<PAGE>
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) February 24, 1995
-----------------
Southern National Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 1-1853 56-0939887
-------------------- ------------- ----------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
500 North Chestnut Street, Lumberton, North Carolina 28358
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (910) 773-7500
-------------------
<PAGE>
Item 5. Other Events
The purpose of this Current Report on Form 8-K is to (i) file as Exhibit
99.1 the 1993 restated audited financial statements and notes thereto of BB&T
Financial Corporation ("BB&T Financial"); (ii) file as Exhibit 99.2 the
financial statements of BB&T Financial Corporation for the period ended
September 30, 1994; and (iii) file as Exhibit 99.3 the pro forma condensed
financial statements of Southern National Corporation ("SNC"), BB&T Financial
and Commerce Bank ("Commerce") for the period ended September 30, 1994. Exhibits
99.1 and 99.2 were prepared by BB&T Financial, were not prepared by the
Registrant, and are not to be considered as being filed as part of the
Registrant's disclosure obligations under the Securities Exchange Act of 1934,
as amended.
Such documents will be incorporated by reference into future registration
statements.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
99.1 1993 Restated Audited Financial Statements and Notes thereto of
BB&T Financial
99.2 Financial Statements of BB&T Financial Corporation for the
period ended September 30, 1994
99.3 Pro Forma Condensed Financial Statements of SNC, BB&T Financial
and Commerce for the period ended September 30, 1994
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN NATIONAL CORPORATION
(Registrant)
Date: February 24, 1995 By: /s/ David L. Craven
------------------------------
Name: David L. Craven
----------------------------
Title: Secretary
---------------------------
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description
- ------------------------------
99.1 1993 Restated Audited Financial Statements and Notes thereto of
BB&T Financial
99.2 Financial Statements of BB&T Financial Corporation for the period
ended September 30, 1994
99.3 Pro Forma Condensed Financial Statements of SNC, BB&T Financial and
Commerce for the period ended September 30, 1994
<PAGE>
EXHIBIT 99.1
CONSOLIDATED BALANCE SHEETS
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
($ IN THOUSANDS, EXCEPT PER SHARE) 1993 1992
---------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks, noninterest-bearing................. $ 355,818 $ 332,322
Interest-bearing bank balances............................... 79,663 27,705
Federal funds sold........................................... 35,050 39,725
Securities-available for sale (market value of $737,611 in
1993, and $464,482 in 1992)................................. 726,658 456,113
Securities-held to maturity (market value of $1,722,284 in
1993, and $1,583,899 in 1992)............................... 1,701,317 1,557,254
Loans........................................................ 6,688,332 5,325,106
Less allowance for loan losses............................... 93,315 77,889
---------- ----------
Net loans................................................ 6,595,017 5,247,217
Bank premises and equipment.................................. 147,666 103,854
Accrued interest receivable.................................. 63,607 58,505
Other assets................................................. 162,602 108,965
---------- ----------
Total assets............................................. $9,867,398 7,931,660
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing........................................ $ 861,786 $ 763,743
Interest-bearing........................................... 6,704,154 5,641,518
---------- ----------
Total deposits........................................... 7,565,940 6,405,261
Short-term borrowed funds.................................... 1,046,789 642,811
Long-term debt............................................... 350,736 127,442
Other liabilities............................................ 106,949 102,116
---------- ----------
Total liabilities........................................ 9,070,414 7,277,630
---------- ----------
Shareholders' equity:
Preferred stock $2.50 par value, 4,000,000 shares authorized;
none issued................................................. -- --
Common stock $2.50 par value, 50,000,000 shares authorized;
shares issued of 36,398,619 in 1993, and 32,684,930 in 1992. 90,997 81,713
Paid-in capital.............................................. 286,774 217,223
Retained earnings............................................ 425,667 358,032
Less loan to employee stock ownership plan................... 4,419 2,938
Less unvested restricted stock............................... 2,035 --
---------- ----------
Total shareholders' equity............................... 796,984 654,030
---------- ----------
Total liabilities and shareholders' equity............... $9,867,398 $7,931,660
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
($ IN THOUSANDS, EXCEPT PER SHARE) 1993 1992 1991
---------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans................................. $ 479,212 $ 454,061 $ 467,671
Interest and dividends on securities:
Taxable......................................... 114,404 122,256 118,681
Tax exempt...................................... 9,867 13,273 18,207
Interest on short-term investments................ 1,668 2,026 6,939
---------- ---------- ----------
Total interest income......................... 605,151 591,616 611,498
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits.............................. 212,668 249,876 323,126
Interest on short-term borrowed funds............. 24,733 16,996 18,023
Interest on long-term debt........................ 10,961 8,711 9,116
---------- ---------- ----------
Total interest expense........................ 248,362 275,583 350,265
---------- ---------- ----------
NET INTEREST INCOME............................... 356,789 316,033 261,233
Provision for loan losses......................... 19,048 32,975 42,317
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................... 337,741 283,058 218,916
---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts............... 40,764 33,606 30,413
Other service charges, commissions and fees....... 17,847 15,058 12,601
Mortgage banking income........................... 18,068 11,499 11,139
Gains on sales of securities...................... 1,720 6,268 10,949
Trust income...................................... 11,401 9,684 8,425
Insurance commissions............................. 10,647 6,653 6,163
Other operating income............................ 19,080 12,781 11,198
---------- ---------- ----------
Total noninterest income...................... 119,527 95,549 90,888
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and wages................................ 119,920 101,775 87,682
Other personnel expense........................... 27,724 22,039 18,820
Net occupancy expense............................. 22,771 19,607 17,764
Furniture and equipment expense................... 26,573 20,603 17,954
Deposit insurance premiums........................ 15,327 13,456 11,584
Other operating expense........................... 89,259 76,653 61,195
---------- ---------- ----------
Total noninterest expense..................... 301,574 254,133 214,999
---------- ---------- ----------
INCOME BEFORE INCOME TAXES........................ 155,694 124,474 94,805
Income taxes...................................... 50,682 41,853 26,470
---------- ---------- ----------
NET INCOME........................................ $ 105,012 $ 82,621 $ 68,335
========== ========== ==========
NET INCOME PER SHARE
Primary........................................... $ 2.95 $ 2.53 $ 2.30
Fully diluted..................................... 2.91 2.43 2.21
========== ========== ==========
AVERAGE NUMBER OF SHARES AND EQUIVALENT SHARES
Primary........................................... 35,619,953 32,704,634 29,760,298
Fully diluted..................................... 36,188,410 34,741,310 31,755,821
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
LOAN TO
EMPLOYEE TOTAL
COMMON STOCK UNVESTED SHARE-
($ IN THOUSANDS, SHARES COMMON PAID-IN RETAINED OWNERSHIP RESTRICTED HOLDERS'
EXCEPT PER SHARE) OUTSTANDING STOCK CAPITAL EARNINGS PLAN STOCK EQUITY
----------------- ----------- ------- -------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1990 AS ORIGINALLY
REPORTED............... 21,328,169 $53,320 $102,496 $217,690 $ -- $ -- $373,506
Equity at December 31,
1990 of pooled
companies acquired in
1993 and 1994.......... 6,309,441 15,775 29,213 38,891 -- -- 83,879
---------- ------- -------- -------- ------- ------- --------
BALANCE AT DECEMBER 31,
1990, RESTATED......... 27,637,610 69,095 131,709 256,581 -- -- 457,385
Net income, 1991........ -- -- -- 68,335 -- -- 68,335
Cash dividends paid
($.85 per share)....... -- -- -- (20,021) -- -- (20,021)
Common stock issued by
pooled companies prior
to merger.............. 36,153 90 231 -- -- -- 321
Cash dividends paid by
pooled companies prior
to merger.............. -- -- -- (2,847) -- -- (2,847)
Redemption of common
stock by pooled company
prior to merger........ (46,293) (116) (440) -- -- -- (556)
Common stock issued:
Dividend reinvestment
plan.................. 238,885 597 4,114 -- -- -- 4,711
Employee benefit and
stock option plans.... 326,586 817 5,292 -- -- -- 6,109
Acquisitions........... 813,275 2,033 10,352 -- -- -- 12,385
Offerings.............. 2,528,441 6,321 43,896 -- -- -- 50,217
Employee stock
ownership plan........ 150,613 377 2,664 -- -- -- 3,041
Conversion of
debentures............ 1,689 4 27 -- -- -- 31
Loan to employee stock
ownership plan......... -- -- -- 22 (2,841) (2,819)
Redemption of common
stock.................. (40,000) (100) (730) -- -- -- (830)
---------- ------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31,
1991................... 31,646,959 79,118 197,115 302,070 (2,841) -- 575,462
Net income, 1992........ -- -- -- 82,621 -- -- 82,621
Cash dividends paid
($.91 per share)....... -- -- -- (23,595) -- -- (23,595)
Common stock issued by
pooled companies prior
to merger.............. 73,714 184 548 -- -- -- 732
Cash dividends paid by
pooled companies prior
to merger.............. -- -- -- (3,115) -- -- (3,115)
Common stock issued:
Dividend reinvestment
plan.................. 250,866 627 6,206 -- -- -- 6,833
Employee benefit and
stock option plans.... 507,211 1,268 10,904 -- -- -- 12,172
Acquisitions........... 34,297 86 (364) -- -- -- (278)
Offerings.............. 382,395 956 8,709 -- -- -- 9,665
Conversion of
debentures............ 19,488 49 297 -- -- -- 346
Loan to employee stock
ownership plan......... -- -- -- 51 (97) (46)
Redemption of common
stock.................. (230,000) (575) (6,192) -- -- -- (6,767)
---------- ------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31,
1992................... 32,684,930 81,713 217,223 358,032 (2,938) -- 654,030
Net income, 1993........ -- -- -- 105,012 -- -- 105,012
Cash dividends paid
($1.02 per share)...... -- -- -- (31,227) -- -- (31,227)
Common stock issued by
pooled companies prior
to merger.............. 125,706 314 1,314 -- -- -- 1,628
Cash dividends paid by
pooled companies prior
to merger.............. -- -- -- (4,042) -- -- (4,042)
Common stock issued:
Dividend reinvestment
plan.................. 263,090 658 7,631 -- -- -- 8,289
Employee benefit and
stock option plans.... 563,273 1,408 14,426 -- -- -- 15,834
Acquisitions........... 829,344 2,073 20,707 -- -- -- 22,780
Offerings.............. 940,192 2,351 24,912 -- -- -- 27,263
Conversion of
debentures............ 1,916,084 4,790 28,521 -- -- -- 33,311
Loan to employee stock
ownership plan......... -- -- -- -- (1,481) (1,481)
Unvested restricted
stock.................. -- -- -- -- -- (2,035) (2,035)
Redemption of common
stock.................. (924,000) (2,310) (27,960) -- -- -- (30,270)
Equity adjustment of
merged company for the
quarter ended December
31, 1993............... (2,108) (2,108)
---------- ------- -------- -------- ------- ------- --------
BALANCE, DECEMBER 31,
1993................... 36,398,619 $90,997 $286,774 $425,667 $(4,419) $(2,035) $796,984
========== ======= ======== ======== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
(THOUSANDS) 1993 1992 1991
----------- ----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received....................... $ 608,876 $ 603,138 $ 611,114
Noninterest income received............. 112,557 88,381 75,265
Interest paid........................... (252,892) (282,459) (357,630)
Noninterest expense paid................ (276,894) (235,210) (197,317)
Income taxes paid....................... (59,012) (52,920) (32,274)
----------- ----------- -----------
Net cash provided by operating
activities........................... 132,635 120,930 99,158
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities--
available for sale..................... 164,639 -- --
Proceeds from sales of securities--held
to maturity............................ 10,717 667,169 693,077
Proceeds from maturities or calls of
securities............................. 901,480 734,629 490,020
Purchase of securities.................. (1,296,653) (1,516,699) (1,461,001)
Net increase in loans................... (530,078) (282,070) (306,153)
Proceeds from sales of premises and
equipment.............................. 3,140 1,663 477
Purchases of property and equipment..... (62,078) (32,815) (16,221)
Proceeds from sales of foreclosed
properties............................. 26,072 26,872 13,943
Cash of companies acquired, net......... 39,013 2,377 62,857
Purchase of officers' life insurance
policies............................... (30,000) -- --
Other................................... (13,180) 8,264 (1,937)
----------- ----------- -----------
Net cash used in investing activities. (786,928) (390,610) (524,938)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
interest checking and savings accounts. 260,046 430,613 77,892
Net increase (decrease) in certificates
of deposit and other time deposits..... (143,151) (373,983) 125,418
Net increase in short-term borrowed
funds.................................. 399,671 276,692 111,006
Increase in long-term debt.............. 223,934 7,365 11,420
Proceeds from issuance of common stock.. 48,407 26,200 61,137
Redemption of common stock.............. (30,270) (6,767) (1,386)
Dividends paid.......................... (35,270) (26,711) (22,867)
Cash flow of merged company for the
quarter ended December 31, 1993........ 1,705 -- --
----------- ----------- -----------
Net cash provided by financing
activities........................... 725,072 333,409 362,620
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 70,779 63,729 (63,160)
Cash and cash equivalents on January 1.. 399,752 336,023 399,183
----------- ----------- -----------
Cash and cash equivalents on December
31..................................... $ 470,531 399,752 336,023
=========== =========== ===========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income.............................. $ 105,012 $ 82,621 $ 68,335
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 16,430 12,123 10,333
Provision for loan losses.............. 19,048 32,975 42,317
Deferred income tax benefit............ (6,518) (2,135) (5,294)
Net amortization and accretion......... 8,699 9,466 6,278
Gain on sales of securities............ (1,820) (6,409) (10,946)
Decrease in taxes payable.............. (1,616) (9,366) (1,756)
Increase in interest receivable........ 1,053 8,880 5,615
Decrease in interest payable........... (4,551) (7,215) (7,826)
Other.................................. (3,102) (10) (7,898)
----------- ----------- -----------
Net cash provided by operating
activities........................... $ 132,635 $ 120,930 $ 99,158
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Securitization of mortgage loans........ -- $ 8,775 $ 11,300
Common stock issued: -- -- --
Employee benefit plans................. $ 2,263 2,260 --
Conversion of debentures............... 33,311 346 31
Purchased company...................... 22,298 -- 12,606
Employee stock ownership plan.......... 2,314 664 3,041
Loan to employee stock ownership plan... (2,314) (664) (3,041)
Loans transferred to foreclosed
properties............................. 14,779 25,508 26,459
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AT OR FOR THE YEARS ENDED DECEMBER 1993, 1992 AND 1991
($ IN THOUSANDS, EXCEPT PER SHARE)
NOTE 1. ACCOUNTING POLICIES
CONSOLIDATION: The accompanying consolidated financial statements include the
accounts of BB&T Financial Corporation ("BB&T") and its wholly-owned
subsidiaries, Branch Banking and Trust Company ("BB&T-N.C."); BB&T Financial
Corporation of South Carolina and its wholly-owned subsidiary, Branch Banking
and Trust Company of South Carolina ("BB&T-S.C."); L.S.B. Bancshares, Inc. of
South Carolina ("L.S.B.") and its wholly-owned subsidiaries, The Lexington
State Bank and The Community Bank of South Carolina; and four savings
institutions. L.S.B. and its subsidiaries were acquired on June 30, 1994 and
their results are included for all periods presented. All significant
intercompany balances and transactions have been eliminated in consolidation.
Prior years consolidated financial statements have been restated to include
the accounts of companies acquired and accounted for as poolings-of-interests.
Certain amounts for prior years have been reclassified to conform with
statement presentations for 1993. These reclassifications had no impact on
either the financial position or results of operations previously reported.
STATEMENTS OF CASH FLOWS: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, interest-bearing and noninterest-bearing
amounts due from banks, and federal funds sold.
SECURITIES: Debt securities acquired with both the intent and ability to hold
to maturity are classified as investment securities. Investment securities are
carried at cost less amortization of premiums plus accretion of discounts.
Securities, which may be used to meet liquidity needs arising from
unanticipated deposit and loan fluctuations, changes in regulatory capital and
investment requirements, or unforeseen changes in market conditions, including
interest rates, market values or inflation rates, are classified as available
for sale. Securities available for sale are carried at the lower of cost or
market. The cost of securities sold is determined by the identified certificate
method.
LOANS HELD FOR SALE: Residential mortgage loans held for sale are carried at
the lower of cost or market.
BANK PREMISES AND EQUIPMENT: Bank premises, equipment and leasehold
improvements are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using primarily the straight-line
method. Buildings and equipment are depreciated over their estimated useful
lives. Leasehold improvements are amortized over the shorter of the terms of
the respective leases or the estimated useful lives of the improvements.
FORECLOSED PROPERTY: Foreclosed property consists of real estate and other
assets acquired through customers' loan defaults. Foreclosed property is
carried at the lower of fair value, less the estimated cost to sell, or cost.
Routine maintenance costs, declines in market value and net losses on disposal
are included in other operating expense.
PROVISION FOR LOAN LOSSES: The annual provision for loan losses charged
against earnings is based on management's continuing review and evaluation of a
number of factors, including overall portfolio quality and size, loan loss
experience, potential losses on known problem loans, as well as prevailing and
anticipated economic conditions. While management uses the best information
available in establishing the allowance for losses, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluations or if required by regulators.
5
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL INSTRUMENTS-OFF-BALANCE SHEET: BB&T enters into interest rate swap,
floor and cap agreements to manage the overall interest rate risk exposure of
identified assets and liabilities. Income or expense associated with interest
rate swap, floor or cap agreements is recognized as a component of net interest
income based upon anticipated settlement payments.
INCOME TAXES: Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes" ("SFAS 109") was effective for years beginning after December
15, 1992. BB&T adopted SFAS 109 as of January 1, 1993 with no impact on the
financial statements. Under the asset and liability method of SFAS 109,
deferred income taxes are recognized for the future tax consequences attributed
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Prior to 1993, BB&T used the deferral method of
accounting for income taxes.
INCOME AND EXPENSE: BB&T and its subsidiaries utilize the accrual method of
accounting. Fees and costs associated with originating loans are deferred and
recognized as an adjustment of yield over the lives of the loans. Loans
generally earn interest on the level yield method based on the daily
outstanding balance. The accrual of interest is discontinued when, in the
opinion of management, the collection of all or a portion of interest becomes
doubtful.
INCOME PER SHARE: Primary net income per common share is based upon the
weighted average number of shares of common stock outstanding and common stock
equivalents of dilutive stock options. Fully diluted net income per common
share reflects the maximum dilutive effect of common stock issuable upon
conversion of convertible debt and exercise of stock options.
EXCESS OF COST OVER NET ASSETS ACQUIRED AND EXCESS OF NET ASSETS ACQUIRED
OVER COST: The excess of cost over net assets acquired (goodwill) and the
excess of net assets acquired over cost (negative goodwill) of purchased
companies is amortized on the straight-line method over the estimated periods
to be benefited, normally ten years.
NOTE 2. MERGERS
During the years ended December 31, 1993, 1992 and 1991, BB&T was a party to
several business combinations.
On February 24, 1993, BB&T completed the acquisition of First Fincorp, Inc.
(Fincorp), and its wholly-owned subsidiary, First Financial Savings Bank, Inc.
of Kinston, North Carolina. The merger was consummated through the issuance of
673,148 shares of BB&T common stock for all of the outstanding common stock of
Fincorp for a total purchase price of $22,300, which was approximately the same
as the fair value of the net assets acquired. The merger was accounted for as a
purchase, and, accordingly, the results of Fincorp are included in the
consolidated financial statements since the date of acquisition. At the date of
acquisition, Fincorp had assets of approximately $322,000.
On February 25, 1993, BB&T completed the acquisition of Security Financial
Holding Company, (Security), and its wholly-owned subsidiary, Security Federal
Savings Bank of Durham, North Carolina. The merger was consummated through the
issuance of 1,408,178 shares of BB&T common stock for all of the
6
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
outstanding common stock of Security. The merger was accounted for as a
pooling-of-interests, and, accordingly, the consolidated financial statements
include the results of Security for all periods presented. At the date of
acquisition, Security had assets of approximately $316,000.
On May 18, 1993, BB&T completed the acquisitions of Carolina Savings Bank
(Carolina) of Wilmington, North Carolina and Edenton Savings and Loan
Association (Edenton) of Edenton, North Carolina. The transactions involved
simultaneous conversions from mutual to stock associations and acquisition by
BB&T. BB&T sold 507,182 shares of its common stock to eligible members of the
institutions, natural persons in the communities in which they operated and the
public. The net proceeds of approximately $15,300 were used to purchase all of
the stock of Carolina and Edenton. Negative goodwill of approximately $5,700
resulted from the transactions. The mergers were accounted for as purchases,
and, accordingly, the results of Carolina and Edenton are included in the
consolidated financial statements since the date of acquisitions. At the date
of acquisition, Carolina and Edenton had assets of approximately $142,000 and
$40,000, respectively.
On October 25, 1993, BB&T completed the acquisition of Citizens Savings Bank,
SSB, Inc., (Citizens of Newton) of Newton, North Carolina. The merger was
consummated through the issuance of 1,168,311 shares of BB&T common stock for
all of the outstanding common stock of Citizens of Newton. The merger was
accounted for as a pooling-of-interests, and, accordingly, the consolidated
financial statements include the results of Citizens of Newton for all periods
presented. At the date of acquisition, Citizens of Newton had assets of
approximately $263,000.
On October 29, 1993, BB&T completed the acquisition of Mutual Savings Bank of
Rockingham County, SSB (Mutual) of Reidsville, North Carolina. The transaction
involved simultaneous conversion from a mutual to a stock association and
acquisition by BB&T. BB&T sold 216,539 shares of its common stock to eligible
members of the institution and natural persons in the community in which they
operated. The net proceeds of approximately $6,200 were used to purchase all of
the stock of Mutual. Negative goodwill of approximately $2,900 resulted from
the transaction. The merger was accounted for as a purchase, and, accordingly,
the results of Mutual are included in the consolidated financial statements
since the date of acquisition. At the date of acquisition, Mutual had assets of
approximately $87,000.
On November 24, 1993, BB&T completed the acquisition of Old Stone Bank of
North Carolina (Old Stone) of High Point, North Carolina. The merger was
consummated for a cash payment of $58,250 for all of the outstanding common
stock of Old Stone. Goodwill of approximately $27,700 resulted from the
transaction. The merger was accounted for as a purchase, and, accordingly, the
results of Old Stone are included in the consolidated financial statements
since the date of acquisition. At the date of acquisition, Old Stone had assets
of approximately $537,000.
On December 23, 1993, BB&T completed the acquisition of Citizens Savings
Bank, SSB (Citizens Savings) of Mooresville, North Carolina. The transaction
involved a simultaneous conversion from a mutual to a stock association and
acquisition by BB&T. BB&T sold 216,471 shares of its common stock to eligible
members of the institution and natural persons in the community in which they
operated. The net proceeds of approximately $5,800 were used to purchase all of
the stock of Citizens Savings. Negative goodwill of approximately $1,900
resulted from the transaction. The merger was accounted for as a purchase, and,
accordingly, the results of Citizens Savings are included in the consolidated
financial statements since the date of acquisition. At the date of acquisition,
Citizens Savings had assets of approximately $63,000.
During 1992, BB&T acquired one savings institution through the issuance of
382,395 shares of its common stock. Assets of approximately $107,000 were
acquired and the merger was accounted for as a
7
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchase. Negative goodwill of approximately $6,600 resulted from the
transaction. During 1991, BB&T acquired three savings institutions through the
issuance of 3,343,800 shares of its common stock and cash payment of $13,800.
Assets acquired in such acquisitions totalled approximately $798,000 and all
were accounted for as purchases. Negative goodwill of approximately $33,400
resulted from these acquisitions. The results of the companies acquired in 1992
and 1991 are included in the consolidated financial statements since the
respective dates of acquisition.
During 1993, 1992 and 1991, BB&T acquired several small insurance agencies.
BB&T issued 156,196 shares in 1993 to acquire four agencies, 34,297 shares in
1992 to acquire two agencies and 19,121 shares in 1991 to acquire one agency.
All of the acquisitions were accounted for as poolings-of-interests. In the
aggregate they were not material, and, accordingly, prior period financial
statements have not been restated.
On June 30, 1994, BB&T completed the acquisition of L.S.B. Bancshares, Inc.,
("L.S.B.") of Lexington, South Carolina and its wholly-owned subsidiaries the
Lexington State Bank and the Community Bank of South Carolina. The merger was
consummated through the issuance of 3,936,341 shares of BB&T common stock for
all of the common stock of L.S.B. The merger was accounted for as a pooling-of-
interests, and, accordingly, the consolidated financial statements include the
results of L.S.B. for all periods presented. At the date of acquisition, L.S.B.
had assets of approximately $707,000.
The following presents the contributions of BB&T, and the pooled entities
Security, Citizens of Newton, and L.S.B. to the restated and reported results
of BB&T and certain pro forma financial data pertaining to BB&T and the
acquisition of the institution purchased in 1992 as if it had been acquired at
the beginning of each of the years 1992 and 1991, and the acquisitions of the
six savings institutions purchased in 1993 as if each had been acquired at the
beginning of each of the years 1993 and 1992. The unaudited pro forma summary
does not necessarily reflect the results of operations as they would have been
if the acquisitions had been consummated at the beginning of the periods
presented.
8
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CONTRIBUTIONS OF
-----------------------------
SECURITY AND FULLY
CITIZENS BB&T PRO FORMA
BB&T OF NEWTON L.S.B. AS REPORTED COMBINED
-------- ------------ ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1993
Total revenue............... $670,660 $54,197 $724,678 $780,518
Net interest income......... 328,543 28,246 356,789 379,766
Net income.................. 98,236 6,776 105,012 107,327
Net income per share:
Primary................... 3.10 2.95 2.95
Fully diluted............. 3.05 2.91 2.92
1992
Total revenue............... $580,613 $52,863 $53,689 $687,165 $800,498
Net interest income......... 268,355 21,064 26,614 316,033 358,231
Net income.................. 76,076 406 6,139 82,621 92,528
Net income per share:
Primary................... 2.89 2.53 2.70
Fully diluted............. 2.75 2.43 2.60
1991
Total revenue............... $593,779 $54,740 $53,867 $702,386 $755,090
Net interest income......... 222,163 17,845 21,225 261,233 278,113
Net income.................. 60,172 4,547 3,616 68,336 75,904
Net income per share:
Primary................... 2.57 2.30 2.38
Fully diluted............. 2.44 2.21 2.29
</TABLE>
NOTE 3. PENDING ACQUISITIONS
At December 31, 1993, BB&T had pending agreements to acquire Home Savings
Bank of Albemarle, SSB, ("Home"), Albemarle, North Carolina with assets of
approximately $157,000 and Asheville Savings Bank, SSB ("Asheville"),
Asheville, North Carolina with assets of approximately $321,000. Home and
Asheville are both mutual savings banks, and their acquisitions require their
conversions from mutual to stock corporations with simultaneous acquisition by
BB&T. BB&T will sell shares of its $2.50 par value common stock in offerings in
order to effect the acquisitions. The total estimated value of Home and
Asheville and the market value of the stock to be offered by BB&T are both
approximately $54,000. It is anticipated that the acquisitions of Home and
Asheville will be accounted for using the purchase method of accounting.
On June 20, 1994, BB&T announced the mutual agreements to terminate merger
plans between BB&T and Home and Asheville.
9
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. SECURITIES
Investment securities at December 31, 1993 and 1992 were:
<TABLE>
<CAPTION>
GROSS GROSS APPROXIMATE
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
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
========== ======= ====== ==========
1992--HELD TO MATURITY
U.S. Treasury..................... $1,155,633 $13,264 $ 646 $1,168,251
U.S. Government agencies and
corporations..................... 144,118 2,888 171 146,835
Mortgage-backed securities of U.S.
Government agencies.............. 61,296 2,565 169 63,692
State and municipal............... 167,156 8,527 112 175,571
Other securities.................. 29,051 572 73 29,550
---------- ------- ------ ----------
$1,557,254 $27,816 $1,171 $1,583,899
========== ======= ====== ==========
1992--AVAILABLE FOR SALE
U.S. Treasury..................... $ 456,113 $ 8,441 $ 72 $ 464,482
---------- ------- ------ ----------
$ 456,113 $ 8,441 $ 72 $ 464,482
========== ======= ====== ==========
</TABLE>
At December 31, 1991, the book value of U.S. Treasury securities was
$1,043,772; U.S. Government agencies and corporations was $138,733; state and
municipal securities was $219,289; mortgage-backed securities of U.S.
Government agencies was $415,812; and other securities was $41,352.
The aggregate value of securities at December 31, 1993 by contractual
maturity were:
<TABLE>
<CAPTION>
APPROXIMATE
MARKET
BOOK VALUE VALUE
---------- -----------
<S> <C> <C>
Due in one year or less.................................. $ 795,743 $ 802,664
Due after one year through five years.................... 1,393,611 1,399,508
Due after five years through ten years................... 75,156 81,444
Due after ten years...................................... 57,602 65,139
---------- ----------
Mortgage-backed securities............................... 105,863 111,140
---------- ----------
$2,427,975 $2,459,895
========== ==========
</TABLE>
10
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities with aggregate par values of $923,727 and $526,395 at December 31,
1993 and 1992, respectively, were pledged as collateral to secure public
deposits and for other purposes.
In 1993 gross gains of $1,411 and gross losses of $33 were realized on
securities available for sale transactions, and gross gains of $337 were
realized on investment securities by a pooled company prior to merger. Gross
gains of $8,782 and gross losses of $2,388 were realized on securities
transactions in 1992. Gross gains of $11,306 and gross losses of $360 were
realized on securities transactions in 1991.
BB&T will adopt the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities", as
of January 1, 1994. It is anticipated that the implementation of the provisions
of this statement will have no material impact on either the results of
operations or financial condition of BB&T.
NOTE 5. LOANS
At December 31, 1993 and 1992, loans consisted of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Commercial and industrial................................ $1,055,394 $ 967,401
Real estate -- construction.............................. 436,781 379,271
Real estate -- mortgage.................................. 4,473,883 3,436,586
Installment and other loans to individuals............... 727,822 550,193
---------- ----------
6,693,880 5,333,451
---------- ----------
Less:
Deferred fees and costs................................ 3,363 3,816
Unearned interest...................................... 2,185 4,529
---------- ----------
$6,688,332 $5,325,106
========== ==========
Include in the above:
Nonaccrual loans....................................... $ 32,447 $ 29,791
Restructured loans..................................... 1,303 945
========== ==========
</TABLE>
Loans classified as real estate--mortgage include loans secured by
residential properties of $3,173,658 in 1993 and $2,197,582 in 1992, including
$353,122 and $238,912 held for sale in 1993 and 1992, respectively. The market
values of the loans held for sale were $353,122 and $239,284 at December 31,
1993 and 1992, respectively.
Interest income that would have been recorded on nonaccrual and restructured
loans for the years ended December 31, 1993, 1992 and 1991 had they performed
in accordance with the original terms throughout each of the periods amounted
to approximately $1,860, $2,305 and $5,834, respectively. Interest income on
such loans included in the results of operations for each of the years amounted
to approximately $731, $847 and $1,770, respectively.
The Banks make loans to executive officers and directors of BB&T and the
Banks and to their associates. Such loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. The aggregate dollar amount of these loans was
$87,165 and $70,718 at December 31, 1993 and 1992, respectively. During 1993,
$39,578 of new loans were made and repayments totalled $23,131.
11
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. ALLOWANCE FOR LOAN LOSSES
A summary of transactions affecting the allowance for loan losses follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- -------
<S> <C> <C> <C>
Balance at beginning of year......................... $ 77,889 $ 67,586 $47,723
Provision for loan losses............................ 19,048 32,975 42,317
Allowances of purchased companies.................... 10,560 825 6,313
-------- -------- -------
Total.............................................. 107,497 101,386 96,353
-------- -------- -------
Deduct:
Loans charged-off.................................. 20,187 27,668 31,280
Less recoveries.................................... 6,005 4,171 2,513
-------- -------- -------
Net loans charged-off............................ 14,182 23,497 28,767
-------- -------- -------
Balance at end of year............................... $ 93,315 $ 77,889 $67,586
======== ======== =======
</TABLE>
NOTE 7. BANK PREMISES AND EQUIPMENT
Following is a summary of bank premises and equipment at December 31, 1993
and 1992:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Land......................................................... $ 21,107 $ 15,883
Buildings.................................................... 84,528 56,255
Leasehold improvements....................................... 23,840 16,425
Equipment.................................................... 120,436 93,865
-------- --------
Total...................................................... 249,911 182,428
Less accumulated depreciation and amortization............... 102,245 78,574
-------- --------
Bank premises and equipment--Net............................. $147,666 $103,854
======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1993,
1992 and 1991 totalled $16,430, $12,123 and $10,333, respectively. Estimated
useful lives of depreciable assets used for calculating depreciation and
amortization are: buildings, 40 years; leasehold improvements, 10-40 years; and
equipment, 3-10 years.
NOTE 8. SHORT-TERM BORROWED FUNDS
At December 31, 1993 and 1992, short-term borrowed funds consisted of the
following:
<TABLE>
<CAPTION>
1993 1992
---------- --------
<S> <C> <C>
Federal funds purchased and securities sold under
agreements to repurchase.................................. $ 910,174 $530,706
Master Notes............................................... 133,115 110,605
Other...................................................... 3,500 1,500
---------- --------
$1,046,789 $642,811
========== ========
</TABLE>
Master notes are commercial paper issued by BB&T under a master agreement
with a term not to exceed 270 days. Borrowings under the agreement generally
mature on a daily basis.
On December 31, 1993, BB&T had $55,000 of unused bank lines of credit. Annual
commitment fees of approximately 3/16 of 1% of these lines are paid by BB&T to
unaffiliated banks.
12
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents certain information for each major category of
short-term borrowings:
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED
AND SECURTIES
SOLD UNDER AGREEMENTS TO
REPURCHASE
------------------------------
1993 1992 1991
---------- -------- --------
<S> <C> <C> <C>
Amount outstanding December 31................. $ 910,174 $530,706 $235,097
Average outstanding balance.................... 681,212 353,295 163,696
Maximum amount outstanding at end of any month
during the year............................... 1,046,578 659,546 284,639
Approximate weighted average interest rate:
During the year.............................. 3.0% 3.2% 5.8%
End of year.................................. 3.0 2.9 4.0
</TABLE>
<TABLE>
<CAPTION>
MASTER NOTES
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Amount outstanding December 31................... $133,115 $110,605 $129,567
Average outstanding balance...................... 150,079 155,877 163,040
Maximum amount outstanding at end of any month
during the year................................. 163,216 159,728 185,660
Approximate weighted average interest rate:
During the year................................ 2.8% 3.3% 5.4%
End of year.................................... 2.7 2.7 3.7
</TABLE>
NOTE 9. LONG-TERM DEBT
At December 31, 1993 and 1992, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Floating rate subordinated notes due 1997.................... $ 50,000 $ 50,000
8 3/4% convertible subordinated debentures due 2005.......... -- 34,025
Advances from Federal Home Loan Bank of Atlanta.............. 66,167 40,500
Medium-term bank notes....................................... 231,868 --
Other........................................................ 2,701 2,917
-------- --------
$350,736 $127,442
======== ========
</TABLE>
On April 15, 1993, BB&T called for redemption all of its outstanding 8 3/4%
convertible subordinated debentures due March 15, 2005. The redemption date was
May 17, 1993 and the debentures were converted into 1,916,084 shares of common
stock.
The interest rate on the floating rate subordinated notes is adjusted
quarterly to 1/4% above the London interbank offered quotations. At December
31, 1993, the interest rate was 5.25%. The notes are redeemable, at par plus
accrued interest, at the option of BB&T, in whole or in part.
In the third quarter of 1993, BB&T-N.C. put in place a program which will
allow it to issue $500,000 of medium-term notes as needed to meet ongoing
funding and operational needs. At December 31, 1993, BB&T had outstanding
$231,868 of the notes with a weighted average interest rate of 4.76% and
maturing in 1996.
Advances from the Federal Home Loan Bank of Atlanta are collateralized by
Treasury securities and real estate loans. The advances have remaining
maturities of up to eight years and have fixed interest rates varying from
5.37% to 8.95%. The principal maturities of the advances for the next five
years subsequent to December 31, 1993 are $3,000 in 1994, $24,667 in 1995,
$13,000 in 1996, $14,500 in 1997, $2,000 in 1998 and $4,000 in 2000.
13
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10. EMPLOYEE BENEFIT PLANS
The Banks sponsor a noncontributory defined benefit pension plan covering
substantially all of their employees. The benefits are based on years of
service, age at retirement and the employee's compensation during the last five
years of employment. Contributions to the plan are based upon the Frozen
Initial Liability actuarial funding method and comply with the funding
requirements of the Employee Retirement Income Security Act.
The following table sets forth the funded status of the pension plan and
amounts recognized in BB&T's consolidated financial statements at December 31,
1993, 1992 and 1991:
<TABLE>
<CAPTION>
1993 1992
-------- -------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF THE BENEFIT OBLIGATION
Accumulated benefit obligation:
Vested benefits........................................... $ 39,320 $30,923
Nonvested benefits........................................ 2,128 1,675
-------- -------
$ 41,448 $32,598
======== =======
Projected benefit obligation for services rendered to date.. $(69,141) (53,813)
Plan assets at fair value, primarily listed stocks and U.S.
Government securities...................................... 55,499 50,662
-------- -------
Excess (deficit) of plan assets over the projected benefit
obligation................................................. (13,642) (3,151)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumption.......... 13,098 4,796
Unrecognized prior service cost............................. 3,727 3,438
Unrecognized net asset being amortized over 17.6 years...... (7,209) (7,914)
-------- -------
Accrued pension cost included in other liabilities.......... $ (4,026) $(2,831)
======== =======
</TABLE>
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC PENSION EXPENSE 1993 1992 1991
------------------------------------------ ------- ------ ------
<S> <C> <C> <C>
Service cost--benefits earned during the period....... $ 3,749 3,471 2,919
Interest cost on projected benefit obligation......... 4,282 3,789 2,830
Actual return on plan assets.......................... (4,435) (4,219) (7,185)
Net amortization and deferral......................... (587) (347) 3,591
------- ------ ------
Net periodic pension expense included in employee
benefits............................................. $ 3,009 2,694 2,155
======= ====== ======
</TABLE>
Plan assets included 100,000 shares of BB&T's common stock at December 31,
1993, 1992 and 1991. The weighted-average discount rate and rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7% and 5.5%, respectively for 1993 and 8%
and 6%, respectively for 1992 and 1991. The expected long-term rate of return
on pension plan assets was 9% for each of the years reported.
Effective January 1, 1993, BB&T adopted Statement of Financial Accounting
Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106"), which requires the accrual of nonpension benefits over
the employees' active service period, defined as the date of employment up to
the date of the employees' eligibility for such benefits. Prior to 1993, BB&T
provided health care benefits to retirees and expensed those costs as incurred.
Retiree health care costs totalling approximately
14
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$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%. The assumed initial rate of
increase in medical costs was 15%, declining to 6%, with a general inflation
rate of 4%. A 1% increase in assumed health cost would have no effect on the
service and interest cost, but would increase the accumulated postretirement
benefit obligation by 3%. Prior to its affiliation with BB&T, L.S.B. did not
provide postretirement benefits other than pension benefits to its employees.
It is anticipated that the cost of providing health care and life insurance
benefits to employees of L.S.B. will have no material effects on either the
financial position or future results of operations of BB&T.
The following table sets forth the components of the retiree benefit plan and
the amount recognized in BB&T's consolidated financial statements at December
31, 1993.
<TABLE>
<CAPTION>
1993
--------
<S> <C>
NET PERIODIC POSTRETIREMENT BENEFIT COST
Service cost......................................................... $ 191
Interest cost........................................................ 915
Amortization of transition obligation................................ 559
--------
Total Expense.................................................... $ 1,665
========
RECONCILIATION OF FUNDED STATUS
Accumulated postretirement benefit obligation:
Retirees and beneficiaries eligible for benefits................... $ 7,080
Active employees fully eligible for benefits....................... 4,491
Active employees, not fully eligible for benefits.................. 2,323
--------
Total............................................................ 13,894
--------
Funded status........................................................ $(13,894)
Unrecognized transition obligation................................... 11,185
Unrecognized net loss................................................ 1,478
--------
Balance sheet (liability)............................................ $ (1,231)
========
</TABLE>
The Savings and Thrift Plan permits eligible employees to make contributions
up to 16% of base compensation, with the Banks' matching contributions up to
four percent of the employee's base compensation.
Amounts expensed for employee benefit plans were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Pension................................................... $3,009 $2,694 $2,155
Retiree benefits other than pensions...................... 1,665 430 350
Savings and thrift........................................ 2,791 2,288 1,876
------ ------ ------
$7,465 $5,412 $4,381
====== ====== ======
</TABLE>
15
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11. INCOME TAXES
Effective January 1, 1993, BB&T adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). BB&T applied the
provisions of SFAS 109 prospectively and did not restate previously reported
results of operations. For years prior to 1993, BB&T used the deferral method
of accounting for income taxes. The cumulative effect of the change in the
method of accounting for income taxes was immaterial to both the financial
position and results of operations for BB&T.
The components of income tax expense (benefit), were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ ------
<S> <C> <C> <C>
Currently payable:
Federal.............................................. $51,962 39,965 28,344
State................................................ 5,238 4,023 3,420
------- ------ ------
57,200 43,988 31,764
------- ------ ------
Deferred:
Federal.............................................. (5,250) (1,980) (4,404)
State................................................ (1,268) (155) (890)
------- ------ ------
(6,518) (2,135) (5,294)
------- ------ ------
$50,682 41,853 26,470
======= ====== ======
</TABLE>
The sources of timing differences resulting in deferred income taxes and the
tax effect of each were as follows:
<TABLE>
<CAPTION>
1992 1991
------- ------
<S> <C> <C>
Provision for loan losses.................................. $(2,788) (4,951)
Federal Home Loan Bank dividends........................... (1,034) 51
Accrual of deferred income taxes on taxable bad debt
reserves.................................................. 3,800 --
Other...................................................... (2,113) (394)
------- ------
$(2,135) (5,294)
======= ======
</TABLE>
Total income tax expense was less than the amount computed by applying the
federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 to income
before income taxes. The reasons for the difference were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------ ------
<S> <C> <C> <C>
Tax expense at statutory rate......................... $54,397 42,321 32,234
Increase (decrease) resulting from:
State income taxes, net of federal tax benefit...... 2,584 2,549 1,678
Tax-exempt interest income, net of disallowed
interest expense................................... (4,455) (5,617) (7,426)
Other items, net...................................... (1,844) 2,600 (16)
------- ------ ------
Income taxes.......................................... $50,682 41,853 26,470
======= ====== ======
</TABLE>
16
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of cumulative temporary differences that resulted in a net
deferred tax asset of $18,993 at December 31, 1993 are presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Bad debt provision................................................... $15,957
Pension expense...................................................... 1,877
Deferred directors' compensation..................................... 1,784
Net deferred loan fees............................................... 1,583
Other................................................................ 4,857
-------
Total gross deferred assets........................................ 26,058
-------
Deferred tax liabilities:
Depreciation......................................................... (2,278)
Federal Home Loan Bank dividends..................................... (1,043)
Other................................................................ (3,744)
-------
Total gross deferred liabilities................................... (7,065)
-------
Net deferred tax asset............................................. $18,993
=======
</TABLE>
A valuation allowance is not considered necessary because of prior year's
taxable income available for carryback and the probability of future taxable
earnings.
NOTE 12. COMMON STOCK
Pursuant to provisions of the Long Term Incentive Plan, options to purchase
up to 1,000,000 shares of BB&T's common stock may be granted to key personnel.
The current plan is a successor to the plans of 1983 and 1988. As of December
31, 1993, 483,791 shares have been issued for options granted and exercised
under the plans. In August 1991, BB&T adopted the Special Purpose Option and
Restricted Stock Plan. Pursuant to the provisions of the plan, up to 1,000,000
shares of BB&T's common stock may be granted to selected employees and
directors of thrifts acquired through purchase conversions. As of December 31,
1993, 38,518 shares have been issued for options granted and exercised under
this Plan. Under all option plans, the option price is the fair market value of
the stock at the date of grant. Options normally vest over a five-year period,
beginning one year from the date granted. All options expire not more than 10
years from the date of the grant, if not previously exercised.
17
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the stock option plans for the past three years was as follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
-------------------------------------------------
1993 RANGE OF YEAR ENDED
EXERCISE PRICES DECEMBER 31,
--------------- ---------------------------------
HIGH LOW 1993 1992 1991
--------------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... $ 26.88 $ 13.75 $1,331,112 $1,166,062 $ 815,308
Add (deduct):
Granted................... 34.63 30.63 329,639 265,290 507,257
Options of acquired
companies................ 16.30 8.53 52,949 -- --
Cancelled or expired...... 33.25 17.00 (14,842) (7,905) (69,531)
Exercised................... 26.88 8.53 (112,621) (92,335) (86,972)
------- ------- ---------- ---------- ---------
Outstanding at end of year.. 34.63 8.53 1,586,237 1,331,112 1,166,062
========== ========== =========
Average price per share:
Exercised during year..... $ 15.94 $ 17.12 $ 17.49
Outstanding at end of
year..................... 22.41 19.77 17.43
========== ========== =========
Options exercisable......... 676,844 423,953 247,883
========== ========== =========
</TABLE>
The Special Purpose Option and Restricted Stock Plan also provides for shares
of BB&T's common stock to be awarded to selected employees and directors of
thrifts acquired through purchase conversions. The awarded shares are subject
to the terms, conditions and restrictions of the Plan, which prohibit the sale
or assignment of the shares during the restricted period. In the event, the
Grantee's employment with BB&T terminates, other than by death, disability or
retirement, prior to the lapse of the restriction period, such awarded shares
shall be forfeited by the Grantee. During 1991 through 1993, 173,938 shares of
BB&T's common stock were awarded to employees of acquired companies.
BB&T also has a Non-Employee Directors Stock Option Plan. Pursuant to the
provisions of the Plan, Directors of BB&T Financial Corporation may elect to
receive stock options in lieu of cash for annual retainers. Options to purchase
up to 250,000 shares of BB&T's common stock may be granted under this Plan. Six
months after each election date, options are granted at an exercise price of
75% of the fair market value of a share on the date of grant. An option may be
exercised six months from the date of grant. Each option share expires ten
years from its date of grant. At December 31, 1993, options have been granted
for 32,211 shares under this Plan and 217,789 shares were reserved for future
use.
BB&T has reserved shares of its common stock for issuance under the Dividend
Reinvestment and Shareholder Savings Service. As of December 31, 1993, 11,836
shares of BB&T's common stock were reserved and unissued under the Plan. During
the years 1993, 1992 and 1991, respectively, 263,090, 250,866 and 238,885
shares were issued through the dividend reinvestment program.
BB&T has reserved shares of its common stock to be issued under the Savings
and Thrift Plan. During the years 1993, 1992 and 1991, respectively, 375,583,
303,088 and 232,306 shares were issued under this Plan. As of December 31,
1993, 183,760 shares of BB&T's common stock were reserved and unissued for use
under the Savings and Thrift Plan.
In August, 1991, BB&T established an Employee Stock Ownership Plan (ESOP).
The ESOP borrowed $3,041 in 1991, $664 in 1992 and $2,314 in 1993 from BB&T to
purchase 150,613, 26,000 and 79,285 shares,
18
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
respectively of BB&T common stock for the benefit of employees of acquired
thrifts. The loans were guaranteed by BB&T-N.C. Eligible employees of the
thrifts acquired through purchase conversions, are allocated shares based upon
years of service and level of compensation. Shares vest equally over a period
of five years. Participants have full voting rights and dividends on shares
held in the ESOP are paid directly to participants.
NOTE 13. REGULATORY RESTRICTIONS
Subject to restrictions imposed by state laws and federal regulations, the
Boards of Directors of the subsidiary Banks and savings Banks may declare
dividends from their retained earnings up to $422,057 at December 31, 1993. The
subsidiaries are prohibited by law from paying dividends from their capital
stock and paid-in capital accounts which totalled $449,324 at December 31,
1993, and are required by regulatory authorities to maintain minimum capital
levels.
The subsidiary Banks and savings Banks are required to maintain reserve
balances with the Federal Reserve Bank. The amounts of these reserve balances
at December 31, 1993 were $106,090.
NOTE 14. COMMITMENTS AND CONTINGENCIES
The Banks have entered into leases for bank premises and equipment which are
accounted for as operating leases. Leases for equipment generally have 1 to 5
year terms. Leases for real property vary in terms from 3 to 25 years with
additional options for renewal of the leases generally from 5 to 20 years. Real
estate taxes, insurance and maintenance expenses are obligations of the Banks.
The Banks expect to renew leases or replace leases as they expire with leases
on other property.
A summary of rent expense charged to operations follows:
<TABLE>
<CAPTION>
LEASES
------------------
LESS
BANK OPERATING NET RENT
EQUIPMENT PREMISES SUBLEASES EXPENSE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
1993...................................... $4,739 $10,341 $1,073 $14,007
1992...................................... 4,093 9,302 1,046 12,349
1991...................................... 4,519 8,766 387 12,898
</TABLE>
A summary of noncancellable lease commitments for equipment and banking
facilities follows:
<TABLE>
<CAPTION>
NET LEASE
LEASES SUBLEASES COMMITMENT
------- --------- ----------
<S> <C> <C> <C>
1994............................................... $11,044 $ 314 $10,730
1995............................................... 10,301 260 10,041
1996............................................... 8,970 173 8,797
1997............................................... 8,583 107 8,476
1998............................................... 7,762 100 7,662
Thereafter......................................... 49,771 242 49,529
------- ------ -------
$96,431 $1,196 $95,235
======= ====== =======
</TABLE>
19
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
<S> <C> <C>
Commitments to extend credit:
Credit card and other consumer lines..................... $ 520,565 $ 488,456
Commercial and industrial................................ 1,362,183 959,057
Standby letters of credit.................................. 119,677 109,230
Commercial and similar letters of credit................... 10,891 8,451
Securities lent............................................ 8,335 8,059
Interest rate contracts:
Forward commitments to sell loans........................ 185,000 --
Swaps.................................................... 1,410,000 1,025,000
</TABLE>
BB&T's exposure to credit loss is represented by the contractual amount of
the commitments to extend credit, standby letters of credit and commercial
letters of credit. The notional amounts of interest rate swap and option
agreements express only the extent of involvement of BB&T and, amounts subject
to risk (cash flows from gains at settlement) are significantly smaller than
the notional or contractual values.
BB&T makes contractual commitments to extend credit so long as there is no
violation of any condition established in the contract. Since many of the
commitments are expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash requirements. In making
the commitments, BB&T applies the same credit standards used in the lending
process, and periodically reassesses the customers' creditworthiness through
ongoing credit reviews. The majority of the outstanding lines of credit have
stated interest rates that are directly related to the prime rate of interest.
BB&T provides standby letters of credit and guarantees, which are issued on
behalf of customers in connection with contracts between the customers and
third parties. The majority of the standby letters of credit consist of
performance assurances made on behalf of customers who have a contractual
commitment to produce or deliver goods or services. The business ventures for
which these credits are employed vary widely and frequently require long
periods of time for completion. BB&T applies the same credit standards used in
the lending process, and, once issued, the commitment is irrevocable and
remains valid until its expiration. Credit risk arises from the obligation of
BB&T to make payment in the event of the customers' contractual default.
BB&T issues commercial letters of credit to facilitate foreign and domestic
trade transactions. The instruments are short-term commitments to pay a third
party beneficiary under certain contractual conditions for the shipment of
goods. The contracts are subject to the same credit standards used in the
lending process and are generally collateralized by the merchandise being
shipped.
BB&T extends credit to customers through its subsidiary Banks in North and
South Carolina. A vast majority of loans are to businesses with operations
headquartered in the two Carolinas, although a limited number of loans have
been made to businesses which are domiciled in other states but have operations
in the Carolinas. The loan portfolios are well diversified within industry
segments and secured loans are well collateralized.
BB&T utilizes interest rate contracts, primarily swaps and collars, in the
management of the interest rate sensitivity of BB&T's net interest income.
Interest rate contracts generally have terms of one year or
20
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
longer. The risks associated with such contracts are exposure to movements in
interest rates and the ability of counterparties to meet the terms of the
contracts. Credit risk exposure is managed through BB&T's standard credit
approval and review process.
Various legal proceedings against BB&T and its subsidiaries have arisen from
time to time in the normal course of business. Management believes liabilities
arising from these proceedings, if any, will have no material adverse effect on
the financial position of BB&T or its subsidiaries.
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION
BB&T's (parent company only) condensed balance sheets as of December 31, 1993
and 1992, and the related condensed statements of income and cash flows for
each of the years in the three-year period ended December 31, 1993, were as
follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
---------- --------
<S> <C> <C>
Assets
Cash and interest-bearing deposits....................... $ 136,753 $128,922
8 3/4% subordinated capital note receivable from BB&T-
N.C..................................................... -- 33,128
11% note receivable from BB&T-N.C........................ 30,000 30,000
Investment in bank and savings bank subsidiaries at
underlying book value................................... 870,205 654,311
Other assets............................................. 8,810 8,262
---------- --------
Total assets........................................... $1,045,768 $854,623
========== ========
Liabilities and Shareholders' Equity
Master notes............................................. $ 133,115 $110,605
Advance from bank subsidiary............................. 58,250 --
Long-term debt........................................... 54,000 88,025
Other liabilities........................................ 3,419 1,963
Shareholders' equity..................................... 796,984 654,030
---------- --------
Total liabilities and shareholders equity.............. $1,045,768 $854,623
========== ========
</TABLE>
21
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- ------- -------
<S> <C> <C> <C>
Income
Dividends from bank subsidiaries................. $ 34,856 $26,732 $26,145
Interest and other income from bank and savings
bank subsidiaries............................... 10,265 14,047 17,786
Other............................................ 50 (415) 2
-------- ------- -------
Total income................................... 45,171 40,364 43,933
-------- ------- -------
Expenses
Interest on master notes......................... 4,174 5,144 8,791
Interest on long-term debt....................... 3,742 6,123 7,229
Other............................................ 3,731 2,642 2,429
-------- ------- -------
Total expenses................................. 11,647 13,909 18,449
-------- ------- -------
Income before income taxes and equity in
undistributed income of bank and savings bank
subsidiaries...................................... 33,524 26,455 25,484
Income tax (credit) on parent company only income.. (523) (285) (439)
-------- ------- -------
Income before equity in undistributed income of
bank and savings bank subsidiaries................ 34,047 26,740 25,923
Equity in undistributed income of bank and savings
bank subsidiaries................................. 70,965 55,881 42,412
-------- ------- -------
Net income......................................... $105,012 $82,621 $68,335
======== ======= =======
</TABLE>
22
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income from bank and savings bank subsidiaries:
Interest....................................... $ 8,360 $ 11,550 $ 16,219
Dividends...................................... 34,856 26,732 26,145
Management fees................................ 2,004 2,004 2,004
Interest paid.................................... (7,749) (11,062) (15,866)
Other expense.................................... (3,473) (1,385) (1,943)
-------- -------- --------
Net cash provided by operating activities.... 33,998 27,839 26,559
-------- -------- --------
Cash Flows from Investing Activities:
Sales of securities.............................. 230 1,174 3,004
Purchase of securities........................... (1,961) (900) (1,307)
Investments in joint ventures and partnerships... 134 167 (542)
Cash payment for purchased companies............. (58,250) -- (13,422)
Cash payment for stock acquired through purchase
conversions..................................... (28,818) (9,690) (41,864)
Capital investment in bank subsidiary............ -- (2,900) (12,000)
Other............................................ (3,513) (1,113) (3,416)
-------- -------- --------
Net cash used in investing activities........ (92,178) (13,262) (69,547)
-------- -------- --------
Cash Flows from Financing Activities:
Net increase (decrease) in short-term borrowed
funds........................................... 22,510 (18,962) (5,737)
Advances from bank subsidiary.................... 58,250 -- --
Proceeds from issuance of common stock........... 49,239 25,849 61,308
Proceeds from long-term debt..................... 4,000 2,000 --
Repayment of long-term debt...................... (4,000) -- --
Redemption of common stock....................... (30,270) (6,767) (830)
Dividends paid................................... (35,269) (26,710) (22,868)
Other............................................ 1,551 1,441 (3,002)
-------- -------- --------
Net cash provided (used) by financing
activities.................................. 66,011 (23,149) 28,871
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 7,831 (8,572) (14,117)
Cash and cash equivalents on January 1........... 128,922 137,494 151,611
-------- -------- --------
Cash and cash equivalents on December 31......... $136,753 $128,922 $137,494
======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
Common stock issued:
Employee benefit plans................................ $2,263 $2,260 $ --
Conversion of debentures.............................. 33,311 346 31
Purchased company..................................... 22,298 -- 12,606
Employee stock ownership plan......................... 2,314 664 2,841
Loan to employee stock ownership plan................... (2,314) (664) (2,841)
</TABLE>
23
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement Number 107 of the Financial Accounting Standard Board requires all
entities to disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
position, for which it is practicable to estimate fair value. The fair value
estimates are made at a discreet point and time based on relevant market
information and information about the financial instruments. Because no market
exists for a significant portion of BB&T's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and such other factors. These estimates are subjective in nature
and involve uncertainties in matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.
The estimated fair values of BB&T's financial instruments follow, together
with descriptions of methods and assumptions used to estimate the fair value of
each class of financial instrument for which it is practical to estimate such
value.
The carrying amount of cash and short-term investments is a reasonable
estimate of fair value. The fair values of such instruments at December 31,
1993, and 1992 were $470,532 and $399,752, respectively.
For investment securities and securities available for sale, fair values are
based on quoted market prices or dealer quotes. At December 31, 1993 and 1992
the fair values of investment securities were $1,722,284 and $1,583,899,
respectively, and the fair values of investments available for sale were
$737,611 and $464,482, respectively.
For floating rate loans, credit card receivables, home equity lines and other
consumer lines of credit, the carrying amount less an estimate of credit losses
inherent in the portfolio is a reasonable estimate of fair value. The fair
value of other types of loans is estimated by discounting the future cash flows
using the current rates at which similar loans of similar maturities would be
made to borrowers with similar credit ratings, reduced by an estimate of credit
losses inherent in the portfolio. Fair value does not include the value of
customer relationships or unused consumer lines of credits. The estimated fair
values of loans at December 31, 1993 and 1992 were $6,764,562 and $5,309,663,
respectively.
For demand deposits, savings accounts and certain money market deposits
payable on demand the carrying amounts are the fair values. The fair values of
fixed-maturity certificates of deposit and individual retirement accounts are
estimated using the rates currently offered for deposits of similar remaining
maturities. For variable rate individual retirement accounts, the carrying
amount is a reasonable estimate of fair value. The fair values of deposit
liabilities at December 31, 1993 and 1992 are estimated to be $7,590,584 and
$6,424,496, respectively.
The carrying amount of short-term borrowed funds, including federal funds
purchased, securities sold under agreements to repurchase and master notes, is
a reasonable estimate of fair value. The fair values of short-term borrowed
funds at December 31, 1993 and 1992 were $1,046,789 and $642,811, respectively.
Long-term debt included convertible subordinated debentures, floating rate
subordinated notes, advances from the Federal Home Loan Bank and medium-term
bank notes. The convertible subordinated debentures were callable at 102.65 at
December 31, 1992, which was considered a reasonable estimate of fair value.
The convertible subordinated debentures were redeemed in 1993. The floating
rate subordinated notes reprice quarterly and the carrying amount is a
reasonable estimate of fair value. The fair values of the advances from the
Federal Home Loan Bank are based on the discounted value of contractual cash
flows, using the rates
24
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
currently offered for borrowings of similar remaining maturities. The fair
values of the medium-term bank notes are based on the market price of the notes
on December 31, 1993. The fair values of long-term debt at December 31, 1993
and 1992 were $353,472 and $124,902, respectively.
The fair value of interest rate contracts (used for hedging purposes) is the
estimated amount that BB&T would receive or pay to terminate the contract
agreements at the reported date, taking into account current interest rates and
the current credit-worthiness of the contract counterparties. The fair values
of interest rate contract agreements at December 31, 1993 and 1992 are
estimated to be $16,383 and $20,263, respectively.
The fair value of letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date. The fair
values of letters of credit at December 31, 1993 and 1992 are estimated to be
$1,919 and $1,710, respectively.
NOTE 17. SUBSEQUENT EVENTS (UNAUDITED)
At June 24, 1994, BB&T entered into an agreement to merge with Commerce Bank
of Virginia Beach, Virginia. The merger of Commerce will be accounted for as a
pooling-of-interests and approximately 4,000,000 shares of BB&T common stock
will be issued for all of the outstanding stock of Commerce. At the end of
June, Commerce had total assets of approximately $692 million and shareholders'
equity of approximately $47 million.
On July 29, 1994, BB&T and Southern National Corporation (SNC) of Winston-
Salem, North Carolina entered a definitive agreement of merger providing for
the merger of the two companies. The merger will be accounted for as a pooling-
of-interests. To effect the merger, BB&T shareholders will receive 1.45 shares
of common stock of the surviving company for each outstanding share of BB&T
common stock and SNC shareholders will receive 1.00 shares for each outstanding
share of SNC common stock. At June 30, SNC had total assets of approximately
$8.2 billion and total shareholders' equity of approximately $594 million.
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
BB&T FINANCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of BB&T
Financial Corporation and subsidiaries as of December 31, 1993 and 1992, and
the related consolidated statements of income, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1993.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
have been restated to give retroactive effect to the merger of BB&T Financial
Corporation and L.S.B. Bancshares, Inc. ("LSB") on June 30, 1994, which has
been accounted for as a pooling-of-interests as described in Note 2 to the
consolidated financial statements. We did not audit the financial statements of
LSB for the years ended December 31, 1993, 1992 and 1991, which statements
reflect total assets constituting 7.1 percent and 8.2 percent as of December
31, 1993 and 1992, respectively, and total interest income constituting 7.7
percent, 8.1 percent, and 8.0 percent for the years ended December 31, 1993,
1992 and 1991, respectively, of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to
us, and our opinion, insofar as it relates to the amounts included for LSB is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of BB&T Financial Corporation and
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Raleigh, North Carolina
January 19, 1994, except as to
Note 2 which is as of
June 30, 1994
26
<PAGE>
Exhibit 99.2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1994 1993 1993
------------- ------------ -------------
($ IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 413,707 355,818 342,265
Interest-bearing bank balances........ 18,302 79,663 25,404
Federal funds sold.................... 15,900 35,050 14,200
Securities available for sale (at fair
value in 1994, fair value in 1993 of
$737,611, and $563,127,
respectively)........................ 2,311,390 726,658 549,112
Securities held to maturity (fair
value of $105,662, $1,722,284, and
$1,725,318 respectively)............. 101,786 1,701,317 1,698,408
Loans................................. 6,986,594 6,688,332 6,145,688
Less allowance for loan losses........ 95,344 93,315 89,783
----------- --------- ---------
Net loans......................... 6,891,250 6,595,017 6,055,905
Bank premises and equipment........... 150,233 147,666 130,128
Accrued interest receivable........... 70,764 63,607 66,713
Other assets.......................... 214,502 162,602 144,873
----------- --------- ---------
Total assets...................... $10,187,834 9,867,398 9,027,008
=========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing................. $ 893,981 861,786 828,228
Interest-bearing.................... 6,602,758 6,704,154 6,050,572
----------- --------- ---------
Total deposits.................... 7,496,739 7,565,940 6,878,800
Short-term borrowed funds............. 1,258,768 1,046,789 962,332
Long-term debt........................ 490,790 350,736 311,778
Other liabilities..................... 113,986 106,949 101,987
----------- --------- ---------
Total liabilities................. 9,360,283 9,070,414 8,254,897
Shareholders' equity:
Common stock $2.50 par value,
100,000,000 shares authorized; shares
issued of 36,519,514, 36,398,619 and
35,934,365, respectively............. 91,299 90,997 89,836
Paid-in capital....................... 284,940 286,774 276,440
Retained earnings..................... 484,273 425,667 410,561
Less loan to employee stock ownership
plan................................. 4,419 4,419 4,726
Less unvested restricted stock........ 1,908 2,035 --
Net unrealized (losses) on securities
available for sale................... (26,634) -- --
----------- --------- ---------
Total shareholders' equity........ 827,551 796,984 772,111
----------- --------- ---------
Total liabilities and
shareholders' equity............. $10,187,834 9,867,398 9,027,008
=========== ========= =========
</TABLE>
1
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans.................. $ 144,631 122,737 $ 406,747 353,423
Interest and dividends on securi-
ties:
Taxable.......................... 28,488 28,671 88,808 84,808
Tax exempt....................... 1,801 2,403 5,839 7,482
Interest on short-term investments. 624 505 1,998 1,222
---------- ---------- ---------- ----------
Total interest income.......... 175,544 154,316 503,392 446,935
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits............... 59,217 52,578 168,384 159,763
Interest on short-term borrowed
funds............................. 13,286 7,278 33,946 17,036
Interest on long-term debt......... 5,642 2,880 15,387 6,870
---------- ---------- ---------- ----------
Total interest expense......... 78,145 62,736 217,717 183,669
---------- ---------- ---------- ----------
NET INTEREST INCOME................ 97,399 91,580 285,675 263,266
Provision for loan losses.......... 750 4,363 5,250 14,769
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES................... 96,649 87,217 280,425 248,497
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit ac-
counts............................ 11,279 10,662 33,445 29,504
Other service charges, commissions
and fees.......................... 5,725 4,559 15,928 13,242
Mortgage banking income............ 2,875 4,950 11,096 11,990
Gains on sales of securities....... 995 214 2,120 1,476
Trust income....................... 3,185 2,839 9,045 7,950
Insurance commissions.............. 3,124 2,767 9,425 7,383
Other operating income............. 6,344 4,680 16,340 14,528
---------- ---------- ---------- ----------
Total noninterest income....... 33,527 30,671 97,399 86,073
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and wages................. 32,056 31,414 96,844 87,372
Other personnel expense............ 8,495 6,806 25,487 21,102
Net occupancy expense.............. 5,932 5,765 17,622 16,186
Furniture and equipment expense.... 6,430 6,893 20,093 19,360
Deposit insurance premiums......... 4,156 3,794 12,588 11,301
Other operating expense............ 23,100 23,011 71,311 64,610
---------- ---------- ---------- ----------
Total noninterest expense...... 80,169 77,683 243,945 219,931
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES......... 50,007 40,205 133,879 114,639
Income taxes....................... 17,800 13,183 46,293 36,678
---------- ---------- ---------- ----------
NET INCOME......................... $ 32,207 27,022 $ 87,586 77,961
========== ========== ========== ==========
NET INCOME PER SHARE
Primary............................ $ .88 .74 $ 2.39 2.21
Fully diluted...................... .88 .74 2.39 2.17
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES AND
EQUIVALENT SHARES
Primary............................ 36,771,045 36,454,962 36,627,132 35,280,533
Fully diluted...................... 36,771,045 36,461,966 36,627,132 36,042,790
========== ========== ========== ==========
</TABLE>
2
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
LOAN TO NET UNREALIZED
EMPLOYEE GAINS (LOSSES)
COMMON STOCK UNVESTED ON SECURITIES TOTAL
SHARES COMMON PAID-IN RETAINED OWNERSHIP RESTRICTED AVAILABLE SHAREHOLDERS'
OUTSTANDING STOCK CAPITAL EARNINGS PLAN STOCK FOR SALE EQUITY
----------- ------- ------- -------- --------- ---------- -------------- -------------
($ IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... 26,311,915 $65,780 187,671 310,395 (2,938) -- -- 560,908
Equity at January 1,
1993 of pooled
companies acquired in
1993 and 1994.......... 6,373,015 15,933 29,552 47,637 -- -- -- 93,122
---------- ------- ------- ------- ------ ------ ------- -------
Balance, January 1, 1993
as restated............ 32,684,930 81,713 217,223 358,032 (2,938) -- -- 654,030
Net income.............. -- -- -- 77,961 -- -- -- 77,961
Cash dividends paid
($.75 per share)....... -- -- -- (22,519) -- -- -- (22,519)
Common stock issued by
pooled companies prior
to merger.............. 92,769 231 873 -- -- -- -- 1,104
Cash dividends paid by
pooled companies prior
to merger.............. -- -- -- (2,914) -- -- -- (2,914)
Common stock issued:
Dividend reinvestment
plan.................. 189,328 473 5,614 -- -- -- -- 6,087
Employee benefit and
stock option plans.... 390,728 977 9,947 -- -- -- -- 10,924
Conversion of deben-
tures................. 1,916,084 4,790 28,521 -- -- -- -- 33,311
Acquisitions........... 829,344 2,074 21,035 -- -- -- -- 23,109
Offerings.............. 507,182 1,268 14,029 -- -- -- -- 15,297
Loan to employee stock
ownership plan......... -- -- -- -- (1,788) -- -- (1,788)
Redemption of common
stock.................. (676,000) (1,690) (20,801) -- -- -- -- (22,491)
---------- ------- ------- ------- ------ ------ ------- -------
Balance, September 30,
1993.................. 35,934,365 $89,836 276,441 410,560 (4,726) -- -- 772,111
========== ======= ======= ======= ====== ====== ======= =======
Balance, January 1,
1994................... 32,476,387 $81,191 266,822 401,953 (4,419) (2,035) -- 743,512
Equity at January 1,
1994 of pooled company
acquired in 1994....... 3,922,232 9,806 19,952 23,714 -- -- -- 53,472
---------- ------- ------- ------- ------ ------ ------- -------
Balance, January 1, 1994
as restated............ 36,398,619 90,997 286,774 425,667 (4,419) (2,035) -- 796,984
Adjustment of securities
available for sale to
fair value at January
1...................... -- -- -- -- -- -- 9,286 9,286
Net income.............. -- -- -- 87,586 -- -- -- 87,586
Cash dividends paid
($.83 per share)....... -- -- -- (27,920) -- -- -- (27,920)
Common stock issued by
pooled company prior to
merger................. 14,409 36 393 -- -- -- -- 429
Cash dividends paid by
pooled company prior to
merger................. -- -- -- (1,060) -- -- -- (1,060)
Common stock issued:
Dividend reinvestment
plan.................. 81,495 204 2,142 -- -- -- -- 2,346
Employee benefit and
stock option plans.... 396,149 990 9,610 -- -- -- -- 10,600
Acquisitions........... 73,842 185 (256) -- -- -- -- (71)
Unvested restricted
stock.................. -- -- -- -- -- 127 -- 127
Redemption of common
stock.................. (445,000) (1,113) (13,723) -- -- -- -- (14,836)
Change in net unrealized
gains (losses) on secu-
rities available for
sale................... -- -- -- -- -- -- (35,920) (35,920)
---------- ------- ------- ------- ------ ------ ------- -------
Balance, September 30,
1994.................. 36,519,514 $91,299 284,940 484,273 (4,419) (1,908) (26,634) 827,551
========== ======= ======= ======= ====== ====== ======= =======
</TABLE>
3
<PAGE>
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1994 1993
---------- --------
(THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received........................................ $ 498,183 442,856
Noninterest income received.............................. 86,253 83,995
Interest paid............................................ (216,719) (189,032)
Noninterest expense paid................................. (225,255) (208,644)
Income taxes paid........................................ (76,883) (43,304)
---------- --------
Net cash provided by operating activities............ 65,579 85,871
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale..... 466,500 166,397
Proceeds from maturities or calls of securities.......... 509,162 441,298
Purchase of securities................................... (1,002,694) (782,877)
Net decrease in loans.................................... (307,487) (453,800)
Proceeds from sales of premises and equipment............ 3,178 1,181
Purchases of property and equipment...................... (19,093) (35,127)
Proceeds from sales of foreclosed properties............. 9,428 20,392
Cash of companies acquired, net.......................... -- 42,591
Purchase of officers' life insurance policies............ -- (30,000)
Other.................................................... 949 (10,198)
---------- --------
Net cash used in investing activities................ (340,057) (640,143)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, interest
checking and savings accounts........................... (104,300) 98,925
Net increase (decrease) in certificates of deposit and
other time deposits..................................... 34,563 (67,163)
Net increase in short-term borrowed funds................ 211,980 319,521
Net increase in long-term debt........................... 140,054 201,643
Proceeds from issuance of common stock................... 13,375 31,387
Redemption of common stock............................... (14,836) (22,491)
Dividends paid........................................... (28,980) (25,433)
---------- --------
Net cash provided by financing activities............ 251,856 536,389
---------- --------
Net decrease in cash and cash equivalents................ (22,622) (17,883)
Cash and cash equivalents on January 1................... 470,531 399,752
---------- --------
Cash and cash equivalents on September 30................ $ 447,909 381,869
========== ========
Supplemental Disclosure of Noncash Investing Activities
Common stock issued:
Purchased company...................................... $ -- 22,298
Employee benefit plans................................. -- 1,788
Conversion of debentures............................... -- 33,311
Loans transferred to foreclosed properties............... $ 10,522 11,694
========== ========
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BB&T FINANCIAL CORPORATION AND SUBSIDIARIES
NOTE 2. PENDING MERGERS
At September 30, 1994, BB&T had an agreement to merge with Commerce Bank of
Virginia Beach, Virginia. The merger of Commerce will be accounted for as a
pooling-of-interests and approximately 4,000,000 shares of BB&T common stock
will be issued for all of the outstanding stock of Commerce. At the end of
September, Commerce had total assets of approximately $700 million and
shareholders' equity of approximately $47 million.
On July 29, 1994, BB&T and Southern National Corporation (SNC) of Winston-
Salem, North Carolina entered a definitive agreement of merger providing for
the merger of the two companies. The merger will be accounted for as a pooling-
of-interests. To effect the merger, BB&T shareholders will receive 1.45 shares
of common stock of the surviving company for each outstanding share of BB&T
common stock and SNC shareholders will receive 1.00 shares for each outstanding
share of SNC common stock. At September 30, SNC had total assets of
approximately $8.5 billion and total shareholders' equity of approximately $609
million.
5
<PAGE>
Exhibit 99.3
Pro Forma Condensed Statement of Condition
September 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
BB&T Adjustments
SNC Financial Incr(Dcr)
----------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets
Cash and due from depository institutions $ 281,156 $ 413,707 $ 8,400(1)
Interest-bearing bank balances 1,639 18,302
Federal funds sold 122,600 15,900
Securities available for sale 892,638 2,311,390
Loans held for sale 33,387 --
Securities held to maturity 1,758,673 101,786
Loans and leases, net of unearned income 5,214,410 6,986,594
Less: allowance for losses (69,298) (95,344)
----------- ------------ ------------
Net loans and leases 5,145,112 6,891,250 --
Premises and equipment, net 157,231 150,233 (15,200)(1)
Other assets 109,854 285,266
----------- ------------ ------------
Total assets $ 8,502,290 $ 10,187,834 $ (6,800)
=========== ============ ============
Liabilities and Shareholders' Equity
Deposits:
Demand $ 764,422 $ 893,981 $
Savings 2,281,084 2,689,142
Time 3,216,840 3,913,616
----------- ------------ ------------
Total deposits 6,262,346 7,496,739 --
Short-term borrowings 1,352,073 1,258,768
Accounts payable and accrued liabilities 67,765 113,986 54,534 (1),(4)
Long-term debt 210,887 490,790
----------- ------------ ------------
Total liabilities 7,893,071 9,360,283 54,534
----------- ------------ ------------
Shareholders' equity
Preferred stock, $5 par, 5,000,000 shares
authorized, 770,000 issued and outstanding 3,850
Common stock, $5 par, 120,000,000 shares
authorized, 43,488,593 issued and outstanding;
96,441,888 shares and 101,616,534 shares pro forma
issued and outstanding, respectively 217,443 91,299 173,468 (2)
Paid-in capital 155,566 284,940 (173,468)(2)
Retained earnings 254,778 477,946 (61,334)(1)(4)
Unearned compensation (3,069) --
Net unrealized depreciation on securities (19,349) (26,634)
----------- ------------ ------------
Total shareholders' equity 609,219 827,551 (61,334)
----------- ------------ ------------
Total liabilities and shareholders' equity $ 8,502,290 $ 10,187,834 $ (6,800)
=========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SNC,
BB&T
SNC and Financial
BB&T and
Financial Commerce
pro forma Adjustments pro forma
combined Commerce Incr(Dcr) combined
----------- ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Cash and due from depository institutions $ 703,263 $ 30,059 $ $ 733,322
Interest-bearing bank balances 19,941 1,000 20,941
Federal funds sold 138,500 13,000 151,500
Securities available for sale 3,204,028 111,894 3,315,922
Loans held for sale 33,387 -- 33,387
Securities held to maturity 1,860,459 89,744 1,950,203
Loans and leases, net of unearned income 12,201,004 429,204 12,630,208
Less: allowance for losses (164,642) (7,468) (172,110)
----------- ------------ ------------ ------------
Net loans and leases 12,036,362 421,736 12,458,098
Premises and equipment, net 292,264 19,083 311,347
Other assets 395,120 13,094 408,214
----------- ------------ ------------ ------------
Total assets $18,683,324 $ 699,610 $ -- $ 19,382,934
=========== ============ ============ ============
Liabilities and Shareholders' Equity
Deposits:
Demand $ 1,658,403 $ 108,008 $ $ 1,766,411
Savings 4,970,226 342,186 5,312,412
Time 7,130,456 192,811 7,323,267
----------- ------------ ------------ ------------
Total deposits 13,759,085 643,005 -- 14,402,090
Short-term borrowings 2,610,841 -- 2,610,841
Accounts payable and accrued liabilities 236,285 2,470 238,755
Long-term debt 701,677 6,772 708,449
----------- ------------ ------------ ------------
Total liabilities 17,307,888 652,247 -- 17,960,135
----------- ------------ ------------ ------------
Shareholders' equity
Preferred stock, $5 par, 5,000,000 shares
authorized, 770,000 issued and outstanding 3,850 3,850
Common stock, $5 par, 120,000,000 shares
authorized, 43,488,593 issued and outstanding;
96,441,888 shares and 101,616,534 shares pro forma
issued and outstanding, respectively 482,210 6,837 19,036(2) 508,083
Paid-in capital 267,038 30,070 (19,036)(2) 278,072
Retained earnings 671,390 11,886 -- 683,276
Unearned compensation (3,069) -- (3,069)
Net unrealized depreciation on securities (45,983) (1,430) (47,413)
----------- ------------ ------------ ------------
Total shareholders' equity 1,375,436 47,363 -- 1,422,799
----------- ------------ ------------ ------------
Total liabilities and shareholders' equity $18,683,324 $ 699,610 $ -- $ 19,382,934
=========== ============ ============ ============
</TABLE>
See Notes to Pro Forma Condensed Financial Information
<PAGE>
Pro Forma Condensed Statement of Operations
Nine months ended September 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
SNC,
SNC and BB&T Financial
BB&T Financial and Commerce
BB&T pro forma pro forma
SNC Financial combined (5) combined (5)
-------------- --------------- ---------------- ----------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans and leases $ 307,007 $ 406,747 $ 713,754 $ 739,651
Interest and dividends on securities 111,977 94,647 206,624 216,731
Interest on temporary investments 1,902 1,998 3,900 4,420
----------- ---------- ------------ ------------
Total interest income 420,886 503,392 924,278 960,802
----------- ---------- ------------ ------------
Interest Expense
Interest on deposits 138,706 168,384 307,090 321,783
Interest on short-term borrowings 30,449 33,946 64,395 64,425
Interest on long-term debt 12,208 15,387 27,595 28,092
----------- ---------- ------------ ------------
Total interest expense 181,363 217,717 399,080 414,300
----------- ---------- ------------ ------------
Net Interest Income
Net interest Income 239,523 285,675 525,198 546,502
Provision for loan and lease losses 3,692 5,250 8,942 10,742
----------- ---------- ------------ ------------
Net interest income after provison for
loan and lease losses 235,831 280,425 516,256 535,760
----------- ---------- ------------ ------------
Noninterest Income
Service charges on deposit accounts 26,578 33,445 60,023 62,990
Nondeposit fees and commissions 23,205 34,398 57,603 60,111
Securities gains, net 906 2,120 3,026 3,067
Other noninterest income 10,038 27,436 37,474 38,785
----------- ---------- ------------ ------------
Total noninterest income 60,727 97,399 158,126 164,953
----------- ---------- ------------ ------------
Noninterest Expense
Personnel expense 91,043 122,331 213,374 221,822
Occupancy and equipment expense 27,019 37,715 64,734 68,165
Federal deposit insurance expense 10,970 12,588 23,558 24,614
Other noninterest expense 43,459 71,311 114,770 120,193
----------- ---------- ------------ ------------
Total noninterest expense 172,491 243,945 416,436 434,794
----------- ---------- ------------ ------------
Earnings
Income before income taxes 124,067 133,879 257,946 265,919
Provision for income taxes 43,123 46,293 89,416 91,940
----------- ---------- ------------ ------------
Net income(4) 80,944 87,586 168,530 173,979
Preferred dividend requirements 3,897 -- 3,897 3,897
----------- ---------- ------------ ------------
Net income applicable to common shares $ 77,047 $ 87,586 $ 164,633 $ 170,082
=========== ========== ============ ============
Per Common Share Data
Net income per share:
Primary $ 1.76 $ 2.39 $ 1.70 $ 1.66
=========== ========== ============ ============
Fully diluted $ 1.68 $ 2.39 $ 1.66 $ 1.62
=========== ========== ============ ============
Weighted average shares outstanding:
Primary 43,708,933 36,627,132 96,818,274 102,152,527
=========== =========== ============ ============
Fully diluted 48,292,039 36,627,132 101,401,380 107,237,079
=========== =========== ============ ============
</TABLE>
See Notes to Pro Forma Condensed Financial Information
<PAGE>
Pro Forma Condensed Statement of Operations
Nine months ended September 30, 1993
(Unaudited)
<TABLE>
<CAPTION>
SNC,
SNC and BB&T Financial
BB&T Financial and Commerce
BB&T pro forma pro forma
SNC Financial combined (5) combined (5)
------------- --------- ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans and leases $ 301,347 $ 353,423 $ 654,770 $ 677,928
Interest and dividends on securities 104,252 92,290 196,542 208,459
Interest on temporary investments 1,930 1,222 3,152 3,436
----------- ----------- ------------- -------------
Total interest income 407,529 446,935 854,464 889,823
----------- ----------- ------------- -------------
Interest Expense
Interest on deposits 148,739 159,763 308,502 323,832
Interest on short-term borrowings 12,429 17,036 29,465 29,481
Interest on long-term debt 16,803 6,870 23,673 24,143
----------- ----------- ------------- -------------
Total interest expense 177,971 183,669 361,640 377,456
----------- ----------- ------------- -------------
Net Interest Income
Net interest income 229,558 263,266 492,824 512,367
Provision for loan and lease losses 11,493 14,769 26,262 28,487
----------- ----------- ------------- -------------
Net interest income after provision for
loan and lease losses 218,065 248,497 466,562 483,880
----------- ----------- ------------- -------------
Noninterest Income
Service charges on deposit accounts 27,165 29,504 56,669 59,154
Nondeposit fees and commissions 22,561 28,575 51,136 54,495
Securities gains, net 14,197 1,476 15,673 17,027
Other noninterest income 9,625 26,518 36,143 37,201
----------- ----------- ------------- -------------
Total noninterest income 73,548 86,073 159,621 167,877
----------- ----------- ------------- -------------
Noninterest Expense
Personnel expense 91,937 108,474 200,411 208,339
Occupancy and equipment expense 27,860 35,546 63,406 66,507
Federal deposit insurance expense 10,328 11,301 21,629 22,620
Other noninterest expense 56,352 64,610 120,962 126,653
----------- ----------- ------------- -------------
Total noninterest expense 186,477 219,931 406,408 424,119
----------- ----------- ------------- -------------
Earnings
Income before income taxes 105,136 114,639 219,775 227,638
Provision for income taxes 35,539 36,678 72,217 75,220
----------- ----------- ------------- -------------
Net income (3),(4) 69,597 77,961 147,558 152,418
Preferred dividends requirements 3,897 0 3,897 3,897
----------- ----------- ------------- -------------
Net income applicable to common shares $ 65,700 $ 77,961 $ 143,661 $ 148,521
=========== =========== ============= =============
Per Common Share Data (3)
Net income per share:
Primary $ 1.57 $ 2.21 $ 1.54 $ 1.51
=========== =========== ============= =============
Fully diluted $ 1.50 $ 2.17 $ 1.50 $ 1.46
=========== =========== ============= =============
Weighted average shares outstanding:
Primary 41,967,319 35,280,533 93,124,092 98,300,132
=========== =========== ============= =============
Fully diluted 46,528,792 36,042,790 98,790,838 104,469,675
=========== =========== ============= =============
</TABLE>
See Notes to Pro Forma Condensed Financial Information
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(1) Certain material, non-recurring adjustments of approximately $80 million
will be recorded in conjunction with the Merger. These adjustments include:
approximately $51 million for the settlement of obligations under existing
employment contracts, severance pay for involuntary terminations, early
retirement and related employee benefits; approximately $15 million
associated with branch closings and divestitures; approximately $8 million
for consolidation of bank operations and systems; and approximately $9
million of expenses related to effecting the Merger. These adjustments will
be partially offset by a premium on sale of divested deposits of $8
million. The impact of these adjustments has been reflected in the Pro
Forma Condensed Statement of Condition as of September 30, 1994.
(2) Based on exchange ratios of 1.45 for conversion of BB&T Financial Common
Stock into SNC Common Stock, and 1.305 for conversion of Commerce stock
into BB&T Financial Common Stock. At September 30, 1994, BB&T Financial and
Commerce had 36,519,514 and 2,734,652 shares outstanding, respectively.
(3) Net income and primary and fully diluted net income per share for the nine
months ended September 30, 1993, and the year ended December 31, 1993, do
not include the cumulative effect of changes in accounting principles
resulting from the adoption by SNC effective January 1, 1993, of Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes" ("SFAS 109"), SFAS No. 106, "Accounting for Postretirement Benefits
Other than Pensions ("SFAS 106"), and SFAS No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" ("SFAS 72"). The impact of
adoption of SFAS 109, SFAS 106 and SFAS 72 on net income, primary net
income per share and fully diluted net income per share was $27,217,000,
$0.65 and $0.59, respectively for the nine months ended September 30, 1993,
and $27,217,000, $0.64 and $0.58, respectively for the year ended December
31, 1993.
(4) BB&T Financial elected to amortize the accumulated postretirement
obligation related to the adoption of SFAS 106 over a period of 21 years as
a component of the postretirement benefit cost. SNC elected to reflect the
adoption of SFAS 106 through the recording of a cumulative charge for this
change in accounting principle. The Condensed Pro Forma Financial
information reflects an adjustment to conform BB&T Financial's transition
method to the method elected by SNC. Net income and primary and fully
diluted net income per share for the nine months ended September 30, 1993,
and the year ended December 31, 1993, do not reflect this conforming
adjustment. The impact of this conforming adjustment, net of tax, on net
income, for both the nine months ended September 30, 1993 and for the year
ended December 31, 1993 is $7,898,000. Additionally, the accompanying Pro
Forma Condensed Statements of Operations do not reflect adjustments for
amounts previously recorded by BB&T Financial as amortization of the
unrecorded transition obligation, which amounted to $335,000 (net of tax of
$224,000) for the year ended December 31, 1993, and $251,000 (net of tax of
$168,000) for each of the nine month periods ended September 30, 1994 and
1993.
(5) No pro forma adjustments are reflected in the Pro Forma Condensed
Statements of Operations.
