<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
April 30, 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
Winston-Salem, North Carolina 27101
(Address of Principal Executive Offices) (Zip Code)
(336) 733-2000
(Registrant's Telephone Number, Including Area Code)
--------
This Form 8-K has 81 pages.
<PAGE>
Item 5. Other Events
On March 5, 1999, BB&T Corporation completed its merger with MainStreet
Financial Corporation ("MainStreet"), of Martinsville, Virginia. To consummate
the transaction, MainStreet's shareholders received 1.18 shares of BB&T common
stock in exchange for each share of MainStreet common stock held, resulting in
the issuance of 16.8 million shares of BB&T common stock. The transaction was
accounted for as a pooling-of-interests. Accordingly, the consolidated financial
statements (including notes to consolidated financial statements), and
supplemental financial information contained in BB&T's Annual Report on Form
10-K for the years ended December 31, 1998, 1997 and 1996, restated for the
accounts of MainStreet, are included in this Current Report on Form 8-K.
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 6.
99.2 BB&T's restated audited financial statements and Filed herewith beginning on
notes thereto, including the accounts of MainStreet. page 7.
99.3 BB&T's restated Securities Act Guide 3 statistical Filed herewith beginning on page 62.
disclosures, including the accounts of MainStreet.
</TABLE>
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BB&T CORPORATION
(Registrant)
By: /S/ SHERRY A. KELLETT
---------------------------
Sherry A. Kellett
Senior Executive Vice President and Controller
(Principal Accounting Officer)
Date: April 30, 1999.
<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,
333-03989 and 333-50035 filed on Form S-8 and Registration Statement File Nos.
33-57859, 33-57861, 33-57871 and 333-02899 filed on Form S-3.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 30, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
EFFECTIVE DECEMBER 31, 1997, BB&T ADOPTED SFAS NO. 128, "EARNINGS PER SHARE" THE
LINES LABELED EPS-PRIMARY AND EPS-FULLY DILUTED ON THIS EXHIBIT ACTUALLY REFLECT
EPS-BASIC AND EPS-DILUTED, RESPECTIVELY, AS DETERMINED UNDER SFAS NO. 128.
</LEGEND>
<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> 997,245
<INT-BEARING-DEPOSITS> 8,925
<FED-FUNDS-SOLD> 103,216
<TRADING-ASSETS> 60,422
<INVESTMENTS-HELD-FOR-SALE> 8,737,936
<INVESTMENTS-CARRYING> 174,735
<INVESTMENTS-MARKET> 179,444
<LOANS> 24,718,468
<ALLOWANCE> 330,615
<TOTAL-ASSETS> 36,388,330
<DEPOSITS> 24,258,168
<SHORT-TERM> 3,707,333
<LIABILITIES-OTHER> 534,144
<LONG-TERM> 4,964,797
0
0
<COMMON> 1,534,820
<OTHER-SE> 1,389,068
<TOTAL-LIABILITIES-AND-EQUITY> 36,388,330
<INTEREST-LOAN> 2,074,467
<INTEREST-INVEST> 547,897
<INTEREST-OTHER> 11,043
<INTEREST-TOTAL> 2,633,407
<INTEREST-DEPOSIT> 854,115
<INTEREST-EXPENSE> 1,316,278
<INTEREST-INCOME-NET> 1,317,129
<LOAN-LOSSES> 90,470
<SECURITIES-GAINS> 7,682
<EXPENSE-OTHER> 1,019,920
<INCOME-PRETAX> 750,368
<INCOME-PRE-EXTRAORDINARY> 513,021
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513,021
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.65
<YIELD-ACTUAL> 4.30
<LOANS-NON> 88,847
<LOANS-PAST> 54,226
<LOANS-TROUBLED> 522
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 292,667
<CHARGE-OFFS> 91,621
<RECOVERIES> 21,430
<ALLOWANCE-CLOSE> 330,615
<ALLOWANCE-DOMESTIC> 330,615
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 113,167
</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 their
operations and their 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,
April 30, 1999.
<PAGE>
Exhibit 99.2
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks $ 997,245 $ 940,184
Interest-bearing deposits with banks 8,925 80,605
Federal funds sold and securities purchased under resale agreements or
similar arrangements 103,216 246,464
Trading securities 60,422 67,878
Securities available for sale 8,737,936 7,993,934
Securities held to maturity (market value: $179,444 at December 31, 1998
and $320,444 at December 31, 1997) 174,735 314,783
Loans held for sale 1,035,668 512,189
Loans and leases, net of unearned income 23,682,800 21,691,741
Allowance for loan and lease losses (330,615) (292,667)
------------ ------------
Loans and leases, net 23,352,185 21,399,074
------------ ------------
Premises and equipment, net 471,780 451,862
Other assets 1,446,218 1,158,168
------------ ------------
Total assets $ 36,388,330 $ 33,165,141
============ ============
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing deposits $ 3,465,362 $ 3,135,687
Savings and interest checking 1,783,491 1,991,768
Money rate savings 7,021,556 5,474,046
Other time deposits 11,349,083 10,517,617
Foreign deposits 638,676 1,385,632
------------ ------------
Total deposits 24,258,168 22,504,750
Short-term borrowed funds 3,707,333 3,862,727
Long-term debt 4,964,797 3,750,484
Accounts payable and other liabilities 534,144 464,675
------------ ------------
Total liabilities 33,464,442 30,582,636
------------ ------------
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, 306,963,976 at December 31, 1998 and 151,965,992
at December 31, 1997 1,534,820 759,830
Additional paid-in capital 177,098 215,041
Retained earnings 1,151,010 1,556,701
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
$38,366 at December 31, 1998 and $33,964 at December 31, 1997 60,974 52,071
------------ ------------
Total shareholders' equity 2,923,888 2,582,505
------------ ------------
Total liabilities and shareholders' equity $ 36,388,330 $ 33,165,141
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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 $2,074,467 $1,881,108 $1,705,080
Interest and dividends on securities 547,897 504,980 454,196
Interest on short-term investments 11,043 6,366 8,870
---------- ---------- ----------
Total interest income 2,633,407 2,392,454 2,168,146
---------- ---------- ----------
Interest Expense
Interest on deposits 854,115 826,898 796,070
Interest on short-term borrowed funds 218,617 168,785 130,508
Interest on long-term debt 243,546 175,113 121,658
---------- ---------- ----------
Total interest expense 1,316,278 1,170,796 1,048,236
---------- ---------- ----------
Net Interest Income 1,317,129 1,221,658 1,119,910
Provision for loan and lease losses 90,470 102,680 65,795
---------- ---------- ----------
Net Interest Income After Provision for Loan and Lease Losses 1,226,659 1,118,978 1,054,115
---------- ---------- ----------
Noninterest Income
Service charges on deposits 174,847 154,729 137,972
Mortgage banking income 79,670 50,628 40,494
Trust income 40,937 35,378 31,781
Agency insurance commissions 52,186 40,148 27,541
Other insurance commissions 12,599 13,697 13,288
Bankcard fees and merchant discounts 30,140 23,955 19,292
Other nondeposit fees and commissions 82,805 66,619 46,903
Securities gains, net 7,682 4,139 3,820
Other income 62,763 83,161 32,316
---------- ---------- ----------
Total noninterest income 543,629 472,454 353,407
---------- ---------- ----------
Noninterest Expense
Personnel expense 514,546 491,400 426,720
Occupancy and equipment expense 161,876 169,270 134,188
Federal deposit insurance expense 4,464 5,274 50,067
Amortization of intangibles and mortgage servicing rights 49,473 24,734 15,629
Advertising and public relations expense 26,569 27,082 25,016
Professional services 50,807 49,271 28,317
Other expense 212,185 247,846 189,184
---------- ---------- ----------
Total noninterest expense 1,019,920 1,014,877 869,121
---------- ---------- ----------
Earnings
Income before income taxes 750,368 576,555 538,401
Provision for income taxes 237,347 198,268 176,953
---------- ---------- ----------
Net Income 513,021 378,287 361,448
Preferred dividend requirements -- -- 610
---------- ---------- ----------
Income applicable to common shares $ 513,021 $ 378,287 $ 360,838
========== ========== ==========
Per Common Share
Net income:
Basic $ 1.69 $ 1.25 $ 1.19
========== ========== ==========
Diluted $ 1.65 $ 1.23 $ 1.17
========== ========== ==========
Cash dividends paid $ .66 $ .58 $ .50
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<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>
Shares of Additional
Common Preferred Common Paid-In
Stock Stock Stock Capital
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance, December 31, 1995, as
previously reported 145,075,281 $ 3,669 $ 725,377 $ 363,564
Merger with MainStreet Financial Corporation,
accounted for under the pooling-of-interests
method 7,807,425 -- 39,037 42,391
------------ ------------ ------------ ------------
Balance, December 31, 1995, restated 152,882,706 3,669 764,414 405,955
------------ ------------ ------------ ------------
Add (Deduct):
Nonshareholder changes in equity:**
Net income -- -- -- --
Unrealized holding losses arising
during the period -- -- -- --
Less: reclassification adjustment -- -- -- --
------------ ------------ ------------ ------------
Net unrealized losses on securities -- -- -- --
------------ ------------ ------------ ------------
Total nonshareholder changes in equity -- -- -- --
------------ ------------ ------------ ------------
Common stock issued 2,859,797 -- 14,298 59,484
Redemption of common stock (7,391,457) -- (36,957) (185,614)
Preferred stock cancellations and conversions 4,334,692 (3,669) 21,674 (18,005)
Cash dividends declared:
Common stock -- -- -- --
Preferred stock -- -- -- --
Other -- -- -- (378)
------------ ------------ ------------ ------------
Balance, December 31, 1996 152,685,738 -- 763,429 261,442
Add (Deduct):
Nonshareholder changes in equity:**
Net income -- -- -- --
Unrealized holding gains arising
during the period -- -- -- --
Less: reclassification adjustment -- -- -- --
------------ ------------ ------------ ------------
Net unrealized gains on securities -- -- -- --
------------ ------------ ------------ ------------
Total nonshareholder changes in equity -- -- -- --
------------ ------------ ------------ ------------
Common stock issued 6,223,406 -- 31,117 242,032
Redemption of common stock (6,943,152) -- (34,716) (286,508)
Cash dividends declared on common stock -- -- -- --
Other -- -- -- (1,925)
------------ ------------ ------------ ------------
Balance, December 31, 1997 151,965,992 -- 759,830 215,041
Add (Deduct):
Nonshareholder changes in equity:**
Net income -- -- -- --
Unrealized holding gains arising
during the period -- -- -- --
Less: reclassification adjustment -- -- -- --
------------ ------------ ------------ ------------
Net unrealized gains on securities -- -- -- --
------------ ------------ ------------ ------------
Total nonshareholder changes in equity
------------ ------------ ------------ ------------
Common stock issued 11,514,675 -- 57,573 308,857
Redemption of common stock (6,716,080) -- (33,580) (310,430)
2-for-1 stock split effective August 3, 1998 150,199,389 -- 750,997 (39,410)
Cash dividends declared on common stock -- -- -- --
Other -- -- -- 3,040
============ ============ ============ ============
Balance, December 31, 1998 306,963,976 $ -- $ 1,534,820 $ 177,098
============ ============ ============ ============
<CAPTION>
Accumulated
Other
Retained Nonshareholder Total
Earnings Changes Shareholders'
and Other* in Equity Equity
----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, December 31, 1995, as
previously reported $ 1,083,796 $ 36,032 $ 2,212,438
Merger with MainStreet Financial Corporation,
accounted for under the pooling-of-interests
method 35,341 (502) 116,267
----------- ----------- -----------
Balance, December 31, 1995, restated 1,119,137 35,530 2,328,705
----------- ----------- -----------
Add (Deduct):
Nonshareholder changes in equity:**
Net income 361,448 -- 361,448
Unrealized holding losses arising
during the period -- (18,053) (18,053)
Less: reclassification adjustment -- (3,820) (3,820)
----------- ----------- -----------
Net unrealized losses on securities -- (21,873) (21,873)
----------- ----------- -----------
Total nonshareholder changes in equity 361,448 (21,873) 339,575
----------- ----------- -----------
Common stock issued 1,290 -- 75,072
Redemption of common stock 2 -- (222,569)
Preferred stock cancellations and conversions -- -- --
Cash dividends declared:
Common stock (137,961) -- (137,961)
Preferred stock (610) -- (610)
Other 677 -- 299
----------- ----------- -----------
Balance, December 31, 1996 1,343,983 13,657 2,382,511
Add (Deduct):
Nonshareholder changes in equity:**
Net income 378,287 -- 378,287
Unrealized holding gains arising
during the period -- 42,553 42,553
Less: reclassification adjustment -- (4,139) (4,139)
----------- ----------- -----------
Net unrealized gains on securities -- 38,414 38,414
----------- ----------- -----------
Total nonshareholder changes in equity 378,287 38,414 416,701
----------- ----------- -----------
Common stock issued 5,495 -- 278,644
Redemption of common stock -- -- (321,224)
Cash dividends declared on common stock (175,376) -- (175,376)
Other 3,174 -- 1,249
----------- ----------- -----------
Balance, December 31, 1997 1,555,563 52,071 2,582,505
Add (Deduct):
Nonshareholder changes in equity:**
Net income 513,021 -- 513,021
Unrealized holding gains arising
during the period -- 16,585 16,585
Less: reclassification adjustment -- (7,682) (7,682)
----------- ----------- -----------
Net unrealized gains on securities -- 8,903 8,903
----------- ----------- -----------
Total nonshareholder changes in equity 513,021 8,903 521,924
----------- ----------- -----------
Common stock issued -- -- 366,430
Redemption of common stock -- -- (344,010)
2-for-1 stock split effective August 3, 1998 (711,587) -- --
Cash dividends declared on common stock (205,319) -- (205,319)
Other (682) -- 2,358
=========== =========== ===========
Balance, December 31, 1998 $ 1,150,996 $ 60,974 $ 2,923,888
=========== =========== ===========
</TABLE>
- ---------------
* Other includes 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.
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income ................................................................... $ 513,021 $ 378,287 $ 361,448
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan and lease losses ..................................... 90,470 102,680 65,795
Depreciation of premises and equipment .................................. 66,822 61,655 49,117
Amortization of intangibles and mortgage servicing rights ............... 49,473 24,734 15,629
Accretion of negative goodwill .......................................... (6,243) (6,180) (6,238)
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 ................................. (7,682) (4,139) (3,820)
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 ................. (6,383) 30,660 331
Proceeds from sales of loans held for sale .............................. 4,344,135 1,583,793 1,362,991
Purchases of loans held for sale ........................................ (1,745,442) (734,727) (429,523)
Origination of loans held for sale, net of principal collected .......... (3,090,835) (1,020,098) (893,319)
Decrease (increase) in:
Accrued interest receivable .......................................... (15,194) 2,678 18,843
Other assets ......................................................... (68,221) (197,913) (112,716)
Increase (decrease) in:
Accrued interest payable ............................................. 17,132 7,029 6,703
Accounts payable and other liabilities ............................... 74,611 101,152 (9,642)
Other, net .............................................................. 763 1,138 4,100
----------- ----------- -----------
Net cash provided by operating activities ............................ 195,654 300,778 429,289
----------- ----------- -----------
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale ......................... 1,389,111 1,793,585 737,286
Proceeds from maturities, calls and paydowns of securities available for sale 2,247,730 1,680,926 2,788,988
Purchases of securities available for sale ................................... (3,683,893) (4,136,669) (2,910,349)
Proceeds from sales of securities held to maturity ........................... -- 26,170 --
Proceeds from maturities, calls and paydowns of securities held to maturity .. 55,811 44,340 232,093
Purchases of securities held to maturity ..................................... (16,196) (33,836) (336,728)
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 ................................ (1,338,660) (1,265,167) (1,889,906)
Purchases of loans ........................................................... (110,090) (205,232) (232,236)
Net cash acquired (paid) in transactions accounted for under the purchase method 97,757 95,205 (4,187)
Purchases and originations of mortgage servicing rights ...................... (74,086) (39,093) (26,356)
Proceeds from disposals of premises and equipment ............................ 23,058 14,577 8,769
Purchases of premises and equipment .......................................... (108,844) (151,551) (75,927)
Proceeds from sales of foreclosed property ................................... 28,902 16,562 16,321
Proceeds from sales of other real estate held for development or sale ........ 18,751 9,787 9,296
Other, net ................................................................... (1,375) 4,304 (18,147)
----------- ----------- -----------
Net cash used in investing activities ................................... (1,501,453) (2,162,931) (1,725,251)
----------- ----------- -----------
Cash Flows From Financing Activities:
Net increase in deposits ..................................................... 849,067 446,663 858,586
Net increase (decrease) in short-term borrowed funds ......................... (413,919) 600,680 27,506
Proceeds from long-term debt ................................................. 2,752,628 5,743,485 1,657,154
Repayments of long-term debt ................................................. (1,533,557) (4,304,498) (920,157)
Net proceeds from common stock issued ........................................ 33,227 25,225 52,358
Redemption of common stock ................................................... (344,010) (321,224) (222,569)
Cash dividends paid on common and preferred stock ............................ (195,504) (162,724) (133,751)
Other, net ................................................................... -- (12) (5,298)
----------- ----------- -----------
Net cash provided by financing activities ............................... 1,147,932 2,027,595 1,313,829
----------- ----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents ........................... (157,867) 165,442 17,867
Cash and Cash Equivalents at Beginning of Year ................................. 1,267,253 1,101,811 1,083,944
----------- ----------- -----------
Cash and Cash Equivalents at End of Year ....................................... $ 1,109,386 $ 1,267,253 $ 1,101,811
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 1,298,632 $ 1,118,870 $ 1,016,096
Income taxes 137,818 150,002 176,707
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 21,845 20,836 28,408
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.
<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");
Franklin National Bank of Washington, D.C. ("Franklin National Bank"); 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"), Piedmont Trust Bank of Martinsville, Virginia; Commerce Bank of College
Park, Maryland; MainStreet Bank of Mechanicsville, Virginia; Bank of Carroll of
Hillsville, Virginia; Bank of Ferrum, Virginia; The First Bank of Stuart,
Virginia; First National Bank of Clifton Forge, Virginia; The First Community
Bank of Saltville, Virginia; Tysons National Bank of McLean, Virginia;
MainStreet Trust Company N.A., of Martinsville, Virginia; and The Bank of
Northern Virginia of Arlington, Virginia; (collectively, the "Banks"), Regional
Acceptance Corporation ("Regional Acceptance") Scott & Stringfellow Financial,
Inc., ("Scott & Stringfellow") and Craigie Incorporated ("Craigie") comprise
BB&T's direct principal subsidiaries.
The accounting and reporting policies of BB&T Corporation and its
subsidiaries are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. The following is a
summary of the more significant policies.
NOTE A. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of BB&T include the accounts of the
Parent Company and its subsidiaries. In consolidation, all significant
intercompany accounts and transactions have been eliminated. Prior period
financial statements have been restated to include the accounts of companies
acquired in material transactions accounted for as poolings of interests.
Results of operations of companies acquired in transactions accounted for as
purchases are included from the dates of acquisition. (See Note B)
Certain amounts for prior years have been reclassified to conform to
statement presentations for 1998. The reclassifications have 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
<PAGE>
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.
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,
<PAGE>
"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 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 large
groups of smaller balance homogeneous loans (residential mortgage and consumer
installment) that are collectively evaluated for impairment.
<PAGE>
Allowance for Loan and Lease Losses
The provision for loan and lease losses is the estimated amount required to
maintain the allowance for loan and lease losses at a level adequate to cover
estimated inherent losses related to loans and leases currently outstanding. The
primary factors considered in determining the allowance are the distribution of
loans by risk class, the amount of the allowance specifically allocated to
nonperforming loans and other problem loans, prior years' loan loss experience,
economic conditions in BB&T's market areas and the growth of the credit
portfolio. 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 possible unforeseen losses in the
portfolio. While management uses the best information available in establishing
the allowance for losses, future adjustments to the allowance may be necessary
if economic conditions differ substantially from the assumptions used in making
the valuations or, if required by regulators, based upon information at the time
of their examinations. Such adjustments to original estimates, as necessary, are
made in the period in which these factors and other relevant considerations
indicate that loss levels may vary from previous estimates.
Nonperforming Assets
Nonperforming assets include loans and leases on which interest is not
being accrued and foreclosed property. Foreclosed property consists of real
estate and other assets acquired through customers' loan defaults.
Commercial and unsecured consumer loans and leases are generally placed on
nonaccrual status when concern exists that principal or interest is not fully
collectible, or when any portion of principal or interest becomes 90 days past
due, whichever occurs first. Mortgage loans and most other consumer loans past
due 90 days or more may remain on accrual status if management determines that
concern over the collectability of principal and interest is not significant.
When loans are placed on nonaccrual status, interest receivable is reversed
against interest income in the current period. Interest payments received
thereafter are applied as a reduction to the remaining principal balance when
concern exists as to the ultimate collection of the principal. Loans and leases
are removed from nonaccrual status when they become current as to both principal
and interest and when concern no longer exists as to the collectability of
principal or interest.
Assets acquired as a result of foreclosure are valued at the lower of cost
or fair value, and carried thereafter at the lower of cost or fair value less
estimated costs to sell the asset. Cost is the sum of unpaid principal, accrued
but unpaid interest and acquisition costs associated with the loan. Any excess
of unpaid principal over fair value at the time of foreclosure is charged to the
allowance for losses. Generally, such properties are appraised annually and the
carrying value, if greater than the fair value, less costs to sell, is adjusted
with a charge to income. Routine
<PAGE>
maintenance costs, declines in market value and net losses on disposal are
included in other noninterest expense.
Premises and Equipment
Premises, equipment, capital leases and leasehold improvements are stated
at cost less accumulated depreciation or amortization. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized on a straight-line
basis over the lesser of the lease terms or the estimated useful lives of the
improvements. Capitalized leases are amortized by the same methods as premises
and equipment over the estimated useful lives or the lease term, whichever is
lesser. Obligations under capital leases are amortized using the interest method
to allocate payments between principal reduction and interest expense.
Income Taxes
BB&T and its subsidiaries file a consolidated Federal income tax return.
Each subsidiary pays its calculated portion of Federal income taxes to BB&T to
the extent that tax benefits are realized. Deferred income taxes have been
provided where different accounting methods have been used in determining income
for income tax purposes and for financial reporting purposes. Deferred tax
assets and liabilities are recognized based on future tax consequences of the
differences arising from their carrying values and respective tax bases. In the
event of changes in the tax laws, deferred tax assets and liabilities are
adjusted in the period of the enactment of those changes, with effects included
in the income tax provision.
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
<PAGE>
liability being hedged, deferral accounting is discontinued and any gains or
losses are recognized in income. Derivative financial instruments that fail to
qualify as a hedge are carried at fair value with gains and losses recognized in
current earnings.
BB&T utilizes written covered over-the-counter call options on specific
securities in the available-for-sale securities portfolio in order to enhance
returns. Fees received are deferred and recognized in noninterest income upon
exercise or expiration. Written options are carried at estimated fair value.
Unrealized and realized gains and losses on written call options are included
with securities gains and losses.
BB&T also utilizes over-the-counter purchased put options and net purchased
put options (combination of purchased put option and written call option) in its
mortgage banking activities. These options are used to hedge the mortgage
warehouse and pipeline against increasing interest rates. Written call options
are used in tandem with purchased put options to create a net purchased put
option that reduces the cost of the hedge. Net unrealized gains and losses on
purchased put options and net purchased put options are carried with loans held
for sale at the lower of cost or market on an aggregate basis. Realized gains
and losses on purchased put options and net purchased put options are included
in mortgage banking income.
Per Share Data
Effective December 31, 1997, BB&T adopted the provisions of SFAS No. 128,
"Earnings Per Share." This statement establishes standards for computing and
presenting earnings per share ("EPS") and simplifies the standards for
computation previously found in Accounting Principles Board ("APB") Opinion No.
15, "Earnings Per Share," making them more comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires dual presentation of basic and diluted EPS (which
replaces the former fully diluted EPS) for all entities with complex capital
structures. The EPS information reported herein reflects the implementation of
SFAS No. 128. Prior periods have been restated to include the provisions of the
statement.
Basic net income per common share has been computed by dividing net income
applicable to common shares by the weighted average number of shares of common
stock outstanding during the years presented.
Diluted net income per common share has been computed by dividing net
income, as adjusted for the interest expense related to convertible debt in
prior years, by the weighted average number of shares of common stock, common
stock equivalents and other potentially dilutive securities outstanding. 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.
<PAGE>
Weighted average numbers of shares were as follows:
1998 1997 1996
----------- ----------- -----------
Basic 303,923,429 303,174,462 303,209,770
Diluted 310,109,165 308,210,488 309,506,279
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 $391.9 million recorded as goodwill and $7.8 million
as core deposit and other intangibles, net of amortization. Negative goodwill is
created when the fair value of the net assets purchased exceeds the purchase
price. Such balances are included in other liabilities in the "Consolidated
Balance Sheets" and are being amortized over periods ranging from 10 to 15
years. At December 31, 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 $101.3 million.
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
<PAGE>
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
<PAGE>
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 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, 1999, and cannot be applied retroactively. Management
has not yet quantified the impact of adopting SFAS No. 133 and has not
determined the timing of or method of our adoption of the statement. However,
the statement could increase volatility in earnings and other comprehensive
income.
During the second quarter of 1998, the American Institute of Certified
Public Accountants issued SOP 98-5, "Accounting for Start-up Costs." SOP 98-5
provides guidance on the financial reporting of start-up costs and organization
costs requiring start-up costs to be expensed as incurred. 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.
<PAGE>
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 $ 106,801 $ 129,719 $ 4,994
Purchase price (295,268) (276,483) (31,056)
-------- -------- -------
Excess of purchase price over net assets
acquired $ (188,467) $ (146,764) $ (26,062)
======== ========= =======
</TABLE>
During the first quarter of 1996, BB&T redeemed all outstanding shares of
Convertible Preferred Stock. This transaction, a noncash financing activity,
resulted in the conversion of 733,869 shares of preferred stock into 4,334,692
shares of common stock.
Income and Expense Recognition
Items of income and expense are recognized using the accrual basis of
accounting, except for some immaterial amounts.
<PAGE>
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 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 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.
<PAGE>
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 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 $9.3 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
<PAGE>
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 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.
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:
For the Years Ended
---------------------------
1998 1997
------------ -------------
(Dollars in thousands,
except per share data)
Total revenues 1,995,451 $ 1,896,455
============ =============
Net income 508,369 $ 370,340
============ =============
Basic EPS 1.67 $ 1.22
============ =============
Diluted EPS 1.64 $ 1.20
============ =============
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.
<PAGE>
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, N.C. ("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.
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.
<PAGE>
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. 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.
The following presentation reflects key line items on an historical basis
for BB&T and MainStreet and on a pro forma combined basis assuming the merger
was effective as of and for the periods presented.
<PAGE>
<TABLE>
<CAPTION>
Historical Basis
-------------------------------- BB&T
BB&T Mainstreet restated
------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
As of / For the Year Ended
December 31, 1998
------------------
Net interest income $ 1,247,404 $ 69,725 $ 1,317,129
Net income 501,825 11,196 513,021
Net earnings per share
Basic 1.75 0.80 1.69
Diluted 1.71 0.80 1.65
Assets 34,427,227 1,983,589 36,388,330
Deposits 23,046,907 1,211,261 24,258,168
Shareholders' equity 2,758,548 165,888 2,923,888
As of / For the Year Ended
December 31, 1997
-----------------
Net interest income $ 1,158,525 $ 63,133 $ 1,221,658
Net income 360,418 17,869 378,287
Net earnings per share
Basic 1.25 1.34 1.25
Diluted 1.23 1.34 1.23
Assets 31,290,247 1,874,578 33,165,141
Deposits 21,375,974 1,128,776 22,504,750
Shareholders' equity 2,439,110 143,982 2,582,505
</TABLE>
Pending Acquisitions
On January 27, 1999, BB&T announced plans to merge with First Citizens
Corporation ("First Citizens"), of Newnan, Georgia. The transaction is expected
to be accounted for as a pooling of interests. First Citizens' shareholders will
receive 1.0789 shares of BB&T common stock in exchange for each share of First
Citizens common stock held. The merger is expected to be completed in the third
quarter of 1999.
On January 28, 1999, BB&T announced plans to merge with Mason-Dixon
Bancshares ("Mason-Dixon") of Westminster, Maryland. The transaction is expected
to be accounted for as a pooling of interests. Mason-Dixon's shareholders will
receive 1.30 shares of BB&T common stock in exchange for each share of Mason-
Dixon common stock held. The merger is expected to be completed in the third
quarter of 1999.
On February 25, 1999, BB&T announced plans to acquire Matewan BancShares,
Inc. ("Matewan") of Williamson, West Virginia. On April 27, 1999, BB&T and
Matewan approved amendments to the merger agreement that provide for Matewan
shareholders to receive .67 shares of BB&T common stock for each share of
Matewan common stock held and to receive .8375 shares of BB&T common stock for
each share of Matewan Series A convertible preferred
<PAGE>
stock held. The transaction is expected to be completed in the third quarter of
1999 and accounted for as a purchase.
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.
<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
--------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized -------------------------------------- Fair
Cost Gains Losses Value
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Securities held to maturity:
U.S. Treasury, government and agency obligations $ 24,810 $ 45 $ 2 $ 24,853
Mortgage-backed securities 17,404 377 - 17,781
States and political subdivisions 132,521 4,305 16 136,810
---------------- ---------------- ------------------ ------------------
Total securities held to maturity 174,735 4,727 18 179,444
---------------- ---------------- ------------------ ------------------
Securities available for sale:
U.S. Treasury, government and agency obligations 3,583,884 55,588 2,542 3,636,930
Mortgage-backed securities 3,665,958 36,907 12,482 3,690,383
Equity and other securities 1,219,581 21,518 3,234 1,237,865
States and political subdivisions 169,173 3,599 14 172,758
---------------- ---------------- ------------------ ------------------
Total securities available for sale 8,638,596 117,612 18,272 8,737,936
---------------- ---------------- ------------------ ------------------
Total securities $ 8,813,331 $ 122,339 $ 18,290 $ 8,917,380
================ ================ ================== ==================
<CAPTION>
December 31, 1997
---------------------------------------------------------------------
Gross Unrealized Estimated
Amortized --------------------------------- Fair
Cost Gains Losses Value
----------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Securities held to maturity:
U.S. Treasury, government and agency obligations $ 64,789 $ 1,139 $ 143 $ 65,785
Mortgage-backed securities 62,491 692 1,073 62,110
States and political subdivisions 187,503 5,137 91 192,549
----------------- ---------------- ------------- ----------------
Total securities held to maturity 314,783 6,968 1,307 320,444
----------------- ---------------- ------------- ----------------
Securities available for sale:
U.S. Treasury, government and agency obligations 4,459,126 33,657 5,784 4,486,999
Mortgage-backed securities 2,922,352 47,646 3,861 2,966,137
Equity and other securities 464,805 13,388 18 478,175
States and political subdivisions 61,616 1,038 31 62,623
----------------- ---------------- ------------- ----------------
Total securities available for sale 7,907,899 95,729 9,694 7,993,934
----------------- ---------------- ------------- ----------------
Total securities $ 8,222,682 $ 102,697 $ 11,001 $ 8,314,378
================= ================ ============= ================
</TABLE>
Securities with a book value of approximately $4.9 billion and $4.3 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 $1.4 billion,
$1.8 billion and $737.3 million, respectively. Gross gains of $7.9 million, $7.7
million and $6.1 million and gross losses of $218,000, $3.6 million and $2.3
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 Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------- ---------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Debt Securities: (Dollars in thousands)
Due in one year or less $ 55,041 $ 55,365 $ 1,005,386 $ 1,011,590
Due after one year through five years 95,316 98,562 3,081,236 3,130,044
Due after five years through ten years 17,676 18,510 507,514 513,964
Due after ten years 6,702 7,007 3,139,413 3,177,087
- - - -
============= =========== ============= =============
Total debt securities $ 174,735 $ 179,444 $ 7,733,549 $ 7,832,685
================ =========== ============= =============
</TABLE>
<PAGE>
NOTE D. Loans and Leases
<TABLE>
<CAPTION>
Loans and leases were composed of the following:
December 31,
------------------------------------------
1998 1997
------------------ -------------------
(Dollars in thousands)
<S> <C> <C>
Loans:
Commercial, financial and agricultural $ 3,637,633 $ 3,387,582
Real estate - construction and land development 2,266,024 2,206,987
Real estate - mortgage 13,890,100 12,597,971
Consumer 2,986,225 2,954,154
------------------ -------------------
Loans held for investment 22,779,982 21,146,694
Leases: 1,620,326 788,462
------------------ -------------------
Total loans and leases 24,400,308 21,935,156
Less: unearned income (717,508) (243,415)
------------------ -------------------
Loans and leases, net of unearned income $ 23,682,800 $ 21,691,741
================== ===================
</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 $1.0 billion and $512.2 million,
respectively.
BB&T had $17.2 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 $ 27,154 $ 36,070
------------------ -------------------
Total recorded investment with related valuation
allowance 27,154 36,070
Valuation allowance assigned to impaired loans 4,862 4,093
------------------ -------------------
Net carrying value - impaired loans $ 22,292 $ 31,977
================== ===================
Average balance of impaired loans $ 32,296 $ 28,212
================== ===================
Cash basis interest income recognized on impaired loans $ -- $ 231
================== ===================
</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.
(Dollars in thousands)
Balance, December 31, 1997 $ 217,876
Additions 53,219
Reductions (105,230)
-------------------
Balance, December 31, 1998 $ 165,865
===================
<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>
Beginning Balance $ 292,667 $ 255,771 $ 237,808
Provision for losses charged to expense 90,470 102,680 65,795
Allowances of purchased companies 17,669 17,513 5,185
Loans and leases charged-off (91,621) (102,457) (74,322)
Recoveries of previous charge-offs 21,430 19,160 21,305
---------------- -------------- -------------
Net loans and leases charged-off (70,191) (83,297) (53,017)
---------------- -------------- -------------
Ending Balance $ 330,615 $ 292,667 $ 255,771
================ ============== =============
</TABLE>
At December 31, 1998, 1997 and 1996, loans not currently accruing interest
totaled $88.8 million, $104.1 million and $69.1 million, respectively. Loans 90
days or more past due and still accruing interest totaled $54.2 million, $48.3
million and $45.2 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 $7.0 million.
Foreclosed property was $29.0 million, $37.1 million and $31.3 million at
December 31, 1998, 1997 and 1996, respectively.
<PAGE>
NOTE F. Premises and Equipment
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
--------------- -----------------
(Dollars in thousands)
<S> <C> <C>
Land and land improvements $ 81,569 $ 77,132
Buildings and building improvements 335,761 330,110
Furniture and equipment 404,486 366,303
Capitalized leases on premises and equipment 4,089 3,840
--------------- -----------------
Subtotal 825,905 777,385
Less - accumulated depreciation and amortization 354,125 325,523
--------------- -----------------
Net premises and equipment $ 471,780 $ 451,862
=============== =================
</TABLE>
Depreciation expense, which is included in occupancy and equipment expense,
was $66.8 million, $61.7 million and $49.1 million in 1998, 1997 and 1996,
respectively.
BB&T has noncancellable leases covering certain premises and equipment.
Total rent expense applicable to operating leases was $30.5 million, $48.0
million and $31.3 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 $ 27,255 $ 513
2000 25,582 513
2001 23,972 498
2002 20,863 450
2003 17,906 427
2004 and years later 87,769 4,116
--------------- -----------------
Total minimum lease payments $ 203,347 6,517
===============
Less - amount representing interest 3,055
-----------------
Present value of net minimum payments on capitalized
leases (Note I) $ 3,462
=================
</TABLE>
<PAGE>
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:"
Capitalized Mortgage
Servicing Rights
--------------------------
1998 1997
--------- ---------
(Dollars in thousands)
Balance, January 1, $ 68,780 $ 41,891
Amount capitalized 74,086 39,093
Amortization expense (25,359) (9,561)
Change in valuation allowance (16,230) (2,643)
========= =========
Balance, December 31, $ 101,277 $ 68,780
========= =========
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:
Valuation Allowance for
Mortgage Servicing Rights
---------------------------
1998 1997
-------- --------
(Dollars in thousands)
Balance, January 1, $ 3,358 $ 715
Additions 16,503 3,257
Reductions (273) (614)
======== ========
Balance, December 31, $ 19,588 $ 3,358
======== ========
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 $10.1 billion and $8.2 billion at December 31, 1998 and
1997, respectively.
<PAGE>
NOTE H. Short-Term Borrowed Funds
Short-term borrowed funds are summarized as follows:
December 31,
----------------------------
1998 1997
------------- -------------
(Dollars in thousands)
Federal funds purchased $ 920,157 $ 936,160
Term Federal funds purchased 25,000 -
Securities sold under agreements to repurchase 1,642,613 1,653,982
Master notes 675,141 638,325
U.S. Treasury tax and loan deposit notes payable 181,641 126,423
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 41,634
------------- -------------
Total short-term borrowed funds $ 3,707,333 $ 3,862,727
============= =============
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.
<PAGE>
NOTE I. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt is summarized as follows:
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 2001
with variable rates from 5.279% to 5.714%. 1,369,890 1,024,833
Advances from Federal Home Loan Bank, varying maturities to 2018
with rates from 1.00% to 8.75%. 2,669,249 2,099,803
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 8,112
Corporation-obligated mandatorily redeemable capital securities, dated
November 19, 1997, maturing November 19, 2027, with interest at 8.9%.3 50,000 50,000
Repurchase Agreements, all maturing on 2002 with interest rates
ranging from 5.51% to 5.66%. - 63,466
Other mortgage indebtedness 3,335 5,192
--------------- ----------------
Total long-term debt $ 4,964,797 $ 3,750,484
=============== ================
</TABLE>
- --------------------------------------------------------
Excluding the capitalized leases set forth in Note F, future debt
maturities total $5.0 billion and are $833.3 million, $893.4 million, $494.0
million, $289.7 million and $431.6 million for the next five years. The
maturities for 2004 and later years are $2.0 billion.
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.
<PAGE>
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, 306,963,976 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 $ 513,021 $ 378,287 $ 360,838
Pro Forma 502,111 369,194 357,350
Basic EPS:
As reported 1.69 1.25 1.19
Pro Forma 1.65 1.22 1.18
Diluted EPS:
As reported 1.65 1.23 1.17
Pro Forma 1.62 1.20 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.
<PAGE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
In April, 1994 and February, 1995, the shareholders approved the Omnibus
Plans which cover the award of incentive stock options, non-qualified stock
options, shares of restricted stock, performance shares and stock appreciation
rights. In April 1996, the shareholders approved an amendment to the 1995
Omnibus Plan that increased the maximum number of shares issuable under the
terms of the plan to 12,000,000 shares. The combined shares issuable under both
Omnibus Plans, after giving effect to the August 3, 1998, 2-for-1 stock split,
is 20,000,000. The Omnibus Plans are intended to allow BB&T to recruit and
retain employees with ability and initiative and to associate the employees'
interests with those of BB&T and its shareholders. At December 31, 1998,
7,193,402 qualified stock options at prices ranging from $4.29 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 for the granting of
options, which have a four year vesting schedule and must be exercised within
ten years from the date granted. Incentive stock options granted must have an
exercise price equal to at least 100% of the fair market value of common stock
on the date granted, and the non-qualified stock options must have an exercise
price equal to at least 85% of the fair market value on the date granted. At
December 31, 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.
<PAGE>
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 12,663,141 $ 11.22 13,125,482 $ 9.28 14,292,113 $ 8.85
Granted 2,569,474 26.16 2,285,355 18.40 342,279 12.23
Exercised (3,136,333) 9.32 (2,610,737) 7.62 (1,371,256) 5.69
Forfeited or Expired (118,539) 20.58 (136,959) 13.73 (137,654) 8.16
--------------- ------------- ---------------- ---------------- ----------------- --------------
Outstanding at end of year 11,977,743 $ 14.83 12,663,141 $ 11.22 13,125,482 $ 9.28
=============== ============= ================ ================ ================ ==============
Options exercisable at
year-end 9,168,594 $ 11.23 10,369,213 $ 9.69 10,359,571 $ 8.46
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
The following table summarizes information about the options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/98 Life Price at 12/31/98 Price
- ---------------- ------------- ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
$0.01 998 4.0 yrs $ 0.01 998 $ 0.01
$1.33 to $1.84 13,678 5.1 1.33 13,678 1.33
$2.46 to $3.52 11,202 4.4 3.23 11,202 3.23
$3.72 to $5.54 217,366 3.0 4.68 217,366 4.68
$5.86 to $8.75 2,291,029 3.2 7.41 2,291,029 7.41
$8.90 to $12.68 3,745,366 5.6 10.69 3,719,628 10.70
$13.19 to $18.75 2,277,241 7.2 13.71 2,263,129 13.68
$19.35 to $24.78 1,664,929 8.3 20.47 557,172 20.48
$28.22 to $33.49 1,755,934 9.2 30.88 94,392 29.14
============= ============ ============ ============== ===========
11,977,743 6.3 yrs $ 14.83 9,168,594 $ 11.23
============= ============ ============ ============== ===========
</TABLE>
<PAGE>
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.
<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 $ 178,877 $ 203,445 $ 168,256
State 9,937 9,830 5,418
---------------- --------------- ----------------
188,814 213,275 173,674
Deferred expense (benefit) 48,533 (15,007) 3,279
---------------- --------------- ----------------
Provision for income taxes $ 237,347 $ 198,268 $ 176,953
================ =============== ================
</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% $ 262,628 $ 201,795 $ 118,440
Tax-exempt income from securities, loans and leases
less related non-deductible interest expense (11,982) (10,986) (9,132)
State income taxes, net of Federal tax benefit 8,257 5,506 3,963
Other, net (21,556) 1,953 (6,318)
---------------- --------------- ----------------
Provision for income taxes $ 237,347 $ 198,268 $ 106,953
================ =============== ================
Effective income tax rate 31.6 % 34.4 % 32.9 %
================ =============== ================
</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
---------------- ---------------
Deferred tax assets: (Dollars in thousands)
<S> <C> <C>
Allowance for loan and lease losses $ 124,175 $ 112,872
Deferred compensation 29,895 28,254
Postretirement benefits other than pensions 18,474 16,850
Expense accruals 9,528 17,352
Other 26,044 29,949
---------------- ---------------
Total tax deferred assets 208,116 205,277
---------------- ---------------
Deferred tax liabilities:
Depreciation (16,866) (27,507)
Net unrealized appreciation on securities available for sale (38,366) (33,964)
Lease financing (75,933) (19,193)
Other (28,194) (45,466)
---------------- ---------------
Total tax deferred liabilities (159,359) (126,130)
---------------- ---------------
Net deferred tax asset $ 48,757 $ 79,147
================ ===============
</TABLE>
The deferred tax assets have been determined to be realizable, and,
accordingly, a valuation allowance was not required. At December 31, 1998,
there were no income tax credits or alternative minimum tax credit
carryforwards.
Securities transactions resulted in income tax expense of $3.0 million,
$1.7 million and $1.5 million related to securities gains for the years ended
December 31, 1998, 1997 and 1996, respectively.
<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.
1998 1997 1996
---------- --------- ---------
(Dollars in thousands)
Defined benefit plans $ 9,121 $ 14,085 $ 13,289
Defined contribution and ESOP plans 19,220 $ 27,756 13,454
---------- --------- ---------
Total expense related to benefit plans $ 28,341 $ 41,841 26,743
========== ========= =========
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:
Net Periodic Pension Cost 1998 1997 1996
- ----------------------------------- ----------- ----------- ------------
(Dollars in thousands)
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
=========== =========== =============
<PAGE>
<TABLE>
<CAPTION>
Plans for which Plans for which
assets exceed accumulated benefits
accumulated benefits exceed assets
---------------------------------- -----------------------------------
1998 1997 1998 1997
---------------- ---------------- ---------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Change in Projected Benefit Obligation
- ------------------------------------------------------
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 1, $ 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)
============== ================ ================ ==============
<CAPTION>
Weighted Average Assumptions December 31,
- ------------------------------------------------------- ----------------------
1998 1997
-------- --------
<S> <C> <C>
Weighted average assumed discount rate 6.75% 7.25%
Weighted average expected longterm rate
of return on plan assets 8.00 8.00
Assumed rate of annual compensation increases 5.50 5.50
</TABLE>
<PAGE>
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.
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.
<PAGE>
Net Periodic Postretirement Benefit Cost: 1998 1997 1996
- ----------------------------------------- -------- ------- --------
(Dollars in thousands)
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
======== ======= ========
1998 1997
--------------- ------------
(Dollars in thousands)
Change in Projected Benefit Obligation
- --------------------------------------
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
=============== ============
Change in Plan Assets 1998 1997
- ------------------------------------------ -------------- --------------
(Dollars in thousands)
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, $ -- $ --
============ ============
Net Amount Recognized 1998 1997
------------ ------------
(Dollars in thousands)
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)
============ ============
<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
<PAGE>
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.
<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 $ 10,039,791 $ 8,100,491
Standby letters of credit and financial guarantees written 367,394 298,604
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.
<PAGE>
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.
<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 $216.7 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:
<PAGE>
<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 10.3 % $ 2,508,490 $ 969,886 10.7 % $ 2,342,982 $ 876,847
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
---------------------------------------------------------------------------------------------------------------------------
Total Capital
BB&T 15.0 % $ 3,629,292 $1,939,772 14.2 % $ 3,112,291 $ 1,753,694
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
---------------------------------------------------------------------------------------------------------------------------
Leverage Capital
BB&T 7.0 % $ 2,508,490 $1,070,072 7.5 % $ 2,342,982 $ 937,741
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
</TABLE>
<PAGE>
NOTE O. Parent Company Financial Statements
Condensed Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Assets (Dollars in thousands)
<S> <C> <C>
Cash and due from banks $ 16,304 $ 13,326
Interest-bearing bank balances 602,094 605,319
Securities 199,301 210,008
Investment in banking subsidiaries 3,222,141 2,774,649
Investment in other subsidiaries 170,855 109,850
-------------------- --------------------
Total investments in subsidiaries 3,392,996 2,884,499
-------------------- --------------------
Advances to subsidiaries 331,000 185,504
Premises and equipment 7,436 7,402
Receivables from subsidiaries and other assets 189,358 87,234
-------------------- --------------------
Total assets $ 4,738,489 $ 3,993,292
==================== ====================
Liabilities and Shareholders' Equity
Short-term borrowed funds $ 821,322 $ 793,572
Dividends payable 50,804 42,173
Accounts payable and accrued liabilities 83,770 78,589
Long-term debt 858,705 496,453
-------------------- --------------------
Total liabilities 1,814,601 1,410,787
-------------------- --------------------
Total shareholders' equity 2,923,888 2,582,505
-------------------- --------------------
Total liabilities and shareholders' equity $ 4,738,489 $ 3,993,292
==================== ====================
</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 $ 397,683 $ 257,964 $ 151,346
Interest and other income from subsidiaries 92,195 74,218 46,309
Interest on investment securities 971 1,692 3,415
Other income 16,642 2,103 8,368
----------------- ----------------- ---------------
Total income 507,491 335,977 209,438
----------------- ----------------- ---------------
Expenses
Interest expense 84,907 54,392 33,886
Occupancy expense 171 249 171
Other expenses 34,512 28,178 23,785
----------------- ----------------- ---------------
Total expenses 119,590 82,819 57,842
----------------- ----------------- ---------------
Income before income taxes and equity in
undistributed earnings of subsidiaries 387,901 253,158 151,596
Income tax (benefit) expense (2,775) (207) 138
----------------- ----------------- ---------------
Income before equity in undistributed earnings of subsidiaries 390,676 253,365 151,458
Equity in undistributed earnings of subsidiaries 122,345 124,922 209,990
----------------- ----------------- ---------------
Net income $ 513,021 $ 378,287 $ 361,448
================= ================= ===============
</TABLE>
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 $ 513,021 $ 378,287 $ 361,448
Adjustments to reconcile net income
to net cash provided by operating activities:
Net income of subsidiaries less than (in excess of) dividends from
subsidiaries (122,345) (124,922) (209,990)
Depreciation of premises and equipment 171 272 214
Amortization of unearned compensation 1,124 8,111 2,450
Discount accretion and premium amortization - 396 192
Loss (gain) on sales of securities (37) - (9)
Loss on disposals of other real estate owned 191 47 -
(Increase) decrease in other assets (103,148) (26,769) 119,678
Increase (decrease) in accounts payable and
accrued liabilities 5,181 163 5,091
------------ ------------ ------------
Net cash provided by operating activities 294,158 235,585 279,074
------------ ------------ ------------
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale 55,706 - 866
Proceeds from maturities, calls and paydowns of securities available for sale - 35,482 49,347
Purchases of securities available for sale (45,836) (204,043) (52,324)
Investment in subsidiaries (36,545) (733) (68,625)
Advances to subsidiaries (676,032) (436,844) (308,640)
Repayment of advances to subsidiaries 530,536 369,375 182,875
Net cash received in purchase accounting transactions (6,051) (45,852) -
------------ ------------ ------------
Net cash used in investing activities (178,222) (282,615) (196,501)
------------ ------------ ------------
Cash Flows From Financing Activities:
Net increase (decrease) in long-term debt 362,354 361,841 247,629
Net increase in short-term borrowed funds 27,750 161,581 169,952
Net proceeds from common stock issued 33,227 25,225 52,358
Redemption of common stock (344,010) (321,224) (222,569)
Cash dividends paid on common and preferred stock (195,504) (162,724) (133,751)
------------ ------------ ------------
Net cash (used in) provided by financing activities (116,183) 64,699 113,619
------------ ------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (247) 17,669 196,192
Cash and Cash Equivalents at Beginning of Year 618,645 600,976 404,784
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 618,398 $ 618,645 $ 600,976
============ ============ ============
</TABLE>
<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.
<PAGE>
Long-term debt: The fair values of long-term debt are estimated based on
quoted market prices for similar instruments or by using discounted cash flow
analyses, based on BB&T's current incremental borrowing rates for similar types
of instruments.
Interest rate swap agreements: The fair values of interest rate swaps
(used for hedging purposes) are the estimated amounts that BB&T would receive or
pay to terminate the swap agreements at the reporting date, taking into account
current interest rates and the current creditworthiness of the swap
counterparties.
Commitments to extend credit, standby letters of credit and financial
guarantees written: The fair values of commitments are estimated using the fees
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair values also consider the difference
between current levels of interest rates and the committed rates. The fair
values of guarantees and letters of credit are estimated based on fees currently
charged for similar agreements.
Other off-balance sheet instruments: The fair values for off-balance
sheet instruments (futures, forwards, options, and commitments to sell or
purchase financial instruments) are estimated based on quoted prices, if
available. For instruments for which there are no quoted prices, fair values are
estimated using current settlement values or pricing models.
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:
<PAGE>
<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 $ 1,109,386 $ 1,109,386 $ 1,267,253 $ 1,267,253
Trading securities 60,422 60,422 67,878 67,878
Securities available for sale 8,737,936 8,737,936 7,993,934 7,993,934
Securities held to maturity 174,735 179,444 314,783 320,444
Loans and leases:
Loans 23,736,602 24,332,066 21,587,628 21,828,123
Leases 981,866 N/A 616,302 N/A
Allowance for losses (330,615) N/A (292,667) N/A
------------- -------------
Net loans and leases $ 24,387,853 $ 21,911,263
============= =============
Financial liabilities:
Deposits $ 24,258,168 24,340,106 $ 22,504,750 22,540,172
Short-term borrowed funds 3,707,333 3,707,333 3,862,727 3,862,727
Long-term debt 4,961,487 5,022,603 3,747,193 4,067,825
Capitalized leases 3,310 N/A 3,291 N/A
</TABLE>
- --------------------------------------------------------------------------------
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:
<TABLE>
<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 intruments:
Interest rate swaps, caps and floors $ 2,496,346 $ 37,835 $ 2,428,930 $ 25,570
Commitments to extend, originate or purchase 10,039,791 (19,379) 8,100,491 (14,835)
credit
Standby and commercial letters of credit and
financial guarantees written 403,671 (5,886) 334,595 (4,495)
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
<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 $3.7 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 Pay Fair
Amount Rate Rate Value
----------------------- ------------------- ------------------------- -----------------------
Type (Dollars in thousands)
- ----
<S> <C> <C> <C> <C>
Receive fixed swaps $ 1,266,200 $ 6.24 % $ 5.30 % $ 43,369
Pay fixed swaps 1,180,146 5.34 5.67 (5,503)
Basis swaps 50,000 4.95 5.34 (31)
Caps, Floors & Collars 1,247,250 - - 623
----------------------- ------------------- ------------------------- -----------------------
Total $ 3,743,596 $ 5.79 % $ 5.48 % $ 38,458
======================= =================== ========================= =======================
<CAPTION>
Receive Pay Fixed Basis Swaps, Caps,
Year-to-date Activity Fixed Swaps Swaps Floors & Collars Total
- --------------------- ----------------------- ------------------- ------------------------- -----------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $ 1,301,000 $ 351,930 $ 776,000 $ 2,428,930
Additions 205,000 936,673 797,250 1,938,923
Maturities/amortizations (239,800) (108,457) (111,000) (459,257)
Terminations - - (165,000) (165,000)
----------------------- ------------------- ------------------------- -----------------------
Balance, December 31, 1998 $ 1,266,200 $ 1,180,146 $ 1,297,250 $ 3,743,596
======================= =================== ========================= =======================
<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 $ 445,000 $ 260,000 $ 1,266,200
Pay fixed swaps 1,010,200 105,869 64,077 1,180,146
Basis swaps 50,000 - - 50,000
Caps, Floors & Collars 500,000 747,250 - 1,247,250
----------------------- ------------------- ------------------------- -----------------------
Total $ 2,121,400 $ 1,298,119 $ 324,077 $ 3,743,596
======================= =================== ========================= =======================
</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.
<PAGE>
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 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 $3.7 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 $38.5 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.
<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,
--------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
---------------- --------------- ---------------
(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Weighted average number of common shares outstanding during the period 303,923,429 303,174,462 303,209,770
---------------- --------------- ---------------
Net income $ 513,021 $ 378,287 $ 361,448
Less:
Preferred dividend requirement -- -- 610
---------------- --------------- ---------------
Income available for common shares $ 513,021 $ 378,287 $ 360,838
================ =============== ===============
Basic earnings per share $ 1.69 $ 1.25 $ 1.19
================ =============== ===============
Diluted Earnings Per Share:
Weighted average number of common shares 303,923,429 303,174,462 303,209,770
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) 6,185,736 4,891,438 4,215,169
Issuance of additional shares under share repurchase agreement,
contingent upon market price -- 144,588 204,036
---------------- --------------- ---------------
Weighted average number of common shares, as adjusted 310,109,165 308,210,488 309,506,279
================ =============== ===============
Net income $ 513,021 $ 378,287 $ 361,448
================ =============== ===============
Diluted earnings per share $ 1.65 $ 1.23 $ 1.17
================ =============== ===============
</TABLE>
<PAGE>
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 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.
<PAGE>
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 consists of 583 full-service banking
offices in North Carolina, South Carolina, Virginia, Maryland 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 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.
<PAGE>
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.
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 includes the accounts of MainStreet Trust Company N.A.
Insurance Services
- ------------------
BB&T has the largest independent insurance agency network in the
Carolinas and represents many of the nation's top-rated insurance carriers. 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.
Investment Banking and Brokerage
- --------------------------------
BB&T's Investment Banking and Brokerage 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 Craigie, Incorporated, 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.
<PAGE>
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 Banking Network is credited for investment
service revenues on referred accounts, with the corresponding charge retained in
the Corporate Office.
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.
The following table discloses selected financial information for BB&T's
reportable business segments:
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
---------------------------------------------------------------------------
Investment
Banking Mortgage Trust Agency Banking
Network Banking Services Insurance and Brokerage
------------ ------------ ------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net interest income (expense)
from external customers $ 742,025 $ 409,944 $ (33,824) $ 11,419 $ 1,127
Net intersegment interest income (expense) 228,085 (274,934) 37,427 -- --
------------ ------------ ------------ ------------ ------------
Net interest income 970,110 135,010 3,603 11,419 1,127
------------ ------------ ------------ ------------ ------------
Provision for loan and lease losses 95,359 3,851 -- 4,173 --
Noninterest income from external customers 413,367 76,491 40,656 51,291 48,604
Intersegment noninterest income 58,735 4,761 563 -- --
Noninterest expense 476,052 56,211 26,660 44,991 37,472
Intersegment noninterest expense 209,820 16,207 1,986 11,263 8,948
Income before income taxes and the charge
------------ ------------ ------------ ------------ ------------
for capital 660,981 139,993 16,176 2,283 3,311
Provision for income taxes 249,287 52,847 6,107 862 1,294
------------ ------------ ------------ ------------ ------------
Net income before the charge for capital 411,694 87,146 10,069 1,421 2,017
Charge for capital 112,952 9,154 1,082 -- --
------------ ------------ ------------ ------------ ------------
Net income after charge for capital $ 298,742 $ 77,992 $ 8,987 $ 1,421 $ 2,017
============ ============ ============ ============ ============
Identifiable segment assets $ 18,897,321 $ 6,274,100 $ 14,108 $ 92,554 $ 238,622
============ ============ ============ ============ ============
<CAPTION>
For the Year Ended December 31, 1998
---------------------------------------------------------------
All Total Other
Other Segment Revenues
Treasury Segments /1/ Results and Expenses /2/
------------ ------------- ------------ ----------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net interest income (expense)
from external customers $ 126,762 $ 195,860 $ 1,453,313 $ 59,802
Net intersegment interest income (expense) (1,013) -- (10,435) (12,724)
------------ ------------ ------------ ------------
Net interest income 125,749 195,860 1,442,878 47,078
------------ ------------ ------------ ------------
Provision for loan and lease losses 103 17,994 121,480 1,829
Noninterest income from external customers 11,631 23,082 665,122 (30,172)
Intersegment noninterest income 878 -- 64,937 486
Noninterest expense 4,325 43,363 689,074 265,921
Intersegment noninterest expense 5,383 7,279 260,886 (55,464)
Income before income taxes and the charge
------------ ------------ ------------ ------------
for capital 128,447 150,306 1,101,497 (194,894)
Provision for income taxes 46,415 9,990 366,802 (71,359)
------------ ------------ ------------ ------------
Net income before the charge for capital 82,032 140,316 734,695 (123,535)
Charge for capital 1,689 -- 124,877 389
------------ ------------ ------------ ------------
Net income after charge for capital $ 80,343 $ 140,316 $ 609,818 $ (123,924)
============ ============ ============ ============
Identifiable segment assets $ 9,417,056 $ 2,327,184 $ 37,260,945 $ 1,651,609
============ ============ ============ ============
<CAPTION>
For the Year Ended December 31, 1998
------------------------------------
Reconciling
Items & Consolidated
Eliminations Totals
-------------- -------------
(dollars in thousands)
<S> <C> <C>
Net interest income (expense)
from external customers $ (195,986) $ 1,317,129
Net intersegment interest income (expense) 23,159(3) --
------------ ------------
Net interest income (172,827) 1,317,129
------------ ------------
Provision for loan and lease losses (32,839) 90,470
Noninterest income from external customers (91,321) 543,629
Intersegment noninterest income (65,423) --
Noninterest expense 64,925(4) 1,019,920
Intersegment noninterest expense (205,422) --
Income before income taxes and the charge
------------ ------------
for capital (156,235) 750,368
Provision for income taxes (58,096) 237,347
------------ ------------
Net income before the charge for capital (98,139) 513,021
Charge for capital (125,266) --
------------ ------------
Net income after charge for capital $ 27,127 $ 513,021
============ ============
Identifiable segment assets $ (2,524,224)(4) $ 36,388,330
============ ============
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
(1) Financial data from segments below the quantitative thresholds
requiring disclosure are attributable to a number of smaller operating
segments. Those segments include a 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.
<PAGE>
Exhibit 99.3
SIX-YEAR FINANCIAL SUMMARY AND SELECTED RATIOS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of / For the Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Summary of Operations
Interest income $ 2,633,407 $ 2,392,454 $ 2,168,146 $ 2,075,176
Interest expense 1,316,278 1,170,796 1,048,236 1,047,786
----------- ----------- ----------- -----------
Net interest income 1,317,129 1,221,658 1,119,910 1,027,390
Provision for loan and lease losses 90,470 102,680 65,795 44,492
----------- ----------- ----------- -----------
Net interest income after provision
for loan and lease losses 1,226,659 1,118,978 1,054,115 982,898
Noninterest income 543,629 472,454 353,407 266,277
Noninterest expense 1,019,920 1,014,877 869,121 866,736
----------- ----------- ----------- -----------
Income before income taxes 750,368 576,555 538,401 382,439
Provision for income taxes 237,347 198,268 176,953 127,184
----------- ----------- ----------- -----------
Income before cumulative effect of changes
in accounting principles 513,021 378,287 361,448 255,255
Less: cumulative effect of changes
in accounting principles, net of
income taxes - - - -
----------- ----------- ----------- -----------
Net income $ 513,021 $ 378,287 $ 361,448 $ 255,255
=========== =========== =========== ===========
Per Common Share
Average shares outstanding (000's):
Basic 303,923 303,174 303,210 302,673
Diluted 310,109 308,210 309,506 316,215
Basic earnings:
Income before cumulative effect $ 1.69 $ 1.25 $ 1.19 $ 0.83
Less: cumulative effect - - - -
----------- ----------- ----------- -----------
Net income $ 1.69 $ 1.25 $ 1.19 $ 0.83
=========== =========== =========== ===========
Diluted earnings:
Income before cumulative effect $ 1.65 $ 1.23 $ 1.17 $ 0.81
Less: cumulative effect - - - -
----------- ----------- ----------- -----------
Net income $ 1.65 $ 1.23 $ 1.17 $ 0.81
=========== =========== =========== ===========
Cash dividends paid $ .66 $ .58 $ .50 $ .43
Shareholders' equity 9.53 8.50 7.80 7.39
Average Balances
Securities, at amortized cost $ 8,668,520 $ 7,853,664 $ 7,250,145 $ 7,149,293
Loans and leases * 23,291,306 20,764,382 18,820,307 17,850,309
Other assets 2,461,715 1,884,488 1,750,535 1,743,872
----------- ----------- ----------- -----------
Total assets $34,421,541 $30,502,534 $27,820,987 $26,743,474
=========== =========== =========== ===========
Deposits $22,743,052 $21,492,886 $20,616,743 $19,502,585
Other liabilities 4,730,562 3,600,627 2,827,742 3,755,825
Long-term debt 4,236,980 2,965,271 2,087,998 1,310,658
Common shareholders' equity 2,710,947 2,443,750 2,273,345 2,102,061
Preferred shareholders' equity - - 15,159 72,345
----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity $34,421,541 $30,502,534 $27,820,987 $26,743,474
=========== =========== =========== ===========
Period End Balances
Total assets $36,388,330 $33,165,141 $29,134,267 $27,396,168
Deposits 24,258,168 22,504,750 21,162,597 20,238,043
Long-term debt 4,964,797 3,750,484 2,392,688 1,544,236
Shareholders' equity 2,923,888 2,582,505 2,382,511 2,328,706
Selected Performance Ratios
Rate of return on:
Average total assets** 1.49% 1.24% 1.30% 0.95%
Average common shareholders' equity** 18.92 15.48 15.87 11.90
Dividend payout** 39.05 46.40 42.02 51.81
Average equity to average assets 7.88 8.01 8.23 8.13
<CAPTION>
As of / For the Years Ended December 31,
--------------------------------------- Compound
1994 1993 Growth Rate
----------- ----------- -------------------
<S> <C> <C> <C>
Summary of Operations
Interest income $ 1,740,647 $ 1,569,404 10.9%
Interest expense 752,444 659,234 14.8
----------- -----------
Net interest income 988,203 910,170 7.7
Provision for loan and lease losses 29,359 64,019 7.2
----------- -----------
Net interest income after provision
for loan and lease losses 958,844 846,151 7.7
Noninterest income 273,679 276,234 14.5
Noninterest expense 787,890 846,363 3.8
----------- -----------
Income before income taxes 444,633 276,022 22.1
Provision for income taxes 152,603 100,564 18.7
----------- -----------
Income before cumulative effect of changes
in accounting principles 292,030 175,458 23.9
Less: cumulative effect of changes
in accounting principles, net of
income taxes - (31,972) NM
----------- -----------
Net income $ 292,030 $ 143,486 29.0
=========== ===========
Per Common Share
Average shares outstanding (000's):
Basic 298,190 287,150 1.1
Diluted 312,016 302,154 0.5
Basic earnings:
Income before cumulative effect $ 0.96 $ 0.59 23.4
Less: cumulative effect - (0.11) NM
----------- -----------
Net income $ 0.96 $ 0.48 28.7
=========== ===========
Diluted earnings:
Income before cumulative effect $ 0.94 $ 0.58 23.3
Less: cumulative effect - (0.11) NM
----------- -----------
Net income $ 0.94 $ 0.47 28.6
=========== ===========
Cash dividends paid $ .37 $ .32 15.6
Shareholders' equity 6.59 5.94 9.9
Average Balances
Securities, at amortized cost $ 6,796,950 $ 5,939,578 7.9
Loans and leases * 16,073,888 14,462,267 10.0
Other assets 1,787,281 1,756,293 7.0
----------- -----------
Total assets $24,658,119 $22,158,138 9.2
=========== ===========
Deposits $19,032,049 $17,835,005 5.0
Other liabilities 2,822,320 1,797,381 21.4
Long-term debt 879,864 742,441 41.7
Common shareholders' equity 1,849,743 1,709,168 9.7
Preferred shareholders' equity 74,143 74,143 NM
----------- -----------
Total liabilities and shareholders'
equity $24,658,119 $22,158,138 9.2
=========== ===========
Period End Balances
Total assets $25,868,138 $24,341,966 8.4
Deposits 19,222,773 19,213,065 4.8
Long-term debt 1,104,699 1,019,362 37.3
Shareholders' equity 2,059,666 1,843,764 9.7
Selected Performance Ratios
Rate of return on:
Average total assets** 1.18 % 0.79 %
Average common shareholders' equity** 15.51 9.96
Dividend payout** 38.54 54.24
Average equity to average assets 7.80 8.05
</TABLE>
- ------------------------------------------------------
* Loans and leases are net of unearned income and include loans held for
sale.
** Based on income before cumulative effect of changes in accounting
principles, net of income taxes
NM Not meaningful.
<PAGE>
Table 1
Selected Financial Data of Significant Banking Subsidiaries
As of / For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Piedmont
BB&T-NC BB&T-SC BB&T-VA Franklin Trust
----------------- ----------------- ------------------ ---------------- ----------------
1998 (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $ 25,985,004 $ 4,641,393 $ 3,473,368 $ 800,786 $ 564,748
Securities 6,531,178 783,727 578,224 175,386 161,107
Loans and leases, net of
unearned income* 17,414,700 3,266,871 2,341,767 390,086 340,993
Deposits 17,275,566 3,702,383 2,320,244 536,586 336,323
Shareholder's equity 2,124,446 429,572 457,600 40,848 45,713
Net interest income 871,515 201,132 121,030 27,257 21,588
Provision for loan and
lease losses 44,227 13,455 3,122 1,885 3,875
Noninterest income 455,760 71,945 41,671 2,771 4,955
Noninterest expense 776,574 119,224 98,452 21,512 12,835
Net income 361,058 89,653 36,738 4,299 6,748
- --------------------------------------------------------------------------------------------------------------------------------
1997
Total assets $ 22,530,009 $ 4,364,982 $ 3,529,844 $ 647,448 $ 552,601
Securities 5,392,894 1,020,554 887,381 179,388 153,407
Loans and leases, net of
unearned income* 15,402,775 3,052,755 2,287,651 300,441 347,555
Deposits 15,931,795 3,401,236 2,333,873 427,798 332,524
Shareholder's equity 1,771,589 374,871 435,248 39,283 42,907
Net interest income 842,745 184,341 59,122 21,532 21,516
Provision for loan and
lease losses 53,533 14,109 3,400 484 1,925
Noninterest income 436,607 70,916 16,149 2,447 4,535
Noninterest expense 809,599 135,018 47,349 13,915 13,047
Net income 278,536 68,024 15,388 5,968 7,529
- --------------------------------------------------------------------------------------------------------------------------------
1996
Total assets $ 20,652,519 $ 4,213,458 $ 2,209,614 $ 497,817 $ 495,542
Securities 4,962,941 1,034,385 883,771 164,116 113,883
Loans and leases, net of
unearned income* 14,149,983 2,901,930 1,180,681 232,581 337,849
Deposits 15,683,080 3,336,711 1,422,785 363,427 317,564
Shareholder's equity 1,601,950 399,965 194,884 31,893 38,249
Net interest income 773,019 173,235 43,822 18,290 20,280
Provision for loan and
lease losses 44,675 8,405 2,584 27 1,808
Noninterest income 333,119 57,729 11,811 1,770 6,448
Noninterest expense 689,969 134,200 30,129 12,652 13,477
Net income 250,956 56,489 14,542 4,523 7,708
</TABLE>
* Includes loans held for sale.
<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 $ 3,637,633 $ 3,387,582 $ 3,034,507 $ 2,648,561 $ 3,300,474
Real estate - construction and land
development 2,266,024 2,206,987 1,610,324 1,222,619 905,772
Real estate - mortgage 13,890,100 12,597,971 11,169,569 10,996,330 9,768,443
Consumer 2,986,225 2,954,154 3,042,729 2,705,878 2,606,187
----------- ----------- ----------- ----------- -----------
Loans held for investment 22,779,982 21,146,694 18,857,129 17,573,388 16,580,876
Loans held for sale 1,035,668 512,189 229,075 263,144 141,676
----------- ----------- ----------- ----------- -----------
Total loans 23,815,650 21,658,883 19,086,204 17,836,532 16,722,552
Leases 1,620,326 788,462 576,991 376,152 304,544
----------- ----------- ----------- ----------- -----------
Total loans and leases $25,435,976 $22,447,345 $19,663,195 $18,212,684 $17,027,096
=========== =========== =========== =========== ===========
</TABLE>
- --------------
* Balances include unearned income.
<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) $ 288,101 $ 349,194 $ 637,295
1-5 years 720,251 171,991 892,242
After 5 years 192,067 - 192,067
--------------------- -------------------- --------------------
Total 1,200,419 521,185 1,721,604
--------------------- -------------------- --------------------
Variable rate:
1 year or less (2) 1,242,979 1,169,042 2,412,021
1-5 years 1,096,746 575,797 1,672,543
After 5 years 97,489 - 97,489
--------------------- -------------------- --------------------
Total 2,437,214 1,744,839 4,182,053
--------------------- -------------------- --------------------
Total loans and leases (1) $ 3,637,633 $ 2,266,024 $ 5,903,657
===================== ==================== ====================
</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.
<TABLE>
<CAPTION>
(Dollars in
(1) The table excludes: thousands)
------------------
<S> <C>
(i) consumer loans to individuals for household, family and
other personal expenditures $ 2,986,225
(ii) real estate mortgage loans 13,890,100
(iii) loans held for sale 1,035,668
(iv) leases 1,620,326
------------------
$ 19,532,319
==================
</TABLE>
(2) Includes loans due on demand.
<PAGE>
Table 4
Allocation of Allowance for Loan and Lease Losses by Category
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ --------------------------- -----------------------------
% Loans % Loans % Loans
in each in each in each
Amount category Amount category Amount category
---------------- ------------ ------------- ------------ -------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Commercial, financial
and agricultural $ 42,661 14% $ 45,517 15% $ 44,743 15%
Real estate:
Construction and
land development 32,266 9 24,403 10 17,651 8
Mortgage 107,026 59 107,026 58 93,164 58
---------------- ------------ ------------- ------------ -------------- ------------
Real estate - total 139,292 68 131,429 68 110,815 66
---------------- ------------ ------------- ------------ -------------- ------------
Consumer 22,759 12 21,596 13 19,123 16
Leases 12,736 6 8,021 4 5,207 3
Unallocated 113,167 -- 86,104 -- 75,883 --
---------------- ------------ ------------- ------------ -------------- ------------
Total $ 330,615 100% $ 292,667 100% $ 255,771 100%
================ ============ ============= ============ ============== ============
<CAPTION>
December 31,
-------------------------------------------------------------
1995 1994
---------------------------- ----------------------------
% Loans % Loans
in each in each
Amount category Amount category
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Balance at end of period
applicable to:
Commercial, financial
and agricultural $ 50,351 15% $ 47,959 19%
Real estate:
Construction and
land development 21,122 7 19,625 5
Mortgage 89,302 61 80,185 59
-------------- ------------ -------------- ------------
Real estate - total 110,424 68 99,810 64
-------------- ------------ -------------- ------------
Consumer 13,035 15 9,167 15
Leases 3,325 2 2,986 2
Unallocated 60,673 -- 73,022 --
-------------- ------------ -------------- ------------
Total $ 237,808 100% $ 232,944 100%
============== ============ ============== ============
</TABLE>
<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 $ 292,667 $ 255,771 $ 237,808 $ 232,944 $ 228,412
-------------- -------------- -------------- -------------- ---------------
Charge-offs:
Commercial, financial
and agricultural (14,188) (18,260) (11,673) (12,401) (15,141)
Real estate (11,655) (14,192) (11,882) (12,660) (10,092)
Consumer (64,611) (69,334) (49,999) (30,680) (17,454)
Lease receivables (1,167) (671) (768) (614) (647)
-------------- -------------- -------------- -------------- ---------------
Total charge-offs (91,621) (102,457) (74,322) (56,355) (43,334)
-------------- -------------- -------------- -------------- ---------------
Recoveries:
Commercial, financial
and agricultural 7,698 6,271 8,247 6,271 8,054
Real estate 3,551 5,038 6,339 3,743 3,669
Consumer 9,756 7,619 6,583 5,739 5,430
Lease receivables 425 232 136 395 295
-------------- -------------- -------------- -------------- ---------------
Total recoveries 21,430 19,160 21,305 16,148 17,448
-------------- -------------- -------------- -------------- ---------------
Net charge-offs (70,191) (83,297) (53,017) (40,207) (25,886)
-------------- -------------- -------------- -------------- ---------------
Provision charged to expense 90,470 102,680 65,795 44,492 29,299
-------------- -------------- -------------- -------------- ---------------
Allowance of loans acquired in
purchase transactions 17,669 17,513 5,185 579 1,119
-------------- -------------- -------------- -------------- ---------------
Balance, end of period $ 330,615 $ 292,667 $ 255,771 $ 237,808 $ 232,944
============== ============== ============== ============== ===============
Average loans and leases * $ 23,291,306 $ 20,764,382 $ 18,820,307 $ 17,850,309 $ 16,073,888
Net charge-offs as a percentage
of average loans and leases .30 % .40 % .28 % .23 % .16 %
================ ============== ================ ================ ===============
</TABLE>
- ----------
* Loans and leases are net of unearned income and include loans held for sale.
<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 24,810 64,789 61,622
States and political subdivisions 132,521 187,503 217,426
Mortgage-backed securities 17,404 62,491 213,188
----------------- ---------------- ---------------
Total securities held to maturity 174,735 314,783 492,236
----------------- ---------------- ---------------
Securities available for sale (at estimated fair value):
U.S. Treasury, government and agency obligations 3,636,930 4,486,999 4,136,538
States and political subdivisions 172,758 62,623 33,689
Mortgage-backed securities 3,690,383 2,966,137 2,588,605
Other securities 1,237,865 478,175 323,107
----------------- ---------------- ---------------
Total securities available for sale 8,737,936 7,993,934 7,081,939
----------------- ---------------- ---------------
Total securities $ 8,973,093 $ 8,376,595 $ 7,574,175
================= ================ ================
</TABLE>
<PAGE>
Table 7
Scheduled Maturities of Time Deposits
December 31, 1998
(dollars in thousands)
- --------------------------------------------------------------------------------
Time Deposits $100,000 and Over
- --------------------------------------------------------------------------------
Maturity Schedule
Less than three months $ 1,347,706
Three through six months 718,354
Seven through twelve months 524,142
Over twelve months 783,067
---------------
Total $ 3,373,269
===============
Total Time Deposits
- --------------------------------------------------------------------------------
Time Deposits Due to Mature by December 31,
1999 $ 8,913,624
2000 2,372,065
2001 319,564
2002 226,087
2003 135,760
2004 and later 20,659
---------------
Total $ 11,987,759
===============
<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 $ 5,356,787 $ 3,863,630 $ 2,984,580
Average outstanding during the year 4,183,312 3,214,577 2,481,662
Average interest rate during the year 5.23 % 5.25 % 5.26 %
Average interest rate at end of year 4.83 5.46 4.92
</TABLE>
<PAGE>
Table 9
Capital Adequacy for BB&T Corporation and Principal Banking Subsidiaries
<TABLE>
<CAPTION>
Regulatory BB&T- BB&T- BB&T- Piedmont
Minimums BB&T NC SC VA Franklin Trust
------------ -------- ---------- --------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital (1) 4.0 % 10.3 % 10.9 % 12.7 % 15.3 % 8.5 % 12.2 %
Total risk-based capital (2) 8.0 15.0 12.2 13.9 16.5 9.7 13.4
Tier 1 leverage ratio (3) 3.0 7.0 7.2 9.3 10.0 5.3 8.3
</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.
<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 $ 1,009,740 6.35 %
One to five years 3,050,177 6.15
Five to ten years 468,389 6.45
After ten years 2,841,221 6.64
------------------------- --------------------------
Total 7,369,527 6.38
------------------------- --------------------------
States and political subdivisions:
Within one year 28,075 8.72
One to five years 136,941 8.47
Five to ten years 57,600 7.72
After ten years 82,663 7.49
------------------------ --------------------------
Total 305,279 8.09
------------------------- --------------------------
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 259,905 6.71
------------------------- --------------------------
Total 332,614 6.67
------------------------- --------------------------
Securities with no stated maturity 965,673 6.39
------------------------- --------------------------
Total securities (2) $ 8,973,093 6.45 %
========================= ==========================
</TABLE>
- --------------------
(1) Included in U.S. Treasury, government and agency obligations are
mortgage-backed securities totaling $3.7 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 $174.7 million carried at amortized
cost and securities available for sale and trading securities carried at
estimated fair values of $8.7 billion and $60.4 million, respectively.
(3) Taxable equivalent basis as applied to amortized cost.
<PAGE>
Table 11
Asset Quality
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996
----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans and leases* $ 88,847 $ 104,083 $ 69,062
Restructured loans 522 1,377 2,464
Foreclosed property 28,976 37,146 31,345
----------- ------------ -----------
Nonperforming assets $ 118,345 $ 142,606 $ 102,871
=========== ============ ===========
Loans 90 days or more past due and still accruing $ 54,226 $ 48,324 $ 45,203
=========== ============ ===========
Asset Quality Ratios:
Nonaccrual loans and leases as a percentage of loans and leases .36 % .47 % .35 %
Nonperforming assets as a percentage of:
Total assets .33 .43 .35
Loans and leases plus foreclosed property .48 .64 .53
Net charge-offs as a percentage of average loans and leases .30 .40 .28
Allowance for losses as a percentage of loans and leases 1.34 1.32 1.31
Ratio of allowance for losses to:
Net charge-offs 4.71 x 3.51 x 4.82 x
Nonaccrual and restructured loans and leases 3.70 2.77 3.57
</TABLE>
- ------------------------
NOTE: Items referring to loans and leases are net of unearned income and include
loans held for sale.
* Includes $27.2 million, $36.1 million and $31.7 million of impaired loans
at December 31, 1998, 1997 and 1996, respectfully. See Note D in the "Notes
to Consolidated Financial Statements."
<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
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Securities (1):
U.S. Treasury, government and other (5) $ 8,428,290 $ 7,624,939 $ 7,001,091 6.70 % 6.74 % 6.55%
States and political subdivisions 240,230 228,725 249,054 8.26 8.31 8.51
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities (5) 8,668,520 7,853,664 7,250,145 6.75 6.79 6.62
Other earning assets (2) 195,477 109,351 161,059 5.67 5.88 5.53
Loans and leases, net
of unearned income (1)(3)(4)(5) 23,291,306 20,764,382 18,820,307 9.03 9.19 9.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 32,155,303 28,727,397 26,231,511 8.40 8.52 8.41
- ------------------------------------------------------------------------------------------------------------------------------------
Non-earning assets 2,266,238 1,775,137 1,589,476
- -----------------------------------------------------------------------------------------------------
Total assets $34,421,541 $30,502,534 $27,820,987
=====================================================================================================
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Savings and interest-checking $ 1,934,723 $ 2,289,089 $ 2,474,422 1.91 1.88 1.98
Money rate savings 5,888,292 4,903,414 4,115,579 3.00 3.09 2.87
Other time deposits 11,806,049 11,491,842 11,342,502 5.43 5.50 5.54
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 19,629,064 18,684,345 17,932,503 4.35 4.43 4.44
Short-term borrowed funds 4,183,312 3,214,577 2,481,662 5.23 5.25 5.26
Long-term debt 4,236,980 2,965,271 2,087,998 5.75 5.91 5.83
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 28,049,356 24,864,193 22,502,163 4.69 4.71 4.66
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 3,113,988 2,808,541 2,684,240
Other liabilities 547,250 386,050 346,080
Shareholders' equity 2,710,947 2,443,750 2,288,504
- -----------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $34,421,541 $30,502,534 $27,820,987
=====================================================================================================
Average interest rate spread 3.71 3.81 3.75
Net yield on earning assets 4.30 % 4.44 % 4.41%
===============================
Taxable equivalent adjustment
<CAPTION>
Income / Expense Change due to
- ---------------------------------------------------------------------------------------------- Increase ---------------------
1998 1997 1996 (Decrease) Rate Volume
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Securities (1):
U.S. Treasury, government and other (5) $ 565,106 $ 514,148 $ 458,703 $ 50,958 $ (2,921) $ 53,879
States and political subdivisions 19,853 19,007 21,186 846 (105) 951
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities (5) 584,959 533,155 479,889 51,804 (3,026) 54,830
Other earning assets (2) 11,086 6,428 8,909 4,658 (234) 4,892
Loans and leases, net
of unearned income (1)(3)(4)(5) 2,103,436 1,907,325 1,716,680 196,111 (32,570) 228,681
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,699,481 2,446,908 2,205,478 252,573 (35,830) 288,403
- ------------------------------------------------------------------------------------------------------------------------------------
Non-earning assets
- ---------------------------------------------------------
Total assets
- ---------------------------------------------------------
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Savings and interest-checking 36,942 43,104 48,992 (6,162) 597 (6,759)
Money rate savings 176,537 151,276 118,143 25,261 (4,372) 29,633
Other time deposits 640,636 632,518 628,935 8,118 (9,015) 17,133
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 854,115 826,898 796,070 27,217 (12,790) 40,007
Short-term borrowed funds 218,617 168,785 130,508 49,832 (797) 50,629
Long-term debt 243,546 175,113 121,658 68,433 (4,783) 73,216
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,316,278 1,170,796 1,048,236 145,482 (18,370) 163,852
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits
Other liabilities
Shareholders' equity
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity
========================================================
Average interest rate spread
Net yield on earning assets $1,383,203 $1,276,112 $1,157,242 $107,091 $(17,460) $124,551
========== ========== ========== ======== ========= ========
Taxable equivalent adjustment $ 66,074 $ 54,454 $ 37,33
========== ========== =========
<CAPTION>
1997 v. 1996
------------------------------------------------
Change due to
Increase -----------------------------------
(Decrease) Rate Volume
<S> <C> <C> <C>
Assets
Securities (1):
U.S. Treasury, government and other (5) $ 55,445 $ 13,673 $ 41,772
States and political subdivisions (2,179) (481) (1,698)
---------- ----------- -----------
Total securities (5) 53,266 13,192 40,074
Other earning assets (2) (2,481) 529 (3,010)
Loans and leases, net
of unearned income (1)(3)(4)(5) 190,645 12,150 178,495
---------- ----------- -----------
Total earning assets 241,430 25,871 215,559
---------- ----------- -----------
Non-earning assets
Total assets
Liabilities and Shareholders' Equity
Interest-bearing deposits:
Savings and interest-checking (5,888) (2,327) (3,561)
Money rate savings 33,133 9,302 23,831
Other time deposits 3,583 (4,659) 8,242
---------- ----------- -----------
Total interest-bearing deposits 30,828 2,316 28,512
Short-term borrowed funds 38,277 (206) 38,483
Long-term debt 53,455 1,670 51,785
---------- ----------- -----------
Total interest-bearing liabilities 122,560 3,780 118,780
---------- ----------- -----------
Noninterest-bearing deposits
Other liabilities
Shareholders' equity
Total liabilities and
shareholders' equity
Average interest rate spread
Net yield on earning assets $ 118,870 $ 22,091 $ 96,779
========== =========== ===========
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.
<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 $ 174,847 $ 154,729 $ 137,972 13.0 % 12.1 %
Mortgage banking income 79,670 50,628 40,494 57.4 25.0
Trust income 40,937 35,378 31,781 15.7 11.3
Agency insurance commissions 52,186 40,148 27,541 30.0 45.8
Other insurance commissions 12,599 13,697 13,288 (8.0) 3.1
Securities gains (losses), net 7,682 4,139 3,820 85.6 8.4
Bankcard fees and merchant discounts 30,140 23,955 19,292 25.8 24.2
Investment brokerage commissions 25,537 20,180 17,284 26.5 16.8
Other bank service fees and commissions 57,268 46,439 29,619 23.3 56.8
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 51,957 73,296 22,872 (29.1) 220.5
----------- ----------- ---------- -------- -------
Total noninterest income $ 543,629 $ 472,454 $ 353,407 15.1 % 33.7 %
=========== =========== ========== ======== =======
</TABLE>
<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 $ 419,158 $ 390,870 $ 343,650 7.2 % 13.7 %
Pension and other employee benefits 95,388 100,530 83,070 (5.1) 21.0
Net occupancy expense on bank premises 62,781 81,734 61,795 (23.2) 32.3
Furniture and equipment expense 99,095 87,536 72,393 13.2 20.9
Federal deposit insurance premiums 4,464 5,274 50,067 (15.4) (89.5)
Foreclosed property expense 2,280 3,454 2,625 (34.0) 31.6
Amortization of intangibles and
mortgage servicing rights 49,473 24,734 15,629 100.0 58.3
Software 10,266 14,267 11,107 (28.0) 28.5
Telephone 21,496 19,431 16,882 10.6 15.1
Donations 6,248 6,938 6,203 (9.9) 11.8
Advertising and public relations 26,569 27,082 25,016 (1.9) 8.3
Travel and transportation 10,462 8,966 7,556 16.7 18.7
Professional services 50,807 49,271 28,317 3.1 74.0
Supplies 17,200 16,532 15,636 4.0 5.7
Loan and lease expense 25,514 41,687 32,424 (38.8) 28.6
Deposit related expense 14,955 16,823 14,305 (11.1) 17.6
Other noninterest expenses 103,764 119,748 82,446 (13.3) 45.2
----------- ----------- --------- ------- --------
Total noninterest expense $ 1,019,920 $1,014,877 $ 869,121 0.5 % 16.8 %
=========== ========== ========= ======= ========
</TABLE>
<PAGE>
Table 15
Interest Rate Sensitivity Gap Analysis
December 31, 1998
<TABLE>
<CAPTION>
Expected Repricing or Maturity Date
---------------------------------------------------------------------------
Within One to Three to After Five
One Year Three Years Five Years Years Total
---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Securities and other interest-earning assets* $ 2,275,329 $ 2,220,729 $2,944,019 $1,442,603 $ 8,882,680
Federal funds sold and securities purchased
under resale agreements or similar arrangements 103,216 - - - 103,216
Loans and leases** 14,873,061 4,894,891 2,805,893 2,144,623 24,718,468
------------ ------------ ----------- ----------- -----------
Total interest-earning assets 17,251,606 7,115,620 5,749,912 3,587,226 33,704,364
------------ ------------ ----------- ----------- -----------
Liabilities
Savings and interest checking*** - 1,070,095 356,698 356,698 1,783,491
Money rate savings*** 3,510,778 3,510,778 - - 7,021,556
Other time deposits 8,296,855 2,620,807 293,496 137,925 11,349,083
Foreign deposits 638,676 - - - 638,676
Federal funds purchased and securities sold under
repurchase agreements or similar arrangements 2,367,173 50,870 169,727 - 2,587,770
Long-term debt and other borrowings 2,990,753 760,464 470,812 1,862,331 6,084,360
------------ ------------ ----------- ----------- -----------
Total interest-bearing liabilities 17,804,235 8,013,014 1,290,733 2,356,954 $29,464,936
------------ ------------ ----------- ----------- ===========
------------ ------------ ----------- -----------
Asset-liability gap (552,629) (897,394) 4,459,179 1,230,272
------------ ------------ ----------- -----------
Derivatives affecting interest rate
sensitivity:
Pay fixed interest rate swaps 169,946 (7,633) (98,236) (64,077)
Receive fixed interest rate swaps (740,000) 175,000 305,000 260,000
Caps, floors and collars (747,250) 500,000 247,250 -
------------ ------------ ----------- -----------
(1,317,304) 667,367 454,014 195,923
------------ ------------ ----------- -----------
Interest rate sensitivity gap $(1,869,933) $ (230,027) $4,913,193 $1,426,195
============ ============ =========== ===========
Cumulative interest rate
sensitivity gap $(1,869,933) $(2,099,960) $2,813,233 $4,239,428
============ ============ =========== ===========
</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.
<PAGE>
Table 16
Capital - Components and Ratios
December 31,
--------------------------------------
1998 1997
--------------- ----------------
(Dollars in thousands)
Tier 1 capital $ 2,508,490 $ 2,342,982
Tier 2 capital 1,120,802 769,309
--------------- ----------------
Total regulatory capital $ 3,629,292 $ 3,112,291
=============== ================
Risk-based capital ratios:
Tier 1 capital 10.3 % 10.7 %
Total regulatory capital 15.0 14.2
Tier 1 leverage ratio 7.0 7.5
<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>
<PAGE>
Table 18
Quarterly Financial Summary - Unaudited
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------- ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Summary of Operations:
Net interest income FTE $ 360,655 $ 348,166 $ 339,477 $ 334,905
FTE adjustment 18,003 16,490 16,016 15,565
Provision for loan and lease losses 22,765 21,229 23,038 23,438
Securities gains (losses), net 1,774 2,114 1,293 2,501
Other noninterest income 140,787 138,863 133,374 122,923
Noninterest expense 269,053 257,943 247,908 245,016
Provision for income taxes 60,761 61,578 59,143 55,865
------------ ------------ ------------ ------------
Net income $ 132,634 $ 131,903 $ 128,039 $ 120,445
============ ============ ============ ============
Diluted net income per share $ .42 $ .43 $ .41 $ .39
============ ============ ============ ============
Selected Average Balances:
Assets $ 36,178,328 $ 34,038,818 $ 34,148,967 $ 33,292,545
Securities, at amortized cost 9,151,670 8,376,487 8,630,609 8,511,489
Loans and leases * 24,306,516 23,308,710 23,146,329 22,382,333
Total earning assets 33,622,182 31,851,473 31,993,113 31,130,401
Deposits 23,754,754 22,532,834 22,562,066 22,106,755
Short-term borrowed funds 4,153,424 3,941,189 4,495,242 4,145,971
Long-term debt 4,749,282 4,393,450 3,903,859 3,890,169
Total interest-bearing liabilities 29,322,351 27,726,057 27,891,635 27,238,029
Shareholders' equity 2,938,976 2,621,143 2,631,041 2,650,444
<CAPTION>
1997
--------------------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------ ------------ ------------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Consolidated Summary of Operations:
Net interest income FTE $ 325,579 $ 322,799 $ 322,837 $ 304,897
FTE adjustment 15,680 14,605 13,422 10,747
Provision for loan and lease losses 31,070 22,885 26,497 22,228
Securities gains (losses), net 1,340 1,053 (930) 2,676
Other noninterest income 113,463 153,187 101,670 99,995
Noninterest expense 255,885 326,191 219,408 213,393
Provision for income taxes 44,518 42,167 56,292 55,291
------------ ------------ ------------- --------------
Net income $ 93,229 $ 71,191 $ 107,958 $ 105,909
============ ============ ============= ==============
Diluted net income per share $ .31 $ .23 $ .35 $ .34
============ ============ ============= ==============
Selected Average Balances:
Assets $ 31,712,650 $ 30,866,095 $ 30,485,739 $ 29,306,418
Securities, at amortized cost 8,003,066 7,975,858 7,908,915 7,527,059
Loans and leases * 21,592,645 21,015,439 20,752,213 19,987,149
Total earning assets 29,764,006 29,086,031 28,771,667 27,638,314
Deposits 21,662,264 21,599,024 21,837,646 21,285,782
Short-term borrowed funds 3,631,430 3,343,621 3,102,596 2,736,641
Long-term debt 3,437,017 3,134,330 2,736,974 2,500,022
Total interest-bearing liabilities 25,762,722 25,187,410 24,825,925 23,792,322
Shareholders' equity 2,473,627 2,447,203 2,460,304 2,435,228
</TABLE>
* Loans and leases are net of unearned income and include loans held for
sale.
