following table sets forth the components of the retiree benefit plan
and the amount recognized in BB&T's consolidated financial statements at
December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
---- ----
NET PERIODIC POSTRETIREMENT
BENEFIT COST
<S> <C> <C>
Service cost $ 489 191
Interest cost 1,110 915
Amortization of transition obligation 559 559
Amortization of net loss 104 -
------ ------
Total Expense $ 2,262 1,665
====== ======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Employee Benefit Plans, Continued
----------------------------------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
RECONCILIATION OF FUNDED STATUS
Accumulated postretirement benefit obligation:
Retirees and beneficiaries eligible for
benefits $ 6,805 7,232
Active employees fully eligible for
benefits 4,586 4,639
Active employees, not fully eligible
for benefits 4,472 4,342
------ ------
Total 15,863 16,213
------ ------
Funded status $(15,863) (16,213)
Unrecognized transition obligation 10,625 11,185
Unrecognized net loss 2,260 3,797
------ ------
Balance sheet liability $ (2,978) (1,231)
====== ======
</TABLE>
The Savings and Thrift Plan permits eligible employees to make
contributions up to 16% of base compensation, with the Banks' matching
contributions up to four percent of the employee's base compensation.
Amounts expensed for employee benefit plans were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Pension $ 5,573 3,009 2,694
Retiree benefits other than pensions 2,262 1,665 430
Savings and thrift, including ESOP 3,787 2,791 2,288
------ ----- -----
$ 11,622 7,465 5,412
====== ===== =====
</TABLE>
(11) Income Taxes
------------
As discussed in note 1, BB&T adopted SFAS 109 on January 1, 1993. BB&T
applied the provisions of SFAS 109 prospectively and did not restate
previously reported results of operations. For years prior to 1993, BB&T
used the deferral method of accounting for income taxes. The cumulative
effect of the change in the method of accounting for income taxes was
immaterial to both the financial position and results of operations for
BB&T.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Income Taxes, Continued
-----------------------
The components of income tax expense (benefit), were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ 59,771 51,962 39,965
State 5,941 5,238 4,023
------ ------ ------
65,712 57,200 43,988
------ ------ ------
Deferred:
Federal (1,537) (5,250) (1,980)
State (497) (1,268) (155)
------ ------ ------
(2,034) (6,518) (2,135)
------ ------ ------
$ 63,678 50,682 41,853
====== ====== ======
</TABLE>
The sources of timing differences resulting in deferred income taxes and
the tax effect of each were as follows:
<TABLE>
<CAPTION>
1992
----
<S> <C>
Provision for loan losses $ (2,788)
Federal Home Loan Bank dividends (1,034)
Accrual of deferred income taxes on taxable bad debt 3,800
reserves
Other (2,113)
------
$ (2,135)
======
</TABLE>
Total income tax expense was less than the amount computed by applying the
federal income tax rate of 35% in 1994 and 1993 and 34% in 1992 to income
before income taxes. The reasons for the difference were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Tax expense at statutory rate $ 64,246 54,397 42,321
Increase (decrease) resulting from:
State income taxes, net of
federal tax benefit 3,539 2,584 2,549
Tax-exempt interest income, net of
disallowed interest expense (3,609) (4,455) (5,617)
Other items, net (498) (1,844) 2,600
------ ------ ------
Income taxes $ 63,678 50,682 41,853
====== ====== ======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Income Taxes, Continued
-----------------------
The tax effects of cumulative temporary differences that resulted in net
deferred tax assets at December 31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred tax assets:
Bad debt provision $ 37,172 19,769
Unrealized losses on securities available
for sale 27,293 -
Deferred compensation, pension and retiree
benefits 6,393 5,583
Difference in basis of assets (other than
depreciation) 6,366 11,621
Other 1,649 6,191
------ ------
Total gross deferred assets 78,873 43,164
------ ------
Deferred tax liabilities:
Depreciation (9,490) (2,589)
Other (4,471) (4,989)
------ ------
Total gross deferred liabilities (13,961) (7,578)
------ ------
Net deferred tax asset $ 64,912 35,586
====== ======
</TABLE>
A valuation allowance is not considered necessary because of prior year's
taxable income available for carryback and the probability of future
taxable earnings.
(12) Common Stock
------------
Pursuant to provisions of the Long Term Incentive Plan, options to purchase
up to 1,000,000 shares of BB&T's common stock may be granted to key
personnel. The current plan is a successor to the plans of 1983 and 1988.
As of December 31, 1994, 534,372 shares have been issued for options
granted and exercised under the plans. In August 1991, BB&T adopted the
Special Purpose Option and Restricted Stock Plan. Pursuant to the
provisions of the plan, up to 1,000,000 shares of BB&T's common stock may
be granted to selected employees and directors of thrifts acquired through
purchase conversions. As of December 31, 1994, 54,724 shares have been
issued for options granted and exercised under this Plan. Under all option
plans, the option price is the fair market value of the stock at the date
of grant. Options normally vest over a five-year period, beginning one year
from the date granted. All options expire not more than 10 years from the
date of the grant, if not previously exercised.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Common Stock, Continued
-----------------------
Activity in the stock option plans for the past three years was as follows:
<TABLE>
<CAPTION>
Shares Under Option
-------------------
1994 Range of
Exercise Prices Year ended December 31,
--------------- ----------------------------
High Low 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Outstanding at beginning
of year $ 34.63 8.53 1,586,237 1,331,112 1,166,062
Add (deduct):
Granted 31.50 27.25 500,840 329,639 265,290
Options of acquired
companies 31.25 .01 45,404 52,949 --
Cancelled or expired 33.25 18.00 (30,266) (14,842) (7,905)
Exercised 25.38 .01 (66,787) (112,621) (92,335)
----- ----- --------- --------- ---------
Outstanding at end of year 34.63 8.53 2,035,428 1,586,237 1,331,112
===== ===== ========= ========= =========
Average price per share:
Exercised during year $ 17.42 15.94 17.12
Outstanding at end of year 24.09 22.41 19.77
===== ===== =====
Options exercisable 873,556 676,844 423,953
======= ======= =======
</TABLE>
The Special Purpose Option and Restricted Stock Plan also provides for
shares of BB&T's common stock to be awarded to selected employees and
directors of thrifts acquired through purchase conversions. The awarded
shares are subject to the terms, conditions and restrictions of the Plan,
which prohibit the sale or assignment of the shares during the restricted
period. In the event the Grantee's employment with BB&T terminates, other
than by death, disability or retirement, prior to the lapse of the
restriction period, such awarded shares shall be forfeited by the Grantee.
During 1991 through 1993, 173,938 shares of BB&T's common stock were
awarded to employees of acquired companies.
BB&T also has a Non-Employee Directors Stock Option Plan. Pursuant to the
provisions of the Plan, Directors of BB&T Financial Corporation may elect
to receive stock options in lieu of cash for annual retainers. Options to
purchase up to 250,000 shares of BB&T's common stock may be granted under
this Plan. Six months after each election date, options are granted at an
exercise price of 75% of the fair market value of a share on the date of
grant. An option may be exercised six months from the date of grant. Each
option share expires ten years from its date of grant. At December 31,
1994, options have been granted for 50,515 shares under this Plan and
199,485 shares were reserved for future use.
Automatic accelerated vesting of substantially all the shares reserved
under the option plans will occur due to the merger with Southern National
as discussed in note 3.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) Common Stock, Continued
-----------------------
BB&T has reserved shares of its common stock for issuance under the
Dividend Reinvestment and Shareholder Savings Service. As of December 31,
1994, 1,807,305 shares of BB&T's common stock were reserved and unissued
under the Plan. During the years 1994, 1993 and 1992, respectively,
204,531, 263,090 and 250,866 shares were issued through the dividend
reinvestment program.
BB&T had reserved shares of its common stock to be issued under the Savings
and Thrift Plan. During the years 1994, 1993 and 1992, respectively,
440,362, 375,583 and 303,088 shares were issued under this Plan. As of
December 31, 1994, 1,243,398 shares of BB&T's common stock were reserved
and unissued for use under the Savings and Thrift Plan.
In August, 1991, BB&T established an Employee Stock Ownership Plan (ESOP).
The ESOP borrowed $3,041 in 1991, $664 in 1992 and $2,314 in 1993 from
BB&T to purchase 150,613, 26,000 and 79,285 shares, respectively, of BB&T
common stock for the benefit of employees of acquired thrifts. The loans
were guaranteed by BB&T-N.C. Eligible employees of the thrifts acquired
through purchase conversions are allocated shares based upon years of
service and level of compensation. Shares vest equally over a period of
five years. Dividends on shares held in the ESOP are paid to participants.
(13) Regulatory Matters
------------------
Subject to restrictions imposed by state laws and federal regulations, the
Boards of Directors of the subsidiary Banks may declare dividends from
their retained earnings up to $436,912 at December 31, 1994. The
subsidiaries are prohibited by law from paying dividends from their capital
stock and paid-in-capital accounts which totaled $411,975 at December 31,
1994, and are required by regulatory authorities to maintain minimum
capital levels.
The subsidiary Banks are required to maintain reserve balances with the
Federal Reserve Bank. The amounts of these reserve balances at December 31,
1994 were $94,886.
At December 31, 1994 and 1993, deposits greater than $100,000 totaled
approximately $979,000 and $945,000, respectively.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Commitments and Contingencies
-----------------------------
The Banks have entered into leases for bank premises and equipment which
are accounted for as operating leases. Leases for equipment generally have 1 to
5 year terms. Leases for real property vary in terms from 3 to 25 years with
additional options for renewal of the leases generally from 5 to 20 years. Real
estate taxes, insurance and maintenance expenses are obligations of the Banks.
The Banks expect to renew leases or replace leases as they expire with leases on
other property.
A summary of rent expense charged to operations follows:
<TABLE>
<CAPTION>
Leases
------------------------
Bank Operating Net Rent
Equipment Premises Subleases Expense
--------- -------- --------- --------
<S> <C> <C> <C> <C>
1994 $ 3,407 9,017 713 11,711
1993 4,739 10,341 1,073 14,007
1992 4,093 9,302 1,046 12,349
</TABLE>
A summary of noncancellable operating lease commitments for equipment and
banking facilities follows:
<TABLE>
<CAPTION>
Net Lease
Leases Subleases Commitment
------ --------- ----------
<S> <C> <C> <C>
1995 $ 13,709 427 13,282
1996 13,775 261 13,514
1997 12,063 148 11,915
1998 8,087 122 7,965
1999 7,321 108 7,213
Thereafter 43,073 143 42,930
------ ----- ------
$ 98,028 1,209 96,819
====== ===== ======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Commitments and Contingencies, Continued
----------------------------------------
In the normal course of business, commitments are outstanding that are not
reflected in the financial statements. A summary of these commitments at
December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Commitments to extend credit:
Credit card and other consumer lines $ 772,214 520,565
Commercial and industrial 1,604,396 1,362,183
Standby letters of credit 102,491 119,677
Commercial and similar letters of credit 17,089 10,891
Securities lent 51,137 8,335
Interest rate contracts:
Forward commitments to sell loans 29,000 185,000
Swaps 850,000 860,000
Purchased option contracts 474,000 550,000
Written option contracts 424,000 500,000
Forward foreign exchange rate contracts:
Commitments to purchase 33,483 9,594
Commitments to sell 33,470 9,605
</TABLE>
BB&T's exposure to credit loss is represented by the contractual amount of
the commitments to extend credit, standby letters of credit and commercial
letters of credit. The notional amounts of interest rate swap and option
agreements express only the extent of involvement of BB&T, and amounts
subject to risk (cash flows from gains at settlement) are significantly
smaller than the notional or contractual values.
BB&T makes contractual commitments to extend credit so long as there is no
violation of any condition established in the contract. Since many of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. In
making the commitments, BB&T applies the same credit standards used in the
lending process, and periodically reassesses the customers'
creditworthiness through ongoing credit reviews. The majority of the
outstanding lines of credit have stated interest rates that are directly
related to the prime rate of interest.
BB&T provides standby letters of credit and performance guarantees, which
are issued on behalf of customers in connection with contracts between the
customers and third parties. The majority of the standby letters of credit
consist of performance assurances made on behalf of customers who have a
contractual commitment to produce or deliver goods or services. The
business ventures for which these credits are employed vary widely and
frequently require long periods of time for completion. BB&T applies the
same credit standards used in the lending process, and, once issued, the
commitment is irrevocable and remains valid until its expiration. Credit
risk arises from the obligation of BB&T to make payment in the event of the
customers' contractual default.
BB&T issues commercial letters of credit to facilitate foreign and domestic
trade transactions. The instruments are short-term commitments to pay a
third party beneficiary under certain contractual conditions for the
shipment of goods. The contracts are subject to the same credit standards
used in the lending process and are generally collateralized by the
merchandise being shipped.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(14) Commitments and Contingencies, Continued
----------------------------------------
BB&T extends credit to customers through its subsidiary Banks in North
Carolina and South Carolina. A vast majority of loans are to businesses
with operations headquartered in the two Carolinas, although a limited
number of loans have been made to businesses which are domiciled in other
states but have operations in the Carolinas. The loan portfolios are well
diversified within industry segments and secured loans are well
collateralized.
BB&T utilizes interest rate contracts, primarily swaps and collars, in the
management of the interest rate sensitivity of BB&T's net interest income.
Interest rate contracts generally have terms of one year or longer. The
risks associated with such contracts are exposure to movements in interest
rates and the ability of counterparties to meet the terms of the contracts.
Credit risk exposure is managed through BB&T's standard credit approval and
review process. BB&T utilizes option contracts to manage interest rate risk
related to its mortgage lending operations.
Securities lent represent customer securities lent to third parties. BB&T
assumes credit risk on these instruments by indemnifying the customer
against the borrower's failure to return the securities. To minimize this
risk, BB&T evaluates the creditworthiness of the borrower on a case-by-case
basis, and collateral with a market value exceeding 100% of the contract
amount of securities lent is obtained.
Various legal proceedings against BB&T and its subsidiaries have arisen
from time to time in the normal course of business. Management believes
liabilities arising from these proceedings, if any, will have no material
adverse effect on the financial position of BB&T or its subsidiaries.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Parent Company Financial Information
------------------------------------
BB&T's (parent company only) condensed balance sheets as of December 31,
1994 and 1993, and the related condensed statements of income and cash
flows for each of the years in the three-year period ended December 31,
1994, were as follows:
CONDENSED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
December 31,
------------------
1994 1993
---- ----
<S> <C> <C>
Assets
Cash and interest-bearing deposits $ 162,694 136,217
11% note receivable from BB&T-N.C. - 30,000
Receivables from subsidiaries 10,585 -
Investment in bank and savings bank
subsidiaries at underlying book value 808,857 867,550
Other assets 6,704 7,617
------- ---------
Total assets $ 988,840 1,041,384
======= =========
Liabilities and Shareholders' Equity
Master notes $ 152,667 133,115
Advance from bank subsidiary -- 58,250
Dividends payable 10,585 --
Long-term debt -- 50,000
Other liabilities 2,944 3,035
Shareholders' equity 822,644 796,984
------- ---------
Total liabilities and shareholders' equity $ 988,840 1,041,384
======= =========
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Parent Company Financial Information, Continued
-----------------------------------------------
CONDENSED STATEMENTS OF INCOME
------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income
Dividends from bank subsidiaries $ 84,836 34,767 26,638
Interest and other income from bank
and savings bank subsidiaries 9,516 10,245 14,008
Other 1,493 41 (415)
------ ------ ------
Total income 95,845 45,053 40,231
------ ------ ------
Expenses
Interest on master notes 6,403 4,174 5,144
Interest on long-term debt 1,003 3,505 5,921
Other 6,613 3,447 2,356
------ ------ ------
Total expenses 14,019 11,126 13,421
------ ------ ------
Income before income taxes and equity in
undistributed income of bank and savings
bank subsidiaries 81,826 33,927 26,810
Income tax (credit) on parent company only
income (1,149) (387) (132)
------ ------ ------
Income before equity in undistributed income
of bank and savings bank subsidiaries 82,975 34,314 26,942
Equity in undistributed income of bank and
savings bank subsidiaries 36,907 70,698 55,679
------- ------- ------
Net income $119,882 105,012 82,621
======= ======= ======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Parent Company Financial Information, Continued
-----------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from bank and savings bank subsidiaries:
Interest $ 7,929 8,360 11,550
Dividends 74,251 34,867 26,738
Management fees 2,004 2,004 2,004
Interest paid (7,609) (7,712) (11,076)
Other expense (3,488) (3,151) (980)
----- ----- ------
Net cash provided by operating activities 73,087 34,368 28,236
------ ------ ------
Cash Flows from Investing Activities:
Sales of securities 65 180 223
Purchase of securities -- (1,761) (800)
Investments in joint ventures and partnerships 443 134 167
Cash payment for purchased companies -- (58,250) --
Cash payment for stock acquired through
purchase conversions -- (28,818) (9,690)
Repayment of note from bank subsidiary 30,000 -- --
Sale of savings bank subsidiary to bank
subsidiary 58,883 -- --
Other (5,385) (3,513) (1,308)
----- ----- -----
Net cash provided by (used in)
investing activities 84,006 (92,028) (11,408)
------ ------ ------
Cash Flows from Financing Activities:
Net increase (decrease) in short-term
borrowed funds 19,552 22,510 (18,962)
Advance from bank subsidiary -- 58,250 --
Repayment of advance from bank subsidiary (58,250) -- --
Repayment of long-term debt (50,000) -- --
Proceeds from issuance of common stock 19,525 48,354 25,468
Redemption of common stock (23,562) (30,270) (6,767)
Dividends paid (39,537) (35,269) (26,710)
Other 1,656 1,551 1,441
------ ------ ------
Net cash provided by (used in)
financing activities (130,616) 65,126 (25,530)
------- ------ ------
Net increase (decrease) in cash and cash
equivalents 26,477 7,466 (8,702)
Cash and cash equivalents on January 1 136,217 128,751 137,453
------- ------- -------
Cash and cash equivalents on December 31 $ 162,694 136,217 128,751
======= ======= =======
</TABLE>
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Parent Company Financial Information, Continued
-----------------------------------------------
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
<S> <C> <C> <C>
Common stock issued:
Employee benefit plans $ -- 2,263 2,260
Conversion of debentures -- 33,311 346
Purchased company -- 22,298 --
Employee stock ownership plan -- 2,314 664
Loan to employee stock ownership plan -- (2,314) (664)
== ===== ===
</TABLE>
(16) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
Statement of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The fair
value estimates are made at a discreet point in time based on relevant
market information and information about the financial instruments. Because
no market exists for a significant portion of BB&T's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and such other factors. These estimates are
subjective in nature and involve uncertainties in matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
The estimated fair values of BB&T's financial instruments follow, together
with descriptions of methods and assumptions used to estimate the fair
value of each class of financial instrument for which it is practical to
estimate such value.
The carrying amount of cash and short-term investments is a reasonable
estimate of fair value. The fair values of such instruments at December 31,
1994 and 1993 were $363,047 and $470,531, respectively.
For securities held to maturity and securities available for sale, fair
values are based on quoted market prices or dealer quotes. At December 31,
1994 and 1993 the fair values of securities held to maturity were $103,870
and $1,722,284, respectively, and the fair values of investments available
for sale were $2,369,371 and $737,611, respectively.
For floating rate loans, credit card receivables, home equity lines and
other consumer lines of credit, the carrying amount less an estimate of
credit losses inherent in the portfolio is a reasonable estimate of fair
value. The fair value of other types of loans is estimated by discounting
the future cash flows using the current rates at which similar loans of
similar maturities would be made to borrowers with similar credit ratings,
reduced by an estimate of credit losses inherent in the portfolio. Fair
value does not include the value of customer relationships or unused
consumer lines of credits. The estimated fair values of loans at December
31, 1994 and 1993 were $6,960,610 and $6,764,562, respectively.
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Disclosures About Fair Value of Financial Instruments, Continued
----------------------------------------------------------------
For demand deposits, savings accounts and certain money market deposits
payable on demand, the carrying amounts are the fair values. The fair
values of fixed-maturity certificates of deposit and individual retirement
accounts are estimated using the rates currently offered for deposits of
similar remaining maturities. For variable rate individual retirement
accounts, the carrying amount is a reasonable estimate of fair value. The
fair values of deposit liabilities at December 31, 1994 and 1993 are
estimated to be $7,522,729 and $7,590,584, respectively.
The carrying amount of short-term borrowed funds, including federal funds
purchased, securities sold under agreements to repurchase and master notes,
is a reasonable estimate of fair value. The fair values of short-term
borrowed funds at December 31, 1994 and 1993 were $1,234,063 and
$1,046,789, respectively.
Long-term debt includes convertible subordinated debentures, floating rate
subordinated notes, advances from the Federal Home Loan Bank and medium-
term bank notes. The convertible subordinated debentures were redeemed in
1993. The floating rate subordinated notes repriced quarterly and the
carrying amount was a reasonable estimate of fair value at December 31,
1993. The floating rate subordinated notes were redeemed in 1994.
The fair values of the advances from the Federal Home Loan Bank are based
on the discounted value of contractual cash flows, using the rates
currently offered for borrowings of similar remaining maturities. The fair
values of the medium-term bank notes are based on the market prices of the
notes on December 31, 1994 and 1993. The fair values of long-term debt at
December 31, 1994 and 1993 were $711,106 and $353,472, respectively.
The fair value of interest rate contracts (used for hedging purposes) is
the estimated amount that BB&T would receive or pay to terminate the
contract agreements at the reported date, taking into account current
interest rates and the current credit worthiness of the contract
counterparties. The fair values of interest rate contract agreements at
December 31, 1994 and 1993 are estimated to be $(51,614) and $16,383,
respectively.
The fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date. The
fair values of letters of credit at December 31, 1994 and 1993 are
estimated to be $1,883 and $1,919, respectively.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF CONDITION
SOUTHERN NATIONAL CORPORATION, BB&T FINANCIAL CORPORATION AND COMMERCE BANK
December 31, 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
BB&T Adjustments Pro Forma
SNC Financial Commerce Incr (Dcr) Combined
---------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from depository institutions $ 264,664 $ 340,036 $ 33,094 $ -- $ 637,794
Interest-bearing bank balances 962 19,000 -- 1,000 20,962
Federal funds sold and securities purchased under
resale agreements or similar arrangements 2,010 4,011 -- -- 13,021
Securities available for sale (at market) 992,016 2,369,371 98,311 -- 3,459,698
Loans held for sale 21,464 -- -- 114,887 136,351
Securities held to maturity (market value: $1,889,911) 1,774,202 102,067 89,150 -- 1,965,419
Loans and leases 5,434,878 7,199,569 450,798 (113,494) 12,971,751
Allowance for losses (70,573) (93,504) (7,657) -- (171,734)
---------- ----------- -------- --------- -----------
Net loans and leases 5,364,305 7,106,065 443,141 (113,494) 12,800,017
---------- ----------- -------- --------- -----------
Premises and equipment, net 165,068 149,240 18,761 -- 333,069
Other assets 164,449 304,540 17,880 1,857 488,732
---------- ----------- -------- --------- -----------
Total assets $8,756,140 $10,394,330 $700,343 $ 4,250 $19,855,063
========== =========== ======== ========= ===========
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 782,172 $ 941,594 $119,253 $ -- $ 1,843,019
Interest-bearing 5,382,908 6,578,730 509,497 -- 12,471,135
---------- ----------- -------- --------- -----------
Total deposits 6,165,080 7,520,324 628,750 -- 14,314,154
Short-term borrowings 1,654,465 1,234,063 14,000 -- 2,902,528
Accounts payable and other liabilities 106,721 110,828 2,974 10,626 231,149
Long-term debt 197,530 706,471 6,754 -- 910,755
---------- ----------- -------- --------- -----------
Total liabilities 5,123,796 9,571,686 652,478 10,626 18,358,586
---------- ----------- -------- --------- -----------
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares authorized,
770,000 issued and outstanding in 1994 3,850 -- -- -- 3,850
Common stock, $5 par, 300,000,000 shares authorized,
102,215,032 issued and outstanding in 1994 220,794 91,127 6,874 192,280 511,075
Paid-in capital 164,934 282,535 30,410 (192,280) 285,599
Retained earnings 273,480 495,427 13,448 (6,376) 775,979
Unearned compensation (2,650) (4,792) -- -- (7,442)
Net unrealized depreciation on securities available for sale (28,064) (41,653) (2,867) -- (72,584)
---------- ----------- -------- --------- -----------
Total shareholders' equity 632,344 822,644 47,865 (6,376) 1,496,477
---------- ----------- -------- --------- -----------
Total liabilities and shareholders' equity $8,756,140 $10,394,330 $700,343 $ 4,250 $19,855,063
========== =========== ======== ========= ===========
</TABLE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SOUTHERN NATIONAL CORPORATION, BB&T FINANCIAL CORPORATION AND COMMERCE BANK
For the Year Ended December 31, 1994
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
BB&T Adjustments Pro Forma
SNC Financial Commerce Incr (Dcr) Combined
---------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans and leases $423,461 $561,564 $35,783 $ 248 $1,021,056
Interest and dividends on securities 152,471 126,139 13,195 -- 291,805
Interest on temporary investments 2,456 2,396 580 (248) 5,184
-------- -------- ------- ------- ----------
Total interest income 578,388 690,099 49,558 -- 1,318,045
-------- -------- ------- ------- ----------
Interest Expense
Interest on deposits 191,005 230,917 19,954 -- 441,876
Interest on short-term borrowings 48,938 49,461 77 -- 98,476
Interest on long-term debt 15,728 24,535 664 -- 40,927
-------- -------- ------- ------- ----------
Total interest expense 255,671 304,913 20,695 -- 581,279
-------- -------- ------- ------- ----------
Net Interest Income 322,717 385,186 28,863 -- 736,766
Provision for loan and lease losses 7,246 8,000 2,600 -- 17,846
-------- -------- ------- ------- ----------
Net Interest Income After Provision for
Loan and Lease Losses 315,471 377,186 26,263 -- 718,920
-------- -------- ------- ------- ----------
Noninterest Income
Service charges on deposit accounts 35,222 44,906 3,957 (1,330) 82,755
Nondeposit fees and commissions 32,004 61,120 3,144 4,008 100,276
Securities gains, net 906 2,120 48 -- 3,074
Other income 14,914 22,337 1,644 1,047 39,942
-------- -------- ------- ------- ----------
Total noninterest income 83,046 130,483 8,793 3,725 236,047
-------- -------- ------- ------- ----------
Noninterest Expense
Personnel expense 119,023 163,325 11,644 (559) 293,433
Occupancy and equipment expense 36,143 50,261 4,579 -- 90,983
Federal deposit insurance expense 14,401 16,886 -- 1,410 32,697
Other expense 61,662 93,637 8,609 2,315 166,223
-------- -------- ------- ------- ----------
Total noninterest expense 231,229 324,109 24,832 3,166 583,336
-------- -------- ------- ------- ----------
Earnings
Income before income taxes 167,288 183,560 10,224 559 361,631
Provision for income taxes 57,644 63,678 3,213 224 124,759
-------- -------- ------- ------- ----------
Net Income 109,644 119,882 7,011 335 236,872
Preferred dividend requirements 5,198 -- -- -- 5,198
-------- -------- ------- ------- ----------
Income applicable to common shares $104,446 $119,882 $ 7,011 $ 335 $ 231,674
======== ======== ======= ======= ==========
Per Common Share
Net income:
Primary $ 3.38 $ 3.27 $ 2.48 $ 2.26
======== ======== ======= ==========
Fully diluted $ 2.27 $ 3.27 $ 2.37 $ 2.21
======== ======== ======= ==========
Cash dividends paid per common share $ 0.74 $ 1.12 $ 0.70 $ 0.74
======== ======== ======= ==========
</TABLE>
<PAGE>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
SOUTHERN NATIONAL CORPORATION, BB&T FINANCIAL CORPORATION AND COMMERCE BANK
For the Year Ended December 31, 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
BB&T Adjustments Pro Forma
SCN Financial Commerce Incr (Dcr) Combined
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans and leases $ 405,121 $ 479,212 $ 30,861 $ 376 $ 915,570
Interest and dividends on securities 139,768 124,271 15,689 - 279,728
Interest on temporary investments 2,421 1,668 697 (376) 4,410
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Total interest income 547,310 605,151 47,247 - 1,199,708
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Interest Expense
Interest on deposits 195,204 212,668 20,322 - 428,194
Interest on short-term borrowings 18,849 24,733 26 - 43,608
Interest on long-term debt 22,794 10,961 635 - 34,390
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Total interest expense 236,847 248,362 20,983 - 506,192
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Net Interest Income 310,463 356,789 26,264 - 693,516
Provision for loan and lease losses 31,438 19,048 2,825 - 53,311
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Net Interest Income After Provision for
Loan and Lease Losses 279,025 337,741 23,439 - 640,205
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Noninterest Income
Service charges on deposit accounts 36,838 40,764 3,428 (1,360) 79,670
Nondeposit fees and commissions 22,490 57,963 4,435 6,892 91,780
Securities gains, net 13,714 1,720 1,407 - 16,841
Other income 14,630 19,080 1,385 (3,068) 32,027
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Total noninterest income 87,672 119,527 10,655 2,464 220,318
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Noninterest Expense
Personnel expense 131,681 147,644 10,721 (359) 289,487
Occupancy and equipment expense 38,153 40,344 4,134 - 91,691
Federal deposit insurance expense 14,074 15,327 - 1,329 30,730
Loss on bulk sale of assets 49,147 - - - 49,147
Other expense 103,004 89,259 8,851 1,135 202,249
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Total noninterest expense 336,059 301,574 23,706 1,905 663,244
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Earnings
Income before income taxes 30,638 155,694 10,388 559 197,279
Provision for income taxes 22,445 50,682 3,837 224 77,188
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Income before cumulative effect of
changes in accounting principles 8,193 105,012 6,551 335 120,091
Less: cumulative effect of changes
in accounting principles, net of
income taxes 27,217 - - 7,046 34,263
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Net (Loss) Income (19,024) 105,012 6,551 (6,711) 85,878
Preferred dividend requirements 5,198 - - - 5,198
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(Loss) Income applicable to common shares $ (24,222) $ 105,012 $ 6,551 $ (6,711) $ 80,639
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Per Common Share
Net (loss) income:
Primary
Income before cumulative effect $ 0.07 $ 2.95 $ 2.38 $ 1.16
Less: cumulative effect 0.64 - - 0.35
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Net (loss) income $ (0.57) $ 2.95 $ 2.38 $ 0.81
============= ============= ============= =============
Fully diluted
Income before cumulative effect $ 0.07 $ 2.91 $ 2.28 $ 1.16
Less: cumulative effect 0.64 - - 0.35
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Net (loss) income (0.57) 2.91 2.28 0.81
============= ============= ============= =============
Cash dividends paid per common share $ 0.64 $ 1.02 $ 0.51 $ 0.64
============= ============= ============= =============
<CAPTION>
BB&T Adjustments Pro Forma
SCN Financial Commerce Incr (Dcr) Combined
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans and leases $ 428,923 $ 454,061 $ 30,175 $ 434 $ 913,593
Interest and dividends on securities 137,025 135,529 13,689 - 286,243
Interest on temporary investments 5,486 2,026 1,075 (434) 8,153
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Total interest income 571,434 591,616 44,939 - 1,207,989
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Interest Expense
Interest on deposits 251,172 249,876 21,845 - 522,893
Interest on short-term borrowings 14,964 16,996 19 - 31,979
Interest on long-term debt 25,652 8,711 550 - 34,913
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Total interest expense 291,788 275,583 22,414 - 589,785
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Net Interest Income 279,646 316,033 22,525 - 618,204
Provision for loan and lease losses 25,671 32,975 4,225 - 62,871
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Net Interest Income After Provision for
Loan and Lease Losses 253,975 283,058 18,300 - 555,333
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Noninterest Income
Service charges on deposit accounts 36,455 33,606 3,006 (1,399) 71,668
Nondeposit fees and commissions 20,454 42,894 3,025 12,763 79,136
Securities gains, net 1,972 6,268 1,098 - 9,338
Other income 19,871 12,781 1,081 (8,002) 25,731
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Total noninterest income 78,752 95,549 8,210 3,362 185,873
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Noninterest Expense
Personnel expense 114,258 123,814 8,926 - 246,998
Occupancy and equipment expense 33,184 40,210 3,730 - 77,124
Federal deposit insurance expense 12,826 13,456 - 1,102 27,384
Other expense 73,304 76,653 6,435 2,260 158,652
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Total noninterest expense 233,572 254,133 19,091 3,362 510,158
------------- ------------- ------------- ------------- -------------
Earnings
Income before income taxes 99,155 124,474 7,419 - 231,048
Provision for income taxes 39,997 41,853 2,477 - 84,322
------------- ------------- ------------- ------------- -------------
Net Income 59,163 82,621 4,942 - 146,726
Preferred dividend requirements 4,605 - - - 4,605
------------- ------------- ------------- ------------- -------------
Income applicable to common shares $ 54,558 $ 82,621 $ 4,942 $ - $ 142,121
============= ============= ============= ============= =============
Per Common Share
Net income:
Primary $ 1.34 $ 2.53 $ 2.05 $ 1.53
============= ============= ============= =============
Fully diluted $ 1.31 $ 2.43 $ 1.97 $ 1.48
============= ============= ============= =============
Cash dividends paid per common share $ 0.50 $ 0.91 $ 0.26 $ 0.50
============= ============= ============= =============
</TABLE>
