<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 3, 1999
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
----------------
North Carolina 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
200 West Second Street 27101
Winston-Salem, North Carolina (Zip Code)
(Address of Principal Executive
Offices)
(336) 733-2000
(Registrant's Telephone Number, Including Area Code)
----------------
This Form 8-K has 65 pages.
- --------------------------------------------------------------------------------
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<PAGE>
Item 5. Other Events
On July 9, 1999, BB&T Corporation ("BB&T") completed its merger with First
Citizens Corporation ("First Citizens") of Newnan, Georgia. On July 14, 1999,
BB&T completed its merger with Mason-Dixon Bancshares, Inc. ("Mason-Dixon") of
Westminster, Maryland. To consummate the merger with First Citizens, their
shareholders received 1.0789 shares of BB&T common stock in exchange for each
share of First Citizens common stock held, resulting in the issuance of 3.2
million shares of BB&T common stock. To complete the merger with Mason-Dixon,
its shareholders received 1.30 shares of BB&T common stock in exchange for
each share of Mason-Dixon common stock held, resulting in the issuance of 6.6
million shares of BB&T common stock. These transactions were accounted for as
poolings 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 for the
years ended December 31, 1998, 1997 and 1996, restated for the accounts of
First Citizens and Mason-Dixon, are included in this Current Report on Form 8-
K. The restatement of First Citizens for 1998 involved converting their March
31 fiscal year end to a calendar year format consistent with BB&T's
presentation. Prior years' information is presented by combining the fiscal
year ends of First Citizens to BB&T's calendar year end. As a result,
information relating to First Citizens' activities during the period from
January 1, 1998, through March 31, 1998, has been summarized in the
Consolidated Statement of Changes in Shareholders' Equity.
Item 7. Financial Statements and Exhibits
<TABLE>
<CAPTION>
Exhibit Description
<S> <C> <C>
11 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 4.
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 5.
99.2 BB&T's restated audited financial statements Filed herewith beginning on page 6.
and notes thereto, including the accounts of
First Citizens and Mason-Dixon.
99.3 BB&T's restated Securities Act Guide 3 Filed herewith beginning on page 47.
statistical disclosures, including the accounts
of First Citizens and Mason-Dixon.
</TABLE>
2
<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)
/s/ Sherry A. Kellett
By: _________________________________
Sherry A. Kellett
Senior Executive Vice President and
Controller
(Principal Accounting Officer)
Date: September 3, 1999.
3
<PAGE>
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, 33-57871, 333-
03989, 333-50035, 333-69823 and 333-81471 filed on Form S-8 and Registration
Statement File Nos. 33- 57859, 33-57861, 333-02899, 333-27755 and 333-35879
filed on Form S-3.
Arthur Andersen LLP
Charlotte, North Carolina,
September 3, 1999.
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,061,581
<INT-BEARING-DEPOSITS> 17,678
<FED-FUNDS-SOLD> 116,458
<TRADING-ASSETS> 60,422
<INVESTMENTS-HELD-FOR-SALE> 9,154,352
<INVESTMENTS-CARRYING> 360,783
<INVESTMENTS-MARKET> 368,655
<LOANS> 25,490,101
<ALLOWANCE> 344,708
<TOTAL-ASSETS> 37,903,119
<DEPOSITS> 25,263,311
<SHORT-TERM> 3,751,748
<LIABILITIES-OTHER> 543,194
<LONG-TERM> 5,300,536
0
0
<COMMON> 1,582,953
<OTHER-SE> 1,461,377
<TOTAL-LIABILITIES-AND-EQUITY> 37,903,119
<INTEREST-LOAN> 2,148,889
<INTEREST-INVEST> 581,736
<INTEREST-OTHER> 13,355
<INTEREST-TOTAL> 2,743,980
<INTEREST-DEPOSIT> 892,330
<INTEREST-EXPENSE> 1,373,991
<INTEREST-INCOME-NET> 1,369,989
<LOAN-LOSSES> 95,805
<SECURITIES-GAINS> 8,561
<EXPENSE-OTHER> 1,062,339
<INCOME-PRETAX> 770,402
<INCOME-PRE-EXTRAORDINARY> 527,254
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 527,254
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.65
<YIELD-ACTUAL> 4.30
<LOANS-NON> 97,321
<LOANS-PAST> 54,299
<LOANS-TROUBLED> 1,348
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 301,750
<CHARGE-OFFS> 95,793
<RECOVERIES> 22,290
<ALLOWANCE-CLOSE> 344,708
<ALLOWANCE-DOMESTIC> 344,708
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 115,274
</TABLE>
<PAGE>
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of operations
and cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Charlotte, North Carolina,
September 3, 1999.
5
<PAGE>
EXHIBIT 99.2
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Assets
Cash and due from banks........................... $ 1,061,581 $ 973,486
Interest-bearing deposits with banks.............. 17,678 99,691
Federal funds sold and securities purchased under
resale agreements or similar arrangements........ 116,458 277,540
Trading securities................................ 60,422 67,878
Securities available for sale..................... 9,154,352 8,278,169
Securities held to maturity (market value:
$368,655 at December 31, 1998 and $528,840 at
December 31, 1997)............................... 360,783 520,708
Loans held for sale............................... 1,056,841 524,102
Loans and leases, net of unearned income.......... 24,433,260 22,412,295
Allowance for loan and lease losses............... (344,708) (301,750)
------------ -----------
Loans and leases, net............................ 24,088,552 22,110,545
------------ -----------
Premises and equipment, net....................... 496,158 474,763
Other assets...................................... 1,490,294 1,196,251
------------ -----------
Total assets..................................... $ 37,903,119 $34,523,133
============ ===========
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing deposits...................... $ 3,618,848 $ 3,268,574
Savings and interest checking..................... 2,002,801 2,233,138
Money rate savings................................ 7,131,229 5,563,152
Other time deposits............................... 11,871,757 11,023,885
Foreign deposits.................................. 638,676 1,385,632
------------ -----------
Total deposits................................... 25,263,311 23,474,381
Short-term borrowed funds......................... 3,751,748 3,960,749
Long-term debt.................................... 5,300,536 3,918,156
Accounts payable and other liabilities............ 543,194 475,133
------------ -----------
Total liabilities................................ 34,858,789 31,828,419
------------ -----------
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares
authorized, none issued and outstanding at
December 31, 1998 and 1997....................... -- --
Common stock, $5 par, 500,000,000 shares
authorized; issued and outstanding, 316,590,552
at December 31, 1998 and 156,774,038 at December
31, 1997......................................... 1,582,953 783,870
Additional paid-in capital........................ 185,226 247,343
Retained earnings................................. 1,213,179 1,610,263
Loan to employee stock ownership plan and unvested
restricted stock................................. (14) (1,138)
Accumulated other nonshareholder changes in
equity, net of deferred income taxes of $39,612
at December 31, 1998 and $35,042 at December 31,
1997............................................. 62,986 54,376
------------ -----------
Total shareholders' equity....................... 3,044,330 2,694,714
------------ -----------
Total liabilities and shareholders' equity....... $ 37,903,119 $34,523,133
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands, except
per share data)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans and leases........ $2,148,889 $1,945,043 $1,755,022
Interest and dividends on securities......... 581,736 534,394 479,020
Interest on short-term investments........... 13,355 8,358 10,431
---------- ---------- ----------
Total interest income........................ 2,743,980 2,487,795 2,244,473
---------- ---------- ----------
Interest Expense
Interest on deposits......................... 892,330 862,995 826,515
Interest on short-term borrowed funds........ 221,615 174,040 133,231
Interest on long-term debt................... 260,046 182,912 125,869
---------- ---------- ----------
Total interest expense....................... 1,373,991 1,219,947 1,085,615
---------- ---------- ----------
Net Interest Income........................... 1,369,989 1,267,848 1,158,858
Provision for loan and lease losses.......... 95,805 103,053 66,816
---------- ---------- ----------
Net Interest Income After Provision for Loan
and Lease Losses............................. 1,274,184 1,164,795 1,092,042
---------- ---------- ----------
Noninterest Income
Service charges on deposits.................. 178,319 158,451 141,069
Mortgage banking income...................... 83,081 53,774 42,342
Trust income................................. 42,603 36,849 33,188
Investment banking and brokerage............. 43,796 27,180 16,982
Agency insurance commissions................. 52,186 40,149 27,541
Other insurance commissions.................. 10,947 13,904 13,484
Bankcard fees and merchant discounts......... 30,219 24,042 19,385
Other nondeposit fees and commissions........ 56,304 44,931 31,170
Securities gains, net........................ 8,561 4,701 4,091
Other income................................. 52,541 83,289 35,272
---------- ---------- ----------
Total noninterest income..................... 558,557 487,270 364,524
---------- ---------- ----------
Noninterest Expense
Personnel expense............................ 540,260 512,825 444,426
Occupancy and equipment expense.............. 168,364 174,965 139,230
Federal deposit insurance expense............ 4,655 5,463 51,071
Amortization of intangibles and mortgage
servicing rights............................ 51,785 25,965 16,747
Advertising and public relations expense..... 27,727 27,935 25,906
Professional services........................ 51,327 50,713 29,314
Other expense................................ 218,221 254,401 195,796
---------- ---------- ----------
Total noninterest expense.................... 1,062,339 1,052,267 902,490
---------- ---------- ----------
Earnings
Income before income taxes................... 770,402 599,798 554,076
Provision for income taxes................... 243,148 205,137 181,540
---------- ---------- ----------
Net Income................................... 527,254 394,661 372,536
Preferred dividend requirements.............. -- -- 610
---------- ---------- ----------
Income applicable to common shares........... $ 527,254 $ 394,661 $ 371,926
========== ========== ==========
Per Common Share
Net income:
Basic........................................ $ 1.68 $ 1.26 $ 1.19
========== ========== ==========
Diluted...................................... $ 1.65 $ 1.24 $ 1.17
========== ========== ==========
Cash dividends paid.......................... $ .66 $ .58 $ .50
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Shares of Additional Retained Nonshareholder Total
Common Preferred Common Paid-in Earnings Changes Shareholders'
Stock Stock Stock Capital and Other* in Equity Equity
----------- --------- ---------- ---------- ---------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995, as previously
reported............... 152,882,706 $ 3,669 $ 764,414 $405,955 $1,119,137 $35,530 $2,328,705
Merger with First
Citizens Corporation,
accounted for under
the pooling-of-
interests method...... 786,684 -- 3,933 3,379 12,954 -- 20,266
Merger with Mason-Dixon
Bancshares, Inc.,
accounted for under
the pooling-of-
interests method...... 3,417,700 -- 17,089 27,976 20,645 886 66,596
----------- ------- ---------- -------- ---------- ------- ----------
Balance, December 31,
1995, restated......... 157,087,090 3,669 785,436 437,310 1,152,736 36,416 2,415,567
----------- ------- ---------- -------- ---------- ------- ----------
Add (Deduct):
Nonshareholder changes
in equity:**
Net income............. -- -- -- -- 372,536 -- 372,536
Unrealized holding
losses arising during
the period........... -- -- -- -- -- (19,663) (19,663)
Less: reclassification
adjustment........... -- -- -- -- -- (2,590) (2,590)
---------- ------- ----------
Net unrealized losses
on securities......... -- -- -- -- -- (22,253) (22,253)
---------- ------- ----------
Total nonshareholder
changes in equity..... -- -- -- -- 372,536 (22,253) 350,283
---------- ------- ----------
Common stock issued.... 3,095,315 -- 15,476 66,906 1,290 -- 83,672
Redemption of common
stock................. (7,397,553) -- (36,987) (185,816) 2 -- (222,801)
Preferred stock
cancellations and
conversions........... 4,334,692 (3,669) 21,674 (18,005) -- -- --
Cash dividends
declared:
Common stock........... -- -- -- -- (141,397) -- (141,397)
Preferred stock........ -- -- -- -- (610) -- (610)
Other.................. -- -- -- (378) 676 -- 298
----------- ------- ---------- -------- ---------- ------- ----------
Balance, December 31,
1996................... 157,119,544 -- 785,599 300,017 1,385,233 14,163 2,485,012
Add (deduct):
Nonshareholder changes
in equity:**
Net income............. -- -- -- -- 394,661 -- 394,661
Unrealized holding
gains arising during
the period........... -- -- -- -- -- 43,217 43,217
Less: reclassification
adjustment........... -- -- -- -- -- (3,004) (3,004)
---------- ------- ----------
Net unrealized gains on
securities............ -- -- -- -- -- 40,213 40,213
---------- ------- ----------
Total nonshareholder
changes in equity..... -- -- -- -- 394,661 40,213 434,874
---------- ------- ----------
Common stock issued.... 6,769,224 -- 33,845 240,515 5,495 -- 279,855
Redemption of common
stock................. (7,114,730) -- (35,574) (291,264) -- -- (326,838)
Cash dividends declared
on common stock....... -- -- -- -- (179,438) -- (179,438)
Other.................. -- -- -- (1,925) 3,174 -- 1,249
----------- ------- ---------- -------- ---------- ------- ----------
Balance, December 31,
1997................... 156,774,038 -- 783,870 247,343 1,609,125 54,376 2,694,714
Add (Deduct):
Nonshareholder changes
in equity**
Net income............. -- -- -- -- 527,254 -- 527,254
Unrealized holding
gains arising during
the period........... -- -- -- -- -- 13,840 13,840
Less: reclassification
adjustment........... -- -- -- -- -- (5,214) (5,214)
---------- ------- ----------
Net unrealized gains on
securities............ -- -- -- -- 527,254 8,626 8,626
---------- ------- ----------
Total nonshareholder
changes in equity..... -- -- -- -- -- 8,626 535,880
---------- ------- ----------
Common stock issued.... 11,582,244 -- 57,912 309,831 -- -- 367,743
Redemption of common
stock................. (6,736,880) -- (33,684) (311,345) -- (345,029)
2-for-1 stock split
effective August 3,
1998.................. 155,003,882 -- 775,019 (63,432) (711,587) -- --
Reconciliation of
fiscal year of First
Citizens to calendar
year.................. (32,732) -- (164) (211) (1,093) (16) (1,484)
Cash dividends declared
on common stock....... -- -- -- -- (209,850) -- (209,850)
Other.................. -- -- -- 3,040 (684) -- 2,356
----------- ------- ---------- -------- ---------- ------- ----------
Balance, December 31,
1998................... 316,590,552 $ -- $1,582,953 $185,226 $1,213,165 $62,986 $3,044,330
=========== ======= ========== ======== ========== ======= ==========
</TABLE>
- -------
* Other includes unearned income, unvested restricted stock and a loan to the
employee stock ownership plan.
** Comprehensive income as defined by SFAS No. 130.
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................. $ 527,254 $ 394,661 $ 372,536
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan and lease losses.... 95,805 103,053 66,816
Depreciation of premises and
equipment............................. 69,423 63,784 50,940
Amortization of intangibles and
mortgage servicing rights............. 51,785 25,965 16,747
Accretion of negative goodwill......... (6,449) (6,858) (7,040)
Amortization of unearned stock
compensation.......................... 1,124 8,111 2,450
Discount accretion and premium
amortization on securities, net....... 1,984 3,598 6,201
Net decrease (increase) in trading
account securities.................... 7,456 (25,688) --
Loss (gain) on sales of securities,
net................................... (8,561) (4,701) (4,091)
Loss (gain) on sales of loans and
mortgage loan servicing rights, net... (31,337) (15,992) (9,061)
Loss (gain) on disposals of premises
and equipment, net.................... (15,352) 28,263 (515)
Proceeds from sales of loans held for
sale.................................. 4,394,521 1,631,218 1,384,581
Purchases of loans held for sale....... (1,745,442) (734,727) (429,603)
Origination of loans held for sale, net
of principal collected................ (3,144,210) (1,066,492) (915,804)
Reconciliation of fiscal year of First
Citizens to calendar year............. 4,991 -- --
Decrease (increase) in:
Accrued interest receivable........... (21,159) (381) 19,621
Other assets.......................... (83,845) (197,095) (112,953)
Increase (decrease) in:
Accrued interest payable.............. 17,264 5,966 6,682
Accounts payable and other
liabilities.......................... 75,907 102,161 (7,235)
Other, net............................. 1,023 (3,433) 3,034
----------- ----------- -----------
Net cash provided by operating
activities........................... 192,182 311,413 443,306
----------- ----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of securities
available for sale.................... 1,502,390 1,880,137 808,535
Proceeds from maturities, calls and
paydowns of securities available for
sale.................................. 2,357,354 1,721,965 2,861,444
Purchases of securities available for
sale.................................. (4,043,826) (4,348,783) (3,021,859)
Proceeds from sales of securities held
to maturity........................... -- 26,170 --
Proceeds from maturities, calls and
paydowns of securities held to
maturity.............................. 137,712 70,139 266,991
Purchases of securities held to
maturity.............................. (79,479) (69,448) (393,487)
Leases made to customers............... (94,615) (74,420) (72,390)
Principal collected on leases.......... 65,186 57,581 48,222
Loan originations, net of principal
collected............................. (1,390,906) (1,346,816) (1,958,284)
Purchases of loans..................... (110,108) (205,232) (232,236)
Net cash acquired in transactions
accounted for under the purchase
method................................ 82,764 95,205 9,955
Purchases and originations of mortgage
servicing rights...................... (74,098) (39,119) (26,422)
Proceeds from disposals of premises and
equipment............................. 25,559 14,579 9,567
Purchases of premises and equipment.... (114,763) (154,088) (77,987)
Proceeds from sales of foreclosed
property.............................. 28,902 17,333 17,163
Proceeds from sales of other real
estate held for development or sale... (2,022) 14,102 10,646
Other, net............................. (6,487) (782) (50,558)
----------- ----------- -----------
Net cash used in investing
activities........................... (1,716,437) (2,341,477) (1,800,700)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net increase in deposits............... 986,034 525,872 921,551
Net increase (decrease) in short-term
borrowed funds........................ (492,527) 647,331 31,772
Proceeds from long-term debt........... 2,931,978 5,882,887 1,699,973
Repayments of long-term debt........... (1,545,484) (4,379,671) (939,351)
Net proceeds from common stock issued.. 34,348 26,436 53,434
Redemption of common stock............. (345,029) (326,838) (222,801)
Cash dividends paid on common and
preferred stock....................... (199,989) (166,739) (137,157)
Other, net............................. (76) (12) (5,298)
----------- ----------- -----------
Net cash provided by financing
activities........................... 1,369,255 2,209,266 1,402,123
----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash
Equivalents............................ (155,000) 179,202 44,729
Cash and Cash Equivalents at Beginning
of Year................................ 1,350,717 1,171,515 1,126,786
----------- ----------- -----------
Cash and Cash Equivalents at End of
Year................................... $ 1,195,717 $ 1,350,717 $ 1,171,515
=========== =========== ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
Interest............................... $ 1,356,235 $ 1,167,106 $ 1,052,558
Income taxes........................... 145,449 155,233 180,334
Noncash financing and investing
activities:
Transfer of securities from held to
maturity to available for sale........ 106,819 -- 36,646
Transfer of securities from available
for sale to held to maturity.......... -- -- 240
Transfer of loans to foreclosed
property.............................. 22,445 21,487 29,313
Transfer of fixed assets to other real
estate owned.......................... 10,351 13,761 10,466
Restricted stock issued................ -- 74 575
Securitization of mortgage loans....... 465,341 -- 817,268
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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");
BB&T Financial Corporation of South Carolina, parent company of Branch Banking
and Trust Company of South Carolina ("BB&T-SC"); BB&T Financial Corporation of
Virginia, parent company of Branch Banking and Trust Company of Virginia
("BB&T-VA"), (collectively, the "Banks"), Regional Acceptance Corporation
("Regional Acceptance") and Scott & Stringfellow Financial, Inc., ("Scott &
Stringfellow") comprise BB&T's principal direct 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
BB&T Corporation 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. The
results of operations of companies acquired in transactions accounted for as
purchases are included only from the dates of acquisition. (See Note B). The
restatement of First Citizens for 1998 involved converting their March 31
fiscal year end to a calendar year format consistent with BB&T's presentation.
Prior years' information is presented by combining the fiscal year end of
First Citizens to BB&T's calendar year end. As a result, information relating
to First Citizens' activities during the period from January 1, 1998, through
March 31, 1998, has been summarized in the Consolidated Statement of Changes
in Shareholders' Equity. This method of combination did not have a material
impact on BB&T's consolidated financial position or consolidated results of
operations.
Certain amounts for prior years have been reclassified to conform to
statement presentations for 1998. The reclassifications have had no effect on
either shareholders' equity or net income, as previously reported.
Nature of Operations
BB&T is a multi-bank holding company headquartered in Winston-Salem, North
Carolina. BB&T conducts its operations in North Carolina, South Carolina,
Virginia, Maryland 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, investment banking, 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.
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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. 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 and 1998, BB&T transferred securities with an amortized cost of
$36.6 million and $106.8 million, respectively, 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 portfolios to BB&T's existing
policies.
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 that 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
11
<PAGE>
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.
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 comprised of
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 allowance for loan and lease losses is the estimated amount considered
adequate to cover probable credit losses inherent in the outstanding loan and
lease portfolio. 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. Management stratifies the loan portfolio
based on the purpose of the loan. For commercial loans, specific reserves are
assigned to "watch list" credits of $1 million or more. General reserves on
commercial loans are determined based on the risk grades assigned to the
credits. For all other loan types, general reserves are established based on a
weighted average of actual historical loan loss experience for the loan type
and based on the risk grades of the loans. An additional general reserve is
established to address broader economic conditions in BB&T's market areas and
to ensure that the allowance is adequate for other probable losses inherent in
the loan and lease portfolio. While management uses the best information
available to establish the allowance for loan and lease 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 collectibility 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 as long as
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
collectibility 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 selling costs. Cost is determined based on 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 loan and lease losses. Generally,
such properties are appraised annually and the carrying value, if greater than
the fair value, less selling costs, 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.
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<PAGE>
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 when 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. 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.
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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. Other
potentially dilutive securities include the number of shares issuable upon
conversion of preferred stock. Restricted stock grants are considered as
issued for purposes of calculating net income per share.
Weighted average numbers of shares were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Basic.................................... 313,532,508 312,884,551 312,573,064
Dilute................................... 319,948,997 318,174,032 319,096,624
</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 and the
weighted average shares reflected above have been restated as appropriate to
retroactively 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, 1998, BB&T had $405.2 million recorded as goodwill and $7.9
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, 1998, BB&T had negative goodwill totaling
$26.7 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. At
December 31, 1998, BB&T had capitalized mortgage servicing rights totaling
$101.4 million.
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Changes in Accounting Principles and Effects of New Accounting Pronouncements
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. BB&T adopted the provisions of
the statement effective December 31, 1998. The standard does not address
issues of recognition or measurement and, therefore, the implementation of the
statement did not have an impact on the consolidated financial position or
consolidated results of operations of BB&T. See Note S. in the "Notes to
Consolidated Financial Statements" for disclosures related to the
implementation of this statement.
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
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plans. BB&T adopted the provisions of this statement effective December 31,
1998, including restatement of all prior periods presented. The statement does
not address issues of recognition or measurement and, therefore, the
implementation of the statement did not have an impact on BB&T's consolidated
financial position or consolidated results of operations. See Note L. in the
"Notes to Consolidated Financial Statements" for disclosures related to the
implementation of this statement.
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
requires capitalization of computer software costs that meet certain criteria.
BB&T adopted the provisions of this statement effective January 1, 1999. This
implementation of the SOP did not 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, 2000, 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
adoption of the statement. However, management does not anticipate that the
implementation of the statement will have a material effect on BB&T's
consolidated financial position or consolidated results of operations.
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 and requires start-up costs to be expensed as incurred.
BB&T adopted the provisions of the SOP effective January 1, 1999. The adoption
of the statement did not have a material impact on BB&T's consolidated
financial position or consolidated results of operations.
During October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." The statement amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities." BB&T adopted the
provisions of the statement effective January 1, 1999. The implementation of
the statement did not 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>
1998 1997 1996
--------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Fair Value of Net Assets acquired......... $ 116,701 $ 138,029 $ 15,636
Purchase Price............................ (310,618) (287,031) (46,937)
--------- --------- --------
Excess of Purchase Price over Net Assets
acquired................................. $(193,917) $(149,002) $(31,301)
--------- --------- --------
</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.
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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 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.
On August 21, 1996, BB&T acquired all of the outstanding stock of Southside
Financial Group, Inc., ("Southside"), the parent company of Citizens Bank &
Trust of Fayette County, Georgia. In conjunction with the acquisition, BB&T
issued approximately 148,000 shares of common stock and paid $13.7 million in
cash. As a result of the acquisition, BB&T recorded $5.2 million of goodwill,
which is being amortized using the straight-line method over 20 years.
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. On November 7, 1996, BB&T completed the acquisition of the William
Goldsmith Agency Inc. of Greenville, South Carolina, through the issuance of
140,414 shares of common stock. 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 96,240 shares of common stock. Boyle-Vaughan
Associates, Inc. based in Columbia, South Carolina, was acquired on November
22, 1996, through the issuance of 984,126 shares of common stock. 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. ("Seaboard
Bancorp") 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 3.2 million shares 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 March 31, 1997, BB&T acquired Tara Bankshares Corporation ("Tara"). In
conjunction with the acquisition, BB&T issued approximately 239,000 shares of
common stock and paid $5.1 million in cash. As a result of the acquisition,
BB&T recorded goodwill totaling $2.2 million, which is being amortized using
the straight-line method over 20 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.
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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 finance company that specializes in loans to
small commercial lawn care businesses across the country. The acquisition,
which was completed through the issuance of 750,000 shares of common stock,
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
926,000 shares of BB&T's common stock. 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 the merger was
consummated. The merger, which was accounted for under the purchase method of
accounting, was effected through the issuance of 3.8 million shares of BB&T's
common stock 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 February 11, 1998, BB&T purchased substantially all of the assets of Rose
Shanis Companies ("Rose Shanis"), a consumer finance company located in
Baltimore, Maryland. BB&T paid cash totaling $15.4 million to acquire Rose
Shanis. In conjunction with the merger, goodwill totaling $5.5 million was
recorded and is being amortized using the straight-line method over 10 years.
On February 28, 1998, BB&T completed the acquisition of Tysons Financial
Corporation ("Tysons") of McLean, Virginia. Tysons, with $102.1 million in
assets, was acquired through the issuance of 721,187 shares of BB&T common
stock. In conjunction with the acquisition, BB&T recorded $9.3 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.
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.
On September 30, 1998, BB&T completed its acquisition of Maryland Federal
Bancorp, Inc. ("Maryland Federal") located in Hyattsville, Maryland. In
conjunction with the merger, BB&T issued 8.7 million shares of BB&T common
stock in exchange for all of the outstanding shares of Maryland Federal common
stock. BB&T recorded $158.8 million of goodwill, which is being amortized
using the straight-line method over a period of 15 years.
On January 5, 1999, BB&T completed its acquisition of Sterling Bancorp, a
privately held commercial bank headquartered in Baltimore, Maryland. BB&T paid
$10.3 million in cash to acquire Sterling Bancorp. In conjunction with the
acquisition, BB&T recorded goodwill totaling $3.7 million, which is being
amortized using the straight-line method over 15 years.
18
<PAGE>
On March 26, 1999, BB&T completed its acquisition of Scott & Stringfellow
Financial, Inc. ("Scott & Stringfellow"), an investment banking firm based in
Richmond, Virginia. The transaction was accounted for as a purchase. In
conjunction with the acquisition, BB&T issued 3.6 million shares of BB&T
common stock in exchange for all of the outstanding shares of Scott &
Stringfellow common stock. BB&T recorded goodwill totaling $72.8 million,
which is being amortized using the straight-line method over a period of 15
years.
On August 27, 1999, BB&T completed its acquisition of Matewan BancShares,
Inc. ("Matewan") of Williamson, West Virginia. In conjunction with the merger,
BB&T issued 3.2 million shares of common stock in exchange for all of the
outstanding shares of Matewan common and preferred stock. As a result of the
acquisition, BB&T recorded $66.2 million of goodwill, which is being amortized
using the straight-line method over a period of 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 these purchase transactions had been acquired as of the beginning
of the years presented:
<TABLE>
<CAPTION>
For the Years Ended
---------------------
1998 1997
---------- ----------
(Dollars in
thousands,
except per share
data)
<S> <C> <C>
Total revenues....................................... $2,031,583 $1,945,362
========== ==========
Net income........................................... $ 510,619 $ 372,455
========== ==========
Basic EPS............................................ $ 1.63 $ 1.19
========== ==========
Diluted EPS.......................................... $ 1.60 $ 1.17
========== ==========
</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 business combinations accounted for as purchases.
Management currently does not anticipate any material adjustments to the
assigned values of the assets and liabilities of acquired companies.
Pooling of Interests Transactions
Effective January 25, 1996, BB&T consummated a merger with Seaboard Savings
Bank, Inc. ("Seaboard"), headquartered in Plymouth, North Carolina. BB&T
issued 950,316 shares of common stock 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 3.6 million
shares of common stock 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 84,270 shares of common stock 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, North Carolina, ("Regional Acceptance") in a
transaction accounted for as a pooling of interests. BB&T issued 11.7 million
shares in exchange for all of the outstanding stock of Regional Acceptance.
On September 27, 1996, BB&T completed its acquisition of The First National
Bank of Clifton Forge ("Clifton Forge"), of Clifton Forge, Virginia. The
transaction was accounted for as a pooling of interests. In conjunction with
the merger, BB&T issued approximately 1.7 million shares of common stock in
exchange for all of the outstanding common stock of Clifton Forge.
19
<PAGE>
On November 13, 1996, BB&T acquired Hanover Bank ("Hanover") of Hanover,
Virginia, in a transaction accounted for as a pooling of interests. In
conjunction with the merger, BB&T issued approximately 1.4 million shares of
common stock in exchange for all of the outstanding common stock of Hanover.
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 55.4 million shares of
common stock in exchange for all of the shares of UCB common stock
outstanding.
On December 1, 1997, BB&T completed its acquisition of Commerce Bank
Corporation ("Commerce") in a transaction accounted for as a pooling of
interests. In conjunction with the merger, BB&T issued approximately 676,000
shares of common stock in exchange for all of the outstanding common stock of
Commerce.
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 11.6 million shares of
common stock in exchange for all of the shares of Life common stock
outstanding.
On March 10, 1998, BB&T completed its acquisition of Regency Financial
Shares, Incorporated ("Regency") of Richmond, Virginia, in a transaction
accounted for as a pooling of interests. In conjunction with the merger, BB&T
issued approximately 801,000 shares of common stock in exchange for all of the
shares of Regency.
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 4.9 million shares of common stock in exchange for all of the
shares of Franklin common stock outstanding.
On July 7, 1998, BB&T completed a merger with Ballston Bancorp, Inc.
("Ballston") of Washington, D.C., in a transaction accounted for as a pooling
of interests. In conjunction with the merger, BB&T issued approximately
824,000 shares of common stock in exchange for all of the outstanding common
stock of Ballston.
On March 5, 1999, BB&T completed a merger with MainStreet Financial
Corporation ("MainStreet"), based in Martinsville, Virginia. The transaction
was accounted for as a pooling of interests. BB&T issued approximately 16.8
million shares of BB&T common stock in exchange for all of the outstanding
shares of MainStreet.
On July 9, 1999, BB&T completed its merger with First Citizens Corporation
("First Citizens"), of Newnan, Georgia. The transaction was accounted for as a
pooling of interests. BB&T issued approximately 3.2 million shares of common
stock in exchange for all of the outstanding shares of First Citizens.
On July 14, 1999, BB&T completed its merger with Mason-Dixon Bancshares
("Mason-Dixon") of Westminster, Maryland. The transaction was accounted for as
a pooling of interests. BB&T issued approximately 6.6 million shares of BB&T
common stock in exchange for all of the outstanding shares of Mason-Dixon.
20
<PAGE>
The following presentation reflects key line items on an historical basis
for BB&T, Mason-Dixon and First Citizens on a pro forma combined basis
assuming the mergers were effective as of and for the periods presented.
<TABLE>
<CAPTION>
Historical Basis
-------------------------------
Mason- First BB&T
BB&T Dixon Citizens restated
----------- ---------- -------- -----------
(Dollars in thousands, except per share
data)
<S> <C> <C> <C> <C>
As of/For the Year Ended December
31, 1998
- ---------------------------------
Net interest income............... $ 1,317,129 $ 41,119 $ 15,144 $ 1,369,989
Net income........................ 513,021 10,811 3,422 527,254
Net earnings per share ...........
Basic........................... 1.69 2.13 1.23 1.68
Diluted......................... 1.65 2.13 1.14 1.65
Assets............................ 36,388,330 1,098,518 418,271 37,903,119
Deposits.......................... 24,258,168 640,303 364,840 25,263,311
Shareholders' equity.............. 2,923,888 82,139 38,303 3,044,330
As of/For the Year Ended December
31, 1997
- ---------------------------------
Net interest income............... $ 1,221,658 $ 31,260 $ 14,930 $ 1,267,848
Net income........................ 378,287 9,159 7,215 394,661
Net earnings per share ...........
Basic........................... 1.25 1.77 2.62 1.26
Diluted......................... 1.23 1.77 2.42 1.24
Assets............................ 33,165,141 992,180 367,812 34,523,133
Deposits.......................... 22,504,750 651,249 318,382 23,474,381
Shareholders' equity.............. 2,582,505 75,449 36,760 2,694,714
</TABLE>
Pending Acquisitions
On April 28, 1999, BB&T announced plans to merge with First Liberty
Financial Corp. ("First Liberty") of Macon, Georgia. First Liberty's
shareholders will receive between .85 and .87 shares of BB&T common stock for
each share of First Liberty stock held. The transaction is expected to be
completed in the fourth quarter of 1999 and accounted for as a pooling of
interests.
On July 28, 1999, BB&T announced plans to merge with Premier Bancshares,
Inc. ("Premier") of Atlanta, Georgia. Premier's shareholders will receive
.5155 shares of BB&T common stock for each share of Premier stock held. The
transaction is expected to be completed during the first quarter of 2000 and
accounted for as a pooling of interests.
21
<PAGE>
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, 1998 December 31, 1997
-------------------------------------- --------------------------------------
Gross Unrealized Gross Unrealized
Amortized ---------------- Estimated Amortized ---------------- Estimated
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
---------- -------- ------- ---------- ---------- -------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity:
U.S. Treasury,
government and agency
obligations............ $ 51,102 $ 235 $ 2 $ 51,335 $ 105,236 $ 1,255 $ 177 $ 106,314
Mortgage-backed
securities............. 70,355 937 351 70,941 142,164 1,370 1,388 142,146
States and political
subdivisions........... 232,406 7,167 329 239,244 271,993 7,169 94 279,068
Other securities........ 6,920 215 -- 7,135 1,315 -- 3 1,312
---------- -------- ------- ---------- ---------- -------- ------- ----------
Total securities held
to maturity........... 360,783 8,554 682 368,655 520,708 9,794 1,662 528,840
---------- -------- ------- ---------- ---------- -------- ------- ----------
Securities available for
sale:
U.S. Treasury,
government and agency
obligations............ 3,748,672 56,780 2,758 3,802,694 4,536,849 33,890 5,816 4,564,923
Mortgage-backed
securities............. 3,891,717 39,423 12,557 3,918,583 3,111,008 50,467 3,880 3,157,595
Equity and other
securities............. 1,239,441 21,612 3,647 1,257,406 476,547 14,018 378 490,187
States and political
subdivisions........... 171,924 3,920 175 175,669 64,347 1,148 31 65,464
---------- -------- ------- ---------- ---------- -------- ------- ----------
Total securities
available for sale.... 9,051,754 121,735 19,137 9,154,352 8,188,751 99,523 10,105 8,278,169
---------- -------- ------- ---------- ---------- -------- ------- ----------
Total securities....... $9,412,537 $130,289 $19,819 $9,523,007 $8,709,459 $109,317 $11,767 $8,807,009
========== ======== ======= ========== ========== ======== ======= ==========
</TABLE>
Securities with a book value of approximately $5.2 billion and $4.5 billion
at December 31, 1998 and 1997, 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, 1998 and 1997, 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 $60.4 million are
excluded from the accompanying tables.
Proceeds from sales of securities during 1998, 1997 and 1996 were $1.5
billion, $1.9 billion and $808.5 million, respectively. Gross gains of $8.8
million, $8.5 million and $6.5 million and gross losses of $238,000, $3.8
million and $2.5 million were realized on those sales in 1998, 1997 and 1996,
respectively.
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1998, 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.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------------
Held to Maturity Available for Sale
------------------- ---------------------
Estimated
Amortized Fair Amortized Estimated
Cost Value Cost Fair Value
--------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Debt Securities:
Due in one year or less............ $ 62,356 $ 62,733 $1,020,074 $1,026,024
Due after one year through five
years............................. 109,142 112,777 3,127,937 3,177,462
Due after five years through ten
years............................. 62,958 64,812 623,525 630,487
Due after ten years................ 126,327 128,333 3,354,464 3,393,587
-------- -------- ---------- ----------
Total debt securities............ $360,783 $368,655 $8,126,000 $8,227,560
======== ======== ========== ==========
</TABLE>
22
<PAGE>
NOTE D. Loans and Leases
Loans and leases were composed of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Loans:
Commercial, financial and agricultural.............. $ 3,755,789 $ 3,519,613
Real estate--construction and land development...... 2,424,543 2,318,617
Real estate--mortgage............................... 14,290,610 13,037,395
Consumer............................................ 3,059,920 2,992,959
----------- -----------
Loans held for investment......................... 23,530,862 21,868,584
Leases: 1,620,326 788,462
----------- -----------
Total loans and leases............................ 25,151,188 22,657,046
Less: unearned income........................... (717,928) (244,751)
----------- -----------
Loans and leases, net of unearned income........ $24,433,260 $22,412,295
=========== ===========
</TABLE>
The net investment in direct financing leases was $981.9 million and $616.3
million at December 31, 1998 and 1997, respectively. BB&T had loans held for
sale at December 31, 1998 and 1997 totaling $1.1 billion and $524.1 million,
respectively.
BB&T had $17.8 billion in loans secured by real estate at December 31, 1998.
However, these loans were 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,
-----------------------
1998 1997
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Total recorded investment--impaired loans........ $ 31,391 $ 40,118
----------- -----------
Total recorded investment with related valuation
allowance....................................... 30,010 39,951
Valuation allowance assigned to impaired loans... 5,313 4,987
----------- -----------
Net carrying value--impaired loans............. $ 24,697 $ 34,964
=========== ===========
Average balance of impaired loans................ $ 38,401 $ 32,729
=========== ===========
Cash basis interest income recognized on impaired
loans........................................... $ 169 $ 482
=========== ===========
</TABLE>
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 1998. 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, 1997.......................... $ 227,529
Additions......................................... 83,954
Reductions........................................ (131,054)
---------
Balance, December 31, 1998.......................... $ 180,429
=========
</TABLE>
23
<PAGE>
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,
---------------------------- --- ---
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Beginning Balance........................ $301,750 $264,677 $243,908
Provision for losses charged to
expense............................... 95,805 103,053 66,816
Allowances of purchased companies...... 20,592 17,513 7,510
Loans and leases charged-off........... (95,793) (103,444) (75,205)
Recoveries of previous charge-offs..... 22,290 19,951 21,648
-------- -------- --------
Net loans and leases charged-off..... (73,503) (83,493) (53,557)
-------- -------- --------
Reconciliation of fiscal year of merged
company to calendar year.............. 64 -- --
-------- -------- --------
Ending Balance........................... $344,708 $301,750 $264,677
======== ======== ========
</TABLE>
At December 31, 1998, 1997 and 1996, loans not currently accruing interest
totaled $97.3 million, $10.3 million and $74.7 million, respectively. Loans 90
days or more past due and still accruing interest totaled $54.3 million, $49.2
million and $45.5 million, at December 31, 1998, 1997 and 1996, respectively.
The gross interest income that would have been earned during 1998 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 $7.3 million.
Foreclosed property was $29.3 million, $37.6 million and $31.9 million at
December 31, 1998, 1997 and 1996, respectively.
NOTE F. Premises and Equipment
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Land and land improvements.............................. $ 86,580 $ 82,500
Buildings and building improvements..................... 356,909 352,035
Furniture and equipment................................. 420,587 382,825
Capitalized leases on premises and equipment............ 4,089 3,840
-------- --------
868,165 821,200
Less--accumulated depreciation and amortization......... 372,007 346,437
-------- --------
Net premises and equipment............................ $496,158 $474,763
======== ========
</TABLE>
Depreciation expense, which is included in occupancy and equipment expense,
was $69.4 million, $63.8 million and $50.9 million in 1998, 1997 and 1996,
respectively.
24
<PAGE>
BB&T has noncancellable leases covering certain premises and equipment.
Total rent expense applicable to operating leases was $31.9 million, $49.2
million and $32.5 million for 1998, 1997 and 1996, respectively. Future
minimum lease payments for operating and capitalized leases for years
subsequent to 1998 are as follows:
<TABLE>
<CAPTION>
Leases
---------------------
Operating Capitalized
--------- -----------
(Dollars in
thousands)
<S> <C> <C>
Years ended December 31:
1999.............................................. $ 28,600 $ 513
2000.............................................. 26,852 513
2001.............................................. 25,138 498
2002.............................................. 21,937 450
2003.............................................. 18,916 427
2004 and years later.............................. 92,177 4,116
-------- ------
Total minimum lease payments........................ $213,620 6,517
========
Less--amount representing interest.................. 3,055
------
Present value of net minimum payments on capitalized
leases
(Note I)........................................... $3,462
======
</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>
Capatalized
Mortgage
Servicing Rights
-----------------
1998 1997
-------- -------
(Dollars in
thousands)
<S> <C> <C>
Balance, January 1,..................................... $ 68,875 $41,979
Amount capitalized.................................... 74,098 39,119
Amortization expense.................................. (25,372) (9,580)
Change in valuation allowance......................... (16,230) (2,643)
-------- -------
Balance, December 31, .................................. $101,371 $68,875
======== =======
</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 1998 and 1997:
<TABLE>
<CAPTION>
Valuation Allowance for
Mortgage Servicing Rights
-------------------------
1998 1997
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Balance, January 1,........................... $ 3,358 $ 715
Additions................................... 16,503 3,257
Reductions.................................. (273) (614)
------------- ------------
Balance, December 31,......................... $ 19,588 $ 3,358
============= ============
</TABLE>
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 $10.2 billion and $8.3 billion at December 31, 1998
and 1997, respectively.
25
<PAGE>
NOTE H. Short-Term Borrowed Funds
Short-term borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Federal funds purchased............................. $ 924,307 $ 936,160
Term Federal funds purchased........................ 25,000 --
Securities sold under agreements to repurchase...... 1,681,778 1,751,185
Master notes........................................ 675,141 638,325
U.S. Treasury tax and loan deposit notes payable.... 182,741 126,423
Short-term Federal Home Loan Bank advances.......... 87,049 258,124
Short-term bank notes............................... 73,181 208,079
Other short-term borrowed funds..................... 102,551 42,453
---------- ----------
Total short-term borrowed funds................... $3,751,748 $3,960,749
========== ==========
</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. Short-
term bank notes are unsecured borrowings issued by the banking subsidiaries
that generally mature in less than one year.
NOTE I. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
----------- -----------
(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............................................ $ 3,462 $ 3,489
Medium-term bank notes, unsecured, varying maturities
to 2008 with variable rates from 5.279% to 7.48%...... 1,389,890 1,088,299
Advances from Federal Home Loan Bank, varying
maturities to 2018 with rates from 1.00% to 8.75%..... 2,944,188 2,247,662
Subordinated Notes, unsecured, dated May 21, 1996, June
3, 1997 and June 30, 1998; maturing May 23, 2003, June
15, 2007 and June 30, 2025; with interest rates of
7.05%, 7.25% and 6.375%, respectively (1,2)........... 858,303 495,589
CMO Bonds, secured by investments, dated 1985, callable
July 1, 2001, with an interest rate of 11.25%......... 10,558 10,512
Corporation-obligated mandatorily redeemable capital
securities, dated
November 19, 1997, maturing November 19, 2027, with
interest at 8.9% (3).................................. 48,000 48,000
Corporation-obligated mandatorily redeemable capital
securities, dated
June, 1997, maturing June 15, 2027 and 2028, with
interest at 10.07%
and 8.40% (3)......................................... 40,000 19,413
Other mortgage indebtedness............................ 6,135 5,192
----------- -----------
Total long-term debt................................. $ 5,300,536 $ 3,918,156
=========== ===========
</TABLE>
- --------
(1) Subordinated notes qualify under the risk-based capital guidelines as
Tier 2 supplementary capital.
(2) Consists of three issuances of BB&T Corporation debt. During 1998, BB&T
issued $350 million of debt, which is mandatorally puttable to BB&T on
June 30, 2005, and contains a remarketing option that allows the debt to
be reissued to a new maturity date of June 30, 2025.
(3) Securities qualify under the risk-based capital guidelines as Tier 1
capital.
26
<PAGE>
Excluding the capitalized leases set forth in Note F, future debt maturities
total $5.3 billion and are $839.1 million, $988.6 million, $505.1 million,
$321.2 million and $448.1 million for the next five years. The maturities for
2004 and later years are $2.2 billion.
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, 1998, 316,590,552 shares of common stock and no shares
of preferred stock were issued and outstanding.
Stock Option Plans
At December 31, 1998, BB&T had the following stock-based compensation plans:
the 1994 and 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,
--------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C>
Net income applicable to common shares:
As reported.................................. $527,254 $394,661 $371,926
Pro Forma.................................... 516,275 385,488 368,336
Basic EPS:
As reported.................................. 1.68 1.26 1.19
Pro Forma.................................... 1.65 1.23 1.18
Diluted EPS:
As reported.................................. 1.65 1.24 1.17
Pro Forma.................................... 1.61 1.21 1.15
</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 1998, 1997 and 1996, respectively: dividend yield of 2.2%-
2.5% in 1998, 2.2%-2.8% in 1997 and 2.2%-2.5% in 1996; expected volatility of
23%-29% in 1998, 21%-29% in 1997 and 22%-29% in 1996; risk free interest rates
of 5.7%, 5.7%-6.2% and 5.7%-6.4% for 1998, 1997 and 1996, respectively; and
expected lives of 6.1 years, 6.2 years and 6.7 years for 1998, 1997 and 1996,
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
27
<PAGE>
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, 1998, 7,543,749 qualified stock options at
prices ranging from $2.04 to $33.485 and 3,471,811 non-qualified stock options
at prices ranging from $.005 to $30.45 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 fro 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 then on-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, 1998, options to purchase 153,788 shares of
common stock at prices ranging from $4.75 to $8.375 were outstanding pursuant
to the NQSOP. At December 31, 1998, options to purchase 133,832 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, 1998, options to purchase 794,746
shares of common stock at prices ranging from $6.3578 to $28.8719 were
outstanding pursuant to the Directors' Plan.
BB&T also has options outstanding that were granted by acquired companies.
These options, which have not been included in the plans described above,
totaled 230,164 as of December 31, 1998, 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,
1998, 1997 and 1996 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- ---------------------
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................ 13,014,951 $11.11 13,549,842 $ 9.19 14,716,741 $8.76
Granted................. 2,593,694 26.21 2,293,682 18.39 380,213 12.16
Exercised............... (3,170,260) 9.26 (2,691,614) 7.51 (1,409,458) 5.66
Forfeited or Expired.... (119,891) 20.63 (136,959) 13.73 (137,654) 8.16
Reconciliation of fiscal
year of merged company
to calendar year....... 9,596 -- -- -- -- --
---------- ------ ---------- ------ ---------- -----
Outstanding at end of
year................... 12,328,090 $14.64 13,014,951 $11.11 13,549,842 $9.19
========== ====== ========== ====== ========== =====
Options exercisable at
year-end............... 9,518,941 $11.12 10,721,024 $ 9.61 10,783,932 $8.38
========== ====== ========== ====== ========== =====
</TABLE>
The weighted average fair value of options granted was $8.55, $5.22 and
$4.06 per option at December 31, 1998, 1997 and 1996, respectively.
28
<PAGE>
The following table summarizes information about the options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- -------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/98 Life Price at 12/31/98 Price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$0.01 998 4.0 yrs $ 0.01 998 $ 0.01
$1.33 13,678 5.1 1.33 13,678 1.33
$2.04 1,601 3.6 2.04 1,601 2.04
$2.39 to
$3.52 27,450 3.8 2.77 27,450 2.77
$3.59 to
$5.29 274,645 4.0 4.64 274,645 4.64
$5.36 to
$8.01 1,665,912 2.9 6.75 1,665,912 6.75
$8.04 to
$11.96 4,503,350 5.3 10.28 4,477,612 10.29
$12.36 to
$18.31 2,398,563 7.2 13.67 2,384,451 13.64
$18.75 to
$25.38 1,685,959 8.3 20.52 578,202 20.62
$28.22 to
$33.49 1,755,934 9.2 30.88 94,392 29.14
---------- --- ------ --------- ------
12,328,090 6.3 yrs $14.64 9,518,941 $11.12
========== === ====== ========= ======
</TABLE>
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.
29
<PAGE>
NOTE K. Income Taxes
The provision for income taxes was composed of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Current expense:
Federal..................................... $184,025 $209,299 $172,513
State....................................... 10,051 10,094 5,734
-------- -------- --------
194,076 219,393 178,247
Deferred expense (benefit).................... 49,072 (14,256) 3,293
-------- -------- --------
Provision for income taxes.................... $243,148 $205,137 $181,540
======== ======== ========
</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,
----------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Federal income taxes at statutory rates of
35%........................................ $269,589 $209,821 $193,884
Tax-exempt income from securities, loans and
leases less related non-deductible interest
expense.................................... (13,776) (12,681) (10,685)
State income taxes, net of Federal tax
benefit.................................... 8,451 6,007 4,366
Other, net.................................. (21,116) 1,990 (6,025)
-------- -------- --------
Provision for income taxes.................. $243,148 $205,137 $181,540
======== ======== ========
Effective income tax rate................... 31.6% 34.2% 32.8%
======== ======== ========
</TABLE>
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,
--------------------
1998 1997
--------- ---------
(Dollars in
thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses.............. $ 127,874 $ 115,568
Deferred compensation............................ 30,723 29,232
Postretirement benefits other than pensions...... 18,779 17,160
Expense accruals................................. 9,576 17,416
Other............................................ 30,611 35,271
--------- ---------
Total tax deferred assets.......................... 217,563 214,647
--------- ---------
Deferred tax liabilities:
Depreciation..................................... (17,332) (28,113)
Net unrealized appreciation on securities
available for sale.............................. (39,612) (35,042)
Lease financing.................................. (75,933) (19,193)
Other............................................ (28,904) (46,295)
--------- ---------
Total tax deferred liabilities..................... (161,781) (128,643)
--------- ---------
Net deferred tax asset............................. $ 55,782 $ 86,004
========= =========
</TABLE>
Securities transactions resulted in income tax expense of $3.4 million, $1.8
million and $1.6 million related to securities gains for the years ended
December 31, 1998, 1997 and 1996, respectively.
30
<PAGE>
NOTE L. Benefit Plans
BB&T provides various employee benefit plans to existing employees and
employees of acquired entities. 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 typically 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 in the
accompanying tables 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>
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Defined benefit plans............................. $ 9,201 $14,225 $13,597
Defined contribution and ESOP plans............... 19,464 28,080 13,855
------- ------- -------
Total expense related to benefit plans.......... $28,665 $42,305 $27,452
======= ======= =======
</TABLE>
- --------
* Amounts restated for material acquisitions accounted for as poolings-of-
interests.
Retirement Plans
BB&T provides 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. BB&T's contributions to the plan are 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.
The tables below summarize data relative to the plans for the years as
indicated:
<TABLE>
<CAPTION>
Net Periodic Pension Cost
- -------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost...................................... $ 13,681 $ 12,412 $ 11,488
Interest cost..................................... 19,022 17,971 16,253
Estimated return on plan assets................... (21,873) (17,987) (24,260)
Net amortization and other........................ (1,504) 790 8,833
-------- -------- --------
Net periodic pension cost....................... $ 9,326 $ 13,186 $ 12,314
======== ======== ========
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Plans for which Plans for which
assets exceed accumulated
accumulated benefits exceed
benefits assets
------------------ ------------------
Change in Projected Benefit Obligation 1998 1997 1998 1997
- -------------------------------------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Projected benefit obligation, January
1, ................................... $234,396 $221,697 $ 24,188 $ 17,668
Service cost......................... 12,554 11,668 1,127 744
Interest cost........................ 17,022 16,513 2,000 1,458
Actuarial (gain) loss................ 26,047 11,607 6,190 3,877
Benefits paid........................ (10,098) (9,593) (685) (515)
Change in plan provisions............ -- (17,990) -- --
Other, net........................... 4,829 494 -- 956
-------- -------- -------- --------
Projected benefit obligation, December
31, .................................. $284,750 $234,396 $ 32,820 $ 24,188
======== ======== ======== ========
<CAPTION>
Change in Plan Assets 1998 1997 1998 1997
- --------------------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fair value of plan assets, January 1,
...................................... $273,922 $221,394 $ -- $ --
Actual return on plan assets......... 35,276 42,875 -- --
Employer contributions............... 4,749 19,247 685 516
Benefits paid........................ (10,098) (9,594) (685) (516)
Other, net........................... 5,757 -- -- --
-------- -------- -------- --------
Fair value of plan assets, December 31,
...................................... $309,606 $273,922 $ -- $ --
======== ======== ======== ========
<CAPTION>
Net Amount Recognized 1998 1997 1998 1997
- --------------------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Funded status.......................... $ 24,856 $ 39,527 $(32,820) $(24,188)
Unrecognized transition (liability)
asset................................. (5,436) (6,523) 234 277
Unrecognized prior service cost........ (20,824) (23,201) 3,114 3,964
Unrecognized net loss.................. 19,259 6,615 11,215 6,583
Other, net............................. -- -- -- (490)
-------- -------- -------- --------
Net amount recognized.................. $ 17,855 $ 16,418 $(18,257) $(13,854)
======== ======== ======== ========
<CAPTION>
Reconciliation of Net Pension Asset
(Liability) 1998 1997 1998 1997
- ----------------------------------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Prepaid pension cost, January 1, ...... $ 16,418 $ 6,065 $(13,854) $(10,037)
Contributions........................ 4,749 19,247 685 516
Net periodic pension cost............ (4,239) (8,894) (5,057) (2,908)
Other, net........................... 927 -- (31) (1,425)
-------- -------- -------- --------
Prepaid (accrued) pension cost,
December 31, ......................... $ 17,855 $ 16,418 $(18,257) $(13,854)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------
Weighted Average Assumptions 1998 1997
- ---------------------------- ------ ------
<S> <C> <C>
Weighted average assumed discount rate........................ 6.75% 7.25%
Weighted average expected long-term rate of return on plan
assets....................................................... 8.00 8.00
Assumed rate of annual compensation increases................. 5.50 5.50
</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 $26.8 million, $20.3 million and $11.2
million of BB&T common stock at December 31, 1998, 1997 and 1996,
respectively. The market value of total plan assets was $309.6 million and
$273.9 million at December 31, 1998 and 1997, respectively.
32
<PAGE>
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 or
their dependents.
The following tables set forth the components of the retiree benefit plan
and the amount recognized in the consolidated financial statements at December
31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Net Periodic Postretirement Benefit Cost: 1998 1997 1996
- ----------------------------------------- ------ ------ ------
(Dollars in
thousands)
<S> <C> <C> <C>
Service cost............................................. $1,550 $ 733 $ 834
Interest cost............................................ 3,422 2,586 2,667
Amortization and other................................... 519 (37) 344
------ ------ ------
Total expense.......................................... $5,491 $3,282 $3,845
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Change in Projected Benefit Obligation 1998 1997
- -------------------------------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C>
Projected benefit obligation, January 1, ............ $ 38,342 $ 38,552
Service cost....................................... 1,550 733
Interest cost...................................... 3,422 2,586
Plan participants' contributions................... 475 272
Actuarial loss (gain).............................. 4,958 (1,949)
Benefits paid...................................... (1,859) (1,852)
Other, net......................................... 6,742 --
----------- -----------
Projected benefit obligation, December 31, .......... $ 53,630 $ 38,342
=========== ===========
<CAPTION>
Change in Plan Assets 1998 1997
- --------------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C>
Fair value of plan assets, January 1, ............... $ -- $ --
Actual return on plan assets....................... -- --
Employer contributions............................. 1,384 1,581
Plan participants' contributions................... 475 272
Benefits paid...................................... (1,859) (1,853)
----------- -----------
Fair value of plan assets, December 31, ............. $ -- $ --
=========== ===========
<CAPTION>
Net Amount Recognized 1998 1997
- --------------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C>
Funded status........................................ $ (53,630) $ (38,342)
Unrecognized prior service cost...................... 6,223 --
Unrecognized net (gain) loss......................... 600 (4,358)
----------- -----------
Net amount recognized................................ $ (46,807) $ (42,700)
=========== ===========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Net Pension Asset (Liability) 1998 1997
- ----------------------------------------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C>
Prepaid pension cost, January 1,.................. $(42,700) $(28,977)
Contributions................................... 1,384 1,581
Net periodic pension cost....................... (5,491) (3,282)
Other, net...................................... -- (12,022)
-------- --------
Prepaid (accrued) pension cost, December 31,...... $(46,807) $(42,700)
======== ========
<CAPTION>
Weighted Average Assumptions December 31,
- ---------------------------- --------------------------
1998 1997
----------- -----------
<S> <C> <C>
Weighted average assumed discount rate............ 6.75% 7.25%
Medical trend rate--initial year.................. 9.00 10.00
Medical trend rate--ultimate...................... 5.00 5.00
Select period..................................... 4 yrs 5 yrs
<CAPTION>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Impact of a 1% change in assumed health care cost
on:
Service and interest costs...................... 2.36% (1.81)%
Accumulated postretirement benefit obligation... 2.29 (1.97)
</TABLE>
401-k Savings Plan
Prior to 1996, BB&T had an Employee Stock Ownership Plan that allowed all
employees to acquire BB&T common stock 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
provided a Savings and Thrift Plan permitting 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.
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.
34
<PAGE>
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,
----------------------
1998 1997
----------- ----------
(Dollars in thousands)
<S> <C> <C>
Financial instruments whose contract amounts represent
credit risk:
Commitments to extend, originate or purchase credit.. $10,285,458 $8,336,976
Standby letters of credit and financial guarantees
written............................................. 385,245 306,070
Commercial letters of credit......................... 36,277 35,991
Financial instruments whose notional or contract
amounts exceed the amount of credit risk:
Commitments to sell loans and securities............. $ 1,076,502 $ 555,722
Foreign exchange contracts........................... 136,628 145,855
</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.
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.
35
<PAGE>
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,
1998, the net reserve requirement amounted to $226.8 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 $1.5 billion at December 31, 1998. 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, 1998.
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.
The following table provides summary information regarding regulatory
capital for BB&T and its significant banking subsidiaries as of December 31,
1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------------------- -----------------------------
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................ 10.5% $2,636,111 $1,007,785 10.8% $2,458,263 $ 910,547
BB&T-NC............. 10.9 1,834,215 673,725 11.0 1,672,558 606,912
BB&T-SC............. 12.7 421,891 133,225 12.2 368,256 121,094
BB&T-VA............. 15.3 332,579 87,128 14.6 300,179 81,986
Franklin............ 8.5 38,810 18,222 9.8 34,513 14,102
Piedmont Trust...... 12.2 46,393 15,214 11.6 42,370 14,586
Carroll County
Bank............... 12.0 48,609 16,151 14.7 52,533 14,314
- ----------------------------------------------------------------------------------
Total Capital
BB&T................ 15.0% $3,781,991 $2,015,570 14.2% $3,236,082 $1,821,094
BB&T-NC............. 12.2 2,053,215 1,347,450 12.3 1,862,258 1,213,824
BB&T-SC............. 13.9 463,895 266,451 13.4 406,120 242,188
BB&T-VA............. 16.5 359,957 174,256 15.6 319,334 163,971
Franklin............ 9.7 43,992 36,444 11.0 38,705 28,204
Piedmont Trust...... 13.4 51,155 30,428 12.9 46,932 29,172
Carroll County
Bank............... 12.8 51,464 32,302 15.4 55,239 28,621
- ----------------------------------------------------------------------------------
Leverage Capital
BB&T................ 7.1% $2,636,111 $1,114,106 7.5% $2,458,263 $ 977,726
BB&T-NC............. 7.2 1,834,215 762,111 7.6 1,672,558 656,147
BB&T-SC............. 9.3 421,891 135,789 8.5 368,256 129,748
BB&T-VA............. 10.0 332,579 99,972 8.6 300,179 104,192
Franklin............ 5.3 38,810 21,908 7.1 34,513 19,589
Piedmont Trust...... 8.3 46,393 16,776 7.7 42,370 16,562
Carroll County
Bank............... 6.4 48,609 22,810 7.5 52,533 21,069
- ----------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
NOTE O. Parent Company Financial Statements
Condensed Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(Dollars in
Assets thousands)
Cash and due from banks.................................. $ 17,522 $ 15,554
Interest-bearing bank balances........................... 605,987 606,168
Securities............................................... 206,845 218,470
Investment in banking subsidiaries....................... 3,365,908 2,900,772
Investment in other subsidiaries......................... 170,855 109,850
---------- ----------
Total investments in subsidiaries...................... 3,536,763 3,010,622
---------- ----------
Advances to subsidiaries................................. 359,600 185,504
Premises and equipment................................... 7,436 7,402
Receivables from subsidiaries and other assets........... 192,381 88,366
---------- ----------
Total assets........................................... $4,926,534 $4,132,086
========== ==========
Liabilities and Shareholders' Equity
Short-term borrowed funds................................ $ 821,322 $ 793,572
Dividends payable........................................ 51,085 42,173
Accounts payable and accrued liabilities................. 85,258 79,943
Long-term debt........................................... 924,539 521,684
---------- ----------
Total liabilities...................................... 1,882,204 1,437,372
---------- ----------
Total shareholders' equity ............................ 3,044,330 2,694,714
---------- ----------
Total liabilities and shareholders' equity ............ $4,926,534 $4,132,086
========== ==========
</TABLE>
Condensed Income Statements
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Income (Dollars in thousands)
Dividends from subsidiaries................... $411,437 $ 264,153 $ 171,739
Interest and other income from subsidiaries... 95,200 74,735 46,440
Interest on investment securities............. 971 1,692 3,415
Other income.................................. 17,914 2,647 8,457
-------- --------- ---------
Total income................................ 525,522 343,227 230,051
-------- --------- ---------
Expenses
Interest expense.............................. 89,632 56,058 34,404
Occupancy expense............................. 171 249 171
Other expenses................................ 36,583 29,634 24,350
-------- --------- ---------
Total expenses.............................. 126,386 85,941 58,925
-------- --------- ---------
Income before income taxes and equity in
undistributed earnings of subsidiaries....... 399,136 257,286 171,126
Income tax benefit............................ (3,614) (993) (150)
-------- --------- ---------
Income before equity in undistributed earnings
of subsidiaries.............................. 402,750 258,279 171,276
Equity in undistributed earnings of
subsidiaries................................. 124,504 136,382 201,260
-------- --------- ---------
Net income.................................... $527,254 $ 394,661 $ 372,536
======== ========= =========
</TABLE>
37
<PAGE>
Condensed Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................... $ 527,254 $ 394,661 $ 372,536
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of subsidiaries less than (in
excess of) dividends from subsidiaries..... (124,504) (136,382) (201,260)
Depreciation of premises and equipment...... 171 272 214
Amortization of unearned compensation....... 1,124 8,111 2,450
Discount accretion and premium
amortization............................... -- 421 215
Loss (gain) on sales of securities.......... (37) -- (9)
Loss on disposals of other real estate
owned...................................... 191 47 --
Reconciliation of fiscal year of merged
company to calendar year................... (158) -- --
(Increase) decrease in other assets......... (105,607) (27,050) 119,603
Increase (decrease) in accounts payable and
accrued liabilities........................ 5,832 (38) 5,280
--------- --------- ---------
Net cash provided by operating
activities............................... 304,266 240,042 299,029
--------- --------- ---------
Cash Flows From Investing Activities:
Proceeds from sales of securities available
for sale................................... 64,984 3,397 866
Proceeds from maturities, calls and paydowns
of securities available for sale........... -- 35,482 49,347
Purchases of securities available for sale.. (54,804) (214,064) (52,324)
Investment in subsidiaries.................. (82,677) (12,024) (82,341)
Advances to subsidiaries.................... (676,032) (436,844) (308,700)
Proceeds from repayment of advances to
subsidiaries............................... 530,967 369,435 182,935
Net cash (paid) received in purchase
accounting transactions.................... (6,051) (45,852) 1,357
--------- --------- ---------
Net cash used in investing activities..... (223,613) (300,470) (208,860)
--------- --------- ---------
Cash Flows From Financing Activities:
Net increase in long-term debt.............. 403,123 383,747 244,441
Net increase in short-term borrowed funds... 27,750 161,581 169,952
Advances from subsidiaries.................. 4,191 -- --
Repayment of advances from subsidiaries..... (3,260) -- --
Net proceeds from common stock issued....... 34,348 26,436 53,434
Redemption of common stock.................. (345,029) (326,838) (222,801)
Cash dividends paid on common and preferred
stock...................................... (199,989) (166,739) (137,157)
--------- --------- ---------
Net cash (used in) provided by financing
activities............................... (78,866) 78,187 107,869
--------- --------- ---------
Net Increase in Cash and Cash Equivalents..... 1,787 17,759 198,038
Cash and Cash Equivalents at Beginning of
Year......................................... 621,722 603,963 405,925
--------- --------- ---------
Cash and Cash Equivalents at End of Year...... $ 623,509 $ 621,722 $ 603,963
========= ========= =========
</TABLE>
38
<PAGE>
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, 1998 and 1997:
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
39
<PAGE>
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.
The following is a summary of the carrying amounts and fair values of BB&T's
financial assets and liabilities as of the periods indicated:
<TABLE>
<CAPTION>
1998 1997
------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents........... $ 1,195,717 $ 1,195,717 $ 1,350,717 $ 1,350,717
Trading securities..... 60,422 60,422 67,878 67,878
Securities available
for sale.............. 9,154,352 9,154,352 8,278,169 8,278,169
Securities held to
maturity.............. 360,783 368,655 520,708 528,840
Loans and leases:
Loans................ 24,508,235 25,112,181 22,320,095 22,561,961
Leases............... 981,866 N/A 616,302 N/A
Allowance for
losses.............. (344,708) N/A (301,750) N/A
------------ ------------
Net loans and
leases............ $ 25,145,393 $ 22,634,647
============ ============
Financial liabilities:
Deposits............... $ 25,263,311 25,346,248 $ 23,474,381 23,513,393
Short-term borrowed
funds................. 3,751,748 3,751,748 3,960,749 3,960,749
Long-term debt......... 5,297,074 5,361,617 3,914,667 4,239,850
Capitalized leases..... 3,462 N/A 3,489 N/A
The following is a summary of the notional or contractual amounts and fair
values of BB&T's off-balance sheet financial instruments as of the periods
indicated:
<CAPTION>
1998 1997
------------------------- -------------------------
Notional/ Notional/
Contract Fair Contract Fair
Amount Value Amount Value
------------ ----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Off balance sheet
financial instruments:
Interest rate swaps,
caps and floors....... $ 3,825,596 $ 35,938 $ 2,483,930 $ 25,301
Commitments to extend,
originate or purchase
credit................ 10,285,458 (19,379) 8,336,976 (14,835)
Standby and commercial
letters of credit and
financial guarantees
written............... 421,522 (5,556) 342,061 (4,374)
Commitments to sell
loans and securities.. 1,075,000 (1,038) 555,722 (2,925)
Foreign exchange
contracts............. 136,628 319 145,855 326
Option contracts
purchased............. 35,000 623 55,000 (303)
Option contracts
written............... 1,267,250 (257) 55,000 --
Futures contracts...... 1,502 (7) 8,486 --
</TABLE>
- --------
N/A--not applicable.
40
<PAGE>
NOTE Q. Derivatives and Off-Balance Sheet Financial Instruments
BB&T utilizes interest rate swaps, caps, floors and collars in the
management of interest rate risk. 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, 1998,
derivatives with a total notional value of $3.8 billion, with terms ranging up
to fourteen years, were outstanding.
The following tables set forth certain information concerning BB&T's
interest rate swaps at December 31, 1998:
Interest Rate Swaps, Caps, Floors and Collars
December 31, 1998
<TABLE>
<CAPTION>
Notional Receive
Type Amount Rate Pay Rate Fair Value
- ---- ----------- ----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Receive fixed swaps............... $1,286,200 6.23% 5.30% $ 43,481
Pay fixed swaps................... 1,242,146 5.34 5.67 (8,135)
Basis swaps....................... 50,000 4.95 5.34 (31)
Caps, Floors & Collars............ 1,247,250 -- -- 623
---------- ---------- ---------- ----------
Total........................... $3,825,596 5.79% 5.48% $ 35,938
========== ========== ========== ==========
<CAPTION>
Basis
Swaps,
Caps,
Receive Pay Floors &
Year-to-date Activity Fixed Swaps Fixed Swaps Collars Total
- --------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1997........ $1,331,000 $ 376,930 $ 776,000 $2,483,930
Additions......................... 205,000 973,673 797,250 1,975,923
Maturities/amortizations.......... (249,800) (108,457) (111,000) (469,257)
Terminations...................... -- -- (165,000) (165,000)
---------- ---------- ---------- ----------
Balance, December 31, 1998...... $1,286,200 $1,242,146 $1,297,250 $3,825,596
========== ========== ========== ==========
<CAPTION>
One Year One to Five Five to 10
Maturity Schedule or Less Years Years Total
- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Receive fixed swaps............... $ 561,200 $ 465,000 $ 260,000 $1,286,200
Pay fixed swaps................... 1,015,200 130,869 96,077 1,242,146
Basis swaps....................... 50,000 -- -- 50,000
Caps, Floors & Collars............ 500,000 747,250 -- 1,247,250
---------- ---------- ---------- ----------
Total........................... $2,126,400 $1,343,119 $ 356,077 $3,825,596
========== ========== ========== ==========
</TABLE>
As of December 31, 1998, deferred losses from new swap transactions
initiated during 1998 were $3.3 million. There were no unamortized deferred
gains or losses from terminated transactions remaining at year end. Active
transactions resulted in pretax net income of $878,100.
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 1998, options were written on
securities totaling $1.9 billion. Option fee income was $3.2 million for 1998.
There were no unexercised options outstanding at December 31, 1998 or 1997.
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
41
<PAGE>
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, 1998,
net purchased put option contracts with a notional value of $15.0 million were
outstanding.
The $3.8 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.
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, 1998, BB&T's
interest rate swaps, caps, floors and collars reflected an unrealized gain of
$35.9 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, 1998,
BB&T had no indexed amortizing swaps outstanding.
42
<PAGE>
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,
--------------------------------------
1998 1997 1996
------------ ------------ ------------
(Dollars in thousands, except per
share data)
<S> <C> <C> <C>
Basic Earnings Per Share:
Weighted average number of common
shares outstanding during the
period............................... 313,532,508 312,884,551 312,573,064
------------ ------------ ------------
Net income............................ $ 527,254 $ 394,661 $ 372,536
Less:
Preferred dividend requirement...... -- -- 610
------------ ------------ ------------
Income available for common shares.... $ 527,254 $ 394,661 $ 371,926
============ ============ ============
Basic earnings per share.............. $ 1.68 $ 1.26 $ 1.19
============ ============ ============
Diluted Earnings Per Share:
Weighted average number of common
shares............................... 313,532,508 312,884,551 312,573,064
Add:
Shares issuable assuming conversion
of convertible preferred stock..... -- -- 1,877,304
Dilutive effect of outstanding
options (as determined by
application of treasury stock
method)............................ 6,416,489 5,144,893 4,442,220
Issuance of additional shares under
share repurchase agreement,
contingent upon market price....... -- 144,588 204,036
------------ ------------ ------------
Weighted average number of common
shares, as adjusted.................. 319,948,997 318,174,032 319,096,624
============ ============ ============
Net income............................ $ 527,254 $ 394,661 $ 372,536
============ ============ ============
Diluted earnings per share............ $ 1.65 $ 1.24 $ 1.17
============ ============ ============
</TABLE>
NOTE S. Operating Segments
BB&T's operations are divided into six reportable business segments: the
Banking Network, Mortgage Banking, Trust Services, Agency Insurance,
Investment Banking and Brokerage and Treasury. These operating segments have
been identified based primarily on BB&T's existing organizational structure.
The segments require unique technology and marketing strategies and offer
different products and services. While BB&T is managed as an integrated
organization, individual executive managers are held accountable for the
operations of the business segments that report to them.
BB&T measures and presents information for internal reporting purposes in a
variety of different ways, including reportable segments based on
organizational structure, products, services and customer relationships. The
internal reporting system presently utilized by management in the planning and
measuring of operating activities, as well as the system to which most
managers are held accountable, is based on organizational structure.
BB&T emphasizes revenue growth by focusing on client service, client
relationships and sales effectiveness. The segment results presented herein
are based on internal management accounting policies, which support these
strategic objectives. Unlike financial accounting, there is no comprehensive
authoritative body of guidance for management accounting equivalent to
generally accepted accounting principles. Therefore, the performance of the
segments is not necessarily comparable with BB&T's consolidated results or
with similar information
43
<PAGE>
presented by any other financial institution. Additionally, because of the
interrelationships of the various segments, the information presented is not
necessarily indicative of the segments' financial performance if they operated
as independent entities.
BB&T's internal reporting system was significantly modified during 1998, and
prior periods have not been reported to reflect the new system because it is
not practicable to restate prior period results in order to do so. Also, BB&T
has completed various mergers and acquisitions accounted for as poolings of
interests, which present additional practical limitations to the presentation
of comparable prior period information.
The management accounting process uses various estimates and allocation
methodologies to measure the performance of the operating segments. To
determine financial performance for each segment, BB&T allocates capital,
funding charges and credits, an economic provision for loan and lease losses,
certain noninterest expenses and income tax provisions to each segment, as
applicable. Also, to promote revenue growth, certain revenues of Mortgage
Banking, Trust Services, Agency Insurance and Investment Banking and Brokerage
segments are allocated to the Banking Network and are reflected in
intersegment noninterest revenues. The estimates and allocations are subject
to periodic adjustment as the internal management accounting system is revised
and business or product lines within the segments change. Also, because the
development and application of these methodologies is a dynamic process, the
financial results presented may be periodically revised.
BB&T's overall objective is to maximize shareholder value by optimizing
return on equity and limiting risk. Allocations of capital and the economic
provision for loan and lease losses are designed to address this objective.
Capital is assigned to each segment on an economic basis, using management's
assessment of the inherent risks associated with the segment. Required
economic capital allocations are made to cover the following risk categories:
credit risk, funding risk, interest rate risk, option risk, basis risk, market
risk and operational risk. Each segment is evaluated based on a risk-adjusted
return on capital. Capital assignments are not equivalent to regulatory
capital guidelines and the total amount assigned to all segments may vary from
consolidated shareholders' equity. All unallocated capital is retained in the
Treasury segment.
The economic provision for loan and lease losses is also allocated to the
relevant segments based on management's assessment of the segments' risks as
described above. Unlike the provision for loan and lease losses recorded
pursuant to generally accepted accounting principles, the economic provision
adjusts for the impact of expected credit losses over the effective lives of
the related loans and leases. Any unallocated provision for loan and lease
losses is retained in the Corporate Office, reflected in the accompanying
table as "other revenues and expenses."
BB&T has implemented an extensive noninterest expense allocation process to
support organizational and product profitability. BB&T allocates expenses to
the reportable segments based on various cost allocation methodologies,
including the number of items processed, overall percentage of time spent,
full-time equivalent employees assigned to functions, functional position
surveys and activity-based costing. A portion of corporate overhead expenses
is not allocated, but is retained in corporate accounts reflected as other
expenses in the accompanying table. Income taxes are allocated to the various
segments using effective tax rates.
BB&T utilizes a funds transfer pricing ("FTP") system to eliminate the
effect of interest rate risk from the segments' net interest income because
such risk is centrally managed within the Treasury segment. The FTP system
credits or charges the segments with the true value or cost of the funds the
segments create or use. The FTP system provides a funds credit for sources of
funds and a funds charge for the use of funds by each segment. The net FTP
charge or credit is reflected as net intersegment interest income (expense) in
the accompanying table.
Banking Network
BB&T's Banking Network, which operates in North Carolina, South Carolina,
Virginia, Maryland, Georgia, West Virginia, Kentucky and Washington, D.C.,
serves commercial and retail clients by offering a variety of loan and deposit
products and other financial services. The Banking Network is primarily
responsible for client
44
<PAGE>
relationships, and, therefore, is credited with revenue from the Mortgage
Banking, Trust Services, Agency Insurance and Investment Banking and Brokerage
segments, which is reflected in intersegment noninterest revenues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in BB&T's Annual Report on Form 10-K for the year ended December
31, 1998, for additional discussion concerning the functions of the banking
network.
Mortgage Banking
The Mortgage Banking segment retains mortgage loans originated by the
Banking Network and purchased from various correspondents. Mortgage loan
products include fixed- and adjustable-rate government and conventional loans
for the purpose of constructing, purchasing or refinancing owner-occupied
properties. Fixed-rate mortgage loans are typically sold to government and
private investors with servicing rights retained, while adjustable rate loans
are typically held in the portfolio. The Mortgage Banking segment earns
interest on loans held in the warehouse and portfolio, fee income from the
origination and servicing of mortgage loans and reflects gains or losses from
the sale of mortgage loans. The Mortgage Banking segment is charged and the
Banking Network receives a corresponding credit for the origination of loans
and servicing. These revenues and expenses are reflected on the accompanying
table as intersegment revenues and expenses.
Trust Services
BB&T's Trust Services segment provides personal trust administration and
estate planning, investment counseling and management, employee benefits
services, and corporate trust services to individuals, corporations,
institutions, foundations and government entities. The Banking Network
receives an interoffice credit for trust fees in the initial year the account
is referred, with the corresponding charge remaining in the Corporate Office.
Trust Services also includes the accounts of MainStreet Trust Company N.A.
Insurance Services
BB&T has the largest independent insurance agency network in the Carolinas.
BB&T Insurance Services provides property and casualty, life and health
insurance to businesses and to individuals, provides small business and
corporate products, such as workers compensation and professional liability,
and provides surety and title insurance. The Banking Network receives credit
for insurance commissions on referred accounts, with the corresponding charge
retained in the Corporate Office. These revenues and expenses are reflected in
the accompanying table as intersegment revenues and expenses.
Investment Banking and Brokerage
BB&T's Investment Banking and Brokerage segment offers customers investment
alternatives, including discount brokerage services, fixed-rate and variable-
rate annuities, mutual funds and government and municipal bonds and various
other investment products. Investment Banking and Brokerage also provides
personal financial planning services to individuals. The Investment Banking
and Brokerage segment includes Scott & Stringfellow, Inc., an investment
banking firm located in Richmond, Virginia. Scott & Stringfellow specializes
in the origination, trading and distribution of fixed-income securities and
equity products in both the public and private capital markets. Scott &
Stringfellow 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 Banking Network is credited for
investment service revenues on referred accounts, with the corresponding
charge retained in the Corporate Office. These revenues and expenses are
reflected in the accompanying table as intersegment revenues and expenses.
Treasury
BB&T's Treasury segment is responsible for the management of the securities
portfolios, funding and liquidity requirements, and management of interest
rate risk through the use of balance sheet repositioning and derivative
financial instruments. See the Market Risk Management section of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional information about the responsibilities of the Treasury segment.
45
<PAGE>
The following table discloses selected financial information for BB&T's
reportable business segments:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
-----------------------------------------------------------------------------------------------
Investment All Total
Banking Mortgage Trust Agency Banking Other Segment
Network Banking Services Insurance and Brokerage Treasury Segments /1/ Results
----------- ---------- -------- --------- ------------- ---------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income (expense)
from external
customers........ $ 790,651 $ 409,944 $(33,824) $11,419 $ 1,127 $ 126,762 $ 203,497 $ 1,509,576
Net intersegment
interest income
(expense)....... 228,085 (274,934) 37,427 -- -- (1,013) -- (10,435)
----------- ---------- -------- ------- -------- ---------- ---------- -----------
Net interest
income.......... 1,018,736 135,010 3,603 11,419 1,127 125,749 203,497 1,499,141
----------- ---------- -------- ------- -------- ---------- ---------- -----------
Provision for
loan and lease
losses........... 98,131 3,851 -- 4,173 -- 103 20,557 126,815
Noninterest
income from
external
customers........ 427,554 76,491 40,656 51,291 48,604 11,631 24,648 680,875
Intersegment
noninterest
income.......... 58,735 4,761 563 -- -- 878 -- 64,937
Noninterest
expense.......... 516,953 56,211 26,660 44,991 37,472 4,325 49,109 735,721
Intersegment
noninterest
expense......... 209,820 16,207 1,986 11,263 8,948 5,383 7,279 260,886
----------- ---------- -------- ------- -------- ---------- ---------- -----------
Income before
income taxes and
the charge for
capital.......... 680,121 139,993 16,176 2,283 3,311 128,447 151,200 1,121,531
Provision for
income taxes.... 255,088 52,847 6,107 862 1,294 46,415 9,990 372,603
----------- ---------- -------- ------- -------- ---------- ---------- -----------
Net income before
the charge for
capital.......... 425,033 87,146 10,069 1,421 2,017 82,032 141,210 748,928
Charge for
capital......... 112,952 9,154 1,082 -- -- 1,689 -- 124,877
----------- ---------- -------- ------- -------- ---------- ---------- -----------
Net income after
charge for
capital.......... $ 312,081 $ 77,992 $ 8,987 $ 1,421 $ 2,017 $ 80,343 $ 141,210 $ 624,051
=========== ========== ======== ======= ======== ========== ========== ===========
Identifiable
segment assets... $20,366,629 $6,274,100 $ 14,108 $92,554 $238,622 $9,417,056 $2,374,665 $38,777,734
=========== ========== ======== ======= ======== ========== ========== ===========
<CAPTION>
Other Reconciling
Revenues Items & Consolidated
and Expenses /2/ Eliminations Totals
----------------- ------------------- ------------
<S> <C> <C> <C>
Net interest
income (expense)
from external
customers........ $ 59,802 $ (199,389) (/4/) $ 1,369,989
Net intersegment
interest income
(expense)....... (12,724) 23,159 (/3/) --
----------------- ------------------- ------------
Net interest
income.......... 47,078 (176,230) 1,369,989
----------------- ------------------- ------------
Provision for
loan and lease
losses........... 1,829 (32,839) (/4/) 95,805
Noninterest
income from
external
customers........ (30,172) (92,146) (/4/) 558,557
Intersegment
noninterest
income.......... 486 (65,423) (/3/) --
Noninterest
expense.......... 265,921 60,697 (/4/) 1,062,339
Intersegment
noninterest
expense......... (55,464) (205,422) (/3/) --
----------------- ------------------- ------------
Income before
income taxes and
the charge for
capital.......... (194,894) (156,235) 770,402
Provision for
income taxes.... (71,359) (58,096) (/4/) 243,148
----------------- ------------------- ------------
Net income before
the charge for
capital.......... (123,535) (98,139) 527,254
Charge for
capital......... 389 (125,266) (/3/) --
----------------- ------------------- ------------
Net income after
charge for
capital.......... $ (123,924) $ 27,127 $ 527,254
================= =================== ============
Identifiable
segment assets... $1,651,609 $(2,526,224) (/4/) $37,903,119
================= =================== ============
</TABLE>
- ----
(1) Financial data from segments below the quantitative thresholds requiring
disclosure are attributable to a number of smaller operating segments.
Those segments include a consumer finance company, sub-prime auto lender,
a factoring operation, a commercial lawn care finance company, a home
equity finance company and a leasing company.
(2) Other revenues and expenses include amounts incurred by BB&T's support
functions not allocated to the various segments. Amounts include any
unallocated provision for loan and lease losses and unallocated general
corporate expenses, as well as costs associated with BB&T's Year 2000
compliance efforts.
(3) BB&T's reconciliation of total segment results to consolidated results
requires the elimination of the internal management accounting practices.
These adjustments include the elimination of the FTP credits and charges,
the elimination of intersegment capital credits and charges, the
elimination of the intersegment noninterest revenues described above and
the elimination of overhead expenses allocated to the various segments.
(4) To reflect elimination entries necessary to consolidate the segment data.
46
<PAGE>
EXHIBIT 99.3
FIVE-YEAR FINANCIAL SUMMARY AND SELECTED RATIOS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of/For the Years Ended December 31,
--------------------------------------------------------------- Compound
1998 1997 1996 1995 1994 Growth Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income........ $ 2,743,980 $ 2,487,795 $ 2,244,473 $ 2,134,325 $ 1,786,267 11.3%
Interest expense....... 1,373,991 1,219,947 1,085,615 1,077,369 773,328 15.5
----------- ----------- ----------- ----------- ----------- ----
Net interest income.... 1,369,989 1,267,848 1,158,858 1,056,956 1,012,939 7.8
Provision for loan and
lease losses.......... 95,805 103,053 66,816 44,502 29,467 34.3
----------- ----------- ----------- ----------- ----------- ----
Net interest income
after provision for
loan and lease
losses................ 1,274,184 1,164,795 1,092,042 1,012,454 983,472 6.7
Noninterest income..... 558,557 487,270 364,524 275,684 279,281 18.9
Noninterest expense.... 1,062,339 1,052,267 902,490 889,326 806,767 7.1
----------- ----------- ----------- ----------- ----------- ----
Income before income
taxes................. 770,402 599,798 554,076 398,812 455,986 14.0
Provision for income
taxes................. 243,148 205,137 181,540 132,208 155,724 11.8
----------- ----------- ----------- ----------- ----------- ----
Net income............. $ 527,254 $ 394,661 $ 372,536 $ 266,604 $ 300,262 15.1
=========== =========== =========== =========== =========== ====
Per Common Share
Average shares
outstanding (000's):
Basic.................. 313,533 312,885 312,573 310,466 305,388
Diluted................ 319,949 318,174 319,097 324,008 319,214
Basic earnings per
share................. $ 1.68 $ 1.26 $ 1.19 $ 0.84 $ 0.97 14.7
=========== =========== =========== =========== =========== ====
Diluted earnings per
share................. $ 1.65 $ 1.24 $ 1.17 $ 0.82 $ 0.94 15.0
=========== =========== =========== =========== =========== ====
Cash dividends paid.... $ .66 $ .58 $ .50 $ .43 $ .37 15.6
Shareholders' equity... 9.62 8.59 7.91 7.69 6.87 8.8
Average Balances
Securities, at
amortized cost........ $ 9,198,176 $ 8,300,785 $ 7,629,742 $ 7,471,916 $ 7,086,163 6.7
Loans and leases*...... 24,050,234 21,459,467 19,359,629 18,243,461 16,392,019 10.1
Other assets........... 2,595,040 2,004,971 1,853,022 1,809,526 1,827,396 9.2
----------- ----------- ----------- ----------- ----------- ----
Total assets.......... $35,843,450 $31,765,223 $28,842,393 $27,524,903 $25,305,578 9.1
=========== =========== =========== =========== =========== ====
Deposits............... $23,712,815 $22,413,881 $21,407,526 $20,091,276 $19,523,190 5.0
Other liabilities...... 4,800,589 3,710,305 2,888,831 3,843,451 2,882,941 13.6
Long-term debt......... 4,502,828 3,091,514 2,166,297 1,344,247 916,546 48.9
Common shareholders'
equity................ 2,827,218 2,549,523 2,364,580 2,173,584 1,908,758 10.3
Preferred stockholders'
equity................ -- -- 15,159 72,345 74,143 NM
----------- ----------- ----------- ----------- ----------- ----
Total liabilities and
shareholders'
equity............... $35,843,450 $31,765,223 $28,842,393 $27,524,903 $25,305,578 9.1
=========== =========== =========== =========== =========== ====
Period End Balances
Total assets........... $37,903,119 $34,523,133 $30,301,706 $28,343,959 $26,545,187 9.3
Deposits............... 25,263,311 23,474,381 22,053,131 20,962,513 19,723,649 6.4
Long-term debt......... 5,300,536 3,918,156 2,485,710 1,601,574 1,137,295 46.9
Shareholders' equity... 3,044,330 2,694,714 2,485,012 2,415,567 2,119,042 9.5
Selected Performance
Ratios
Rate of return on:
Average total assets... 1.47% 1.24% 1.29% 0.97% 1.19%
Average common
shareholders' equity.. 18.65 15.48 15.73 12.03 15.46
Dividend payout......... 39.29 46.03 42.02 51.19 38.14
Average equity to
average assets......... 7.89 8.03 8.25 8.16 7.84
</TABLE>
- --------
* Loans and leases are net of unearned income and include loans held for sale.
NM--Not meaningful.
47
<PAGE>
Table 1
Selected Financial Data of Significant Banking Subsidiaries
As of / For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Carroll
Piedmont County
BB&T-NC BB&T-SC BB&T-VA Franklin Trust Bank
----------- ---------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1998
Total assets............ $25,985,004 $4,641,393 $3,473,368 $800,786 $564,748 $767,969
Securities.............. 6,531,178 783,727 578,224 175,386 161,107 448,996
Loans and leases, net of
unearned income*....... 17,414,700 3,266,871 2,341,767 390,086 340,993 277,359
Deposits................ 17,275,566 3,702,383 2,320,244 536,586 336,323 469,642
Shareholder's equity.... 2,124,446 429,572 457,600 40,848 45,713 50,554
Net interest income..... 871,515 201,132 121,030 27,257 21,588 21,202
Provision for loan and
lease losses........... 44,227 13,455 3,122 1,885 3,875 196
Noninterest income...... 455,760 71,945 41,671 2,771 4,955 7,520
Noninterest expense..... 776,574 119,224 98,452 21,512 12,835 19,303
Net income.............. 361,058 89,653 36,738 4,299 6,748 7,561
----------- ---------- ---------- -------- -------- --------
1997
Total assets............ $22,530,009 $4,364,982 $3,529,844 $647,448 $552,601 $708,268
Securities.............. 5,392,894 1,020,554 887,381 179,388 153,407 412,664
Loans and leases, net of
unearned income*....... 15,402,775 3,052,755 2,287,651 300,441 347,555 256,692
Deposits................ 15,931,795 3,401,236 2,333,873 427,798 332,524 421,019
Shareholder's equity.... 1,771,589 374,871 435,248 39,283 42,907 54,612
Net interest income..... 842,745 184,341 59,122 21,532 21,516 20,434
Provision for loan and
lease losses........... 53,533 14,109 3,400 484 1,925 73
Noninterest income...... 436,607 70,916 16,149 2,447 4,535 6,823
Noninterest expense..... 809,599 135,018 47,349 13,915 13,047 17,205
Net income.............. 278,536 68,024 15,388 5,968 7,529 7,830
----------- ---------- ---------- -------- -------- --------
1996
Total assets............ $20,652,519 $4,213,458 $2,209,614 $497,817 $495,542 $595,454
Securities.............. 4,962,941 1,034,385 883,771 164,116 113,883 325,443
Loans and leases, net of
unearned income*....... 14,149,983 2,901,930 1,180,681 232,581 337,849 237,730
Deposits................ 15,683,080 3,336,711 1,422,785 363,427 317,564 417,197
Shareholder's equity.... 1,601,950 399,965 194,884 31,893 38,249 43,634
Net interest income..... 773,019 173,235 43,822 18,290 20,280 18,880
Provision for loan and
lease losses........... 44,675 8,405 2,584 27 1,808 227
Noninterest income...... 333,119 57,729 11,811 1,770 6,448 4,973
Noninterest expense..... 689,969 134,200 30,129 12,652 13,477 15,113
Net income.............. 250,956 56,489 14,542 4,523 7,708 6,774
----------- ---------- ---------- -------- -------- --------
</TABLE>
- --------
* Includes loans held for sale.
48
<PAGE>
Table 2
Composition of Loan and Lease Portfolio*
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans:
Commercial, financial and
agricultural................ $ 3,755,789 $ 3,519,613 $ 3,114,718 $ 2,705,436 $ 3,315,921
Real estate--construction and
land development............ 2,424,543 2,318,617 1,694,536 1,253,907 937,298
Real estate--mortgage........ 14,290,610 13,037,395 11,614,776 11,365,695 10,021,940
Consumer..................... 3,059,920 2,992,959 3,074,058 2,727,930 2,628,262
----------- ----------- ----------- ----------- -----------
Loans held for investment.. 23,530,862 21,868,584 19,498,088 18,052,968 16,903,421
Loans held for sale........ 1,056,841 524,102 240,176 272,685 147,576
----------- ----------- ----------- ----------- -----------
Total loans.............. 24,587,703 22,392,686 19,738,264 18,325,653 17,050,997
Leases......................... 1,620,326 788,462 576,991 376,152 304,544
----------- ----------- ----------- ----------- -----------
Total loans and leases... $26,208,029 $23,181,148 $20,315,255 $18,701,805 $17,355,541
=========== =========== =========== =========== ===========
</TABLE>
- --------
* Balances include unearned income.
49
<PAGE>
Table 3
Selected Loan Maturities and Interest Sensitivity *
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------
Commercial,
Financial
and Real Estate:
Agricultural Construction Total
------------ ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C>
Fixed rate:
1 year or less (2)...................... $ 297,458 $ 373,622 $ 671,080
1-5 years............................... 743,646 184,023 927,669
After 5 years........................... 198,306 -- 198,306
---------- ---------- ----------
Total................................. 1,239,410 557,645 1,797,055
---------- ---------- ----------
Variable rate:
1 year or less (2)...................... 1,283,353 1,250,822 2,534,175
1-5 years............................... 1,132,371 616,076 1,748,447
After 5 years........................... 100,655 -- 100,655
---------- ---------- ----------
Total................................. 2,516,379 1,866,898 4,383,277
---------- ---------- ----------
Total loans and leases (1).......... $3,755,789 $2,424,543 $6,180,332
========== ========== ==========
</TABLE>
- --------
* Balances include 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 negotiated at that time.
(1) The table excludes:
<TABLE>
<CAPTION>
(Dollars in
thousands)
-----------
<C> <S> <C>
(i) consumer loans to individuals for household, family
and other personal expenditures...................... $ 3,059,920
(ii) real estate mortgage loans........................... 14,290,610
(iii) loans held for sale.................................. 1,056,841
(iv) leases............................................... 1,620,326
-----------
$20,027,697
===========
</TABLE>
(2) Includes loans due on demand.
50
<PAGE>
Table 4
Allocation of Allowance for Loan and Lease Losses by Category
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ----------------- ----------------- ----------------- -----------------
% Loans % Loans % Loans % Loans % Loans
in each in each in each in each in each
Amount category Amount category Amount category Amount category Amount category
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Commercial, financial
and agricultural...... $ 47,876 14% $ 50,495 15% $ 50,336 15% $ 53,704 14% $ 49,825 19%
Real estate:
Construction and land
development........... 32,266 9 24,403 10 17,651 8 21,122 7 19,625 5
Mortgage............... 110,031 59 108,590 58 94,936 58 90,706 62 81,001 59
-------- --- -------- --- -------- --- -------- --- -------- ---
Real estate--total..... 142,297 68 132,993 68 112,587 66 111,828 69 100,626 64
-------- --- -------- --- -------- --- -------- --- -------- ---
Consumer................ 26,524 12 22,873 13 20,245 16 14,052 15 10,321 15
Leases.................. 12,737 6 8,021 4 5,207 3 3,325 2 2,986 2
Unallocated............. 115,274 -- 87,368 -- 76,302 -- 60,999 -- 73,248 --
-------- --- -------- --- -------- --- -------- --- -------- ---
Total.................. $344,708 100% $301,750 100% $264,677 100% $243,908 100% $237,006 100%
======== === ======== === ======== === ======== === ======== ===
</TABLE>
51
<PAGE>
Table 5
Composition of Allowance for Loan and Lease Losses
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period................. $ 301,750 $ 264,677 $ 243,908 $ 237,006 $ 232,413
----------- ----------- ----------- ----------- -----------
Charge-offs:
Commercial, financial
and agricultural..... (14,677) (18,710) (12,085) (12,715) (15,166)
Real estate........... (12,071) (14,399) (12,143) (12,754) (10,170)
Consumer.............. (67,878) (69,664) (50,209) (30,774) (17,623)
Lease receivables..... (1,167) (671) (768) (614) (647)
----------- ----------- ----------- ----------- -----------
Total charge-offs... (95,793) (103,444) (75,205) (56,857) (43,606)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial, financial
and agricultural..... 8,047 6,728 8,391 6,314 8,055
Real estate........... 3,593 5,222 6,462 3,754 3,671
Consumer.............. 10,225 7,769 6,659 5,860 5,652
Lease receivables..... 425 232 136 395 295
----------- ----------- ----------- ----------- -----------
Total recoveries.... 22,290 19,951 21,648 16,323 17,673
----------- ----------- ----------- ----------- -----------
Net charge-offs....... (73,503) (83,493) (53,557) (40,534) (25,933)
----------- ----------- ----------- ----------- -----------
Provision charged to
expense.............. 95,805 103,053 66,816 44,502 29,407
----------- ----------- ----------- ----------- -----------
Allowance of loans
acquired in purchase
transactions......... 20,592 17,513 7,510 2,934 1,119
Reconciliation of
fiscal year of merged
company to calender
year................. 64 -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, end of period.. $ 344,708 $ 301,750 $ 264,677 $ 243,908 $ 237,006
=========== =========== =========== =========== ===========
Average loans and
leases*................ $24,050,234 $21,459,467 $19,359,629 $18,243,461 $16,392,019
Net charge-offs as a
percentage of average
loans and leases....... .31% .39% .28% .22% .16%
=========== =========== =========== =========== ===========
</TABLE>
- --------
* Loans and leases are net of unearned income and include loans held for sale.
52
<PAGE>
Table 6
Composition of Securities Portfolio
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Trading Securities (at estimated fair
value):..................................... $ 60,422 $ 67,878 $ --
---------- ---------- ----------
Securities held to maturity (at amortized
cost):
U.S. Treasury, government and agency
obligations............................. 51,102 105,236 106,690
States and political subdivisions........ 232,406 271,993 295,496
Mortgage-backed securities............... 70,355 142,164 287,444
Other securities......................... 6,920 1,315 --
---------- ---------- ----------
Total securities held to maturity.......... 360,783 520,708 689,630
---------- ---------- ----------
Securities available for sale (at estimated
fair value):
U.S. Treasury, government and agency
obligations............................. 3,802,694 4,564,923 4,167,767
States and political subdivisions........ 175,669 65,464 36,416
Mortgage-backed securities............... 3,918,583 3,157,595 2,745,483
Other securities......................... 1,257,406 490,187 329,370
---------- ---------- ----------
Total securities available for sale........ 9,154,352 8,278,169 7,279,036
---------- ---------- ----------
Total securities............................. $9,575,557 $8,866,755 $7,968,666
========== ========== ==========
</TABLE>
53
<PAGE>
Table 7
Scheduled Maturities of Time Deposits
December 31, 1998
(Dollars in thousands)
Time Deposits $100,000 and Over
<TABLE>
<S> <C>
Maturity Schedule
Less than three months........................................... $ 1,373,286
Three through six months......................................... 728,706
Seven through twelve months...................................... 560,866
Over twelve months............................................... 807,639
-----------
Total.......................................................... $ 3,470,497
===========
Total Time Deposits
Time Deposits Due to Mature by December 31,
1999............................................................. $ 9,263,124
2000............................................................. 2,470,478
2001............................................................. 381,595
2002............................................................. 230,755
2003............................................................. 141,105
2004 and later................................................... 23,376
-----------
Total.......................................................... $12,510,433
===========
</TABLE>
54
<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>
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Maximum outstanding at any month-end
during the year.......................... $5,466,616 $3,993,462 $3,062,245
Average outstanding during the year....... 4,240,583 3,308,445 2,531,285
Average interest rate during the year..... 5.23% 5.26% 5.26%
Average interest rate at end of year...... 4.83 5.47 4.94
</TABLE>
55
<PAGE>
Table 9
Capital Adequacy for BB&T Corporation and Principal Banking Subsidiaries
<TABLE>
<CAPTION>
Carroll
Regulatory BB&T- BB&T- BB&T- Piedmont County
Minimums BB&T NC SC VA Franklin Trust Bank
---------- ---- ----- ----- ----- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Risk-based capital
ratios:
Tier 1 capital (1).... 4.0% 10.5% 10.9% 12.7% 15.3% 8.5% 12.2% 12.0%
Total risk-based
capital (2).......... 8.0 15.0 12.2 13.9 16.5 9.7 13.4 12.8
Tier 1 leverage ratio
(3).................... 3.0 7.1 7.2 9.3 10.0 5.3 8.3 6.4
</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 percentage of fourth quarter average assets
less nonqualifying intangibles.
56
<PAGE>
Table 10
Securities
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------
Carrying Value Average Yield (3)
-------------- ----------------
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury, government and agency
obligations (1):
Within one year............................ $1,028,989 6.34%
One to five years.......................... 3,106,278 6.15
Five to ten years.......................... 599,781 6.53
After ten years............................ 3,107,686 6.63
---------- ----
Total.................................... 7,842,734 6.39
---------- ----
States and political subdivisions:
Within one year............................ 30,575 8.74
One to five years.......................... 142,084 8.49
Five to ten years.......................... 88,013 7.88
After ten years............................ 147,403 7.64
---------- ----
Total.................................... 408,075 8.07
---------- ----
Other securities:
Within one year............................ 28,816 5.12
One to five years.......................... 38,242 7.48
Five to ten years.......................... 5,651 7.34
After ten years............................ 264,825 6.74
---------- ----
Total.................................... 337,534 6.69
---------- ----
Securities with no stated maturity........... 987,214 6.40
---------- ----
Total securities (2)....................... $9,575,557 6.48%
========== ====
</TABLE>
- --------
(1) Included in U.S. Treasury, government and agency obligations are mortgage-
backed securities totaling $3.9 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 $360.8 million carried at
amortized cost and securities available for sale and trading securities
carried at estimated fair values of $9.2 billion and $60.4 million,
respectively.
(3) Taxable equivalent basis as applied to amortized cost.
57
<PAGE>
Table 11
Asset Quality
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans and leases*..................... $ 97,321 $109,264 $ 74,679
Restructured loans............................... 1,348 2,492 2,678
Foreclosed property.............................. 29,328 37,636 31,915
-------- -------- --------
Nonperforming assets........................... $127,997 $149,392 $109,272
======== ======== ========
Loans 90 days or more past due and still
accruing...................................... $ 54,299 $ 49,224 $ 45,472
======== ======== ========
Asset Quality Ratios:
Nonaccrual and restructured loans and leases as
a percentage of
loans and leases.............................. .39% .49% .38%
Nonperforming assets as a percentage of:
Total assets................................. .34 .43 .36
Loans and leases plus foreclosed property.... .50 .65 .54
Net charge-offs as a percentage of average
loans and leases.............................. .31 .39 .28
Allowance for losses as a percentage of loans
and leases.................................... 1.35 1.32 1.31
Ratio of allowance for losses to:
Net charge-offs.............................. 4.69x 3.61x 4.94x
Nonaccrual and restructured loans and
leases...................................... 3.49 2.70 3.42
</TABLE>
- --------
NOTE: Items referring to loans and leases are net of unearned income and
include loans held for sale.
* Includes $ 31.4 million, $ 40.1 million and $ 37.4 million of impaired
loans at December 31, 1998, 1997 and 1996, respectively.
See Note D in the "Notes to Consolidated Financial Statements."
58
<PAGE>
Table 12
FTE Net Interest Income and Rate/Volume Analysis
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Average Balances Yield/Rate Income/Expense
------------------------------------ ---------------- --------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities (1):
U.S. Treasury,
government and
other (5)....... $ 8,867,463 $ 7,987,465 $ 7,306,601 6.70% 6.75% 6.56% $ 594,180 $ 539,165 $ 479,592
States and
political
subdivisions.... 330,713 313,320 323,141 8.36 8.29 8.45 27,650 25,981 27,304
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
Total securities
(5)............. 9,198,176 8,300,785 7,629,742 6.76 6.81 6.64 621,830 565,146 506,896
Other earning
assets (2)...... 237,408 145,233 190,042 5.64 5.80 5.51 13,397 8,420 10,470
Loans and
leases, net of
unearned income
(1)(3)(4)(5).... 24,050,234 21,459,467 19,359,629 9.06 9.19 9.13 2,178,055 1,971,424 1,766,786
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
Total earning
assets.......... 33,485,818 29,905,485 27,179,413 8.40 8.51 8.40 2,813,282 2,544,990 2,284,152
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
Non-earning
assets.......... 2,357,632 1,859,738 1,662,980
------------ ----------- -----------
Total assets.... $ 35,843,450 $31,765,223 $28,842,393
============ =========== ===========
Liabilities and
Shareholders'
Equity
Interest-bearing
deposits:
Savings and
interest-
checking........ $ 2,140,766 $ 2,521,969 $ 2,690,519 1.96 1.97 2.04 42,004 49,640 55,021
Money rate
savings......... 6,003,304 5,010,436 4,206,697 3.01 3.10 2.89 180,495 155,385 121,440
Other time
deposits........ 12,316,725 11,942,250 11,721,825 5.44 5.51 5.55 669,831 657,970 650,054
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
Total interest-
bearing
deposits........ 20,460,795 19,474,655 18,619,041 4.36 4.43 4.44 892,330 862,995 826,515
Short-term
borrowed funds.. 4,240,583 3,308,445 2,531,285 5.23 5.26 5.26 221,615 174,040 133,231
Long-term debt.. 4,502,828 3,091,514 2,166,297 5.78 5.92 5.81 260,046 182,912 125,869
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
Total interest-
bearing
liabilities..... 29,204,206 25,874,614 23,316,623 4.70 4.71 4.66 1,373,991 1,219,947 1,085,615
------------ ----------- ----------- ---- ---- ---- ---------- ---------- ----------
Noninterest-
bearing
deposits........ 3,252,020 2,939,226 2,788,485
Other
liabilities..... 560,006 401,860 357,546
Shareholders'
equity.......... 2,827,218 2,549,523 2,379,739
------------ ----------- -----------
Total
liabilities and
shareholders'
equity.......... $ 35,843,450 $31,765,223 $28,842,393
============ =========== ===========
Average interest
rate spread..... 3.70 3.80 3.74
Net yield on
earning assets.. 4.30% 4.43% 4.41% $1,439,291 $1,325,043 $1,198,537
==== ==== ==== ========== ========== ==========
Taxable
equivalent
adjustment...... $ 69,302 $ 57,195 $ 39,679
========== ========== ==========
<CAPTION>
1998 v. 1997 1997 v. 1996
------------------------------ -----------------------------
Change due to Change due to
Increase ------------------- Increase ------------------
(Decrease) Rate Volume (Decrease) Rate Volume
---------- --------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Securities (1):
U.S. Treasury,
government and
other (5)....... $ 55,015 $ (3,978) $ 58,993 $ 59,573 $13,910 $ 45,663
States and
political
subdivisions.... 1,669 216 1,453 (1,323) (503) (820)
---------- --------- --------- ---------- -------- ---------
Total securities
(5)............. 56,684 (3,762) 60,446 58,250 13,407 44,843
Other earning
assets (2)...... 4,977 (230) 5,207 (2,050) 524 (2,574)
Loans and
leases, net of
unearned income
(1)(3)(4)(5).... 206,631 (28,352) 234,983 204,638 11,805 192,833
---------- --------- --------- ---------- -------- ---------
Total earning
assets.......... 268,292 (32,344) 300,636 260,838 25,736 235,102
---------- --------- --------- ---------- -------- ---------
Non-earning
assets..........
Total assets....
Liabilities and
Shareholders'
Equity
Interest-bearing
deposits:
Savings and
interest-
checking........ (7,636) (156) (7,480) (5,381) (2,015) (3,366)
Money rate
savings......... 25,110 (4,867) 29,977 33,945 9,502 24,443
Other time
deposits........ 11,861 (8,582) 20,443 7,916 (4,249) 12,165
---------- --------- --------- ---------- -------- ---------
Total interest-
bearing
deposits........ 29,335 (13,605) 42,940 36,480 3,238 33,242
Short-term
borrowed funds.. 47,575 (1,146) 48,721 40,809 (73) 40,882
Long-term debt.. 77,134 (4,471) 81,605 57,043 2,342 54,701
---------- --------- --------- ---------- -------- ---------
Total interest-
bearing
liabilities..... 154,044 (19,222) 173,266 134,332 5,507 128,825
---------- --------- --------- ---------- -------- ---------
Noninterest-
bearing
deposits........
Other
liabilities.....
Shareholders'
equity..........
Total
liabilities and
shareholders'
equity..........
Average interest
rate spread.....
Net yield on
earning assets.. $114,248 $(13,122) $127,370 $126,506 $20,229 $106,277
========== ========= ========= ========== ======== =========
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.
59
<PAGE>
Table 13
Noninterest Income
<TABLE>
<CAPTION>
% Change
---------------
Years Ended December 31,
-------------------------- 1998 v. 1997 v.
1998 1997 1996 1997 1996
-------- -------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Service charges on deposits........ $178,319 $158,451 $141,069 12.5% 12.3%
Mortgage banking income............ 83,081 53,774 42,342 54.5 27.0
Trust income....................... 42,603 36,849 33,188 15.6 11.0
Agency insurance commissions....... 52,186 40,149 27,541 30.0 45.8
Other insurance commissions........ 10,947 13,904 13,484 (21.3) 3.1
Securities gains, net.............. 8,561 4,701 4,091 82.1 14.9
Bankcard fees and merchant
discounts......................... 30,219 24,042 19,385 25.7 24.0
Investment banking and brokerage... 43,796 27,180 16,982 61.1 60.1
Other bank service fees and
commissions....................... 51,741 41,246 27,964 25.4 47.5
International income............... 4,563 3,685 3,206 23.8 14.9
Amortization of negative goodwill.. 6,243 6,180 6,238 1.0 (.9)
Other noninterest income........... 46,298 77,109 29,034 (40.0) 165.6
-------- -------- -------- ----- -----
Total noninterest income......... $558,557 $487,270 $364,524 14.6% 33.7%
======== ======== ======== ===== =====
</TABLE>
60
<PAGE>
Table 14
Noninterest Expense
<TABLE>
<CAPTION>
% Change
---------------
Years Ended December 31,
------------------------------ 1998 v. 1997 v.
1998 1997 1996 1997 1996
---------- ---------- -------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Salaries and wages............. $ 441,630 $ 409,877 $358,806 7.7% 14.2%
Pension and other employee
benefits...................... 98,630 102,948 85,620 (4.2) 20.2
Net occupancy expense on bank
premises...................... 66,660 85,110 64,684 (21.7) 31.6
Furniture and equipment
expense....................... 101,704 89,855 74,546 13.2 20.5
Federal deposit insurance
premiums...................... 4,655 5,463 51,071 (14.8) (89.3)
Foreclosed property expense.... 2,379 3,456 2,672 (31.2) 29.3
Amortization of intangibles and
mortgage servicing rights..... 51,785 25,965 16,747 99.4 55.0
Software....................... 10,879 14,662 11,518 (25.8) 27.3
Telephone...................... 22,131 19,990 17,399 10.7 14.9
Donations...................... 6,335 7,007 6,280 (9.6) 11.6
Advertising and public
relations..................... 27,727 27,935 25,906 (0.7) 7.8
Travel and transportation...... 10,595 9,094 7,667 16.5 18.6
Professional services.......... 51,327 50,713 29,314 1.2 73.0
Supplies....................... 18,018 17,228 16,055 4.6 7.3
Loans and lease expense........ 26,114 42,152 32,885 (38.0) 28.2
Deposit related expense........ 15,131 16,936 14,318 (10.7) 18.3
Other noninterest expenses..... 106,639 123,876 87,002 (13.9) 42.4
---------- ---------- -------- ----- -----
Total noninterest expense.... $1,062,339 $1,052,267 $902,490 1.0% 16.6%
========== ========== ======== ===== =====
</TABLE>
61
<PAGE>
Table 15
Interest Rate Sensitivity Gap Analysis
December 31, 1998
<TABLE>
<CAPTION>
Expected Repricing or Maturity Date
-------------------------------------------------------------
Within One One to Three to After Five
Year Three Years Five Years Years Total
----------- ----------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Securities and other
interest-
earning assets*...... $ 2,497,629 $ 2,361,507 $3,084,797 $1,546,704 $ 9,490,637
Federal funds sold and
securities purchased
under resale
agreements or similar
arrangements......... 116,458 -- -- -- 116,458
Loans and leases**.... 15,301,582 4,970,299 2,881,301 2,336,919 25,490,101
----------- ----------- ---------- ---------- -----------
Total interest-earning
assets................. 17,915,669 7,331,806 5,966,098 3,883,623 35,097,196
----------- ----------- ---------- ---------- -----------
Liabilities
Savings and interest
checking***.......... -- 1,201,681 400,560 400,560 2,002,801
Money rate
savings***........... 3,565,615 3,565,614 -- -- 7,131,229
Other time deposits... 8,614,897 2,715,204 387,893 153,763 11,871,757
Foreign deposits...... 638,676 -- -- -- 638,676
Federal funds
purchased and
securities sold under
repurchase agreements
or
similar
arrangements......... 2,410,488 50,870 169,727 -- 2,631,085
Long-term debt and
other borrowings..... 3,192,399 797,696 508,404 1,922,700 6,421,199
----------- ----------- ---------- ---------- -----------
Total interest-bearing
liabilities............ 18,422,075 8,331,065 1,466,584 2,477,023 $30,696,747
----------- ----------- ---------- ---------- ===========
Asset-liability gap..... (506,406) (999,259) 4,499,514 1,406,600
----------- ----------- ---------- ----------
Derivatives affecting
interest rate
sensitivity:
Pay fixed interest
rate swaps........... 184,946 (10,133) (100,736) (74,077)
Receive fixed interest
rate swaps........... (718,000) 164,000 294,000 260,000
Caps, floors and
collars.............. (747,250) 500,000 247,250 --
----------- ----------- ---------- ----------
(1,280,304) 653,867 440,514 185,923
----------- ----------- ---------- ----------
Interest rate
sensitivity gap........ $(1,786,710) $ (345,392) $4,940,028 $1,592,523
=========== =========== ========== ==========
Cumulative interest rate
sensitivity gap........ $(1,786,710) $(2,132,102) $2,807,926 $4,400,449
=========== =========== ========== ==========
</TABLE>
- --------
* Securities based on amortized cost.
** Loans and leases include loans held for sale and are net of unearned
income.
*** Projected runoff of deposits that do not have a contractual maturity date
was computed based upon decay rate assumptions developed by bank
regulators to assist banks in addressing FDICIA rule 305.
62
<PAGE>
Table 16
Capital--Components and Ratios
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Tier 1 capital.......................................... $2,636,111 $2,458,263
Tier 2 capital.......................................... 1,145,880 777,819
---------- ----------
Total regulatory capital................................ $3,781,991 $3,236,082
========== ==========
Risk-based capital ratios:
Tier 1 capital........................................ 10.5% 10.8%
Total regulatory capital.............................. 15.0 14.2
Tier 1 leverage ratio................................... 7.1 7.5
</TABLE>
63
<PAGE>
Table 17
Quarterly Common Stock Summary
<TABLE>
<CAPTION>
1998 1997
------------------------------ ------------------------------
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....... $33.84 $29.03 $33.84 $.155 $20.38 $17.63 $18.63 $.135
June 30........ 34.06 32.03 33.81 .155 23.56 17.88 22.50 .135
September 30... 36.03 28.00 29.94 .175 27.56 22.66 26.72 .155
December 31.... 40.63 27.31 40.31 .175 32.50 25.97 32.03 .155
Year......... 40.63 27.31 40.31 .66 32.50 17.63 32.03 .58
</TABLE>
64
<PAGE>
Table 18
Quarterly Financial Summary--Unaudited
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------- ------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Summary of
Operations:
Net interest income
FTE.................. $ 374,985 $ 361,990 $ 353,868 $ 348,448 $ 340,051 $ 334,424 $ 334,337 $ 316,231
FTE adjustment........ 18,946 17,276 16,773 16,307 18,421 14,605 13,422 10,747
Provisions for loan
and lease losses..... 24,302 21,428 26,275 23,800 31,157 22,953 26,618 22,325
Securities gains
(losses), net........ 2,119 2,277 1,348 2,817 1,567 1,081 (841) 2,894
Other noninterest
income............... 144,578 142,195 136,950 126,273 116,395 156,051 104,382 105,741
Noninterest expense... 282,393 269,576 254,604 255,766 265,503 335,590 228,723 222,451
Provision for income
taxes................ 61,184 62,773 61,799 57,392 45,939 43,568 57,699 57,931
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income............ $ 134,857 $ 135,409 $ 132,715 $ 124,273 $ 96,993 $ 74,840 $ 111,416 $ 111,412
=========== =========== =========== =========== =========== =========== =========== ===========
Diluted net income per
share................ $ .42 $ .43 $ .42 $ .39 $ .31 $ .24 $ .35 $ .35
=========== =========== =========== =========== =========== =========== =========== ===========
Selected Average
Balances:
Assets................ $37,657,707 $35,479,318 $35,552,607 $34,655,171 $33,055,978 $32,169,244 $31,701,883 $30,493,344
Securities, at
amortized cost....... 9,742,293 8,936,839 9,110,430 8,997,836 8,495,169 8,453,512 8,319,927 7,933,291
Loans and leases*..... 25,062,213 24,054,547 23,923,871 23,139,123 22,330,866 21,720,773 21,430,060 20,647,319
Total earning assets.. 35,008,315 33,201,128 33,302,951 32,405,403 31,036,831 30,303,839 29,895,348 28,734,918
Deposits.............. 24,722,315 23,479,519 23,560,244 23,073,640 22,612,264 22,529,036 22,749,309 22,037,789
Short-term borrowed
funds................ 4,195,572 3,984,815 4,550,666 4,234,519 3,735,198 3,465,015 3,188,864 2,801,706
Long-term debt........ 5,085,355 4,712,504 4,126,352 4,073,684 3,597,116 3,253,015 2,831,322 2,605,277
Total interest-bearing
liabilities.......... 30,524,668 28,896,563 29,028,315 28,346,740 26,738,681 26,266,719 25,829,402 24,694,455
Shareholders' equity.. 3,059,665 2,738,963 2,745,368 2,762,584 2,580,461 2,552,884 2,566,656 2,539,426
</TABLE>
- ------
* Loans and leases are net of unearned income and include loans held for sale.
65
