- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 18, 1998
DATE OF REPORT (DATE OF EARLIEST EVENT RECORDED)
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER : 1-10853
<TABLE>
<S> <C>
NORTH CAROLINA 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
200 WEST SECOND STREET
WINSTON-SALEM, NORTH CAROLINA 27101
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(336) 733-2000
(Registrant's Telephone Number, Including Area Code)
---------------
This Form 8-K has 51 pages.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
ITEM 5. OTHER EVENTS
On July 1, 1998, BB&T Corporation completed its merger with Franklin
Bancorporation, Inc. ("Franklin"), of Washington, D.C. To consummate the
transaction, Franklin shareholders received .70 shares of BB&T common stock
(after giving effect to the 2-for-1 stock split effective August 3, 1998) in
exchange for each share of Franklin common stock held, resulting in the
issuance of 2.5 million shares (4.9 million shares on a post-split basis) of
BB&T common stock. The transaction was accounted for as a pooling-of-interests.
Accordingly, the consolidated financial statements (including notes to
consolidated financial statements), and supplemental financial information
contained in BB&T's Current Report on Form 8-K dated May 13, 1998, for the
years ended December 31, 1997, 1996 and 1995, restated for the accounts of
Franklin, are included in this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ----------------------------------------------------
<S> <C> <C>
11 Statement re Computation of Earnings Per Share. Filed herewith as Note R. of the
"Notes to Consolidated Financial
Statements."
23 Consent of Independent Public Accountants. Filed herewith on page 3.
27 Financial Data Schedule. Filed herewith as an exhibit to the
electronically filed document as
required.
99.1 Report of Independent Public Accountants. Filed herewith on page 4.
99.2 BB&T's restated audited financial statements and Filed herewith beginning on page 5.
notes thereto, including the accounts of Franklin.
99.3 BB&T's restated Securities Act Guide 3 statistical Filed herewith beginning on page 39.
disclosures, including the accounts of Franklin.
</TABLE>
1
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BB&T CORPORATION
(Registrant)
By: /s/ SHERRY A. KELLETT
------------------------------------
Sherry A. Kellett
SENIOR EXECUTIVE VICE PRESIDENT AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: September 18, 1998.
2
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 8-K into BB&T Corporation's previously
filed Registration Statement File Nos. 33-52367, 33-57865, 33-57867, 333-03989
and 333-50035 filed on Form S-8 and Registration Statement File Nos. 33-57859,
33-57861, 33-57871 and 333-02899 filed on Form S-3.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
September 18, 1998.
3
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
Effective December 31, 1997, BB& T adopted SFAS No. 128, "Earnings Per
Share." The lines labeled EPS-PRIMARY and EPS-FULLY DILUTED on this exhibit
actually reflect EPS-BASIC and EPS-DILUTED, respectively, as determined
under SFAS No. 128.
</LEGEND>
<CIK> 0000092230
<NAME> BB & T -8K
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 890,003
<INT-BEARING-DEPOSITS> 77,622
<FED-FUNDS-SOLD> 225,245
<TRADING-ASSETS> 67,878
<INVESTMENTS-HELD-FOR-SALE> 7,296,128
<INVESTMENTS-CARRYING> 230,257
<INVESTMENTS-MARKET> 233,636
<LOANS> 21,233,870
<ALLOWANCE> 279,596
<TOTAL-ASSETS> 31,290,247
<DEPOSITS> 21,375,975
<SHORT-TERM> 3,451,885
<LIABILITIES-OTHER> 447,760
<LONG-TERM> 3,575,517
0
0
<COMMON> 720,420
<OTHER-SE> 1,718,690
<TOTAL-LIABILITIES-AND-EQUITY> 31,290,247
<INTEREST-LOAN> 1,791,663
<INTEREST-INVEST> 468,741
<INTEREST-OTHER> 5,084
<INTEREST-TOTAL> 2,265,488
<INTEREST-DEPOSIT> 784,554
<INTEREST-EXPENSE> 1,106,963
<INTEREST-INCOME-NET> 1,158,525
<LOAN-LOSSES> 98,010
<SECURITIES-GAINS> 3,213
<EXPENSE-OTHER> 968,746
<INCOME-PRETAX> 550,117
<INCOME-PRE-EXTRAORDINARY> 360,418
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 360,418
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 4.46
<LOANS-NON> 99,938
<LOANS-PAST> 44,362
<LOANS-TROUBLED> 1,377
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 243,568
<CHARGE-OFFS> 97,829
<RECOVERIES> 18,334
<ALLOWANCE-CLOSE> 279,596
<ALLOWANCE-DOMESTIC> 279,596
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 44,312
</TABLE>
EXHIBIT 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of BB&T Corporation:
We have audited the accompanying consolidated balance sheets of BB&T
Corporation (a North Carolina corporation), and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BB&T Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
September 18, 1998.
4
EXHIBIT 99.2
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................................. $ 890,003 $ 870,648
Interest-bearing deposits with banks .................................................... 77,622 5,504
Federal funds sold and securities purchased under resale agreements or similar
arrangements .......................................................................... 225,245 156,740
Trading securities ...................................................................... 67,878 --
Securities available for sale ........................................................... 7,296,128 6,720,295
Securities held to maturity (market value: $233,636 at December 31, 1997 and $382,460
at December 31, 1996) ................................................................. 230,257 378,738
Loans held for sale ..................................................................... 509,141 228,333
Loans and leases, net of unearned income ................................................ 20,724,729 18,382,866
Allowance for loan and lease losses ................................................... (279,596) (243,568)
----------- -----------
Loans and leases, net ................................................................ 20,445,133 18,139,298
----------- -----------
Premises and equipment, net ............................................................. 434,260 394,926
Other assets ............................................................................ 1,114,580 730,743
----------- -----------
Total assets ......................................................................... $31,290,247 $27,625,225
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits .......................................................... $ 2,973,151 $ 2,749,183
Savings and interest checking ......................................................... 1,741,215 2,151,422
Money rate savings .................................................................... 5,352,973 4,357,510
Other time deposits ................................................................... 9,923,003 10,202,559
Foreign deposits ...................................................................... 1,385,633 638,415
----------- -----------
Total deposits ....................................................................... 21,375,975 20,099,089
Short-term borrowed funds ............................................................... 3,451,885 2,638,917
Long-term debt .......................................................................... 3,575,517 2,320,978
Accounts payable and other liabilities .................................................. 447,760 311,843
----------- -----------
Total liabilities .................................................................... 28,851,137 25,370,827
----------- -----------
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares authorized, none issued and outstanding at
December 31, 1997 and 1996 ........................................................... -- --
Common stock, $5 par, 500,000,000 shares authorized, issued and outstanding,
144,084,061 at December 31, 1997 and 144,878,112 at December 31, 1996 ................ 720,420 724,391
Additional paid-in capital ............................................................ 171,791 219,626
Retained earnings ..................................................................... 1,498,493 1,305,951
Loan to employee stock ownership plan and unvested restricted stock ................... (962) (9,073)
Net unrealized appreciation on securities available for sale, net of deferred income
taxes of $31,881 at December 31, 1997 and $9,512 at December 31, 1996................. 49,368 13,503
----------- -----------
Total shareholders' equity ........................................................... 2,439,110 2,254,398
----------- -----------
Total liabilities and shareholders' equity ........................................... $31,290,247 $27,625,225
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- -------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans and leases ........................... $ 1,791,663 $ 1,622,516 $1,570,866
Interest and dividends on securities ............................ 468,741 429,275 398,710
Interest on short-term investments .............................. 5,084 7,252 10,070
----------- ----------- ----------
Total interest income .......................................... 2,265,488 2,059,043 1,979,646
----------- ----------- ----------
Interest Expense
Interest on deposits ............................................ 784,554 756,749 726,954
Interest on short-term borrowed funds ........................... 152,202 123,896 196,560
Interest on long-term debt ...................................... 170,207 118,204 81,772
----------- ----------- ----------
Total interest expense ......................................... 1,106,963 998,849 1,005,286
----------- ----------- ----------
Net Interest Income ............................................... 1,158,525 1,060,194 974,360
Provision for loan and lease losses ............................. 98,010 62,273 42,559
----------- ----------- ----------
Net Interest Income After Provision for Loan and Lease Losses ..... 1,060,515 997,921 931,801
----------- ----------- ----------
Noninterest Income
Service charges on deposits ..................................... 150,256 133,905 115,068
Mortgage banking income ......................................... 50,383 40,218 31,497
Trust income .................................................... 31,957 28,794 23,872
Agency insurance commissions .................................... 40,148 27,541 19,874
Other insurance commissions ..................................... 13,164 12,822 12,384
Bankcard fees and merchant discounts ............................ 22,805 18,511 16,254
Other nondeposit fees and commissions ........................... 67,843 48,096 35,721
Securities gains (losses), net .................................. 3,213 3,210 (19,418)
Other income .................................................... 78,579 28,162 21,488
----------- ----------- ----------
Total noninterest income ....................................... 458,348 341,259 256,740
----------- ----------- ----------
Noninterest Expense
Personnel expense ............................................... 466,807 404,326 439,020
Occupancy and equipment expense ................................. 163,907 127,714 130,564
Federal deposit insurance expense ............................... 5,138 49,999 28,483
Amortization of intangibles and mortgage servicing rights ....... 24,496 15,378 12,075
Advertising and public relations expense ........................ 26,540 24,345 16,714
Professional services ........................................... 46,705 26,567 24,689
Other expense ................................................... 235,153 179,033 176,629
----------- ----------- ----------
Total noninterest expense ...................................... 968,746 827,362 828,174
----------- ----------- ----------
Earnings
Income before income taxes ...................................... 550,117 511,818 360,367
Provision for income taxes ...................................... 189,699 168,506 120,568
----------- ----------- ----------
Net Income ...................................................... 360,418 343,312 239,799
Preferred dividend requirements ................................. -- 610 5,079
----------- ----------- ----------
Income applicable to common shares ............................. $ 360,418 $ 342,702 $ 234,720
=========== =========== ==========
Per Common Share
Net income:
Basic .......................................................... $ 1.25 $ 1.19 $ .82
=========== =========== ==========
Diluted ........................................................ $ 1.23 $ 1.17 $ .80
=========== =========== ==========
Cash dividends paid ............................................. $ .58 $ .50 $ .43
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES OF
COMMON PREFERRED COMMON
STOCK STOCK STOCK
--------------- ----------- -----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994, AS
PREVIOUSLY REPORTED ...................................... 141,597,528 $ 3,850 $ 707,988
Merger with Franklin Bancorporation, Inc. accounted for
under the pooling-of-interests method .................... 1,965,207 -- 9,826
----------- --------- ---------
BALANCE, DECEMBER 31, 1994, RESTATED ....................... 143,562,735 3,850 717,814
ADD (DEDUCT):
Net income ................................................ -- -- --
Net unrealized appreciation on securities available for
sale ..................................................... -- -- --
Common stock issued ....................................... 3,401,061 -- 17,006
Redemption of common stock ................................ (1,993,351) -- (9,967)
Preferred stock cancellations and conversions ............. 104,836 (181) 524
Cash dividends declared:
Common stock ............................................. -- -- --
Preferred stock .......................................... -- -- --
Other ..................................................... -- -- --
----------- --------- ---------
BALANCE, DECEMBER 31, 1995 ................................. 145,075,281 3,669 725,377
ADD (DEDUCT):
Net income ................................................ -- -- --
Net unrealized depreciation on securities available for
sale ..................................................... -- -- --
Common stock issued ....................................... 2,859,596 -- 14,297
Redemption of common stock ................................ (7,391,457) -- (36,957)
Preferred stock cancellations and conversions ............. 4,334,692 (3,669) 21,674
Cash dividends declared:
Common stock ............................................. -- -- --
Preferred stock .......................................... -- -- --
Other ..................................................... -- -- --
----------- --------- ---------
BALANCE, DECEMBER 31, 1996 ................................. 144,878,112 -- 724,391
ADD (DEDUCT):
Net income ................................................ -- -- --
Net unrealized appreciation on securities available for
sale ..................................................... -- -- --
Common stock issued ....................................... 6,149,101 -- 30,745
Redemption of common stock ................................ (6,943,152) -- (34,716)
Cash dividends declared on common stock ................... -- -- --
Other ..................................................... -- -- --
----------- --------- ---------
BALANCE, DECEMBER 31, 1997 ................................. 144,084,061 $ -- $ 720,420
=========== ========= =========
<CAPTION>
ADDITIONAL RETAINED TOTAL
PAID-IN EARNINGS SHAREHOLDERS'
CAPITAL AND OTHER* EQUITY
------------- ------------- --------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1994, AS
PREVIOUSLY REPORTED ...................................... $ 360,307 $ 880,254 $1,952,399
Merger with Franklin Bancorporation, Inc. accounted for
under the pooling-of-interests method .................... 8,157 1,762 19,745
----------- ---------- ----------
BALANCE, DECEMBER 31, 1994, RESTATED ....................... 368,464 882,016 1,972,144
ADD (DEDUCT):
Net income ................................................ -- 239,799 239,799
Net unrealized appreciation on securities available for
sale ..................................................... -- 118,992 118,992
Common stock issued ....................................... 35,174 1,287 53,467
Redemption of common stock ................................ (37,344) -- (47,311)
Preferred stock cancellations and conversions ............. (2,714) -- (2,371)
Cash dividends declared:
Common stock ............................................. -- (120,315) (120,315)
Preferred stock .......................................... -- (5,079) (5,079)
Other ..................................................... (16) 3,128 3,112
----------- ---------- ----------
BALANCE, DECEMBER 31, 1995 ................................. 363,564 1,119,828 2,212,438
ADD (DEDUCT):
Net income ................................................ -- 343,312 343,312
Net unrealized depreciation on securities available for
sale ..................................................... -- (22,529) (22,529)
Common stock issued ....................................... 58,155 1,386 73,838
Redemption of common stock ................................ (185,614) 2 (222,569)
Preferred stock cancellations and conversions ............. (18,005) -- --
Cash dividends declared:
Common stock ............................................. -- (131,981) (131,981)
Preferred stock .......................................... -- (610) (610)
Other ..................................................... 1,526 973 2,499
----------- ---------- ----------
BALANCE, DECEMBER 31, 1996 ................................. 219,626 1,310,381 2,254,398
ADD (DEDUCT):
Net income ................................................ -- 360,418 360,418
Net unrealized appreciation on securities available for
sale ..................................................... -- 35,865 35,865
Common stock issued ....................................... 240,598 5,495 276,838
Redemption of common stock ................................ (286,508) -- (321,224)
Cash dividends declared on common stock ................... -- (168,340) (168,340)
Other ..................................................... (1,925) 3,080 1,155
----------- ---------- ----------
BALANCE, DECEMBER 31, 1997 ................................. $ 171,791 $1,546,899 $2,439,110
=========== ========== ==========
</TABLE>
- ---------
* Other includes net unrealized appreciation (depreciation) on securities
available for sale, unvested restricted stock and a loan to the employee
stock ownership plan.
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................... $ 360,418
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses ................................................ 98,010
Depreciation of premises and equipment ............................................. 59,030
Amortization of intangibles and mortgage servicing rights .......................... 24,496
Accretion of negative goodwill ..................................................... (6,180)
Amortization of unearned stock compensation ........................................ 8,111
Discount accretion and premium amortization on securities, net ..................... 2,193
Net increase in trading account securities ......................................... (25,688)
Loss (gain) on sales of securities, net ............................................ (3,213)
Loss (gain) on sales of loans and mortgage loan servicing rights, net .............. (15,992)
Loss (gain) on disposals of premises and equipment, net ............................ 30,660
Proceeds from sales of loans held for sale ......................................... 1,562,944
Purchases of loans held for sale ................................................... (734,727)
Origination of loans held for sale, net of principal collected ..................... (996,943)
Decrease (increase) in:
Accrued interest receivable ....................................................... 2,650
Other assets ...................................................................... (192,136)
Increase (decrease) in:
Accrued interest payable .......................................................... 5,458
Accounts payable and other liabilities ............................................ 96,881
Other, net ......................................................................... 1,138
-------------
Net cash provided by operating activities ......................................... 277,110
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ................................ 1,565,877
Proceeds from maturities, calls and paydowns of securities available for sale ....... 1,550,682
Purchases of securities available for sale .......................................... (3,445,535)
Proceeds from sales of securities held to maturity .................................. --
Proceeds from maturities, calls and paydowns of securities held to maturity ......... 40,922
Purchases of securities held to maturity ............................................ (33,681)
Leases made to customers ............................................................ (74,420)
Principal collected on leases ....................................................... 57,581
Loan originations, net of principal collected ....................................... (1,215,324)
Purchases of loans .................................................................. (205,232)
Net cash acquired in transactions accounted for under the purchase method ........... 95,205
Purchases and originations of mortgage servicing rights ............................. (39,093)
Proceeds from disposals of premises and equipment ................................... 14,512
Purchases of premises and equipment ................................................. (148,012)
Proceeds from sales of foreclosed property .......................................... 15,917
Proceeds from sales of other real estate held for development or sale ............... 9,787
Other, net .......................................................................... 5,699
-------------
Net cash used in investing activities ............................................. (1,805,115)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ............................................................ 381,395
Net increase (decrease) in short-term borrowed funds ................................ 464,883
Proceeds from long-term debt ........................................................ 5,598,914
Repayments of long-term debt ........................................................ (4,303,648)
Net proceeds from common stock issued ............................................... 23,351
Redemption of common stock .......................................................... (321,224)
Preferred stock cancellations and conversions ....................................... --
Cash dividends paid on common and preferred stock ................................... (155,688)
-------------
Net cash provided by financing activities ......................................... 1,687,983
-------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................ 159,978
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ....................................... 1,032,892
-------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................................. $ 1,192,870
=============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................................... $ 1,056,508
Income taxes ....................................................................... 140,681
Noncash financing and investing activities:
Transfer of securities from held to maturity to available for sale ................. --
Transfer of securities from available for sale to held to maturity ................. --
Transfer of loans to foreclosed property ........................................... 17,136
Transfer of fixed assets to other real estate owned ................................ 13,761
Common stock issued upon conversion of debentures .................................. --
Restricted stock issued ............................................................ 74
Securitization of mortgage loans ................................................... --
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................... $ 343,312 $ 239,799
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses ................................................ 62,273 42,559
Depreciation of premises and equipment ............................................. 46,398 42,968
Amortization of intangibles and mortgage servicing rights .......................... 15,378 12,075
Accretion of negative goodwill ..................................................... (6,238) (6,239)
Amortization of unearned stock compensation ........................................ 2,450 3,128
Discount accretion and premium amortization on securities, net ..................... 6,507 (25,982)
Net increase in trading account securities ......................................... -- --
Loss (gain) on sales of securities, net ............................................ (3,210) 19,418
Loss (gain) on sales of loans and mortgage loan servicing rights, net .............. (9,061) 1,477
Loss (gain) on disposals of premises and equipment, net ............................ 331 3,971
Proceeds from sales of loans held for sale ......................................... 1,349,010 799,757
Purchases of loans held for sale ................................................... (429,523) (311,059)
Origination of loans held for sale, net of principal collected ..................... (880,376) (611,127)
Decrease (increase) in:
Accrued interest receivable ....................................................... 18,875 (27,715)
Other assets ...................................................................... (110,068) 12,319
Increase (decrease) in:
Accrued interest payable .......................................................... 5,661 15,558
Accounts payable and other liabilities ............................................ (8,920) 90,225
Other, net ......................................................................... 4,122 2,581
------------- -------------
Net cash provided by operating activities ......................................... 406,921 303,713
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ................................ 612,841 1,361,707
Proceeds from maturities, calls and paydowns of securities available for sale ....... 2,732,459 1,720,055
Purchases of securities available for sale .......................................... (2,601,682) (3,354,986)
Proceeds from sales of securities held to maturity .................................. -- 3,810
Proceeds from maturities, calls and paydowns of securities held to maturity ......... 195,543 400,467
Purchases of securities held to maturity ............................................ (320,133) (266,230)
Leases made to customers ............................................................ (72,390) (18,091)
Principal collected on leases ....................................................... 48,222 14,620
Loan originations, net of principal collected ....................................... (1,762,800) (801,667)
Purchases of loans .................................................................. (232,236) (189,997)
Net cash acquired in transactions accounted for under the purchase method ........... (4,187) 2,495
Purchases and originations of mortgage servicing rights ............................. (26,356) (18,082)
Proceeds from disposals of premises and equipment ................................... 8,769 18,260
Purchases of premises and equipment ................................................. (71,128) (63,669)
Proceeds from sales of foreclosed property .......................................... 16,156 14,213
Proceeds from sales of other real estate held for development or sale ............... 9,293 2,303
Other, net .......................................................................... (3,818) (7,000)
------------- -------------
Net cash used in investing activities ............................................. (1,471,447) (1,181,792)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ............................................................ 801,018 957,369
Net increase (decrease) in short-term borrowed funds ................................ (81,117) (352,952)
Proceeds from long-term debt ........................................................ 1,586,766 2,945,754
Repayments of long-term debt ........................................................ (919,657) (2,471,904)
Net proceeds from common stock issued ............................................... 51,068 49,390
Redemption of common stock .......................................................... (225,569) (47,311)
Preferred stock cancellations and conversions ....................................... -- (2,371)
Cash dividends paid on common and preferred stock ................................... (127,771) (112,669)
------------- -------------
Net cash provided by financing activities ......................................... 1,084,738 965,306
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................................ 20,212 87,227
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ....................................... 1,012,680 925,453
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................................. $ 1,032,892 $ 1,012,680
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................................... $ 967,804 $ 971,721
Income taxes ....................................................................... 166,532 149,963
Noncash financing and investing activities:
Transfer of securities from held to maturity to available for sale ................. 36,646 1,763,513
Transfer of securities from available for sale to held to maturity ................. 240 --
Transfer of loans to foreclosed property ........................................... 25,119 11,785
Transfer of fixed assets to other real estate owned ................................ 10,466 21,846
Common stock issued upon conversion of debentures .................................. -- 4,896
Restricted stock issued ............................................................ 88 --
Securitization of mortgage loans ................................................... 817,268 354,882
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
BB&T Corporation ("BB&T" or "Parent Company"), formerly Southern National
Corporation, is a bank holding company organized under the laws of North
Carolina and registered with the Federal Reserve Board under the Bank Holding
Company Act of 1956, as amended. Branch Banking and Trust Company ("BB&T-NC"),
Branch Banking and Trust Company of South Carolina ("BB&T-SC"), Branch Banking
and Trust Company of Virginia ("BB&T-VA"), and Franklin National Bank of
Washington, D.C. ("Franklin National Bank") (collectively, the "Banks"),
Regional Acceptance Corporation ("Regional Acceptance") and Craigie
Incorporated ("Craigie") comprise BB&T's direct principal subsidiaries.
The accounting and reporting policies of BB&T Corporation and its
Subsidiaries are in accordance with generally accepted accounting principles
and conform to general practices within the banking industry. The following is
a summary of the more significant policies.
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of BB&T include the accounts of the
Parent Company and its subsidiaries. In consolidation, all significant
intercompany accounts and transactions have been eliminated. Prior period
financial statements have been restated to include the accounts of companies
acquired in material transactions accounted for as poolings of interests (See
Note B). Results of operations of companies acquired in transactions accounted
for as purchases are included from the dates of acquisition.
Certain amounts for prior years have been reclassified to conform with
statement presentations for 1997. The reclassifications have no effect on
either shareholders' equity or net income as previously reported.
NATURE OF OPERATIONS
BB&T is a bank holding company headquartered in Winston-Salem, North
Carolina. BB&T conducts its operations in North Carolina, South Carolina,
Virginia and the metropolitan Washington, D.C. area primarily through its
commercial banking subsidiaries and, to a lesser extent, through its other
subsidiaries. BB&T's subsidiaries provide a full range of traditional
commercial banking services and additional services including investment
brokerage, trust services, agency insurance, credit-related insurance and
leasing.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks,
interest-bearing bank balances, Federal funds sold and securities purchased
under resale agreements or similar arrangements. Generally, both cash and cash
equivalents are considered to have maturities of three months or less.
Accordingly, the carrying amount of such instruments is considered a reasonable
estimate of fair value.
SECURITIES
BB&T classifies investment securities in one of three categories: held to
maturity, available for sale and trading. Debt securities acquired with both
the intent and ability to be held to maturity are classified as held to
maturity and reported at amortized cost. Gains or losses realized from the sale
of securities held to maturity, if any, are determined by specific
identification and are included in noninterest income.
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 reported at estimated fair value,
with unrealized gains and losses reported as a separate component of
shareholders' equity, net of deferred income tax.
9
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gains or losses realized from the sale of securities available for sale are
determined by specific identification and are included in noninterest income.
Trading account securities are selected according to fundamental and
technical analyses that identify potential market movements. Trading account
securities are positioned to take advantage of such movements and are reported
at fair value. Market adjustments, fees and gains or losses earned on trading
account securities are included in noninterest income. Interest income on
trading account securities is included in other interest income. Gains or
losses realized from the sale of trading securities are determined by specific
identification.
During 1996, BB&T transferred securities with an amortized cost of $36.6
million from the held-to-maturity portfolio to the available-for-sale
portfolio. These securities were previously classified as held-to-maturity by
entities acquired under the pooling-of-interests method of accounting. BB&T
transferred these amounts pursuant to the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES," to conform the combined investment portfolio to
BB&T's existing interest rate risk position.
During the fourth quarter of 1995, BB&T transferred $1.8 billion of
securities which were previously classified as held to maturity under SFAS No.
115 to the available-for-sale category. The Financial Accounting Standards
Board ("FASB") provided enterprises the opportunity to make a one-time
reassessment of the classification of all investment securities held at that
time, such that the reclassification of any security from the held-to-maturity
category would not call into question the enterprise's intent to hold other
debt securities to maturity in the future. Management anticipates that this
classification will allow more flexibility in the day-to-day management of the
overall portfolio than the prior classifications.
LOANS HELD FOR SALE
Loans held for sale are reported at the lower of cost or market value on
an aggregate loan basis. Gains or losses realized on the sales of loans are
recognized at the time of sale and are determined by the difference between the
net sales proceeds and the carrying value of the loans sold, adjusted for any
servicing asset or liability. Any resulting deferred premium or discount is
amortized, as an adjustment of servicing income, over the estimated lives of
the loans using the level-yield method.
LOANS AND LEASES
Loans and leases that management has the intent and ability to hold for
the foreseeable future are reported at their outstanding principal balances
adjusted for any deferred fees or costs and unamortized premiums or discounts.
The net amount of nonrefundable loan origination fees, including commitment
fees and certain direct costs associated with the lending process, are deferred
and amortized to interest income over the contractual lives of the loans using
methods which approximate level-yield, with adjustments for prepayments as they
occur. If the loan commitment expires unexercised, the income is recognized
upon expiration of the commitment. Discounts and premiums are amortized to
interest income over the estimated life of the loans using methods which
approximate level-yield.
Commercial loans and substantially all installment loans accrue interest
on the unpaid balance of the loans. Lease receivables consist primarily of
direct financing leases on rolling stock, equipment and real property. Lease
receivables are stated at the total amount of lease payments receivable plus
guaranteed residual values, less unearned income. Recognition of income over
the lives of the lease contracts approximates the level-yield method.
As of January 1, 1995, BB&T adopted SFAS No. 114, "ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN," which was amended by SFAS No. 118, "ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURES." SFAS
No. 114, as amended, requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral-dependent.
A loan is impaired when, based on current information and events, it is
probable that BB&T will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When the measure of the impaired loan
is less than the recorded investment in the loan, the impairment is recorded
through a valuation allowance. BB&T had previously measured the allowance for
credit losses using methods similar to those prescribed in SFAS No. 114. As a
result of adopting these statements, no additional allowance for loan losses
was required as of January 1, 1995.
10
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BB&T's policy is to disclose all commercial loans greater than $250,000
that are on nonaccrual status as impaired loans. Substantially all other loans
made by BB&T are excluded from the scope of SFAS No. 114 as they are large
groups of smaller balance homogeneous loans (residential mortgage and consumer
installment) that are collectively evaluated for impairment.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is the estimated amount required
to maintain the allowance for loan and lease losses at a level adequate to
cover estimated incurred losses related to loans and leases currently
outstanding. The primary factors considered in determining the allowance are
the distribution of loans by risk class, the amount of the allowance
specifically allocated to nonperforming loans and other problem loans, prior
years' loan loss experience, economic conditions in BB&T's market areas and the
growth of the credit portfolio. While management uses the best information
available in establishing the allowance for losses, future adjustments to the
allowance may be necessary if economic conditions differ substantially from the
assumptions used in making the valuations or if required by regulators based
upon information at the time of their examinations. Such adjustments to
original estimates, as necessary, are made in the period in which these factors
and other relevant considerations indicate that loss levels may vary from
previous estimates.
NONPERFORMING ASSETS
Nonperforming assets include loans and leases on which interest is not
being accrued and foreclosed property. Foreclosed property consists of real
estate and other assets acquired through customers' loan defaults.
Commercial and unsecured consumer loans and leases are generally placed on
nonaccrual status when concern exists that principal or interest is not fully
collectible, or when any portion of principal or interest becomes 90 days past
due, whichever occurs first. Mortgage loans and most other consumer loans past
due 90 days or more may remain on accrual status if management determines that
concern over the collectability of principal and interest is not significant.
When loans are placed on nonaccrual status, interest receivable is reversed
against interest income in the current period. Interest payments received
thereafter are applied as a reduction to the remaining principal balance when
concern exists as to the ultimate collection of the principal. Loans and leases
are removed from nonaccrual status when they become current as to both
principal and interest and when concern no longer exists as to the
collectability of principal or interest.
Assets acquired as a result of foreclosure are valued at the lower of cost
or fair value, and carried thereafter at the lower of cost or fair value less
estimated costs to sell the asset. Cost is the sum of unpaid principal, accrued
but unpaid interest and acquisition costs associated with the loan. Any excess
of unpaid principal over fair value at the time of foreclosure is charged to
the allowance for losses. Generally, such properties are appraised annually and
the carrying value, if greater than the fair value, less costs to sell, is
adjusted with a charge to income. Routine maintenance costs, declines in market
value and net losses on disposal are included in other noninterest expense.
PREMISES AND EQUIPMENT
Premises, equipment, capital leases and leasehold improvements are stated
at cost less accumulated depreciation or amortization. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized on a straight-line
basis over the lesser of the lease terms or the estimated useful lives of the
improvements. Capitalized leases are amortized by the same methods as premises
and equipment over the estimated useful lives or the lease term, whichever is
lesser. Obligations under capital leases are amortized using the interest
method to allocate payments between principal reduction and interest expense.
INCOME TAXES
BB&T and its subsidiaries file a consolidated Federal income tax return.
Each subsidiary pays its calculated portion of Federal income taxes to BB&T to
the extent that tax benefits are realized. Deferred income taxes have been
provided where different accounting methods have been used in determining
income for income tax purposes and for financial reporting purposes. Deferred
tax assets and liabilities are recognized based on future tax consequences of
the differences arising from their carrying values and respective tax bases. In
the event of changes in the tax laws, deferred tax assets and liabilities are
adjusted in the period of the enactment of those changes, with effects included
in the income tax provision.
11
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Institutions acquired during the current fiscal year file separate Federal
income tax returns for the periods prior to consummation of the acquisitions.
DERIVATIVES AND OFF-BALANCE SHEET INSTRUMENTS
BB&T utilizes a variety of derivative financial instruments to manage
various financial risks. These instruments include financial forward and
futures contracts, options written and purchased, interest rate caps and floors
and interest rate swaps. Management accounts for these financial instruments as
hedges when the following conditions are met: (1) the specific assets,
liabilities, firm commitments or anticipated transactions (or an identifiable
group of essentially similar items) to be hedged expose BB&T to interest rate
risk or price risk; (2) the financial instrument reduces that exposure; (3) the
financial instrument is designated as a hedge at inception; and (4) at the
inception of the hedge and throughout the hedge period, there is a high
correlation of changes in the fair value or the net interest income associated
with the financial instrument and the hedged items.
The net interest payable or receivable on interest rate swaps, caps and
floors that are designated as hedges is accrued and recognized as an adjustment
to the interest income or expense of the related asset or liability. For
interest rate forwards, futures and options qualifying as a hedge, gains and
losses are deferred and are recognized in income as an adjustment of yield.
Gains and losses from early terminations of derivatives are deferred and
amortized as yield adjustments over the shorter of the remaining term of the
hedged asset or liability or the remaining term of the derivative instrument.
Upon disposition or settlement of the asset or liability being hedged, deferral
accounting is discontinued and any gains or losses are recognized in income.
Derivative financial instruments that fail to qualify as a hedge are carried at
fair value with gains and losses recognized in current earnings.
BB&T utilizes written covered over-the-counter call options on specific
securities in the available-for-sale securities portfolio in order to enhance
returns. Fees received are deferred and recognized in noninterest income upon
exercise or expiration. Written options are carried at estimated fair value.
Unrealized and realized gains and losses on written call options are included
with securities gains and losses.
BB&T also utilizes over-the-counter purchased put options and net
purchased put options (combination of purchased put option and written call
option) in its mortgage banking activities. These options are used to hedge the
mortgage warehouse and pipeline against increasing interest rates. Written call
options are used in tandem with purchased put options to create a net purchased
put option that reduces the cost of the hedge. Net unrealized gains and losses
on purchased put options and net purchased put options are carried with loans
held for sale at the lower of cost or market on an aggregate basis. Realized
gains and losses on purchased put options and net purchased put options are
included in mortgage banking income.
PER SHARE DATA
Effective December 31, 1997, BB&T adopted the provisions of SFAS No. 128,
"EARNINGS PER SHARE." This statement establishes standards for computing and
presenting earnings per share ("EPS") and simplifies the standards for
computation previously found in Accounting Principles Board ("APB") Opinion No.
15, "EARNINGS PER SHARE," making them more comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires dual presentation of basic and diluted EPS (which
replaces the former fully diluted EPS) for all entities with complex capital
structures. The EPS information reported herein reflects the implementation of
SFAS No. 128. Prior periods have been restated to include the provisions of the
statement.
Basic net income per common share has been computed by dividing net income
applicable to common shares by the weighted average number of shares of common
stock outstanding during the years presented.
Diluted net income per common share has been computed by dividing net
income, as adjusted for the interest expense related to convertible debt in
prior years, by the weighted average number of shares of common stock, common
stock equivalents and other potentially dilutive securities outstanding during
the years. Other potentially dilutive securities include the number of shares
issuable upon conversion of the preferred stock. Restricted stock grants are
considered as issued for purposes of calculating net income per share.
12
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Weighted average numbers of shares were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
Basic ............ 287,480,712 287,535,321 287,924,835
Diluted .......... 292,470,468 293,756,819 300,156,255
</TABLE>
On June 23, 1998, BB&T's Board of Directors approved a 2-for-1 stock split
in the Corporation's common stock effected in the form of a 100% stock dividend
paid August 3, 1998. All per share amounts presented herein have been restated
to reflect the stock split.
INTANGIBLE ASSETS
BB&T's intangible assets consist of the cost in excess of the fair value
of net assets acquired in transactions accounted for as purchases (goodwill),
premiums paid on acquisitions of deposits (core deposit intangibles) and other
identifiable intangible assets. Such assets are included in other assets in the
"Consolidated Balance Sheets." Intangible assets are being amortized on
straight-line or accelerated bases over periods ranging from 5 to 25 years. At
December 31, 1997, BB&T had $207.0 million recorded as goodwill and $6.8
million as core deposit and other intangibles, net of amortization. Negative
goodwill is created when the fair value of the net assets purchased exceeds the
purchase price. Such balances are included in other liabilities in the
"Consolidated Balance Sheets" and are being amortized over periods ranging from
10 to 15 years. At December 31, 1997, BB&T had negative goodwill totaling $33.0
million, net of amortization.
MORTGAGE SERVICING RIGHTS
Amounts paid to acquire the right to service certain mortgage loans are
capitalized and amortized over the estimated lives of the loans to which they
relate. In May 1995, the FASB issued SFAS No. 122, "ACCOUNTING FOR MORTGAGE
SERVICING RIGHTS," which amends SFAS No. 65, "ACCOUNTING FOR CERTAIN MORTGAGE
BANKING ACTIVITIES." This statement was superseded by SFAS No. 125, "ACCOUNTING
FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES," which BB&T adopted on January 1, 1997. SFAS No. 122, as
superseded by SFAS No. 125, requires that mortgage banking enterprises
recognize, as separate assets, rights to service mortgage loans for others,
however those servicing rights are acquired. The statement further requires
mortgage banking enterprises to assess their capitalized mortgage servicing
rights for impairment based on the fair value of those rights. BB&T elected, in
the third quarter of 1995, to adopt this statement effective as of January 1,
1995. The impact of the adoption of this statement resulted in additional
mortgage banking income of $7.6 million, before taxes, or $.02 per diluted
share, after taxes, during 1995. SFAS No. 125 prohibits retroactive application
to prior years. At December 31, 1997, BB&T had capitalized mortgage servicing
rights totaling $68.8 million.
CHANGES IN ACCOUNTING PRINCIPLES AND EFFECTS OF NEW ACCOUNTING
PRONOUNCEMENTS
During 1995, the FASB issued SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF." This
statement establishes accounting standards for long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and to
be disposed of. The statement requires such assets to be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Any resulting impairment
loss is required to be reported in the period in which the recognition criteria
are first applied and met. BB&T adopted the provisions of the statement on
January 1, 1996. The implementation did not have a material impact on the
consolidated financial position or consolidated results of operations.
In October of 1995, the FASB issued SFAS No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," which establishes financial accounting and reporting
standards for stock-based compensation plans. The statement defines a fair
value based method of accounting for an employee stock option or similar equity
instrument and encourages the adoption of that method of accounting. However,
the statement also allows entities to continue to account for such plans under
Accounting Principles Board Opinion No. 25. Entities electing to continue to
account for stock-based compensation plans in accordance with Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in the statement had been
applied. BB&T adopted the statement effective January 1, 1996 and elected to
continue to account for stock-based compensation plans under the provisions of
Opinion No. 25. Therefore, the implementation of the statement did not have an
impact on BB&T's consolidated financial position or consolidated results of
operations. The required pro forma disclosures relating to SFAS No. 123 are
presented in Note J.
13
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June of 1996, the FASB issued SFAS No. 125, "ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES," which
provides accounting and reporting standards for such transactions based on
consistent application of a financial components approach. This approach
recognizes the financial and servicing assets an entity controls and the
liabilities it has incurred, as well as derecognizes financial assets when
control has been surrendered and liabilities when they are extinguished. The
statement requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at
fair value, if practicable. It also requires that servicing assets and other
retained interests in the transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of transfer.
In December 1996, the FASB issued SFAS No. 127, "DEFERRAL OF THE EFFECTIVE DATE
OF CERTAIN PROVISIONS OF FASB STATEMENT NO. 125." This statement allows the
implementation of certain provisions of SFAS No. 125 to be deferred for one
year. BB&T adopted SFAS No. 125, as amended by SFAS No. 127, effective January
1, 1997. The adoption of these statements did not have a material impact on
BB&T's consolidated financial position or consolidated results of operations.
In February of 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE,"
as discussed above. The statement was effective for financial statements issued
for periods ending after December 15, 1997, including interim periods, and
requires restatement of all prior periods presented. Accordingly, BB&T adopted
the provisions of the statement effective December 31, 1997, including
retroactive restatement of prior periods. The implementation of the statement
did not have a material impact on BB&T's consolidated financial position or
consolidated results of operations.
In February of 1997, the FASB issued SFAS No. 129, "DISCLOSURE OF
INFORMATION ABOUT CAPITAL STRUCTURE," which establishes standards for
disclosing information about an entity's capital structure by continuing and
amending existing standards. The statement was effective for financial
statements for periods ending after December 15, 1997. Management determined
that BB&T was and is in compliance with the disclosure requirements of SFAS No.
129, and, therefore, the implementation of the statement did not affect the
capital structure disclosures made by BB&T.
In June of 1997, the FASB issued SFAS No. 130, "REPORTING COMPREHENSIVE
INCOME," which establishes standards for reporting and displaying comprehensive
income (revenues, expenses, gains and losses) in a full set of general purpose
financial statements. Comprehensive income is the nonshareholder-related change
in equity (net assets) of a company during a period from transactions and other
events. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997, including interim periods, and requires restatement of all prior periods
presented. BB&T adopted the provisions of the statement effective January 1,
1998, including retroactive application to prior periods. The standard does not
address issues of recognition or measurement of comprehensive income;
therefore, the implementation of the statement did not have a material impact
on BB&T's consolidated financial position or consolidated results of
operations.
In June of 1997, the FASB issued SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION," which establishes standards for the
way that business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for periods
beginning after December 15, 1997, and requires restatement of all prior
periods presented. The standard does not address issues of recognition or
measurement and, therefore, the implementation of the statement will not have
an impact on the consolidated financial position or consolidated results of
operations of BB&T, but will require additional disclosures.
In March of 1998, the FASB issued SFAS No. 132, "EMPLOYERS' DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS," which revises the disclosure
requirements for pensions and other postretirement benefit plans. SFAS No. 132
is effective for periods ending after December 15, 1997, and requires
restatement of all prior periods presented. The statement does not address
issues of recognition or measurement and, therefore, the implementation of the
statement will not have an impact on the consolidated financial position or
consolidated results of operations, but will require additional disclosures to
be made.
During the first quarter of 1998, the American Institute of Certified
Public Accountants issued Statement of Position ("SOP") No. 98-1, "ACCOUNTING
FOR COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE." SOP
98-1
14
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
requires capitalization of computer software costs that meet certain criteria.
The statement is effective for fiscal years beginning after December 15, 1998.
Management does not anticipate that the implementation of the SOP will have a
material effect on BB&T's consolidated financial position or consolidated
results of operations.
In June, 1998, the FASB issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES," which establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. The statement is effective for fiscal years
beginning after June 15, 1999, and cannot be applied retroactively. Management
has not yet quantified the impact of adopting SFAS No. 133 and has not
determined the timing of or method of our adoption of the statement. However,
the statement could increase volatility in earnings and other comprehensive
income.
During the second quarter of 1998, the American Institute of Certified
Public Accountants issued SOP 98-5, "ACCOUNTING FOR START-UP COSTS." SOP 98-5
provides guidance on the financial reporting of start-up costs and organization
costs, requiring start-up costs to be expensed as incurred. The SOP is
effective for fiscal years beginning after December 15, 1998. Adoption of the
statement is not expected to have a material impact on BB&T's consolidated
financial position or consolidated results of operations.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
As referenced in the "Consolidated Statements of Cash Flows," BB&T
acquired assets and assumed liabilities in transactions accounted for under the
purchase method of accounting. The fair values of these assets acquired and
liabilities assumed, at acquisition, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fair value of net assets acquired ................ $ 129,719 $ 4,994 $ 1,959
Purchase price ................................... (276,483) (31,056) (2,900)
---------- --------- --------
Excess of purchase price over net assets acquired $ (146,764) $ (26,062) $ (941)
========== ========= ========
</TABLE>
During the first quarter of 1996, BB&T redeemed all outstanding shares of
Convertible Preferred Stock. This transaction, a noncash financing activity,
resulted in the conversion of 733,869 shares of preferred stock into 4,334,692
shares of common stock.
INCOME AND EXPENSE RECOGNITION
Items of income and expense are recognized using the accrual basis of
accounting, except for some immaterial amounts.
NOTE B. ACQUISITIONS AND MERGERS
COMPLETED MERGERS AND ACQUISITIONS
PURCHASE TRANSACTIONS
On April 1, 1995, BB&T completed the purchase of The George Washington
Banking Corporation ("GWBC") and its principal subsidiary, The George
Washington National Bank of Alexandria, Virginia. GWBC shareholders received a
combination of $237,000 in cash and 220,563 shares of BB&T common stock in
exchange for all of the outstanding shares of GWBC common stock. In conjunction
with the acquisition, BB&T recorded $941,000 of goodwill which is being
amortized on a straight-line basis over 15 years.
On June 30, 1996, BB&T completed the purchase of certain fixed assets and
expiration rights to outstanding insurance policies from the James R. Lingle
Agency of Florence, South Carolina. In conjunction with the purchase, BB&T
recorded expiration rights totaling $1.7 million which are being amortized
using the straight-line method over 15 years.
15
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 28, 1996, BB&T became a majority shareholder of AutoBase
Information Systems, Inc., ("AutoBase") through the purchase of 51% of
AutoBase's outstanding common stock. In conjunction with this investment, BB&T
recorded $1.2 million in goodwill which is being amortized using the
straight-line method over 15 years.
During November 1996, BB&T completed the acquisitions of three insurance
agencies in South Carolina. On November 7, 1996, BB&T completed the acquisition
of the William Goldsmith Agency Inc. of Greenville, South Carolina through the
issuance of 70,207 shares of common stock (140,414 shares on a post-split
basis). On November 13, 1996, BB&T completed the acquisition of the C. Dan
Joyner Insurance Agency based in Greenville, South Carolina through the
issuance of 48,120 shares of common stock (96,240 shares on a post-split
basis). Boyle-Vaughan Associates, Inc. based in Columbia, South Carolina, was
acquired on November 22, 1996 through the issuance of 492,063 shares of common
stock (984,126 shares on a post-split basis). In conjunction with the purchase
of these agencies, BB&T recorded $17.9 million in goodwill, which is being
amortized using the straight-line method over 15 years.
On January 31, 1996, BB&T acquired Seaboard Bancorp, Inc. of Virginia
Beach, Virginia, in a transaction accounted for as a purchase. The acquisition
was accomplished through the payment of $8.8 million in cash. In conjunction
with the purchase, BB&T recorded $5.2 million in goodwill, which is being
amortized using the straight-line method over 15 years.
On March 1, 1997, BB&T completed its acquisition of Fidelity Financial
Bankshares Corporation ("Fidelity") of Richmond, Virginia, in a transaction
accounted for as a purchase. BB&T issued 1.6 million shares (3.2 million shares
on a post-split basis) for all of the shares of Fidelity's common stock
outstanding. In conjunction with the acquisition, BB&T recorded $37.9 million
in goodwill, which is being amortized using the straight-line method over 15
years.
On May 20, 1997, BB&T purchased Phillips Factors Corporation ("Phillips")
and its subsidiaries, Phillips Financial Corporation and Phillips Acceptance
Corporation, all of High Point, North Carolina. Phillips purchases and manages
receivables in the temporary staffing industry nationwide. It also provides
payroll processing services to that industry. Phillips also buys and manages
account receivables primarily in the furniture, textiles and home
furnishings-related industries. In conjunction with the acquisition, BB&T
recorded $11.1 million of goodwill which is being amortized using the
straight-line method over 15 years.
On July 31, 1997, BB&T completed its acquisition of Refloat, Inc. of Mount
Airy, North Carolina, and its principal subsidiary, Sheffield Financial Corp.
(collectively, "Refloat"), a financial company that specializes in loans to
small commercial lawn care businesses across the country. The acquisition,
which was completed through the issuance of 375,000 shares of common stock
(750,000 shares on a post-split basis), was accounted for as a purchase. BB&T
recorded $3.0 million of goodwill which is being amortized using the
straight-line method over 15 years in conjunction with this transaction.
On October 1, 1997, BB&T completed its acquisition of Craigie Incorporated
("Craigie"), an investment banking firm located in Richmond, Virginia. Craigie
specializes in the origination, trading and distribution of fixed-income
securities and equity products in both the public and private capital markets.
Craigie also has a public finance department that provides investment banking
services, financial advisory services and municipal bond financing to a variety
of regional tax-exempt issuers. The acquisition, which was accounted for as a
purchase, was accomplished through the issuance of approximately 463,000 shares
of BB&T's common stock (926,000 shares on a post-split basis). In conjunction
with the acquisition, BB&T recorded $6.8 million of goodwill, which is being
amortized using the straight-line method over a period of 25 years.
On December 1, 1997, BB&T completed its acquisition of Virginia First
Financial Corporation of Petersburg, Virginia ("Virginia First"), a financial
institution with $822.9 million in assets at the time of purchase. The merger,
which was accounted for under the purchase method of accounting, was
consummated through the issuance of 1.9 million shares of BB&T's common stock
(3.8 million shares on a post-split basis) and the payment of $44.8 million. In
conjunction with the acquisition, BB&T recorded $89.5 million in goodwill,
which is being amortized using the straight-line method over a period of 15
years.
On June 18, 1998, BB&T completed the acquisition of Dealers' Credit Inc.
("DCI"), of Menomonee Falls, Wisconsin. DCI specializes in extending credit to
commercial, agricultural, municipal and consumer users for the purchase of lawn
care equipment. In conjunction with the transaction, BB&T recorded $9.5 million
of goodwill, which is being amortized using the straight-line method over 15
years.
16
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 30, 1998, BB&T completed its acquisition of W.E. Stanley & Company
Inc., and its subsidiaries, (collectively, "Stanley"), located in Greensboro,
North Carolina. Stanley, the largest actuarial, consulting and administration
firm headquartered in the Carolinas, primarily manages retirement plans for
companies and has more than 700 clients located mostly in the Carolinas,
Virginia, Maryland and Tennessee. In conjunction with the acquisition, BB&T
recorded $10.3 million of goodwill, which is being amortized using the
straight-line method over 15 years.
The above-discussed acquisitions were accounted for under the purchase
method of accounting, and, therefore, the financial information contained
herein includes data relevant to the acquirees since the date of acquisition.
The following unaudited presentation reflects key line items on a Pro Forma
basis as if Fidelity, Phillips, Refloat, Craigie, Virginia First, DCI and
Stanley had been acquired as of the beginning of the years presented:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues ......... $ 1,669,359 $ 1,477,071
=========== ===========
Net income ............. $ 354,913 $ 350,163
=========== ===========
Basic EPS .............. $ 1.23 $ 1.22
=========== ===========
Diluted EPS ............ $ 1.21 $ 1.19
=========== ===========
</TABLE>
Under the provisions of SFAS No. 38, "ACCOUNTING FOR PREACQUISITION
CONTINGENCIES OF PURCHASE ENTERPRISES," BB&T typically provides an allocation
period, not to exceed one year, to identify and quantify the assets acquired
and liabilities assumed in purchase business combinations. Management currently
does not anticipate any material adjustments to the assigned values of the
assets and liabilities of acquired companies.
POOLING OF INTERESTS TRANSACTIONS
On February 28, 1995, BB&T (formerly Southern National Corporation) and
BB&T Financial Corporation completed a merger accounted for as a pooling of
interests. BB&T Financial Corporation's shareholders received 57.9 million
shares of the common stock (115.8 million shares on a post-split basis) of the
resulting company for all of the shares of BB&T Financial Corporation stock
held. On January 10, 1995, BB&T acquired Commerce Bank (subsequently, BB&T-VA)
through the issuance of 5.2 million shares of BB&T common stock for all of the
outstanding stock of Commerce Bank.
On April 28, 1995, BB&T issued 75,273 shares of common stock (150,546
shares on a post-split basis) to complete an acquisition of United Agencies,
Inc., a general insurance agency located in Wilmington, North Carolina. The
transaction was accounted for under the pooling-of-interests method of
accounting.
Effective January 25, 1996, BB&T consummated a merger with Seaboard
Savings Bank, Inc. ("Seaboard"), headquartered in Plymouth, North Carolina.
BB&T issued 475,158 shares of common stock (950,316 shares on a post-split
basis) for all of the outstanding shares of Seaboard common stock. The
transaction was accounted for as a pooling of interests.
Effective March 29, 1996, BB&T consummated a merger with Triad Bank
("Triad") headquartered in Greensboro, North Carolina. BB&T issued 1.8 million
shares of common stock (3.6 million shares on a post-split basis) for all of
the outstanding shares of Triad common stock. The transaction was accounted for
as a pooling of interests.
On August 30, 1996, BB&T issued 42,135 shares of common stock (84,270
shares on a post-split basis) to complete the acquisition of Tomlinson
Insurers, Inc., a general insurance agency in Fayetteville, North Carolina. The
transaction was accounted for under the pooling-of-interests method of
accounting.
On September 1, 1996, BB&T completed a merger with Regional Acceptance
Corporation of Greenville, N.C. ("Regional Acceptance") in a transaction
accounted for as a pooling of interests. BB&T issued 5.85 million shares (11.7
million shares on a post-split basis) in exchange for all of the outstanding
stock of Regional Acceptance.
17
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 1, 1997, BB&T completed its merger with United Carolina Bancshares
Corporation ("UCB") of Whiteville, North Carolina, in a stock transaction
accounted for as a pooling of interests. BB&T issued 27.7 million shares of
common stock (55.4 million shares on a post-split basis) in exchange for all of
the shares of UCB common stock outstanding.
On March 1, 1998, BB&T completed its merger with Life Bancorp, Inc.
("Life") of Norfolk, Virginia. The transaction was accounted for as a pooling
of interests. In conjunction with the merger, BB&T issued 5.8 million shares of
common stock (11.6 million shares on a post-split basis) in exchange for all of
the shares of Life common stock outstanding.
On July 1, 1998, BB&T completed its merger with Franklin Bancorporation
Inc. ("Franklin") of Washington, D.C. in a stock transaction accounted for
under the pooling-of-interests method of accounting. In conjunction with the
merger, BB&T issued 2.5 million shares of common stock (4.9 million shares on a
post-split basis) in exchange for all of the shares of Franklin common stock
outstanding.
The following presentation reflects key line items on an historical basis
for BB&T and Franklin and on a pro forma combined basis assuming the merger was
effective as of and for the periods presented.
<TABLE>
<CAPTION>
HISTORICAL BASIS
--------------------------
BB&T
BB&T FRANKLIN RESTATED
--------------- ---------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
1997
- ----
Net interest income .......... $ 1,136,993 $ 21,532 $ 1,158,525
Net income ................... 354,450 5,968 360,418
Earnings per share
Basic ...................... 1.26 .91 1.25
Diluted .................... 1.23 .86 1.23
Assets ....................... 30,642,799 647,448 31,290,247
Deposits ..................... 20,948,177 427,798 21,375,975
Shareholders' equity ......... 2,399,827 39,283 2,439,110
1996
- ----
Net interest income .......... $ 1,041,904 $ 18,290 $ 1,060,194
Net income ................... 338,789 4,523 343,312
Earnings per share
Basic ...................... 1.19 .71 1.19
Diluted .................... 1.17 .68 1.17
Assets ....................... 27,127,408 497,817 27,625,225
Deposits ..................... 19,735,662 363,427 20,099,089
Shareholders' equity ......... 2,222,505 31,893 2,254,398
</TABLE>
PENDING ACQUISITIONS
On February 25, 1998, BB&T announced plans to acquire Maryland Federal
Bancorp, Inc. ("Maryland Federal") of Hyattsville, Maryland in a stock
transaction to be accounted for as a purchase. Maryland Federal shareholders
will receive no less than 1.195 and no greater than 1.2204 shares of BB&T
common stock in exchange for each share of Maryland Federal stock held.
On August 10, 1998, BB&T announced plans to merge with Scott &
Stringfellow Financial, Inc. ("Scott & Stringfellow"), an investment banking
firm based in Richmond, Virginia. The transaction will be accounted for as a
purchase. Scott & Stringfellow shareholders will receive one share of BB&T
common stock in exchange for each share of Scott & Stringfellow common stock
held. The merger is expected to be completed in the first quarter of 1999.
On August 26, 1998, BB&T announced plans to merge with MainStreet
Financial Corporation ("MainStreet"), based in Martinsville, Virginia. The
transaction will be accounted for as a pooling of interests. MainStreet
shareholders will receive 1.18 shares of BB&T common stock in exchange for each
share of MainStreet stock held. The merger is expected to be completed during
the first quarter of 1999.
18
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C. SECURITIES
The amortized costs and approximate fair values of securities held to
maturity and available for sale were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
------------- --------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury, government
and agency obligations ............ $ 46,338 $ 326 $ 84 $ 46,580
Mortgage-backed securities .......... 33,550 71 982 32,639
States and political
subdivisions ...................... 150,369 4,120 72 154,417
---------- ------- ------ ----------
Total securities held to
maturity .......................... 230,257 4,517 1,138 233,636
---------- ------- ------ ----------
Securities available for sale:
U.S. Treasury, government
and agency obligations ............ 4,397,252 33,408 5,573 4,425,087
Mortgage-backed securities .......... 2,356,469 43,515 3,130 2,396,854
Equity and other securities ......... 414,260 12,583 2 426,841
States and political
subdivisions ...................... 46,898 479 31 47,346
---------- ------- ------ ----------
Total securities available for
sale .............................. 7,214,879 89,985 8,736 7,296,128
---------- ------- ------ ----------
Total securities .................... $7,445,136 $94,502 $9,874 $7,529,764
========== ======= ====== ==========
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
------------- --------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury, government
and agency obligations ............ $ 24,241 $ -- $ 201 $ 24,040
Mortgage-backed securities .......... 178,222 1,310 2,249 177,283
States and political
subdivisions ...................... 176,275 5,132 270 181,137
---------- ------- ------- ----------
Total securities held to
maturity .......................... 378,738 6,442 2,720 382,460
---------- ------- ------- ----------
Securities available for sale:
U.S. Treasury, government
and agency obligations ............ 4,073,388 17,893 13,806 4,077,475
Mortgage-backed securities .......... 2,299,763 35,598 16,662 2,318,699
Equity and other securities ......... 300,144 2 2 300,144
States and political
subdivisions ...................... 23,985 168 176 23,977
---------- ------- ------- ----------
Total securities available for
sale .............................. 6,697,280 53,661 30,646 6,720,295
---------- ------- ------- ----------
Total securities .................... $7,076,018 $60,103 $33,366 $7,102,755
========== ======= ======= ==========
</TABLE>
Securities with a book value of approximately $3.8 billion and $3.2
billion at December 31, 1997 and 1996, respectively, were pledged to secure
municipal deposits, securities sold under agreements to repurchase, Federal
Reserve discount window borrowings and for other purposes as required by law.
At December 31, 1997 and 1996, there was no concentration of investments
in obligations of states and political subdivisions that were secured by or
payable from the same taxing authority or revenue source and that exceeded ten
percent of shareholders' equity. Trading securities totaling $67.9 million are
excluded from the accompanying tables. These securities are reported at fair
value with net unrealized gains of $.7 million included in earnings during
1997.
Proceeds from sales of securities during 1997, 1996 and 1995 were $1.6
billion, $612.8 million and $1.4 billion, respectively. Gross gains of $6.8
million, $5.5 million and $3.7 million and gross losses of $3.6 million, $2.3
million and $23.1 million were realized on those sales in 1997, 1996 and 1995,
respectively.
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1997, by contractual maturity, are shown in the accompanying
table. The expected life of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or prepay
the underlying mortgage loans with or without call or prepayment penalties. For
purposes of the maturity table, mortgage-backed securities, which are not due
at a single maturity date, have been allocated over maturity groupings based on
the weighted average contractual maturities of underlying collateral.
19
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
----------------------- --------------------------
ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES:
Due in one year or less ................ $ 53,661 $ 53,668 $ 761,004 $ 771,687
Due after one year through five years .. 112,132 115,290 3,646,752 3,662,298
Due after five years through ten years . 28,721 29,639 424,649 426,368
Due after ten years .................... 35,743 35,039 1,989,139 2,029,875
-------- -------- ---------- ----------
Total debt securities ................ $230,257 $233,636 $6,821,544 $6,890,228
======== ======== ========== ==========
</TABLE>
NOTE D. LOANS AND LEASES
Loans and leases were composed of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans:
Commercial, financial and agricultural ....... $ 3,196,973 $ 2,855,907
Real estate -- construction and land development 2,165,430 1,567,804
Real estate -- mortgage ...................... 12,050,763 10,709,263
Consumer ..................................... 2,756,554 2,837,014
----------- -----------
Loans held for investment .................. 20,169,720 17,969,988
----------- -----------
Leases ........................................ 788,462 576,991
----------- -----------
Total loans and leases .................. 20,958,182 18,546,979
Less: unearned income ................ 233,453 164,113
----------- -----------
Loans and leases, net of unearned income. $20,724,729 $18,382,866
=========== ===========
</TABLE>
The net investment in direct financing leases was $616.3 million and
$470.5 million at December 31, 1997 and 1996, respectively. BB&T had loans held
for sale at December 31, 1997 and 1996 totaling $509.1 million and $228.3
million, respectively.
BB&T's only significant concentration of credit at December 31, 1997
occurred in loans secured by real estate, which totaled $14.7 billion. However,
this amount was not concentrated in any specific market or geographic area
other than the Banks' primary markets.
The following table sets forth certain information regarding BB&T's
impaired loans as defined under SFAS No. 114.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total recorded investment -- impaired loans .................... $32,470 $28,409
------- -------
Total recorded investment with related valuation allowance ..... 32,470 27,331
Valuation allowance assigned to impaired loans ................. 3,493 6,216
------- -------
Net carrying value -- impaired loans ......................... $28,977 $21,115
======= =======
Average balance of impaired loans .............................. $24,012 $33,119
======= =======
Cash basis interest income recognized on impaired loans ........ $ 211 $ 569
======= =======
</TABLE>
20
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides an analysis of loans made to directors,
executive officers and their interests, which in the aggregate exceeded $60,000
at any time during 1997. All amounts shown represent loans made by BB&T's
subsidiary banks in the ordinary course of business at the Banks' normal credit
terms, including interest rate and collateralization prevailing at the time for
comparable transactions with other persons.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Balance, December 31, 1996 .......... $ 180,095
Additions ........................... 43,799
Repayments .......................... (34,965)
---------
Balance, December 31, 1997 .......... $ 188,929
=========
</TABLE>
NOTE E. ALLOWANCE FOR LOAN AND LEASE LOSSES
An analysis of the allowance for loan and lease losses is presented in the
following table:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, January 1 ..................... $ 243,568 $ 226,933 $ 222,306
Provision for losses charged to expense 98,010 62,273 42,559
Allowances of purchased companies ...... 17,513 5,185 579
--------- --------- ---------
359,091 294,391 265,444
--------- --------- ---------
Total charge-offs ...................... (97,829) (71,011) (54,222)
Recoveries ............................. 18,334 20,188 15,711
--------- --------- ---------
Net charge-offs ...................... (79,495) (50,823) (38,511)
--------- --------- ---------
$ 279,596 $ 243,568 $ 226,933
========= ========= =========
</TABLE>
At December 31, 1997, 1996 and 1995, loans not currently accruing interest
totaled $99.9 million, $65.6 million and $72.0 million, respectively. Loans 90
days or more past due and still accruing interest totaled $44.4 million, $41.9
million and $34.7 million, at December 31, 1997, 1996 and 1995, respectively.
The gross interest income that would have been earned during 1997 if the
outstanding nonaccrual loans and leases had been current in accordance with the
original terms and had been outstanding throughout the period (or since
origination, if held for part of the period) was approximately $7.2 million.
Foreclosed property was $34.9 million, $29.1 million and $19.5 million at
December 31, 1997, 1996 and 1995, respectively.
NOTE F. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land and land improvements ................... $ 74,617 $ 66,676
Buildings and building improvements .......... 313,800 301,594
Furniture and equipment ...................... 344,983 285,973
Capitalized leases on premises and equipment . 3,647 3,804
-------- --------
Subtotal .................................... 737,047 658,047
Less -- accumulated depreciation and amortization302,787 263,121
-------- --------
Net premises and equipment .................. $434,260 $394,926
======== ========
</TABLE>
Depreciation expense, which is included in occupancy and equipment
expense, was $59.0 million, $46.4 million and $43.0 million in 1997, 1996 and
1995, respectively.
21
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BB&T has noncancellable leases covering certain premises and equipment.
Total rent expense applicable to operating leases was $46.5 million, $29.9
million and $34.1 million for 1997, 1996 and 1995, respectively. Future minimum
lease payments for operating and capitalized leases for years subsequent to
1997 are as follows:
<TABLE>
<CAPTION>
LEASES
------------------------
OPERATING CAPITALIZED
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Years ended December 31:
1998 ................................................. $ 22,961 $ 450
1999 ................................................. 21,865 450
2000 ................................................. 21,378 450
2001 ................................................. 20,474 450
2002 ................................................. 17,459 450
2003 and years later ................................. 85,785 4,547
-------- ------
Total minimum lease payments .......................... $189,922 6,797
========
Less -- amount representing interest .................. 3,506
------
Present value of net minimum payments on capitalized leases
(Note I) ............................................. $3,291
======
</TABLE>
NOTE G. LOAN SERVICING
The following is a summary of capitalized mortgage servicing rights, net
of accumulated amortization and adjustments necessary to present the balances
at the lower of cost or estimated fair value, which are included in the
"Consolidated Balance Sheets:"
<TABLE>
<CAPTION>
CAPITALIZED MORTGAGE
SERVICING RIGHTS
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance, January 1, .................. $ 41,891 $ 21,948
Amount capitalized ................... 39,093 26,356
Amortization expense ................. (9,561) (6,197)
Change in valuation allowance ........ (2,643) (216)
-------- --------
Balance, December 31, ................ $ 68,780 $ 41,891
======== ========
</TABLE>
Capitalized mortgage servicing rights are being amortized on a
disaggregated loan basis using an accelerated method over the estimated life of
the servicing income. The servicing rights portfolio is analyzed each quarter
to identify possible impairment using a disaggregated discounted cash flow
methodology that is stratified by predominant risk characteristics. These
characteristics include stratification based on interest rates in intervals of
150 basis points, type of loan and maturity of loan. Following is an analysis
of the aggregate changes in the valuation allowances for mortgage servicing
rights in 1997 and 1996:
<TABLE>
<CAPTION>
VALUATION ALLOWANCE
FOR MORTGAGE
SERVICING RIGHTS
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Balance, January 1, 1996 ........... $ 499
Additions .......................... 1,184
Reductions ......................... (968)
------
Balance, December 31, 1996 ......... 715
------
Additions .......................... 3,257
Reductions ......................... (614)
------
Balance, December 31, 1997 ......... $3,358
======
</TABLE>
22
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage loans serviced for others are not included in the accompanying
"Consolidated Balance Sheets." The unpaid principal balances of mortgage loans
serviced for others were $8.2 billion and $7.7 billion at December 31, 1997 and
1996, respectively.
NOTE H. SHORT-TERM BORROWED FUNDS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Federal funds purchased ....................... $ 898,160 $ 729,995
Term Federal funds purchased .................. -- 50,000
Securities sold under agreements to repurchase 1,434,221 1,038,408
Master notes .................................. 638,325 566,225
U.S. Treasury tax and loan deposit notes payable 105,851 101,681
Short-term Federal Home Loan Bank advances .... 155,810 150,000
Short-term bank notes ......................... 208,079 --
Other short-term borrowed funds ............... 11,439 2,608
---------- ----------
Total short-term borrowed funds .............. $3,451,885 $2,638,917
========== ==========
</TABLE>
Federal funds purchased represent unsecured borrowings from other banks
and generally mature daily. Term Federal funds purchased are identical to
Federal funds; however, maturities vary and are greater than one day.
Securities sold under agreements to repurchase are borrowings collateralized by
securities of the U.S. Government or its agencies and have maturities ranging
from one to ninety days. U.S. Treasury tax and loan deposit notes payable are
payable upon demand to the U.S. Treasury. Master notes are unsecured,
non-negotiable obligations of BB&T (variable rate commercial paper). Short-term
Federal Home Loan Bank advances are typically unsecured and generally mature
daily.
NOTE I. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Capitalized leases, varying maturities to 2028 with rates from 8.11% to 12.65%. Balance
represents the unamortized amounts due on leases of various facilities. ................ $ 3,291 $ 3,561
Medium-term bank notes, unsecured, varying maturities to 2001 with rates from 5.69% to
6.20%. ................................................................................. 1,024,833 424,794
Advances from Federal Home Loan Bank, varying maturities to 2017 with rates from 1.00%
to 8.95%. .............................................................................. 2,038,500 1,637,682
Subordinated Notes, unsecured, dated May 21, 1996 and June 3, 1997, maturing May 23,
2003 and June 15, 2007, with interest rates of 7.05% and 7.25%, respectively* .......... 495,589 248,019
CMO Bonds, secured by investments, dated 1985, callable July 1, 2001, with an interest
rate of 11.25%............................................................................ 8,112 --
Thrift Financing Corporation notes, secured by investments, dated 1985, due January 1,
2016, with an interest rate of 11.61%. ................................................. 4,261 5,227
Other mortgage indebtedness .............................................................. 931 1,695
---------- ----------
Total long-term debt .................................................................. $3,575,517 $2,320,978
========== ==========
</TABLE>
- ---------
* Subordinated notes qualify under the risk-based capital guidelines as Tier 2
supplementary capital.
Excluding the capitalized leases set forth in Note F, future debt
maturities total $3.6 billion and are $445.2 million, $1.2 billion, $321.2
million, $424.7 million, and $258.7 million for the next five years. The
maturities for 2003 and later years are $972.1 million.
23
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J. SHAREHOLDERS' EQUITY
The authorized capital stock of BB&T consists of 500,000,000 shares of
common stock, $5 par value, and 5,000,000 shares of preferred stock, $5 par
value. At December 31, 1997, 144,084,061 shares of common stock and no shares
of preferred stock were issued and outstanding.
STOCK OPTION PLANS
At December 31, 1997, BB&T had the following stock-based compensation
plans: the 1994 and the 1995 Omnibus Stock Incentive Plans ("Omnibus Plans"),
the Incentive Stock Option Plan ("ISOP"), the Non-Qualified Stock Option Plan
("NQSOP") and the Non-Employee Directors' Stock Option Plan ("Directors'
Plan"), which are described below. BB&T accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined based on the fair value at
the grant dates for awards under those plans granted after December 31, 1994,
consistent with the method described by SFAS No. 123, BB&T's pro forma net
income and pro forma earnings per share would have been as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
------------- ------------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net income applicable to common shares:
As reported .......................... $ 360,418 $ 342,702 $234,720
Pro Forma ............................ 351,326 339,213 233,784
Basic EPS:
As reported .......................... 1.25 1.19 .82
Pro Forma ............................ 1.22 1.18 .81
Diluted EPS:
As reported .......................... 1.23 1.17 .80
Pro Forma ............................ 1.20 1.16 .80
</TABLE>
The SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995; therefore, the weighted average fair value of
options granted prior to that date has not been calculated. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in 1997, 1996 and 1995, respectively: dividend yield of 3.0% in 1997 and
3.5% in 1996 and 1995; expected volatility of 20% for all years; risk free
interest rates of 6.2%, 6.4% and 5.7% for 1997, 1996 and 1995, respectively;
and expected lives of 6.1 years, 6.5 years and 6.0 years for 1997, 1996 and
1995, respectively.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
In April, 1994 and February, 1995, the shareholders approved the Omnibus
Plans which cover the award of incentive stock options, non-qualified stock
options, shares of restricted stock, performance shares and stock appreciation
rights. In April, 1996, the shareholders approved an amendment to the 1995
Omnibus Plan that increased the maximum number of shares issuable under the
terms of the plan to 12,000,000 shares. The combined shares issuable under both
Omnibus Plans, after giving effect to the August 3, 1998, 2-for-1 stock split,
is 20,000,000. The Omnibus Plans are intended to allow BB&T to recruit and
retain employees with ability and initiative and to associate the employees'
interests with those of BB&T and its shareholders. At December 31, 1997,
6,190,447 incentive stock options at prices ranging from $4.29 to $20.36 and
4,306,732 non-qualified stock options at prices ranging from $.01 to $21.965
were outstanding. The stock options generally vest over 3 years and have a 10
year term.
The ISOP and the NQSOP were established to retain key officers and key
management employees and to offer them the incentive to use their best efforts
on behalf of BB&T. The plans, which expire on December 19, 2000, further
provide for up to 2,202,000 shares of common stock to be reserved for the
granting of options, which have a four year vesting schedule and must be
exercised within ten years from the date granted. Incentive stock options
granted must have an exercise price equal to at least 100% of the fair market
value of common stock on the date granted, and the non-qualified stock options
must have an exercise price equal to at least 85% of the fair market value on
the date granted. At December 31,
24
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997, options to purchase 516,334 shares of common stock at prices ranging from
$4.75 to $8.375 were outstanding pursuant to the NQSOP. At December 31,1997,
options to purchase 188,348 shares of common stock at an exercise price of
$9.8885 were outstanding pursuant to the ISOP.
The Directors' Plan is intended to provide incentives to non-employee
directors to remain on the Board of Directors and share in the profitability of
BB&T. The plan creates a deferred compensation system for participating
non-employee directors. Each non-employee director may elect to defer 0%, 50%
or 100% of the annual retainer fee for each calendar year and apply that
percentage toward the grant of options to purchase BB&T common stock. Such
elections are required to be in writing and are irrevocable for each calendar
year. The exercise price at which shares of BB&T common stock may be purchased
shall be equal to 75% of the market value of the common stock as of the date of
grant. Options are vested in six months and may be exercised anytime thereafter
until the expiration date, which is 10 years from the date of grant. The
Directors' Plan provides for the reservation of up to 1,800,000 shares of BB&T
common stock. At December 31, 1997, options to purchase 738,930 shares of
common stock at prices ranging from $6.3578 to $22.6024 were outstanding
pursuant to the Directors' Plan.
BB&T also has options outstanding from companies acquired in prior years.
These options, which have not been included in the plans described above,
totaled 488,562 as of December 31, 1997, with option prices ranging from
$1.3334 to $11.8535.
A summary of the status of the Company's stock option plans at December
31, 1997, 1996 and 1995 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- --------------------------
WTD. AVG. WTD. AVG. WTD. AVG.
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------- ----------- --------------- ----------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year .... 12,842,059 $ 9.33 13,908,434 $ 8.91 11,388,016 $ 7.40
Granted ............................. 2,204,348 18.49 328,447 12.29 3,851,176 12.45
Exercised ........................... (2,480,928) 7.64 (1,285,180) 5.73 (1,242,962) 5.46
Forfeited or Expired ................ (136,126) 13.74 (109,642) 7.85 (87,096) 9.67
---------- ------- ---------- ------ ---------- ------
Outstanding at end of year .......... 12,429,353 $ 11.24 12,842,059 $ 9.33 13,909,134 $ 8.91
========== ======= ========== ====== ========== ======
Options exercisable at year-end ..... 10,186,861 $ 9.72 10,000,171 $ 8.55 9,277,624 $ 7.67
</TABLE>
The weighted average fair value of options granted was $4.83, $3.78 and
$2.58 per option at December 31, 1997, 1996 and 1995, respectively.
The following table summarizes information about the options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- -------------------------- ------------- ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$0.01 .................... 1,996 5.0 yrs $ 0.01 1,996 $ 0.01
$1.33 to $1.84 ........... 27,142 6.1 1.44 27,142 1.44
$2.46 to $3.52 ........... 46,686 3.1 3.18 46,686 3.18
$3.72 to $5.54 ........... 716,826 3.5 4.62 716,826 4.62
$5.86 to $8.75 ........... 3,154,984 4.0 7.23 3,154,984 7.23
$9.06 to $13.38 .......... 6,416,064 7.0 11.46 5,962,040 11.45
$13.94 to $20.19 ......... 2,027,199 9.1 19.24 267,877 16.00
$20.36 to $22.60 ......... 38,456 9.9 22.16 9,310 20.79
--------- --- ------- --------- ------
12,429,353 6.4 yrs $ 11.24 10,186,861 $ 9.72
========== === ======= ========== ======
</TABLE>
25
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SHAREHOLDER RIGHTS PLAN
On January 17, 1997, pursuant to the Rights Agreement approved by the
Board of Directors, BB&T distributed to shareholders one preferred stock
purchase right for each share of BB&T's common stock then outstanding.
Subsequent to this date, all shares issued are accompanied by a stock purchase
right. Initially, the rights, which expire in 10 years, are not exercisable and
are not transferable apart from the common stock. The rights will become
exercisable only if a person or group acquires 20% or more of BB&T's common
stock, or BB&T's Board of Directors determines, pursuant to the terms of the
Rights Agreement, that any person or group that has acquired 10% or more of
BB&T's common stock is an "Adverse Person." Each right would then enable the
holder to purchase 1/100th of a share of a new series of BB&T preferred stock
at an initial exercise price of $145.00. The Board of Directors will be
entitled to redeem the rights at $.01 per right under certain circumstances
specified in the Rights Agreement.
Under the terms of the Rights Agreement, if any person or group becomes
the beneficial owner of 25% or more of BB&T's common stock, with certain
exceptions, or if the Board of Directors determines that any 10% or more
stockholder is an "Adverse Person," each right will entitle its holder (other
than the person triggering exercisability of the rights) to purchase, at the
right's then-current exercise price, shares of BB&T's common stock having a
value of twice the right's exercise price. In addition, if after any person or
group has become a 20% or more stockholder, BB&T is involved in a merger or
other business combination transaction with another person in which its common
stock is changed or converted, or sells 50% or more of its assets or earning
power to another person, each right will entitle its holder to purchase, at the
right's then-current exercise price, shares of common stock of such other
person having a value of twice the right's exercise price.
NOTE K. INCOME TAXES
The provision for income taxes was composed of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current expense:
Federal ........................ $ 194,049 $ 159,331 $ 131,456
State .......................... 9,830 5,413 7,223
--------- --------- ---------
203,879 164,744 138,679
Deferred expense (benefit) ....... (14,180) 3,762 (18,111)
--------- --------- ---------
Provision for income taxes ....... $ 189,699 $ 168,506 $ 120,568
========= ========= =========
</TABLE>
The reasons for the difference between the provision for income taxes and
the amount computed by applying the statutory Federal income tax rate to income
before income taxes were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rates of 35% ............. $ 192,541 $ 179,136 $ 126,128
Tax-exempt income from securities, loans and leases less
related non-deductible interest expense .................. (10,077) (8,190) (8,222)
State income taxes, net of Federal tax benefit ............. 5,506 3,963 3,925
Other, net ................................................. 1,729 (6,403) (1,263)
--------- --------- ---------
Provision for income taxes ................................. $ 189,699 $ 168,506 $ 120,568
========= ========= =========
Effective income tax rate .................................. 34.5% 32.9% 33.5%
========= ========= =========
</TABLE>
26
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that gave rise to significant
portions of the net deferred tax assets (liabilities) in the "Consolidated
Balance Sheets" were:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses ............................ $ 108,032 $ 92,228
Deferred compensation .......................................... 28,033 18,410
Postretirement benefits other than pensions .................... 16,850 18,488
Expense accruals ............................................... 16,115 2,861
Other .......................................................... 28,842 23,541
---------- ---------
Total tax deferred assets ....................................... 197,872 155,528
---------- ---------
Deferred tax liabilities:
Depreciation ................................................... (27,139) (24,367)
Net unrealized appreciation on securities available for sale ... (31,881) (9,512)
Lease financing ................................................ (19,193) (15,623)
Pension plan contribution ...................................... (9,839) (6,363)
Loan servicing rights .......................................... (9,745) (4,048)
Other .......................................................... (25,585) (23,196)
---------- ---------
Total tax deferred liabilities .................................. (123,382) (83,109)
---------- ---------
Net deferred tax asset .......................................... $ 74,490 $ 72,419
========== =========
</TABLE>
The deferred tax assets have been determined to be realizable, and,
accordingly, a valuation allowance was not required. At December 31, 1997,
there were no income tax credits or alternative minimum tax credit
carryforwards.
Securities transactions resulted in income tax expense (benefits) of $1.3
million, $1.3 million and ($8.0 million) related to securities gains (losses)
for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE L. BENEFIT PLANS
BB&T has various employee benefit plans and arrangements. Employees of
acquired entities typically participate in existing BB&T plans upon
consummation of the acquisitions. Credit is usually given to these employees
for years of service at the acquired institution. The combination of actuarial
information for the benefit plans of acquired entities is not meaningful
because the benefits offered in those plans and assumptions used in the
calculations related to those plans are superseded by the benefits offered in
the BB&T plans and the assumptions used in the BB&T calculations. Accordingly,
the actuarial information presented for retirement plans and postretirement
benefits is that of BB&T as originally presented. The following table discloses
expenses relating to employee benefit plans restated for transactions accounted
for as poolings of interests.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Defined benefit plans ........................ $13,246 $12,494 $18,921
Defined contribution and ESOP plans .......... 27,537 13,295 11,913
------- ------- -------
Total expense related to benefit plans ..... $40,783 $25,789 $30,834
======= ======= =======
</TABLE>
RETIREMENT PLANS
BB&T has a retirement plan that covers substantially all employees.
Benefits are based on years of service, age at retirement and the employee's
compensation during the five highest consecutive years of earnings within the
last ten years of employment.
27
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BB&T's contributions to the plan were in amounts between the minimum
required for funding standard account purposes and the maximum deductible for
Internal Revenue Service purposes.
Supplemental retirement benefits are provided to certain key officers
under supplemental executive retirement plans, which are not qualified under
the Internal Revenue Code. Although technically unfunded plans, insurance
policies on the lives of the covered employees partially fund future benefits.
Net periodic pension cost, which is included in employee benefits expense,
consisted of the following components in 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost ................................ $ 12,412 $ 11,488 $ 11,765
Interest cost ............................... 17,911 16,253 14,984
Actual return on assets ..................... (42,875) (24,260) (31,771)
Early retirement ............................ -- -- 3,372
Net amortization and deferral and other ..... 25,684 8,833 19,746
--------- --------- ---------
Net periodic pension cost .................. $ 13,132 $ 12,314 $ 18,096
========= ========= =========
</TABLE>
The following table sets forth the plans' funded status at December 31,
1997 and 1996.
<TABLE>
<CAPTION>
PLANS FOR WHICH
ASSETS EXCEED
ACCUMULATED BENEFITS
-------------------------------
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits ...................................................... $ (185,227) $ (163,691)
Nonvested benefits ................................................... (4,488) (3,720)
----------- -----------
$ (189,715) $ (167,411)
=========== ===========
Projected benefit obligation .......................................... $ (234,396) $ (221,697)
Plan assets at fair value ............................................. 273,922 219,038
----------- -----------
Plan assets in excess of (less than) projected benefit obligation ..... 39,526 (2,659)
Unrecognized transition amount ........................................ (6,523) (7,626)
Unrecognized prior service cost ....................................... (23,201) (5,931)
Unrecognized net loss ................................................. 6,616 22,281
Minimum liability adjustment .......................................... -- --
----------- -----------
Prepaid (accrued) pension cost included in other assets (other
liabilities) ......................................................... $ 16,418 $ 6,065
=========== ===========
<CAPTION>
PLANS FOR WHICH
ACCUMULATED BENEFITS
EXCEED ASSETS
----------------------------
1997 1996
-------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits ...................................................... $ (10,110) $ (5,471)
Nonvested benefits ................................................... (805) (751)
---------- ----------
$ (10,915) $ (6,222)
========== ==========
Projected benefit obligation .......................................... $ (22,946) $ (16,821)
Plan assets at fair value ............................................. -- --
---------- ----------
Plan assets in excess of (less than) projected benefit obligation ..... (22,946) (16,821)
Unrecognized transition amount ........................................ 277 321
Unrecognized prior service cost ....................................... 3,516 4,163
Unrecognized net loss ................................................. 6,066 3,153
Minimum liability adjustment .......................................... (89) (861)
---------- ----------
Prepaid (accrued) pension cost included in other assets (other
liabilities) ......................................................... $ (13,176) $ (10,045)
========== ==========
</TABLE>
Plan assets consist primarily of investments in mutual funds consisting of
equity investments, obligations of the U.S. Treasury and Federal agencies and
corporations. Plan assets included $ 20.3 million, $11.2 million and $7.9
million of BB&T common stock at December 31, 1997, 1996 and 1995, respectively.
Actuarial assumptions used in calculating these amounts were:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ----------- ---------
<S> <C> <C> <C>
Rate of increase in future compensation .......................... 5.5 % 5.5 % 5.5 %
Weighted average discount rate ................................... 7.25 7.5 7.5
Weighted average expected long-term rate of return on assets ..... 8.0 8.0-9.0 8.0
</TABLE>
28
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
POSTRETIREMENT BENEFITS
BB&T revised its retiree health care plans in preparation for the
implementation of SFAS No. 106, "Accounting for Postretirement Benefits Other
Than Pensions." Effective January 1, 1996, the plans of BB&T and BB&T Financial
Corporation were merged into a single plan. The new plan covers employees
retiring after December 31, 1995 who are eligible for participation in the BB&T
pension plan and have at least ten years of service. The plan requires retiree
contributions, with a subsidy by BB&T based upon years of service of the
employee at the time of retirement. The subsidy is periodically reviewed for
adjustment. The plan provides flexible benefits to retirees which may also be
used for dependents.
The following table sets forth the components of the retiree benefit plan
and the amount recognized in the consolidated financial statements at December
31, 1997, 1996 and 1995 as originally reported.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET PERIODIC POSTRETIREMENT BENEFIT COST:
Service cost ............................... $ 733 $ 834 $ 1,048
Interest cost .............................. 2,586 2,667 2,920
Amortization of net loss and other ......... (37) 344 524
------- ------- -------
Total expense ............................. $ 3,282 $ 3,845 $ 4,492
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
RECONCILIATION OF FUNDED STATUS:
Accumulated postretirement benefit obligation ..................... $ (38,342) $ (38,208) $ (39,505)
Unrecognized net (gain) loss ...................................... (4,359) (1,463) 1,766
--------- --------- ---------
Accrued postretirement benefit costs included in other liabilities $ (42,701) $ (39,671) $ (37,739)
========= ========= =========
</TABLE>
Actuarial assumptions used in calculating these amounts were:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------------- ---------------
<S> <C> <C> <C>
Annual rate of increase in the per capita cost of health care claims:
Current year ..........................................................10.0% 11.0-11.25% 8.0-14.00%
Final constant amount ................................................. 5.0 5.0-6.25 4.75-6.5
Annual decrease ....................................................... 1.0 .5-1.0 .8-1.5
General inflation rate .................................................. 4.0 4.0 4.0
Weighted average discount rate .......................................... 7.25 7.5 7.5-8.0
Impact of 1% increase in assumed health care cost on:
Net periodic benefit cost ............................................. -- 3.0 2.0-3.0
Expected postretirement benefit obligation ............................ 2.0 5.0 3.0-4.0
</TABLE>
401-K SAVINGS PLAN
Prior to 1996, BB&T had an Employee Stock Ownership Plan which allowed all
employees to acquire common stock in BB&T by contributing up to 15% of their
salaries to the plan. BB&T matched 100% of each employee's contributions, up to
a maximum of 6% of the employee's salary. BB&T Financial Corporation had a
Savings and Thrift Plan which permitted eligible employees to make
contributions up to 16% of base compensation, with matching contributions up to
4% of the employee's base compensation. Effective January 1, 1996, BB&T's
Employee Stock Ownership Plan was merged into the former BB&T Financial
Corporation Savings and Thrift Plan to form the BB&T Corporation 401-k Savings
Plan. The new plan permits employees to contribute up to 16% of their
compensation. BB&T matches up to 6% of the employee's compensation with a 100%
matching contribution.
29
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SETTLEMENT AGREEMENTS
In connection with recent significant mergers, three executive officers of
merged institutions agreed to retire during 1995 and 1997. BB&T entered into
settlement and noncompetition agreements with these executive officers to
settle existing employment contracts and to require them not to compete with
BB&T. One of the agreements provides for annual payments of $1,655,000 less the
company-provided portion of certain benefits payable under existing benefit
plans. The payments continue for the life of the executive and his current wife
but in no event for a period of less than fifteen years. The executive has
agreed not to compete in a defined geographic area for fifteen years and to
serve as a consultant to BB&T for five years. A second agreement provides for
annual payments of $312,000 for ten years or until death. The third settlement
agreement provides for annual payments of $769,392 (to be adjusted annually in
accordance with the Consumer Price Index) until the executive reaches the age
of 65 in 2002, at which time the annual payments will be reduced to 70% of the
amount paid during the final year pursuant the agreement, estimated to be
approximately $623,000, less the company-provided portion of benefits payable
under certain existing benefit plans. The reduced payments will continue for
the life of the executive. If the executive's current wife survives him,
payments will continue to her in the annual amount equal to 35% of the amount
paid to the executive during the final year pursuant to the agreement. The
executive officer has agreed not to compete in a defined geographic area for
ten years.
OTHER
There are various other employment contracts, deferred compensation
arrangements and covenants not to compete with selected members of management
and certain retirees.
NOTE M. COMMITMENTS AND CONTINGENCIES
BB&T is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, options written, standby
letters of credit and financial guarantees, interest rate caps and floors
written, interest rate swaps and forward and futures contracts.
BB&T's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. BB&T uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT AT
DECEMBER 31,
-----------------------------
1997 1996
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend, originate or purchase credit ................. $ 7,922,157 $ 6,888,254
Standby letters of credit and financial guarantees written .......... 288,200 237,886
Commercial letters of credit ........................................ 35,915 21,703
Financial instruments whose notional or contract amounts exceed
the amount of credit risk:
Commitments to sell loans and securities ............................ $ 555,722 $ 240,121
Foreign exchange contracts .......................................... 145,855 103,506
</TABLE>
Commitments to extend credit are arrangements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. BB&T evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by BB&T upon extension of credit, is based on
management's evaluation of the creditworthiness of the counterparty.
30
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Standby letters of credit and financial guarantees written are conditional
commitments issued by BB&T to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing and
similar transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers, and letters of credit are collateralized when necessary.
Forward commitments to sell mortgage loans and mortgage-backed securities
are contracts for delayed delivery of securities in which BB&T agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities' values and
interest rates.
LEGAL PROCEEDINGS
The nature of the business of BB&T's banking subsidiaries ordinarily
results in a certain amount of litigation. The subsidiaries of BB&T are
involved in various legal proceedings, all of which are considered incidental
to the normal conduct of business. Management believes that the liabilities
arising from these proceedings will not have a materially adverse effect on the
consolidated financial position or consolidated results of operations of BB&T.
NOTE N. REGULATORY REQUIREMENTS AND OTHER RESTRICTIONS
BB&T's subsidiary banks are required by the Board of Governors of the
Federal Reserve System to maintain reserve balances based on certain
percentages of deposit types subject to various adjustments. At December 31,
1997, these reserves (including average daily vault cash) amounted to $101.8
million.
Subject to restrictions imposed by state laws and federal regulations, the
Boards of Directors of the subsidiary banks could have declared dividends from
their retained earnings up to $1.3 billion at December 31, 1997. The subsidiary
banks are prohibited from paying dividends from their capital stock and
additional paid-in capital accounts and are required by regulatory authorities
to maintain minimum capital levels. BB&T was in compliance with these
requirements at December 31, 1997.
BB&T is subject to various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary -- actions
by regulators that, if undertaken, could have a direct material effect on
BB&T's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Corporation must meet
specific capital guidelines that involve quantitative measures of BB&T's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. BB&T's capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require BB&T to maintain minimum amounts and ratios of total and Tier 1 capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier 1 capital to average assets.
31
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------------- -------------------------------------
FOR MINIMUM FOR MINIMUM
ACTUAL CAPITAL ACTUAL CAPITAL
------------------------ ADEQUACY ------------------------ ADEQUACY
RATIO AMOUNT PURPOSES RATIO AMOUNT PURPOSES
---------- ------------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TIER 1 CAPITAL
BB&T .................................. 10.3% $2,153,246 $ 835,300 11.8% $2,149,231 $ 726,282
BB&T -- NC ............................ 11.0 1,672,558 606,912 10.8 1,513,438 558,944
BB&T -- SC ............................ 12.2 368,256 121,094 14.0 396,537 113,370
BB&T -- VA ............................ 12.1 73,296 24,297 11.7 66,640 22,845
Franklin National Bank ................ 9.8 34,513 14,102 10.7 28,329 10,552
Fidelity Federal Savings Bank ......... 12.3 28,253 9,201 N/A N/A N/A
Virginia First Savings Bank ........... 10.5 62,796 23,882 N/A N/A N/A
Life Savings Bank ..................... 22.1 135,834 24,606 20.5 121,055 23,570
----- ---------- ---------- ----- ---------- ----------
TOTAL CAPITAL
BB&T .................................. 13.9% $2,909,598 $1,670,601 14.4% $2,622,349 $1,452,564
BB&T -- NC ............................ 12.3 1,862,258 1,213,824 12.1 1,686,083 1,117,887
BB&T -- SC ............................ 13.4 406,120 242,188 15.2 431,991 226,741
BB&T -- VA ............................ 13.3 80,892 48,593 12.9 73,792 45,691
Franklin National Bank ................ 11.0 38,705 28,204 12.0 31,634 21,104
Fidelity Federal Savings Bank ......... 13.3 30,636 18,402 N/A N/A N/A
Virginia First Savings Bank ........... 11.8 70,317 47,764 N/A N/A N/A
Life Savings Bank ..................... 22.4 137,489 49,212 21.4 126,241 47,139
----- ---------- ---------- ----- ---------- ----------
LEVERAGE CAPITAL
BB&T .................................. 7.2 % $2,153,246 $ 900,236 7.8 % $2,149,231 $ 823,194
BB&T -- NC ............................ 7.6 1,672,558 656,147 7.4 1,513,438 609,794
BB&T -- SC ............................ 8.5 368,256 129,748 9.4 396,537 126,303
BB&T -- VA ............................ 9.4 73,296 23,284 8.6 66,640 23,267
Franklin National Bank ................ 7.1 34,513 19,589 7.0 28,329 16,270
Fidelity Federal Savings Bank ......... 7.9 28,253 10,712 N/A N/A N/A
Virginia First Savings Bank ........... 7.3 62,796 25,710 N/A N/A N/A
Life Savings Bank ..................... 9.2 135,834 44,487 8.5 121,055 42,535
----- ---------- ---------- ----- ---------- ----------
</TABLE>
- ---------
N/A -- Not Applicable.
32
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE O. PARENT COMPANY FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks ................................ $ 5,853 $ 11,750
Interest-bearing bank balances ......................... 605,319 587,330
Securities ............................................. 13,824 40,560
Investment in banking subsidiaries ..................... 2,631,737 2,242,349
Investment in other subsidiaries ....................... 109,850 52,283
Advances to subsidiaries ............................... 185,504 123,982
Premises and equipment ................................. 5,537 5,809
Receivables from subsidiaries and other assets ......... 81,768 60,777
---------- ----------
Total assets ........................................ $3,639,392 $3,124,840
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowed funds .............................. $ 638,325 $ 566,225
Dividends payable ...................................... 42,173 29,521
Accounts payable and accrued liabilities ............... 23,529 25,677
Long-term debt ......................................... 496,255 249,019
---------- ----------
Total liabilities ................................... 1,200,282 870,442
---------- ----------
Total shareholders' equity .......................... 2,439,110 2,254,398
---------- ----------
Total liabilities and shareholders' equity .......... $3,639,392 $3,124,840
========== ==========
</TABLE>
CONDENSED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries .............................................. $248,294 $142,854 $240,699
Interest and other income from subsidiaries .............................. 61,649 36,627 20,261
Interest on investment securities ........................................ 1,739 2,936 1,855
Other income ............................................................. 722 7,835 6,143
-------- -------- --------
Total income ............................................................ 312,404 190,252 268,958
-------- -------- --------
EXPENSES
Interest expense ......................................................... 53,161 33,845 17,859
Occupancy expense ........................................................ 249 171 171
Other expenses ........................................................... 14,537 11,704 27,035
-------- -------- --------
Total expenses .......................................................... 67,947 45,720 45,065
-------- -------- --------
Income before income tax benefit and equity in undistributed earnings of
subsidiaries ............................................................. 244,457 144,532 223,893
Income tax (benefit) expense ............................................... (52) 597 (6,084)
-------- -------- --------
Income before equity in undistributed earnings of subsidiaries ............. 244,509 143,935 229,977
Net income of subsidiaries in excess of dividends from subsidiaries ........ 115,909 199,377 9,822
-------- -------- --------
NET INCOME ................................................................. $360,418 $343,312 $239,799
======== ======== ========
</TABLE>
33
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 360,418 $ 343,312 $ 239,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Net income of subsidiaries in excess of dividends from subsidiaries ..... (115,909) (199,377) (9,822)
Depreciation of premises and equipment .................................. 272 214 214
Amortization of unearned compensation ................................... 8,111 2,450 3,128
Discount accretion and premium amortization ............................. 396 192 (298)
Loss (gain) on sales of securities ...................................... -- (9) 100
Loss on disposals of other real estate owned ............................ -- -- 240
Loss on disposal of premises and equipment .............................. -- -- 29
(Increase) decrease in other assets ..................................... (23,258) 125,920 (145,801)
Increase (decrease) in accounts payable and accrued liabilities ......... (2,008) 2,333 5,978
---------- ----------- ----------
Net cash provided by operating activities ............................. 228,022 275,035 93,567
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale .................... -- 14 87
Proceeds from maturities, calls and paydowns of securities available
for sale .............................................................. 35,482 49,347 101,339
Purchases of securities available for sale .............................. (8,717) (52,324) (41,697)
Proceeds from sales of securities held to maturity ...................... -- -- 520
Proceeds from sales of premises and equipment ........................... -- -- 79
Investment in subsidiaries .............................................. (733) (68,625) (264)
Advances to subsidiaries ................................................ (430,897) (306,857) --
Repayment of advances to subsidiaries ................................... 369,375 182,875 --
Net cash received in purchase accounting transactions ................... (45,852) -- (756)
---------- ----------- ----------
Net cash (used in) provided by investing activities ................... (81,342) (195,570) 59,308
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in long-term debt ............................... 246,873 247,629 (7,333)
Net increase in short-term borrowed funds ............................... 72,100 169,952 142,004
Net proceeds from common stock issued ................................... 23,351 51,068 49,390
Redemption of common stock .............................................. (321,224) (225,569) (47,311)
Preferred stock cancellations and conversions ........................... -- -- (2,371)
Cash dividends paid on common and preferred stock ....................... (155,688) (127,771) (112,669)
---------- ----------- ----------
Net cash (used in) provided by financing activities ................... (134,588) 115,309 21,710
---------- ----------- ----------
Net Increase in Cash and Cash Equivalents ............................... 12,092 194,774 174,585
Cash and Cash Equivalents at Beginning of Year .......................... 599,080 404,306 229,721
---------- ----------- ----------
Cash and Cash Equivalents at End of Year ................................ $ 611,172 $ 599,080 $ 404,306
========== =========== ==========
</TABLE>
34
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE P. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,"
requires BB&T to disclose the estimated fair value of its on- and off-balance
sheet financial instruments. A financial instrument is defined by SFAS No. 107
as cash, evidence of an ownership interest in an entity or a contract that
creates a contractual obligation or right to deliver to or receive cash or
another financial instrument from a second entity on potentially favorable or
unfavorable terms.
Fair value estimates are made at a point in time, based on relevant market
data and information about the financial instrument. SFAS No. 107 specifies
that fair values should be calculated based on the value of one trading unit
without regard to any premium or discount that may result from concentrations
of ownership of a financial instrument, possible tax ramifications, estimated
transaction costs that may result from bulk sales or the relationship between
various financial instruments. Because no readily available market exists for a
significant portion of BB&T's financial instruments, fair value estimates for
these instruments are based on judgments regarding current economic conditions,
currency and interest rate risk characteristics, loss experience and other
factors. Many of these estimates involve uncertainties and matters of
significant judgment and cannot be determined with precision. Therefore, the
calculated fair value estimates cannot always be substantiated by comparison to
independent markets and, in many cases, may not be realizable in a current sale
of the instrument. Changes in assumptions could significantly affect the
estimates.
The following methods and assumptions were used by BB&T in estimating the
fair value of its financial instruments at December 31, 1997 and 1996:
CASH AND CASH EQUIVALENTS: For these short-term instruments, the carrying
amounts are a reasonable estimate of fair values.
SECURITIES: Fair values for securities are based on quoted market prices,
if available. If quoted market prices are not available, fair values are based
on quoted market prices for similar securities.
LOANS RECEIVABLE: The fair values for loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans with
similar terms and credit quality. The carrying amounts of accrued interest
approximate fair values.
DEPOSIT LIABILITIES: The fair values for demand deposits,
interest-checking accounts, savings accounts and certain money market accounts
are, by definition, equal to the amount payable on demand at the reporting
date, i.e., their carrying amounts. Fair values for certificates of deposit are
estimated using a discounted cash flow calculation that applies current
interest rates to aggregate expected maturities.
SHORT-TERM BORROWED FUNDS: The carrying amounts of Federal funds
purchased, borrowings under repurchase agreements, master notes and other
short-term borrowed funds approximate their fair values.
LONG-TERM DEBT: The fair values of long-term debt are estimated based on
quoted market prices for similar instruments or by using discounted cash flow
analyses, based on BB&T's current incremental borrowing rates for similar types
of instruments.
INTEREST RATE SWAP AGREEMENTS: The fair values of interest rate swaps
(used for hedging purposes) are the estimated amounts that BB&T would receive
or pay to terminate the swap agreements at the reporting date, taking into
account current interest rates and the current creditworthiness of the swap
counterparties.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT AND FINANCIAL
GUARANTEES WRITTEN: The fair values of commitments are estimated using the fees
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair values also consider the difference
between current levels of interest rates and the committed rates. The fair
values of guarantees and letters of credit are estimated based on fees
currently charged for similar agreements.
OTHER OFF-BALANCE SHEET INSTRUMENTS: The fair values for off-balance sheet
instruments (futures, forwards, options, and commitments to sell or purchase
financial instruments) are estimated based on quoted prices, if available. For
instruments for which there are no quoted prices, fair values are estimated
using current settlement values or pricing models.
35
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------- -------------- ---------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ............. $ 1,192,870 $ 1,192,870 $ 1,032,892 $ 1,032,892
Trading securities .................... 67,878 67,878 -- --
Securities available for sale ......... 7,296,128 7,296,128 6,720,295 6,720,295
Securities held to maturity ........... 230,257 233,636 378,738 382,460
Loans and leases:
Loans ............................... 20,617,568 20,853,513 18,140,744 18,137,246
Leases .............................. 616,302 N/A 470,455 N/A
Allowance for losses ................ (279,596) N/A (243,568) N/A
------------ ------------
Net loans and leases ............... $ 20,954,274 $ 18,367,631
============ ============
Financial liabilities:
Deposits .............................. $ 21,375,975 21,409,413 $ 20,099,089 20,152,540
Short-term borrowed funds ............. 3,451,885 3,451,885 2,638,917 2,638,917
Long-term debt ........................ 3,572,226 3,868,116 2,317,417 2,408,659
Capitalized leases .................... 3,291 N/A 3,561 N/A
</TABLE>
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
NOTIONAL/ NOTIONAL/
CONTRACT FAIR CONTRACT FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
Off balance sheet financial instruments:
Interest rate swaps, caps and floors .................. $ 2,428,930 $ 25,570 $ 1,167,099 $ 5,775
Commitments to extend, originate or purchase credit ... 7,922,157 (14,835) 6,888,254 (12,576)
Standby and commercial letters of credit and financial
guarantees written .................................. 324,115 (4,495) 259,589 (3,579)
Commitments to sell loans and securities .............. 555,722 (2,925) 240,121 822
Foreign exchange contracts ............................ 145,855 326 103,506 312
Option contracts purchased ............................ 55,000 (303) 14,000 142
Option contracts written .............................. 55,000 -- 14,000 --
Futures contracts ..................................... 8,486 -- -- --
</TABLE>
- ---------
N/A -- not applicable.
NOTE Q. DERIVATIVES AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest rate volatility often increases to the point that balance sheet
repositioning through the use of account repricing and other on-balance sheet
strategies cannot occur rapidly enough to avoid adverse net income effects. At
those times, off-balance sheet or synthetic hedges are utilized. During 1997,
management used interest rate swaps, caps and floors to supplement balance
sheet repositioning. Such actions were designed to lower the interest
sensitivity of BB&T toward a neutral position.
Interest rate swaps are contractual agreements between two parties to
exchange a series of cash flows representing interest payments. A swap allows
both parties to transform the repricing characteristics of an asset or
liability from a fixed to a floating rate, a floating rate to a fixed rate, or
one floating rate to another floating rate. The underlying principal positions
are not affected. Swap terms generally range from one year to ten years
depending on the need. At December 31, 1997, derivatives with a total notional
value of $2.4 billion, with terms ranging up to ten years, were outstanding.
36
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth certain information concerning BB&T's
interest rate swaps at December 31, 1997:
INTEREST RATE SWAPS, CAPS AND FLOORS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTIONAL RECEIVE PAY FAIR
AMOUNT RATE RATE VALUE
------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
TYPE
Receive fixed swaps ......... $1,301,000 6.39% 5.86% $23,785
Pay fixed swaps ............. 351,930 5.88 5.58 (121)
Basis swaps ................. 100,000 5.70 5.63 --
Caps & Floors ............... 676,000 -- -- 1,906
---------- ---- ---- -------
Total ....................... $2,428,930 6.25% 5.79% $25,570
========== ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
RECEIVE PAY FIXED BASIS SWAPS
FIXED SWAPS SWAPS CAPS & FLOORS TOTAL
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
YEAR-TO-DATE ACTIVITY
Balance, December 31, 1996 ......... $ 487,000 $ 304,099 $ 376,000 $1,167,099
Additions .......................... 849,000 223,900 660,000 1,732,900
Maturities/amortizations ........... (35,000) (176,069) (10,000) (221,069)
Terminations ....................... -- -- (250,000) (250,000)
---------- ---------- ---------- ----------
Balance, December 31, 1997 ......... $1,301,000 $ 351,930 $ 776,000 $2,428,930
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR ONE TO FIVE TO
OR LESS FIVE YEARS 10 YEARS TOTAL
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
MATURITY SCHEDULE
Receive fixed swaps ......... $276,000 $ 525,000 $500,000 $1,301,000
Pay fixed swaps ............. 103,987 240,143 7,800 351,930
Basis swaps ................. 100,000 -- -- 100,000
Caps & Floors ............... 11,000 605,000 60,000 676,000
-------- ---------- -------- ----------
Total ....................... $490,987 $1,370,143 $567,800 $2,428,930
======== ========== ======== ==========
</TABLE>
As of December 31, 1997, unearned income from new swap transactions
initiated during 1997 was $13.5 million. There were no unamortized deferred
gains or losses from terminated transactions remaining at year end. Active
transactions resulted in pretax net income of $1.1 million.
In addition to interest rate swaps, BB&T utilizes written covered
over-the-counter call options on specific securities in the available-for-sale
portfolio in order to enhance returns. During 1997, options were written on
securities totaling $705.0 million. Option fee income was $1.4 million for
1997. There were no unexercised options outstanding at December 31, 1997 or
1996.
BB&T also utilizes over-the-counter purchased put options and net
purchased put options (combination of purchased put option and written call
option) in its mortgage banking activities. These options are used to hedge the
mortgage warehouse and pipeline against increasing interest rates. Written call
options are used in tandem with purchased put options to create a net purchased
put option that reduces the cost of the hedge. At December 31, 1997, net
purchased put option contracts with a notional value of $55.0 million were
outstanding.
The $2.4 billion of derivatives used in interest rate risk management are
primarily used to hedge variable rate commercial loans, adjustable rate
mortgage loans, retail certificates of deposit and fixed rate notes. BB&T does
not utilize derivatives for trading purposes.
37
<PAGE>
BBT&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Although off-balance sheet derivative financial instruments do not expose
BB&T to credit risk equal to the notional amount, such agreements generate
credit risk to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. Such risk
is minimized based on the quality of the counterparties and the consistent
monitoring of these agreements. The counterparties to these transactions were
large commercial banks and investment banks. Annually, the counterparties are
reviewed for creditworthiness by BB&T's credit policy group. Where appropriate,
master netting agreements are arranged or collateral is obtained in the form of
rights to securities. At December 31, 1997, BB&T's interest rate swaps, caps
and floors reflected an unrealized gain of $25.6 million.
Other risks associated with interest-sensitive derivatives include the
impact on fixed positions during periods of changing interest rates. Indexed
amortizing swaps' notional amounts and maturities change based on certain
interest rate indices. Generally, as rates fall the notional amounts decline
more rapidly, and as rates increase notional amounts decline more slowly. Under
unusual circumstances, financial derivatives also increase liquidity risk,
which could result from an environment of rising interest rates in which
derivatives produce negative cash flows while being offset by increased cash
flows from variable rate loans. Such risk is considered insignificant due to
the relatively small derivative positions held by BB&T. At December 31, 1997,
BB&T had no indexed amortizing swaps outstanding.
NOTE R. CALCULATIONS OF EARNINGS PER SHARE
The basic and diluted earnings per share calculations are presented in the
following table:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Weighted average number of common shares ................................. 287,480,712 287,535,321 287,924,835
=========== =========== ===========
Net income ............................................................... $ 360,418 $ 343,312 $ 239,799
Less:
Preferred dividend requirement .......................................... -- 610 5,079
------------- ------------- -------------
Income available for common shares ....................................... $ 360,418 $ 342,702 $ 234,720
============= ============= =============
Basic earnings per share ................................................. $ 1.25 $ 1.19 $ .82
============= ============= =============
DILUTED EARNINGS PER SHARE:
Weighted average number of common shares ................................. 287,480,712 287,535,321 287,924,835
Add:
Shares issuable assuming conversion of convertible preferred
stock .................................................................. -- 1,877,304 8,916,852
Dilutive effect of outstanding options (as determined by application
of treasury stock method) .............................................. 4,845,168 4,140,158 2,661,066
Issuance of additional shares under share repurchase agreement,
contingent upon market price ........................................... 144,588 204,036 653,502
------------- ------------- -------------
Weighted average number of common shares, as adjusted .................... 292,470,468 293,756,819 300,156,255
============= ============= =============
Net income ............................................................... $ 360,418 $ 343,312 $ 239,799
Add:
After tax interest expense and amortization of issue costs applicable
to convertible debentures .............................................. -- -- 211
------------- ------------- -------------
Net income, as adjusted .................................................. $ 360,418 $ 343,312 $ 240,010
============= ============= =============
Diluted earnings per share ............................................... $ 1.23 $ 1.17 $ .80
============= ============= =============
</TABLE>
38
<PAGE>
EXHIBIT 99.3
SIX-YEAR FINANCIAL SUMMARY AND SELECTED RATIOS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF / FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Summary of Operations
Interest income ......................... $ 2,265,488 $ 2,059,043 $ 1,979,646
Interest expense ........................ 1,106,963 998,849 1,005,286
----------- ----------- -----------
Net interest income ..................... 1,158,525 1,060,194 974,360
Provision for loan and lease losses ..... 98,010 62,273 42,559
----------- ----------- -----------
Net interest income after provision
for loan and lease losses ............. 1,060,515 997,921 931,801
Noninterest income ...................... 458,348 341,259 256,740
Noninterest expense ..................... 968,746 827,362 828,174
----------- ----------- -----------
Income before income taxes .............. 550,117 511,818 360,367
Provision for income taxes .............. 189,699 168,506 120,568
----------- ----------- -----------
Income before cumulative effect of
changes in accounting principles ...... 360,418 343,312 239,799
Less: cumulative effect of
changes in accounting
principles, net of income taxes....... -- -- --
----------- ----------- -----------
Net income .............................. $ 360,418 $ 343,312 $ 239,799
=========== =========== ===========
Per Common Share
Average shares outstanding (000's):
Basic ................................. 287,481 287,535 287,925
Diluted ............................... 292,470 293,757 300,156
Basic earnings:
Income before cumulative effect ....... $ 1.25 $ 1.19 $ 0.82
Less: cumulative effect ............... -- -- --
----------- ----------- -----------
Net income ........................... $ 1.25 $ 1.19 $ 0.82
=========== =========== ===========
Diluted earnings:
Income before cumulative effect ....... $ 1.23 $ 1.17 $ 0.80
Less: cumulative effect ............... -- -- --
----------- ----------- -----------
Net income ........................... $ 1.23 $ 1.17 $ 0.80
=========== =========== ===========
Cash dividends paid ..................... $ .58 $ .50 $ .43
Shareholders' equity .................... 8.46 7.78 7.38
Average Balance Sheets
Securities, at carrying value ........... $ 7,299,444 $ 6,939,363 $ 6,910,879
Loans and leases * ...................... 19,554,842 17,730,243 16,883,199
Other assets ............................ 2,021,800 1,799,550 1,779,629
----------- ----------- -----------
Total assets .......................... $28,876,086 $26,469,156 $25,573,707
=========== =========== ===========
Deposits ................................ $20,403,684 $19,594,913 $18,524,803
Other liabilities ....................... 3,240,171 2,680,914 3,670,664
Long-term debt .......................... 2,925,628 2,027,683 1,303,992
Common shareholders' equity ............. 2,306,603 2,150,487 2,001,903
Preferred shareholders' equity .......... -- 15,159 72,345
----------- ----------- -----------
Total liabilities and
shareholders' equity ................ $28,876,086 $26,469,156 $25,573,707
=========== =========== ===========
Period End Balances
Total assets ............................ $31,290,247 $27,625,225 $26,135,308
Deposits ................................ 21,375,975 20,099,089 19,231,282
Long-term debt .......................... 3,575,517 2,320,978 1,542,064
Shareholders' equity .................... 2,439,110 2,254,398 2,212,438
Selected Performance Ratios
Rate of return on:
Average total assets .................. 1.25% 1.30% 0.94%
Average common shareholders'
equity ............................... 15.63 15.94 11.72
Dividend payout ......................... 46.40 42.02 52.44
Average equity to average assets ........ 7.99 8.18 8.11
<CAPTION>
AS OF / FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992 GROWTH RATE
--------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Summary of Operations
Interest income ......................... $ 1,659,184 $ 1,492,719 $ 1,503,662 8.5%
Interest expense ........................ 719,158 626,985 726,355 8.8
----------- ----------- -----------
Net interest income ..................... 940,026 865,734 777,307 8.3
Provision for loan and lease losses ..... 25,526 61,625 78,926 4.4
----------- ----------- -----------
Net interest income after provision
for loan and lease losses ............. 914,500 804,109 698,381 8.7
Noninterest income ...................... 270,989 268,470 233,182 14.5
Noninterest expense ..................... 750,201 810,018 645,746 8.5
----------- ----------- -----------
Income before income taxes .............. 435,288 262,561 285,817 14.0
Provision for income taxes .............. 151,066 97,162 100,400 13.6
----------- ----------- -----------
Income before cumulative effect of
changes in accounting principles ...... 284,222 165,399 185,417 14.2
Less: cumulative effect of
changes in accounting
principles, net of income taxes....... -- (32,629) -- NM
----------- ----------- -----------
Net income .............................. $ 284,222 $ 132,770 $ 185,417 14.2
=========== =========== ===========
Per Common Share
Average shares outstanding (000's):
Basic ................................. 283,875 272,931 258,356 2.2
Diluted ............................... 296,329 286,605 275,652 1.2
Basic earnings:
Income before cumulative effect ....... $ 0.98 $ 0.59 $ 0.70 12.3
Less: cumulative effect ............... -- (0.12) -- NM
----------- ----------- -----------
Net income ........................... $ 0.98 $ 0.47 $ 0.70 12.3
=========== =========== ===========
Diluted earnings:
Income before cumulative effect ....... $ 0.96 $ 0.58 $ 0.67 12.9
Less: cumulative effect ............... -- (0.11) -- NM
----------- ----------- -----------
Net income ........................... $ 0.96 $ 0.47 $ 0.67 12.9
=========== =========== ===========
Cash dividends paid ..................... $ .37 $ .32 $ .25 18.3
Shareholders' equity .................... 6.61 5.91 5.83 7.7
Average Balance Sheets
Securities, at carrying value ........... $ 6,570,085 $ 5,768,100 $ 4,974,447 8.0
Loans and leases * ...................... 15,194,910 13,651,601 12,480,421 9.4
Other assets ............................ 1,808,633 1,724,686 1,666,481 3.9
----------- ----------- -----------
Total assets .......................... $23,573,628 $21,144,387 $19,121,349 8.6
=========== =========== ===========
Deposits ................................ $18,086,694 $16,948,370 $15,823,206 5.2
Other liabilities ....................... 2,782,404 1,766,415 1,623,711 14.8
Long-term debt .......................... 870,697 733,047 199,734 71.1
Common shareholders' equity ............. 1,759,690 1,622,412 1,408,893 10.4
Preferred shareholders' equity .......... 74,143 74,143 65,805 NM
----------- ----------- -----------
Total liabilities and
shareholders' equity ................ $23,573,628 $21,144,387 $19,121,349 8.6
=========== =========== ===========
Period End Balances
Total assets ............................ $24,758,727 $23,274,795 $19,863,668 9.5
Deposits ................................ 18,258,880 18,290,673 16,355,499 5.5
Long-term debt .......................... 1,095,781 1,010,168 490,770 48.8
Shareholders' equity .................... 1,972,144 1,753,129 1,566,773 9.3
Selected Performance Ratios
Rate of return on:
Average total assets .................. 1.21% 0.63% 0.97%
Average common shareholders'
equity ............................... 15.86 7.86 12.83
Dividend payout ......................... 37.76 68.02 35.71
Average equity to average assets ........ 7.78 8.02 7.71
</TABLE>
- ---------
* Loans and leases are net of unearned income and the allowance for losses.
Amounts include loans held for sale.
NM -- Not Meaningful.
39
<PAGE>
TABLE 1
SELECTED FINANCIAL DATA OF BANKING SUBSIDIARIES
AS OF / FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
BB&T-NC BB&T-SC
-------------------------------------------- -----------------------------------------
1997 1996 1995 1997 1996 1995
-------------- -------------- -------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total assets ......... $22,530,009 $20,652,519 $19,654,218 $4,364,982 $4,213,458 $4,179,955
Securities ........... 5,392,894 4,962,941 4,970,762 1,020,554 1,034,385 1,055,622
Loans and leases,
net of unearned
income* .............. 15,402,775 14,149,983 13,213,131 3,052,755 2,901,930 2,928,298
Deposits ............. 15,931,795 15,683,080 14,856,949 3,401,236 3,336,711 3,255,945
Shareholder's
equity ............... 1,771,589 1,601,950 1,380,924 374,871 399,965 385,481
Net interest income... 842,745 773,019 710,338 184,341 173,235 166,764
Provision for loan
and lease losses ..... 53,533 44,675 31,264 14,109 8,405 5,518
Noninterest income.... 436,607 333,119 238,050 70,916 57,729 58,199
Noninterest expense... 809,599 689,969 659,681 135,018 134,200 119,931
Net income ........... 278,536 250,956 172,970 68,024 56,489 62,319
<CAPTION>
FRANKLIN
LIFE SAVINGS NATIONAL
BB&T-VA BANK, FSB BANK
----------------------------------- ----------------------------------------- -----------------------
1997 1996 1995 1997 1996 1995 1997 1996
----------- ----------- ----------- ------------- ------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets ......... $785,870 $790,955 $737,462 $1,462,469 $1,418,659 $1,097,962 $647,448 $497,817
Securities ........... 132,596 147,019 154,358 702,817 736,752 585,185 179,388 164,116
Loans and leases,
net of unearned
income* .............. 590,306 550,218 505,767 649,777 630,463 474,984 300,441 232,581
Deposits ............. 679,252 690,318 669,000 736,552 732,467 607,795 427,798 363,427
Shareholder's
equity ............... 73,922 67,039 60,734 143,942 127,845 118,040 39,283 31,893
Net interest income... 36,670 35,144 31,231 8,666 8,678 6,427 21,532 18,290
Provision for loan
and lease losses ..... 2,033 2,550 1,910 579 34 88 484 27
Noninterest income.... 12,546 10,296 4,650 1,296 1,515 (67) 2,447 1,770
Noninterest expense... 30,523 24,839 25,965 5,850 5,290 4,344 13,915 12,652
Net income ........... 10,973 11,791 4,853 2,669 2,751 1,362 5,968 4,523
<CAPTION>
FRANKLIN FRANKLIN
NATIONAL NATIONAL
BANK BANK
----------- -----------
1995 1997 1997
----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total assets ......... $367,031 $356,226 $925,279
Securities ........... 109,140 28,639 23,329
Loans and leases,
net of unearned
income* .............. 181,650 275,640 771,928
Deposits ............. 302,435 255,475 662,594
Shareholder's
equity ............... 26,385 64,758 152,626
Net interest income... 14,283 10,960 2,826
Provision for loan
and lease losses ..... 181 605 183
Noninterest income.... 1,461 1,230 1,077
Noninterest expense... 9,856 8,322 2,654
Net income ........... 3,383 1,278 468
</TABLE>
* Includes loans held for sale.
** Fidelity Federal Savings Bank was acquired on March 1, 1997 and Virginia
First Savings Bank was acquired on December 1, 1997. These acquisitions
were accounted for as purchases and consequently the amounts above reflect
the acquired institutions only since the dates of acquisition.
40
<PAGE>
TABLE 2
COMPOSITION OF LOAN AND LEASE PORTFOLIO *
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans:
Commercial, financial and agricultural ..... $ 3,196,973 $ 2,855,907 $ 2,506,194 $ 3,029,868 $ 2,375,395
Real estate -- construction and land
development .............................. 2,165,430 1,567,804 1,194,522 903,589 875,488
Real estate -- mortgage .................... 12,046,239 10,704,737 10,659,368 9,621,085 8,765,473
Consumer ................................... 2,761,078 2,841,540 2,556,373 2,440,768 2,254,064
----------- ----------- ----------- ----------- -----------
Loans held for investment ................ 20,169,720 17,969,988 16,916,457 15,995,310 14,270,420
Loans held for sale ...................... 509,141 228,333 261,364 141,676 707,973
----------- ----------- ----------- ----------- -----------
Total loans ............................. 20,678,861 18,198,321 17,177,821 16,136,986 14,978,393
Leases ...................................... 788,462 576,991 376,152 304,544 225,312
----------- ----------- ----------- ----------- -----------
Total loans and leases ................... $21,467,323 $18,775,312 $17,553,973 $16,441,530 $15,203,705
=========== =========== =========== =========== ===========
</TABLE>
- ---------
* Balances are gross of unearned income.
41
<PAGE>
TABLE 3
SELECTED LOAN MATURITIES AND INTEREST SENSITIVITY *
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
COMMERCIAL,
FINANCIAL
AND REAL ESTATE:
AGRICULTURAL CONSTRUCTION TOTAL
-------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed rate:
1 year or less (2) .................... $ 240,158 $ 324,723 $ 564,881
1-5 years ............................. 431,328 159,560 590,888
After 5 years ......................... 88,841 -- 88,841
---------- ---------- ----------
Total ............................... 760,327 484,283 1,244,610
---------- ---------- ----------
Variable rate:
1 year or less (2) .................... 1,201,532 1,111,594 2,313,126
1-5 years ............................. 1,085,659 569,553 1,655,212
After 5 years ......................... 149,455 -- 149,455
---------- ---------- ----------
Total ............................... 2,436,646 1,681,147 4,117,793
---------- ---------- ----------
Total loans and leases (1) ......... $3,196,973 $2,165,430 $5,362,403
========== ========== ==========
</TABLE>
- ---------
* Balances are gross of unearned income.
Scheduled repayments are reported in the maturity category in which the
payment is due. Determinations of maturities are based upon contract terms.
BB&T's credit policy does not permit automatic renewals of loans. At the
scheduled maturity date (including balloon payment date), the customer must
request a new loan to replace the matured loan and execute a new note with
rate, terms and conditions renegociated at that time.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
-----------------------
<S> <C>
(1) The table excludes:
(i) consumer loans to individuals for household, family and other
personal expenditures $ 2,756,554
(ii) real estate mortgage loans 12,050,763
(iii) loans held for sale 509,141
(iv) leases 788,462
-----------
$16,104,920
===========
(2) Includes loans due on demand.
</TABLE>
42
<PAGE>
TABLE 4
ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES BY CATEGORY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996
--------------------- ---------------------
% LOANS % LOANS
IN EACH IN EACH
AMOUNT CATEGORY AMOUNT CATEGORY
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at end of
period applicable to:
Commercial, financial
and agricultural ............. $ 32,931 15% $ 33,495 15%
Real estate:
Construction and
land development ........... 19,437 10 15,373 9
Mortgage ..................... 94,411 58 101,181 58
-------- -- -------- --
Real estate -- total ......... 113,848 68 116,554 67
-------- -- -------- --
Consumer ...................... 80,243 13 54,592 15
Leases ........................ 8,262 4 3,833 3
Unallocated ................... 44,312 -- 35,094 --
-------- -- -------- --
Total ........................ $279,596 100% $243,568 100%
======== === ======== ===
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- --------------------
% LOANS % LOANS % LOANS
IN EACH IN EACH IN EACH
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
---------- ---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of
period applicable to:
Commercial, financial
and agricultural ............. $ 35,479 14% $ 42,672 18% $ 50,537 16%
Real estate:
Construction and
land development ........... 16,858 7 13,849 6 15,290 6
Mortgage ..................... 98,563 62 85,271 59 86,494 62
-------- -- -------- -- -------- --
Real estate -- total ......... 115,421 69 99,120 65 101,784 68
-------- -- -------- -- -------- --
Consumer ...................... 38,848 15 34,520 15 32,075 15
Leases ........................ 3,513 2 925 2 1,237 1
Unallocated ................... 33,672 -- 45,069 -- 32,457 --
-------- -- -------- -- -------- --
Total ........................ $226,933 100% $222,306 100% $218,090 100%
======== === ======== === ======== ===
</TABLE>
TABLE 5
COMPOSITION OF ALLOWANCE FOR LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period .................. $ 243,568 $ 226,933 $ 222,306 $ 218,090 $ 182,137
----------- ----------- ----------- ----------- -----------
Charge-offs:
Commercial, financial and agricultural ..... (16,358) (10,452) (11,378) (12,156) (26,427)
Real estate ................................ (14,068) (11,774) (12,481) (9,700) (12,012)
Consumer ................................... (66,732) (48,017) (29,749) (16,687) (16,961)
Lease receivables .......................... (671) (768) (614) (647) (771)
----------- ----------- ----------- ----------- -----------
Total charge-offs ......................... (97,829) (71,011) (54,222) (39,190) (56,171)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial, financial and agricultural ..... 5,795 7,487 6,085 7,692 6,388
Real estate ................................ 5,038 6,338 3,737 3,643 3,612
Consumer ................................... 7,269 6,227 5,494 5,131 4,412
Lease receivables .......................... 232 136 395 295 149
----------- ----------- ----------- ----------- -----------
Total recoveries .......................... 18,334 20,188 15,711 16,761 14,561
----------- ----------- ----------- ----------- -----------
Net charge-offs ............................... (79,495) (50,823) (38,511) (22,429) (41,610)
----------- ----------- ----------- ----------- -----------
Provision charged to expense ................. 98,010 62,273 42,559 25,526 61,625
----------- ----------- ----------- ----------- -----------
Allowance of loans acquired in purchase
transactions ............................... 17,513 5,185 579 1,119 15,938
----------- ----------- ----------- ----------- -----------
Balance, end of period ........................ $ 279,596 $ 243,568 $ 226,933 $ 222,306 $ 218,090
=========== =========== =========== =========== ===========
Average loans and leases * .................... $19,817,354 $17,961,260 $17,106,917 $15,405,158 $13,842,651
Net charge-offs as a percentage of average
loans and leases ............................. .40% .28% .23% .15% .30%
=========== =========== =========== =========== ===========
</TABLE>
- ---------
* Loans and leases are net of unearned income and include loans held for sale.
43
<PAGE>
TABLE 6
COMPOSITION OF SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Trading Securities (at estimated fair value) ............... $ 67,878 $ -- $ --
---------- ---------- ----------
Securities held to maturity (at amortized cost):
U.S. Treasury, government and agency obligations ........ 46,338 24,241 64,966
States and political subdivisions ....................... 150,369 176,275 205,168
Mortgage-backed securities .............................. 33,550 178,222 213,987
Other securities ........................................ -- -- 77
---------- ---------- ----------
Total securities held to maturity ......................... 230,257 378,738 484,198
---------- ---------- ----------
Securities available for sale (at estimated fair value):
U.S. Treasury, government and agency obligations ........ 4,425,087 4,077,475 4,851,226
States and political subdivisions ....................... 47,346 23,977 22,115
Mortgage-backed securities .............................. 2,396,854 2,318,699 1,403,813
Other securities ........................................ 426,841 300,144 163,950
---------- ---------- ----------
Total securities available for sale ....................... 7,296,128 6,720,295 6,441,104
---------- ---------- ----------
Total securities ........................................... $7,594,263 $7,099,033 $6,925,302
========== ========== ==========
</TABLE>
TABLE 7
SCHEDULED MATURITIES OF TIME DEPOSITS
TIME DEPOSITS $100,000 AND OVER
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
------------
<S> <C>
MATURITY SCHEDULE AS OF DECEMBER 31, 1997
Less than three months ................. $1,103,849
Four through six months ................ 586,401
Seven through twelve months ............ 530,194
Over twelve months ..................... 435,500
----------
Total ................................ $2,655,944
==========
</TABLE>
TOTAL TIME DEPOSITS
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------
<S> <C>
TIME DEPOSITS DUE TO MATURE BY DECEMBER 31,
1998 ..................................... $ 9,074,436
1999 ..................................... 1,597,020
2000 ..................................... 363,180
2001 ..................................... 102,774
2002 ..................................... 151,686
2003 and later ........................... 19,540
-----------
Total .................................. $11,308,636
===========
</TABLE>
44
<PAGE>
TABLE 8
SHORT-TERM BORROWED FUNDS
The following information summarizes certain pertinent information for the
past three years on short-term borrowed funds:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Maximum outstanding at any month-end during the year .. $ 3,451,885 $ 2,737,629 $ 4,145,835
Average outstanding during the year ................... 2,868,715 2,345,750 3,330,078
Average interest rate during the year ................. 5.31% 5.28% 5.90%
Average interest rate at end of year .................. 5.44 4.88 5.39
</TABLE>
TABLE 9
CAPITAL ADEQUACY FOR BB&T CORPORATION AND BANKING SUBSIDIARIES
<TABLE>
<CAPTION>
REGULATORY BB&T- BB&T-
MINIMUMS BB&T NC SC
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital (1) ............ 4.0% 10.3% 11.0% 12.2%
Total risk-based capital (2) .. 8.0 13.9 12.3 13.4
Tier 1 leverage ratio (3) ..... 3.0 7.2 7.6 8.5
<CAPTION>
FIDELITY VIRGINIA
LIFE FEDERAL FIRST FRANKLIN
BB&T- SAVINGS SAVINGS SAVINGS NATIONAL
VA BANK BANK BANK BANK
---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital (1) ............ 12.1% 22.1% 12.3% 10.5% 9.8%
Total risk-based capital (2) .. 13.3 22.4 13.3 11.8 11.0
Tier 1 leverage ratio (3) ..... 9.4 9.2 7.9 7.3 7.1
</TABLE>
- ---------
(1) Shareholders' equity less nonqualifying intangible assets; computed as a
ratio of risk-weighted assets, as defined in the risk-based capital
guidelines.
(2) Tier 1 capital plus qualifying loan loss allowance and subordinated debt;
computed as a ratio of risk-weighted assets as defined in the risk-based
capital guidelines.
(3) Tier 1 capital computed as a ratio of fourth quarter average assets less
nonqualifying intangibles.
TABLE 10
COMPOSITION OF AVERAGE TOTAL ASSETS
<TABLE>
<CAPTION>
% CHANGE
--------------------
1997 V. 1996 V.
1997 1996 1995 1996 1995
---------------- ---------------- ---------------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Securities * ............................................. $ 7,277,017 $ 6,848,895 $ 6,809,077 6.3% 0.6%
Federal funds sold and other earning assets .............. 93,543 135,808 171,626 (31.1) (20.9)
Loans and leases, net of unearned income ** .............. 19,817,354 17,961,260 17,106,917 10.3 5.0
------------ ------------ ------------
Average earning assets ................................... 27,187,914 24,945,963 24,087,620 9.0 3.6
Non-earning assets ....................................... 1,688,172 1,523,193 1,486,087 10.8 2.5
------------ ------------ ------------
Average total assets ..................................... $ 28,876,086 $ 26,469,156 $ 25,573,707 9.1% 3.5%
============ ============ ============ ===== =====
Average earning assets as percent of average total assets 94.2% 94.2% 94.2%
============ ============ ============
</TABLE>
- ---------
* Based on amortized cost.
** Includes loans held for sale based on lower of amortized cost or market.
Amounts are gross of the allowance for loan and lease losses
45
<PAGE>
TABLE 11
SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------
CARRYING VALUE AVERAGE YIELD (3)
---------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Treasury, government and agency obligations (1):
Within one year ....................................... $ 800,741 6.11%
One to five years ..................................... 3,622,142 6.76
Five to ten years ..................................... 415,790 7.04
After ten years ....................................... 2,063,156 7.18
---------- -----
Total ................................................ 6,901,829 6.82
---------- -----
States and political subdivisions:
Within one year ....................................... 24,416 8.88
One to five years ..................................... 131,941 8.66
Five to ten years ..................................... 39,165 7.92
After ten years ....................................... 2,193 10.90
---------- -----
Total ................................................ 197,715 8.57
---------- -----
Other securities:
Within one year ....................................... 191 5.03
One to five years ..................................... 20,347 6.79
Five to ten years ..................................... 134 7.90
After ten years ....................................... 269 6.96
---------- -----
Total ................................................ 20,941 6.78
---------- -----
Securities with no stated maturity ...................... 473,778 6.79
---------- -----
Total securities (2) ................................. $7,594,263 6.87%
========== =====
</TABLE>
- ---------
(1) Included in U.S. Treasury, government and agency obligations are
mortgage-backed securities totaling $2.4 billion classified as available
for sale and disclosed at estimated fair value. These securities are
included in each of the categories based upon final stated maturity dates.
The original contractual lives of these securities range from five to 30
years; however, a more realistic average maturity would be substantially
shorter because of the monthly return of principal on certain securities.
(2) Includes securities held to maturity of $230.3 million disclosed at
amortized cost and securities available for sale and trading securities
disclosed at estimated fair values of $7.3 billion and $67.9 million,
respectively.
(3) Taxable equivalent basis as applied to amortized cost.
46
<PAGE>
TABLE 12
ASSET QUALITY
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996 1995
------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans and leases* ........................................... $ 99,938 $ 65,648 $ 71,963
Restructured loans ..................................................... 1,377 2,464 4,525
Foreclosed property .................................................... 34,923 29,147 19,508
--------- -------- --------
Nonperforming assets .................................................. $ 136,238 $ 97,259 $ 95,996
========= ======== ========
Loans 90 days or more past due and still accruing ..................... $ 44,362 $ 41,870 $ 34,692
========= ======== ========
Asset Quality Ratios:
Nonaccrual loans and leases as a percentage of loans and leases ..... .47% .35% .41%
Nonperforming assets as a percentage of:
Total assets ...................................................... .44 .35 .37
Loans and leases plus foreclosed property ......................... .64 .52 .55
Net charge-offs as a percentage of average loans and leases ......... .40 .28 .23
Allowance for losses as a percentage of loans and leases ............ 1.32 1.31 1.30
Ratio of allowance for losses to:
Net charge-offs ................................................... 3.52x 4.79x 5.89x
Nonaccrual loans and leases ....................................... 2.80 3.71 3.15
</TABLE>
- ---------
NOTE: Items referring to loans and leases are net of unearned income, gross of
the allowance and include loans held for sale.
* Includes $32.5 million of impaired loans at December 31, 1997 and $28.4
million of impaired loans at December 31, 1996. See Note D in the "Notes
to Consolidated Financial Statements."
TABLE 13
COMPOSITION OF AVERAGE DEPOSITS AND OTHER BORROWINGS
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Savings and interest checking ........... $ 2,052,088 8% $ 2,234,269 9% $ 2,430,728 10%
Money rate savings ...................... 4,791,693 18 4,008,368 17 3,852,048 17
Other time deposits ..................... 10,908,018 42 10,817,991 45 9,888,007 43
----------- -- ----------- -- ----------- --
Total interest-bearing deposits ......... 17,751,799 68 17,060,628 71 16,170,783 70
Noninterest-bearing deposits ............ 2,651,885 10 2,534,285 11 2,354,020 10
----------- -- ----------- -- ----------- --
Total deposits .......................... 20,403,684 78 19,594,913 82 18,524,803 80
Short-term borrowed funds ............... 2,868,715 11 2,345,750 10 3,330,078 14
Long-term debt .......................... 2,925,628 11 2,027,683 8 1,303,992 6
----------- -- ----------- -- ----------- --
Total deposits and other borrowings ..... $26,198,027 100% $23,968,346 100% $23,158,873 100%
=========== === =========== === =========== ===
<CAPTION>
% CHANGE
-------------------------
1997 V. 1996 V.
1996 1995
------------ ------------
<S> <C> <C>
Savings and interest checking ........... (8.2)% ( 8.1)%
Money rate savings ...................... 19.5 4.1
Other time deposits ..................... 0.8 9.4
Total interest-bearing deposits ......... 4.1 5.5
Noninterest-bearing deposits ............ 4.6 7.7
Total deposits .......................... 4.1 5.8
Short-term borrowed funds ............... 22.3 (29.6)
Long-term debt .......................... 44.3 55.5
Total deposits and other borrowings ..... 9.3% 3.5%
==== =====
</TABLE>
47
<PAGE>
TABLE 14
NET INTEREST INCOME AND RATE/VOLUME ANALYSIS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
AVERAGE BALANCES YIELD/RATE
----------------------------------------- --------------------------------
FULLY TAXABLE EQUIVALENT -- 1997 1996 1995 1997 1996 1995
(DOLLARS IN THOUSANDS) ------------- ------------- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities (1):
U.S. Treasury, government and
other (5) ............................ $ 7,086,567 $ 6,644,731 $ 6,573,712 6.77% 6.55% 6.14%
States and political
subdivisions ......................... 190,450 204,164 235,365 8.55 8.98 9.00
----------- ----------- ----------- ----- ----- -----
Total securities (5) ................. 7,277,017 6,848,895 6,809,077 6.81 6.63 6.24
Other earning assets (2) ............... 93,543 135,808 171,626 5.50 5.37 5.88
Loans and leases, net of unearned
income (1)(3)(4)(5) ................... 19,817,354 17,961,260 17,106,917 9.17 9.10 9.24
----------- ----------- ----------- ----- ----- -----
Total earning assets ................. 27,187,914 24,945,963 24,087,620 8.53 8.40 8.36
----------- ----------- ----------- ----- ----- -----
Non-earning assets ................... 1,688,172 1,523,193 1,486,087
----------- ----------- -----------
Total assets ......................... $28,876,086 $26,469,156 $25,573,707
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits:
Savings and interest-checking ......... $ 2,052,088 $ 2,234,269 $ 2,430,728 1.78 1.90 2.28
Money rate savings .................... 4,791,693 4,008,368 3,852,048 3.07 2.85 3.12
Other time deposits ................... 10,908,018 10,817,991 9,888,007 5.51 5.55 5.57
----------- ----------- ----------- ----- ----- -----
Total interest-bearing
deposits ............................. 17,751,799 17,060,628 16,170,783 4.42 4.44 4.50
Short-term borrowed funds .............. 2,868,715 2,345,750 3,330,078 5.31 5.28 5.90
Long-term debt ......................... 2,925,628 2,027,683 1,303,992 5.82 5.83 6.27
----------- ----------- ----------- ----- ----- -----
Total interest-bearing
liabilities .......................... 23,546,142 21,434,061 20,804,853 4.70 4.66 4.83
----------- ----------- ----------- ----- ----- -----
Noninterest-bearing deposits ......... 2,651,885 2,534,285 2,354,020
Other liabilities .................... 371,456 335,164 340,586
Shareholders' equity ................. 2,306,603 2,165,646 2,074,248
----------- ----------- -----------
Total liabilities and
shareholders' equity ................. $28,876,086 $26,469,156 $25,573,707
=========== =========== ===========
Average interest rate spread ........... 3.83 3.74 3.53
Net yield on earning assets ............ 4.46% 4.39% 4.19%
===== ===== =====
Taxable equivalent adjustment ..........
<CAPTION>
1997 V. 1996
----------------------------------
INCOME/EXPENSE CHANGE DUE TO
FULLY TAXABLE EQUIVALENT -- ----------------------------------------- INCREASE ----------------------
1997 1996 1995 (DECREASE) RATE VOLUME
(DOLLARS IN THOUSANDS) ------------- ------------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities (1):
U.S. Treasury, government and
other (5) ............................ $ 479,515 $ 435,493 $ 403,383 $ 44,022 $ 14,433 $ 29,589
States and political
subdivisions ......................... 16,287 18,333 21,173 (2,046) (849) (1,197)
---------- ---------- ---------- -------- -------- --------
Total securities (5) ................. 495,802 453,826 424,556 41,976 13,584 28,392
Other earning assets (2) ............... 5,146 7,291 10,091 (2,145) 176 (2,321)
Loans and leases, net of unearned
income (1)(3)(4)(5) ................... 1,817,817 1,634,072 1,580,040 183,745 13,591 170,154
---------- ---------- ---------- -------- -------- --------
Total earning assets ................. 2,318,765 2,095,189 2,014,687 223,576 27,351 196,225
---------- ---------- ---------- -------- -------- --------
Non-earning assets ...................
Total assets .........................
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits:
Savings and interest-checking ......... 36,611 42,349 55,534 (5,738) (2,403) (3,335)
Money rate savings .................... 146,874 114,044 120,183 32,830 9,308 23,522
Other time deposits ................... 601,069 600,356 551,237 713 (4,264) 4,977
---------- ---------- ---------- -------- -------- --------
Total interest-bearing
deposits ............................. 784,554 756,749 726,954 27,805 2,641 25,164
Short-term borrowed funds .............. 152,202 123,896 196,560 28,306 562 27,744
Long-term debt ......................... 170,207 118,204 81,772 52,003 (238) 52,241
---------- ---------- ---------- -------- -------- --------
Total interest-bearing
liabilities .......................... 1,106,963 998,849 1,005,286 108,114 2,965 105,149
---------- ---------- ---------- -------- -------- --------
Noninterest-bearing deposits .........
Other liabilities ....................
Shareholders' equity .................
Total liabilities and
shareholders' equity .................
Average interest rate spread ...........
Net yield on earning assets ............ $1,211,802 $1,096,340 $1,009,401 $115,462 $ 24,386 $ 91,076
========== ========== ========== ======== ======== ========
Taxable equivalent adjustment .......... $ 53,277 $ 36,146 $ 35,041
========== ========== ==========
<CAPTION>
1996 V. 1995
----------------------------------------
CHANGE DUE TO
FULLY TAXABLE EQUIVALENT -- INCREASE -------------------------
(DECREASE) RATE VOLUME
(DOLLARS IN THOUSANDS) ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Securities (1):
U.S. Treasury, government and
other (5) ............................ $ 32,110 $ 27,711 $ 4,399
States and political
subdivisions ......................... (2,840) (38) (2,802)
---------- ---------- ----------
Total securities (5) ................. 29,270 27,673 1,597
Other earning assets (2) ............... (2,800) (823) (1,977)
Loans and leases, net of unearned
income (1)(3)(4)(5) ................... 54,032 (23,967) 77,999
---------- ---------- ----------
Total earning assets ................. 80,502 2,883 77,619
---------- ---------- ----------
Non-earning assets ...................
Total assets .........................
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing deposits:
Savings and interest-checking ......... (13,185) (8,943) (4,242)
Money rate savings .................... (6,139) (10,881) 4,742
Other time deposits ................... 49,119 (2,502) 51,621
---------- ---------- ----------
Total interest-bearing
deposits ............................. 29,795 (22,326) 52,121
Short-term borrowed funds .............. (72,664) (19,071) (53,593)
Long-term debt ......................... 36,432 (6,115) 42,547
---------- ---------- ----------
Total interest-bearing
liabilities .......................... (6,437) (47,512) 41,075
---------- ---------- ----------
Noninterest-bearing deposits .........
Other liabilities ....................
Shareholders' equity .................
Total liabilities and
shareholders' equity .................
Average interest rate spread ...........
Net yield on earning assets ............ $ 86,939 $ 50,395 $ 36,544
========== ========== ==========
Taxable equivalent adjustment ..........
</TABLE>
- -------
(1) Yields related to securities, loans and leases exempt from both federal and
state income taxes, federal income taxes only or state income taxes only
are stated on a taxable equivalent basis assuming tax rates in effect for
the periods presented.
(2) Includes Federal funds sold and securities purchased under resale
agreements or similar arrangements.
(3) Loan fees, which are not material for any of the periods shown, have been
included for rate calculation purposes.
(4) Nonaccrual loans have been included in the average balances. Only the
interest collected on such loans has been included as income.
(5) Includes assets which were held for sale or available for sale at amortized
cost and trading securities at estimated fair value.
48
<PAGE>
TABLE 15
NONINTEREST INCOME
<TABLE>
<CAPTION>
% CHANGE
--------------------
YEARS ENDED DECEMBER 31,
----------------------------------- 1997 V. 1996 V.
1997 1996 1995 1996 1995
----------- ----------- ----------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges on deposits ................. $150,256 $133,905 $ 115,068 12.2% 16.4%
Mortgage banking income ..................... 50,383 40,218 31,497 25.3 27.7
Trust income ................................ 31,957 28,794 23,872 11.0 20.6
Agency insurance commissions ................ 40,148 27,541 19,874 45.8 38.6
Other insurance commissions ................. 13,164 12,822 12,384 2.7 3.5
Securities gains (losses), net .............. 3,213 3,210 (19,418) NM NM
Bankcard fees and merchant discounts ........ 22,805 18,511 16,254 23.2 13.9
Investment brokerage commissions ............ 19,908 17,069 10,103 16.6 68.9
Other bank service fees and commissions ..... 44,250 27,821 22,723 59.1 22.4
International income ........................ 3,685 3,206 2,895 14.9 10.7
Amortization of negative goodwill ........... 6,180 6,238 6,239 ( .9) --
Other noninterest income .................... 72,399 21,924 15,249 230.2 43.8
-------- -------- --------- ----- ----
Total noninterest income ................. $458,348 $341,259 $ 256,740 34.3% 32.9%
======== ======== ========= ===== ====
</TABLE>
- ---------
NM -- Not Meaningful.
TABLE 16
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
% CHANGE
----------------------
YEARS ENDED DECEMBER 31,
----------------------------------- 1997 V. 1996 V.
1997 1996 1995 1996 1995
----------- ----------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and wages ............................................ $372,745 $327,222 $360,393 13.9% ( 9.2)%
Pension and other employee benefits............................ 94,062 77,104 78,627 22.0 ( 1.9)
Net occupancy expense on bank premises ........................ 79,496 59,379 62,351 33.9 ( 4.8)
Furniture and equipment expense ............................... 84,411 68,335 68,213 23.5 0.2
Federal deposit insurance premiums ............................ 5,138 49,999 28,483 (89.7) 75.5
Foreclosed property expense ................................... 3,289 2,531 3,745 29.9 (32.4)
Amortization of intangibles and mortgage servicing rights ..... 24,496 15,378 12,075 59.3 27.4
Software ...................................................... 14,219 11,074 12,479 28.4 (11.3)
Telephone ..................................................... 18,483 16,154 15,268 14.4 5.8
Donations ..................................................... 6,815 6,079 7,819 12.1 (22.3)
Advertising and public relations .............................. 26,540 24,345 16,714 9.0 45.7
Travel and transportation ..................................... 8,729 7,404 7,217 17.9 2.6
Professional services ......................................... 46,705 26,567 24,689 75.8 7.6
Supplies ...................................................... 15,572 14,630 20,722 6.4 (29.4)
Loan and lease expense ........................................ 41,335 32,248 24,952 28.2 29.2
Deposit related expense ....................................... 16,820 14,299 12,875 17.6 11.1
Other noninterest expenses .................................... 109,891 74,614 71,552 47.3 4.3
-------- -------- -------- ----- -----
Total noninterest expense .................................. $968,746 $827,362 $828,174 17.1% ( 0.1)%
======== ======== ======== ===== =====
</TABLE>
49
<PAGE>
TABLE 17
INTEREST RATE SENSITIVITY GAP ANALYSIS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
EXPECTED REPRICING OR MATURITY DATE
---------------------------------------------------------------------------
WITHIN ONE TO THREE TO AFTER FIVE
ONE YEAR THREE YEARS FIVE YEARS YEARS TOTAL
--------------- ---------------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Securities and other interest-earning assets* ..... $ 1,777,305 $ 2,502,362 $2,232,482 $1,078,487 $ 7,590,636
Federal funds sold and securities purchased
under resale agreements or similar
arrangements .................................... 225,245 -- -- -- 225,245
Loans and leases** ................................ 13,642,694 4,481,379 2,121,870 987,927 21,233,870
------------ ------------ ---------- ---------- -----------
TOTAL INTEREST-EARNING ASSETS ...................... 15,645,244 6,983,741 4,354,352 2,066,414 29,049,751
------------ ------------ ---------- ---------- -----------
LIABILITIES
Other time deposits ............................... 7,805,046 1,856,106 249,134 12,717 9,923,003
Foreign deposits .................................. 1,385,633 -- -- -- 1,385,633
Savings and interest checking*** .................. -- 1,044,729 348,243 348,243 1,741,215
Money rate savings*** ............................. 2,676,487 2,676,486 -- -- 5,352,973
Federal funds purchased and securities sold
under repurchase agreements or similar
arrangements .................................... 2,332,381 -- -- -- 2,332,381
Long-term debt and other borrowings ............... 2,750,840 590,059 681,630 672,492 4,695,021
------------ ------------ ---------- ---------- -----------
TOTAL INTEREST-BEARING LIABILITIES ................. 16,950,387 6,167,380 1,279,007 1,033,452 $25,430,226
------------ ------------ ---------- ---------- ===========
ASSET-LIABILITY GAP ................................ (1,305,143) 816,361 3,075,345 1,032,962
------------ ------------ ---------- ----------
DERIVATIVES AFFECTING INTEREST RATE SENSITIVITY:
Pay fixed interest rate swaps ..................... 247,943 (220,726) (19,417) (7,800)
Receive fixed interest rate swaps ................. (1,025,000) 525,000 -- 500,000
Caps and floors ................................... (665,000) 605,000 -- 60,000
------------ ------------ ---------- ----------
(1,442,057) 909,274 (19,417) 552,200
------------ ------------ ---------- ----------
INTEREST RATE SENSITIVITY GAP ...................... $ (2,747,200) $ 1,725,635 $3,055,928 $1,585,162
============ ============ ========== ==========
CUMULATIVE INTEREST RATE SENSITIVITY GAP ........... $ (2,747,200) $ (1,021,565) $2,034,363 $3,619,525
============ ============ ========== ==========
</TABLE>
- ---------
* Securities based on amortized cost.
** Loans and leases include loans held for sale and are net of unearned income.
*** Projected runoff of non-maturity deposits was computed based upon decay
rate assumptions developed by bank regulators to assist banks in
addressing FDICIA rule 305.
TABLE 18
INTEREST SENSITIVITY SIMULATION ANALYSIS
<TABLE>
<CAPTION>
ANNUALIZED
HYPOTHETICAL
INTEREST
RATE PERCENTAGE
SCENARIO CHANGE IN
- ----------------- PRIME NET INTEREST
LINEAR RATE INCOME
- ----------------- ----------- -------------
<S> <C> <C>
+3.00% 11.50% -2.34%
+1.50 10.00 -1.88
-1.50 7.00 .46
-3.00 5.50 .60
</TABLE>
50
<PAGE>
TABLE 19
CAPITAL -- COMPONENTS AND RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier 1 capital ..................... $ 2,153,246 $ 2,149,231
Tier 2 capital ..................... 756,352 473,118
----------- -----------
Total regulatory capital ........... $ 2,909,598 $ 2,622,349
=========== ===========
Risk-based capital ratios:
Tier 1 capital ................... 10.3% 11.8%
Total regulatory capital ......... 13.9 14.4
Tier 1 leverage ratio ............ 7.2 7.8
</TABLE>
TABLE 20
QUARTERLY COMMON STOCK SUMMARY
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------- ----------------------------------------------
SALES PRICES SALES PRICES
----------------------------------- DIVIDENDS ----------------------------------- DIVIDENDS
HIGH LOW LAST PAID HIGH LOW LAST PAID
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter Ended:
March 31 ............. $ 20.38 $ 17.63 $ 18.63 $ .135 $ 14.88 $ 12.94 $ 13.88 $ .115
June 30 .............. 23.56 17.88 22.50 .135 15.88 14.44 15.88 .115
September 30 ......... 27.56 22.66 26.72 .155 16.94 14.31 16.63 .135
December 31 .......... 32.50 25.97 32.03 .155 18.38 16.69 18.13 .135
Year ............... 32.50 17.63 32.03 .58 18.38 12.94 18.13 .50
</TABLE>
TABLE 21
QUARTERLY FINANCIAL SUMMARY -- UNAUDITED
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF OPERATIONS:
Net interest income FTE ................. $ 309,350 $ 306,332 $ 306,487 $ 289,633
FTE adjustment .......................... 15,359 14,290 13,135 10,493
Provision for loan and lease losses ..... 29,995 21,845 24,920 21,250
Securities gains (losses), net .......... 1,330 1,016 (933) 1,800
Other noninterest income ................ 110,049 149,842 98,369 96,875
Noninterest expense ..................... 243,294 315,061 208,517 201,874
Provision for income taxes .............. 42,641 39,759 54,069 53,230
----------- ----------- ----------- -----------
Net income .............................. $ 89,440 $ 66,235 $ 103,282 $ 101,461
=========== =========== =========== ===========
Diluted net income per share ............ $ .31 $ .23 $ .35 $ .34
=========== =========== =========== ===========
SELECTED AVERAGE BALANCES:
Assets .................................. $29,938,350 $29,124,995 $28,773,928 $27,637,455
Securities, at amortized cost ........... 7,389,149 7,383,652 7,336,677 6,993,068
Loans and leases * ...................... 20,567,449 19,989,459 19,727,117 18,971,864
Total earning assets .................... 28,088,783 27,435,657 27,148,775 26,059,316
Deposits ................................ 20,453,770 20,400,279 20,647,455 20,109,492
Short-term borrowed funds ............... 3,265,111 2,990,359 2,768,870 2,440,117
Long-term debt .......................... 3,406,587 3,109,329 2,709,641 2,464,586
Total interest-bearing liabilities ...... 24,370,675 23,820,621 23,481,806 22,487,763
Shareholders' equity .................... 2,323,200 2,298,912 2,313,344 2,289,988
<CAPTION>
1996
---------------------------------------------------------------
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF OPERATIONS:
Net interest income FTE ................. $ 284,792 $ 275,612 $ 272,644 $ 263,292
FTE adjustment .......................... 9,755 8,831 8,967 8,593
Provision for loan and lease losses ..... 18,384 15,105 15,123 13,661
Securities gains (losses), net .......... 2,756 719 (64) (201)
Other noninterest income ................ 89,024 85,211 84,094 79,720
Noninterest expense ..................... 209,461 235,182 192,826 189,893
Provision for income taxes .............. 44,532 32,696 46,895 44,383
----------- ----------- ----------- -----------
Net income .............................. $ 94,440 $ 69,728 $ 92,863 $ 86,281
=========== =========== =========== ===========
Diluted net income per share ............ $ .32 $ .24 $ .32 $ .29
=========== =========== =========== ===========
SELECTED AVERAGE BALANCES:
Assets .................................. $27,329,030 $26,728,966 $26,116,235 $25,688,999
Securities, at amortized cost ........... 7,175,811 7,138,539 6,579,001 6,495,619
Loans and leases * ...................... 18,329,684 17,977,823 17,952,277 17,585,653
Total earning assets .................... 25,701,621 25,216,281 24,640,566 24,214,934
Deposits ................................ 20,146,464 19,848,340 19,311,913 19,065,062
Short-term borrowed funds ............... 2,198,645 2,290,600 2,404,519 2,477,038
Long-term debt .......................... 2,439,596 2,104,323 1,926,486 1,649,376
Total interest-bearing liabilities ...... 22,141,020 21,690,968 21,137,420 20,773,101
Shareholders' equity .................... 2,227,575 2,145,537 2,130,895 2,157,037
</TABLE>
- ---------
* Loans and leases are net of unearned income and include loans held for sale.
51
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
(This Page Intentionally Left Blank)
<PAGE>
