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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q/A
Amendment No. 1
----------------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
MARCH 31, 2000
BB&T CORPORATION
(Exact name of registrant as specified in its charter)
Commission file number : 1-10853
----------------
North Carolina 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
200 West Second Street 27101
Winston-Salem, North Carolina (Zip Code)
(Address of Principal Executive
Offices)
(336) 733-2000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
At April 30, 2000, 348,557,216 shares of the registrant's common stock, $5
par value, were outstanding.
----------------
This Form 10-Q has 28 pages. The Exhibit Index is included on page 27.
Explanatory Note: We are amending our Quarterly Report on Form 10-Q for the
quarterly period ending March 31, 2000, to correct amounts that appeared on
page 13 in the original document. The corrected page 13 is included herein.
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<PAGE>
BB&T CORPORATION
FORM 10-Q
March 31, 2000
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)............................. 3
Consolidated Financial Statements................................ 3
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Analysis of Financial Condition.................................. 14
Market Risk Management........................................... 18
Capital Adequacy and Resources................................... 21
Analysis of Results of Operations................................ 21
Part II. OTHER INFORMATION
Item 1.Legal Proceedings............................................ 27
Item 6.Exhibits and Reports on Form 8-K............................. 27
EXHIBIT 11 Calculation of Earnings Per Share.......................... 27
EXHIBIT 27 Financial Data Schedule--Included with electronically-filed
document only........................................................ 27
SIGNATURES............................................................ 28
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Assets
Cash and due from banks............................. $ 1,076,079 $ 1,206,773
Interest-bearing deposits with banks................ 19,957 71,635
Federal funds sold and securities purchased under
resale agreements or similiar arrangements......... 239,172 244,520
Trading securities.................................. 104,412 93,221
Securities available for sale....................... 11,091,397 10,771,247
Securities held to maturity (approximate market
values of $84,500 at March 31, 2000, and $98,070 at
December 31, 1999)................................. 83,861 97,122
Loans held for sale................................. 280,936 363,255
Loans and leases, net of unearned income............ 31,185,049 30,373,428
Allowance for loan and lease losses................. (417,244) (411,188)
----------- -----------
Loans and leases, net.............................. 30,767,805 29,962,240
----------- -----------
Premises and equipment, net......................... 579,745 589,629
Other assets........................................ 2,385,807 2,079,414
----------- -----------
Total assets...................................... $46,629,171 $45,479,056
=========== ===========
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing deposits........................ $ 4,341,630 $ 4,139,422
Savings and interest checking....................... 1,899,028 1,980,944
Money rate savings.................................. 8,583,016 8,480,285
Other time deposits................................. 13,369,192 13,661,522
Foreign deposits.................................... 1,267,815 529,401
----------- -----------
Total deposits..................................... 29,460,681 28,791,574
----------- -----------
Short-term borrowed funds............................ 6,861,822 7,080,882
Long-term debt....................................... 6,146,024 5,520,484
Accounts payable and other liabilities............... 679,042 689,705
----------- -----------
Total liabilities.................................. 43,147,569 42,082,645
----------- -----------
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares
authorized, none issued and outstanding............ -- --
Common stock, $5 par, 500,000,000 shares authorized;
348,472,442 issued and outstanding at March 31,
2000, and 347,906,156 at December 31, 1999......... 1,742,362 1,739,531
Additional paid-in capital.......................... 261,691 258,221
Retained earnings................................... 1,783,543 1,691,044
Unvested restricted stock........................... (9,604) (10,891)
Accumulated other nonshareholder changes in equity,
net of deferred income taxes of $(177,337) at March
31, 2000 and $(168,019) at December 31, 1999....... (296,390) (281,494)
----------- -----------
Total shareholders' equity......................... 3,481,602 3,396,411
----------- -----------
Total liabilities and shareholders' equity......... $46,629,171 $45,479,056
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------
2000 1999
------------ ------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Interest Income
Interest and fees on loans and leases.............. $ 705,214 $ 600,751
Interest and dividends on securities............... 175,203 156,658
Interest on short-term investments................. 4,611 3,412
------------ ------------
Total interest income.............................. 885,028 760,821
------------ ------------
Interest Expense
Interest on deposits............................... 283,716 245,812
Interest on short-term borrowed funds.............. 90,462 49,802
Interest on long-term debt......................... 78,374 74,492
------------ ------------
Total interest expense............................. 452,552 370,106
------------ ------------
Net Interest Income................................. 432,476 390,715
Provision for loan and lease losses................ 23,500 21,569
------------ ------------
Net Interest Income After Provision for Loan and
Lease Losses....................................... 408,976 369,146
------------ ------------
Noninterest Income
Service charges on deposit accounts................ 53,932 51,559
Investment banking and brokerage fees and
commissions....................................... 44,761 14,217
Mortgage banking income............................ 25,710 46,325
Agency insurance commissions....................... 28,090 16,882
Trust income....................................... 14,862 13,158
Other insurance commissions........................ 2,896 3,022
Other nondeposit fees and commissions.............. 26,853 24,304
Securities gains (losses), net..................... (276) 194
Other income....................................... 17,113 13,523
------------ ------------
Total noninterest income........................... 213,941 183,184
------------ ------------
Noninterest Expense
Personnel expense.................................. 204,688 164,849
Occupancy and equipment expense.................... 59,912 53,528
Amortization of intangibles and mortgage servicing
rights............................................ 17,972 17,535
Other noninterest expense.......................... 102,175 89,338
------------ ------------
Total noninterest expense.......................... 384,747 325,250
------------ ------------
Earnings
Income before income taxes......................... 238,170 227,080
Provision for income taxes......................... 75,933 73,072
------------ ------------
Net income......................................... $ 162,237 $ 154,008
============ ============
Per Common Share
Net income:
Basic............................................. $ .47 $ .45
============ ============
Diluted........................................... $ .46 $ .44
============ ============
Cash dividends paid................................ $ .20 $ .175
============ ============
Average Shares Outstanding
Basic............................................. 348,258,984 343,404,805
============ ============
Diluted........................................... 352,539,880 350,333,049
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Non-
Additional Retained shareholder Total
Shares of Common Paid-In Earnings Changes Shareholders'
Common Stock stock Capital and Other* in Equity Equity
------------ ---------- ---------- ---------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1998, as restated...... 343,724,018 $1,718,620 $ 210,882 $1,332,079 $ 65,021 $3,326,602
Add (Deduct)
Nonshareholder changes
in equity:**
Net income............. -- -- -- 154,008 -- 154,008
Unrealized holding
gains (losses)
arising during the
period............... -- -- -- -- (35,288) (35,288)
Less: reclassification
adjustment, net of
tax of $110.......... -- -- -- -- 166 166
------------ ---------- --------- ---------- --------- ----------
Net unrealized gains
(losses) on
securities............ -- -- -- -- (35,122) (35,122)
------------ ---------- --------- ---------- --------- ----------
Total nonshareholder
changes in equity..... -- -- -- 154,008 (35,122) 118,886
------------ ---------- --------- ---------- --------- ----------
Common stock issued.... 4,821,803 24,109 110,482 -- -- 134,591
Redemption of common
stock................. (4,279,600) (21,398) (144,290) -- -- (165,688)
Cash dividends declared
on common stock....... -- -- -- (56,088) -- (56,088)
Other.................. -- -- -- 2,653 -- 2,653
------------ ---------- --------- ---------- --------- ----------
Balance, March 31,
1999................... 344,266,221 $1,721,331 $ 177,074 $1,432,652 $ 29,899 $3,360,956
============ ========== ========= ========== ========= ==========
Balance, December 31,
1999, as restated...... 347,906,156 $1,739,531 $ 258,221 $1,680,153 $(281,494) $3,396,411
Add (Deduct)
Nonshareholder changes
in equity:**
Net income............. -- -- -- 162,237 -- 162,237
Unrealized holding
gains (losses)
arising during the
period............... -- -- -- -- (14,780) (14,780)
Less: reclassification
adjustment, net of
tax of $78........... -- -- -- -- (116) (116)
------------ ---------- --------- ---------- --------- ----------
Net unrealized gains
(losses) on
securities............ -- -- -- -- (14,896) (14,896)
------------ ---------- --------- ---------- --------- ----------
Total nonshareholder
changes in equity..... -- -- -- 162,237 (14,896) 147,341
------------ ---------- --------- ---------- --------- ----------
Common stock issued.... 566,286 2,831 3,470 -- -- 6,301
Cash dividends declared
on common stock....... -- -- -- (69,738) -- (69,738)
Other.................. -- -- -- 1,287 -- 1,287
------------ ---------- --------- ---------- --------- ----------
Balance, March 31,
2000................... 348,472,442 $1,742,362 $ 261,691 $1,773,939 $(296,390) $3,481,602
============ ========== ========= ========== ========= ==========
</TABLE>
--------
* Other includes unearned income and unvested restricted stock.
** Comprehensive income as defined by SFAS No. 130.
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
2000 1999
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................. $ 162,237 $ 154,008
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and lease losses................... 23,500 21,569
Depreciation of premises and equipment................ 18,918 20,038
Amortization of intangibles and mortgage servicing
rights............................................... 17,972 17,535
Accretion of negative goodwill........................ (1,561) (1,794)
Amortization of unearned stock compensation........... 1,287 14
Discount accretion and premium amortization on
securities, net...................................... (833) (281)
Net decrease (increase) in trading account
securities........................................... (11,191) (41,929)
Loss (gain) on sales of securities, net............... 276 (194)
Loss (gain) on sales of loans and mortgage loan
servicing rights, net................................ (2,865) (11,233)
Loss (gain) on disposals of premises and equipment,
net.................................................. 3,348 (1,972)
Proceeds from sales of loans held for sale............ 514,514 1,667,729
Purchases of loans held for sale...................... (130,000) (381,395)
Origination of loans held for sale, net of principal
collected............................................ (299,330) (913,581)
Decrease (increase) in:
Accrued interest receivable........................... (14,377) (15,369)
Other assets.......................................... (342,850) 8,721
Increase (decrease) in:
Accrued interest payable.............................. (785) 17,068
Accounts payable and other liabilities................ 37,832 45,611
Other, net............................................. 199 3,531
---------- ----------
Net cash provided by (used in) operating activities... (23,709) 588,076
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale.. 60,397 53,547
Proceeds from maturities, calls and paydowns of
securities available for sale........................ 448,344 916,346
Purchases of securities available for sale............ (604,870) (2,086,277)
Proceeds from maturities, calls and paydowns of
securities held to maturity.......................... 15,912 34,203
Purchases of securities held to maturity.............. (2,667) (14,840)
Leases made to customers.............................. (29,255) (29,924)
Principal collected on leases......................... 21,066 17,012
Loan originations, net of principal collected......... (999,508) (545,142)
Purchases of loans.................................... (76,574) (63,879)
Net cash acquired in transactions accounted for under
the purchase method.................................. -- 147,799
Purchases and originations of mortgage servicing
rights............................................... (4,775) (29,772)
Proceeds from disposals of premises and equipment..... 18,684 16,595
Purchases of premises and equipment................... (31,147) (44,347)
Proceeds from sales of foreclosed property............ 4,961 6,839
Proceeds from sales of other real estate held for
development or sale.................................. 3,171 5,780
Other, net............................................ -- 11,741
---------- ----------
Net cash used in investing activities................. (1,176,261) (1,604,319)
---------- ----------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits................... 669,107 168,344
Net increase (decrease) in short-term borrowed funds.. (219,060) 892,711
Proceeds from long-term debt.......................... 2,208,794 567,375
Repayments of long-term debt.......................... (1,583,254) (415,292)
Net proceeds from common stock issued................. 6,301 11,327
Redemption of common stock............................ -- (165,688)
Cash dividends paid on common stock................... (69,638) (58,075)
---------- ----------
Net cash provided by financing activities............. 1,012,250 1,000,702
---------- ----------
Net Decrease in Cash and Cash Equivalents.............. (187,720) (15,541)
Cash and Cash Equivalents at Beginning of Period....... 1,522,928 1,456,164
---------- ----------
Cash and Cash Equivalents at End of Period............. $1,335,208 $1,440,623
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest.............................................. $ 450,712 $ 282,858
Income taxes.......................................... 1,475 8,222
Noncash financing and investing activities:
Transfer of loans to foreclosed property.............. 7,294 3,595
Transfer of fixed assets to other real estate owned... 81 2,221
Securitization of mortgage loans...................... 247,912 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
A. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
consolidated balance sheets of BB&T Corporation and subsidiaries (referred to
herein as "BB&T", "the Corporation" or "the Company") as of March 31, 2000 and
December 31, 1999; the consolidated statements of income for the three months
ended March 31, 2000 and 1999; the consolidated statements of changes in
shareholders' equity for the three months ended March 31, 2000 and 1999; and
the consolidated statements of cash flows for the three months ended March 31,
2000 and 1999.
The consolidated financial statements and notes are presented in accordance
with the instructions for Form 10-Q. The information contained in the
footnotes included in BB&T's 1999 Annual Report on Form 10-K, as restated in
BB&T's Current Report on Form 8-K filed on April 28, 2000, should be referred
to in connection with the reading of these unaudited interim consolidated
financial statements. In certain instances, amounts reported in the 1999
financial statements have been reclassified to conform to the 2000 statement
presentation. Such reclassifications had no effect on shareholders' equity or
net income. In addition, the 1999 financial statements included herein have
been restated to retroactively reflect BB&T's merger with Premier Bancshares,
Inc. ("Premier"), which was completed on January 13, 2000, and accounted for
as a pooling of interests.
Use of Estimates
The preparation of financial statements 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 period. Actual results could differ from those estimates.
Forward-Looking Statements
This report contains forward-looking statements with respect to the
financial condition, results of operations and business of BB&T. These
forward-looking statements involve risks and uncertainties and are based on
the beliefs and assumptions of the management of BB&T, and on the information
available to management at the time that these disclosures were prepared.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressures among depository and other
financial institutions may increase significantly; (2) changes in the interest
rate environment may reduce margins; (3) general economic conditions, either
nationally or regionally, may be less favorable than expected, resulting in,
among other things, a deterioration in credit quality and/or a reduced demand
for credit; (4) legislative or regulatory changes, including changes in
accounting standards, may adversely affect the businesses in which BB&T is
engaged; (5) costs or difficulties related to the integration of the
businesses of BB&T and its merger partners may be greater than expected; (6)
expected cost savings associated with pending mergers may not be fully
realized or realized within the expected time frame; (7) deposit attrition,
customer loss or revenue loss following pending mergers may be greater than
expected; (8) competitors may have greater financial resources and develop
products that enable such competitors to compete more successfully than BB&T;
and (9) adverse changes may occur in the securities markets.
B. Nature of Operations
BB&T Corporation is a multi-bank holding company headquartered in Winston-
Salem, North Carolina. BB&T conducts its operations principally in North
Carolina, South Carolina, Virginia, Maryland, Georgia, West
7
<PAGE>
Virginia, Kentucky and Washington, D.C. through its commercial banking
subsidiaries and, to a lesser extent, through its other subsidiaries. BB&T's
principal banking subsidiaries, Branch Banking and Trust Company ("BB&T-NC"),
Branch Banking and Trust Company of South Carolina ("BB&T-SC") and Branch
Banking and Trust Company of Virginia ("BB&T-VA"), provide a wide range of
traditional banking services to individuals and commercial customers.
Substantially all of BB&T's loans are to individuals residing in the market
areas described above or to businesses who are located in this geographic
area. Subsidiaries of BB&T's commercial banking units offer lease financing to
businesses and municipal governments, investment services, (including discount
brokerage services, annuities, mutual funds and government and municipal
bonds), life insurance, property and casualty insurance on an agency basis and
insurance premium financing. Other direct subsidiaries of BB&T provide a
variety of financial services including automobile lending, equipment
financing, factoring, full-service securities brokerage, investment banking
and corporate finance services.
C. New Accounting Pronouncements
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 a 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. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
delays the original effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. Management has not yet quantified the impact of
adopting SFAS No. 133, as amended, and has not determined the timing of or
method of adoption of the statement. However, the implementation of the
statement is not expected to have a material effect on BB&T's consolidated
financial position or consolidated results of operations.
On January 1, 1999, BB&T adopted the provisions of 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." The
implementation of the statement did not have a material impact on BB&T's
consolidated financial position or consolidated results of operations.
D. Mergers and Acquisitions
Completed Mergers and Acquisitions
On January 5, 1999, Mason-Dixon Bancshares, Inc. ("Mason-Dixon"), which
merged into BB&T on July 14, 1999, completed its acquisition of Sterling
Bancorp, a privately held commercial bank headquartered in Baltimore,
Maryland, for $10.3 million in cash. In connection with the acquisition,
goodwill totaling $3.7 million was recorded, which is being amortized using
the straight-line method over a period of 15 years.
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 16.8 million shares
of BB&T common stock in exchange for all of the outstanding shares of
MainStreet common stock.
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
8
<PAGE>
exchange for all of the outstanding shares of Scott & Stringfellow common
stock. BB&T recorded goodwill totaling $72.8 million, which is being amortized
using the straight-line method over a period of 15 years.
On April 1, 1999, First Liberty Financial Corp. ("First Liberty"), which
merged into BB&T on November 10, 1999, completed a merger with Vidalia
Bancshares, Inc. ("Vidalia"), based in Vidalia, Georgia. The transaction was
accounted for as a pooling of interests. To consummate the merger, First
Liberty issued common stock, which was later converted to approximately
568,000 shares of BB&T common stock, in exchange for all of the outstanding
shares of Vidalia.
On July 9, 1999, BB&T completed its merger with First Citizens Corporation
("First Citizens"), of Newnan, Georgia. The transaction was accounted for as a
pooling of interests. In conjunction with the acquisition, BB&T issued 3.2
million shares of BB&T common stock in exchange for all of the outstanding
shares of First Citizens common stock.
On July 14, 1999, BB&T completed its merger with Mason-Dixon of Westminster,
Maryland. The transaction was accounted for as a pooling of interests. In
conjunction with the merger, BB&T issued 6.6 million shares of common stock in
exchange for all of the outstanding common stock of Mason-Dixon.
On August 27, 1999, BB&T completed its acquisition of Matewan BancShares,
Inc. ("Matewan") of Williamson, West Virginia. The transaction was accounted
for as a purchase. In conjunction with the merger, BB&T issued 3.2 million
shares of common stock in exchange for all of the outstanding common and
preferred shares of Matewan. BB&T recorded goodwill totaling $92.8 million,
which is being amortized using the straight-line method over a period of 15
years.
On August 31, 1999, Premier, which merged into BB&T on January 13, 2000,
completed a merger with North Fulton Bancshares, Inc. ("North Fulton") of
Roswell, Georgia. The transaction was accounted for as a pooling of interests.
In conjunction with the merger, Premier issued common stock, which later
converted into approximately 943,000 shares of BB&T common stock, in exchange
for all of the common stock of North Fulton.
On October 27, 1999, Premier, which merged into BB&T on January 13, 2000,
completed a merger with Bank Atlanta, located in Decatur, Georgia. The
transaction was accounted for as a pooling of interests. To consummate the
transaction, Premier issued common stock, which later converted into
approximately 527,000 shares of BB&T common stock, in exchange for all of the
common stock of Bank Atlanta.
On November 5, 1999, Premier, which merged into BB&T on January 13, 2000,
completed the acquisition of Farmers & Merchants Bank ("Farmers and
Merchants") of Summerville, Georgia. The transaction was accounted for as a
purchase. To complete the acquisition, Premier issued common stock, which
later converted into approximately 1.5 million shares of BB&T common stock, in
exchange for all of the common stock of Farmers and Merchants.
On November 10, 1999, BB&T completed its merger with First Liberty of Macon,
Georgia. In conjunction with the transaction, which was accounted for as a
pooling of interests, BB&T issued 12.4 million shares of common stock in
exchange for all of the outstanding shares of First Liberty common stock.
On January 13, 2000, BB&T completed its merger with Premier, based in
Atlanta, Georgia. In connection with the transaction, which was accounted for
as a pooling of interests, BB&T issued 16.8 million shares of common stock for
all outstanding shares of Premier common and preferred stock.
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
9
<PAGE>
currently does not anticipate any material adjustments to the assigned values
of the assets and liabilities of acquired companies.
Pending Mergers and Acquisitions
On November 17, 1999, BB&T announced plans to merge with Hardwick Holding
Company ("Hardwick"), headquartered in Dalton, Georgia. In exchange for each
share of Hardwick common stock held, Hardwick's shareholders will receive
between .901 and .932 shares of BB&T common stock, depending on the average
closing price of BB&T common stock over a five-day pricing period ending
shortly before the effective time of the merger. The transaction is expected
to be completed in the second quarter of 2000 and accounted for as a pooling
of interests.
On December 15, 1999, BB&T announced plans to merge with First Banking
Company of Southeast Georgia ("First Banking Company"), based in Statesboro,
Georgia. First Banking Company's shareholders will receive .74 shares of BB&T
common stock for each share of First Banking Company common stock held. The
transaction is expected to be completed in the second quarter of 2000 and
accounted for as a pooling of interests.
On February 7, 2000, BB&T announced plans to merge with One Valley Bancorp,
Inc. ("One Valley"), headquartered in Charleston, West Virginia. One Valley's
shareholders will receive 1.28 shares of BB&T common stock in exchange for
each share of One Valley common stock held. The transaction is expected to be
completed in the third quarter of 2000 and accounted for as a pooling of
interests.
10
<PAGE>
E. Calculation of Earnings Per Common Share
BB&T's basic and diluted earnings per common share amounts were calculated
as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
2000 1999
------------ ------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Basic Earnings Per Share:
Weighted average number of common shares
outstanding during the period.................... 348,258,984 343,404,805
============ ============
Net income........................................ $ 162,237 $ 154,008
============ ============
Basic earnings per share.......................... $ .47 $ .45
============ ============
Diluted Earnings Per Share:
Weighted average number of common shares.......... 348,258,984 343,404,805
Add:
Dilutive effect of outstanding options (as
determined by application of treasury stock
method)........................................ 4,280,896 6,928,244
------------ ------------
Weighted average number of common shares, as
adjusted......................................... 352,539,880 350,333,049
============ ============
Net income........................................ $ 162,237 $ 154,008
============ ============
Diluted earnings per share........................ $ .46 $ .44
============ ============
</TABLE>
F. Segment Disclosures
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's strategies for revenue growth are focused on developing and expanding
client relationships through quality service delivery coupled with an
effective sales culture. The segment results presented herein are based on
internal management accounting policies that 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 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.
Please refer to BB&T's Annual Report on Form 10-K, as restated in BB&T's
Current Report on Form 8-K filed on April 28, 2000, for a description of
internal accounting policies and the basis of segmentation, including a
description of the segments presented in the accompanying tables. There have
been no significant changes from the format presented or methods used to
develop the segment disclosures contained therein, except as disclosed in the
accompanying tables.
The following tables disclose selected financial information for BB&T's
reportable business segments for the periods as indicated:
11
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
------------------------------------------------------------------------------------------------------
Investment Other
Banking Total Revenues
Banking Mortgage Trust Agency and All Other Segment and
Network Banking Services Insurance Brokerage Treasury Segments(1) Results Expenses(2)
----------- ---------- -------- --------- ---------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income (expense)
from external
customers........ $ 274,864 $ 105,122 $(9,499) $ -- $ 3,048 $ 25,728 $ 37,045 $ 436,308 $ 24,810
Net intersegment
interest income
(expense)........ 94,131 (73,097) 12,559 -- -- 14,595 -- 48,188 (3,961)
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Net interest
income........... 368,995 32,025 3,060 -- 3,048 40,323 37,045 484,496 20,849
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Provision for
loan and lease
losses........... 27,036 653 -- -- -- 30 5,789 33,508 239
Noninterest
income from
external
customers ....... 92,111 19,038 15,602 27,362 44,483 6,126 8,827 213,549 (2,041)
Intersegment
noninterest
income.......... 24,825 -- -- -- -- -- -- 24,825 --
Noninterest
expense.......... 173,392 11,167 10,925 19,272 43,751 755 16,581 275,843 64,746
Intersegment
noninterest
expense......... 73,186 5,253 907 1,024 374 138 676 81,558 (19,149)
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Income before
income taxes and
the charge for
capital.......... 212,317 33,990 6,830 7,066 3,406 45,526 22,826 331,961 (27,028)
Provision for
income taxes..... 68,175 11,216 2,285 2,785 1,571 7,598 7,480 101,110 4,725
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Net income....... $ 144,142 $ 22,774 $ 4,545 $ 4,281 $ 1,835 $ 37,928 $ 15,346 $ 230,851 $ (31,753)
=========== ========== ======= ======= ======== =========== ========== =========== ==========
Identifiable
segment assets... $25,620,495 $5,602,752 $30,410 $69,038 $663,419 $12,925,200 $1,288,737 $46,200,051 $2,411,728
=========== ========== ======= ======= ======== =========== ========== =========== ==========
<CAPTION>
Reconciling
Items & Consolidated
Eliminations(5) Totals
----------------- ------------
<S> <C> <C>
Net interest
income (expense)
from external
customers........ $ (28,642)(4) $ 432,476
Net intersegment
interest income
(expense)........ (44,227)(3) --
----------------- ------------
Net interest
income........... (72,869) 432,476
----------------- ------------
Provision for
loan and lease
losses........... (10,247)(4) 23,500
Noninterest
income from
external
customers ....... 2,433 (4) 213,941
Intersegment
noninterest
income.......... (24,825)(3) --
Noninterest
expense.......... 44,158 (4) 384,747
Intersegment
noninterest
expense......... (62,409)(3) --
----------------- ------------
Income before
income taxes and
the charge for
capital.......... (66,763) 238,170
Provision for
income taxes..... (29,902)(4) 75,933
----------------- ------------
Net income....... $ (36,861) $ 162,237
================= ============
Identifiable
segment assets... $(1,982,608)(4) $46,629,171
================= ============
</TABLE>
----
(1) Financial data from segments below the quantitative thresholds requiring
disclosure are attributable to a number of smaller operating segments.
Those segments include BB&T's nonbank consumer finance operations, a
factoring subsidiary, a subsidiary specializing in financing commercial
lawn care equipment 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.
(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 the intersegment noninterest income described above and
the elimination of intersegment noninterest expense allocated to the
various segments.
(4) To reflect elimination entries necessary to consolidate the segment data.
(5) BB&T's allocation methods were substantially modified during the first
quarter of 2000 to provide for improved and more equitable reporting among
the operating segments. Results for March 31, 1999 have not been restated
to reflect these modifications because it is not practicable to do so.
This variance of allocation methods produces significant differences in
the reconciling items and eliminations presented in the accompanying
tables.
12
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1999
-------------------------------------------------------------------------------------------------------
Investment Other
Banking Total Revenues
Banking Mortgage Trust Agency and All Other Segment and
Network Banking Services Insurance Brokerage Treasury Segments(1) Results Expenses(2)
----------- ---------- -------- --------- ---------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income (expense)
from external
customers........ $ 227,571 $ 111,657 $(8,153) $ -- $ 255 $ 40,033 $ 49,999 $ 421,362 $ 16,729
Net intersegment
interest income
(expense)....... 86,282 (77,800) 9,961 -- -- (4,349) -- 14,094 (3,476)
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Net interest
income........... 313,853 33,857 1,808 -- 255 35,684 49,999 435,456 13,253
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Provision for
loan and lease
losses........... 23,217 803 -- -- -- 22 4,110 28,152 551
Noninterest
income from
external
customers ....... 105,418 40,613 14,097 16,491 16,316 1,354 6,259 200,548 2,992
Intersegment
noninterest
income.......... 36,527 -- -- -- -- -- -- 36,527 --
Noninterest
expense.......... 162,201 21,139 9,570 12,088 10,875 1,073 12,009 228,955 63,487
Intersegment
noninterest
expense......... 58,796 4,679 721 687 448 2,459 1,384 69,174 (14,095)
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Income before
income taxes..... 211,584 47,849 5,614 3,716 5,248 33,484 38,755 346,250 (33,698)
Provision for
income taxes..... 69,182 18,123 1,681 1,478 2,059 10,802 5,209 108,534 (15,538)
----------- ---------- ------- ------- -------- ----------- ---------- ----------- ----------
Net income....... $ 142,402 $ 29,726 $ 3,933 $ 2,238 $ 3,189 $ 22,682 $ 33,546 $ 237,716 $ (18,160)
=========== ========== ======= ======= ======== =========== ========== =========== ==========
Identifiable
segment assets... $24,207,766 $6,018,045 $10,993 $26,040 $525,448 $10,711,170 $2,553,201 $44,052,663 $2,189,664
=========== ========== ======= ======= ======== =========== ========== =========== ==========
<CAPTION>
Reconciling
Items & Consolidated
Eliminations Totals
---------------- ------------
<S> <C> <C>
Net interest
income (expense)
from external
customers........ $ (47,376)(4) $ 390,715
Net intersegment
interest income
(expense)....... (10,618)(3) --
---------------- ------------
Net interest
income........... (57,994) 390,715
---------------- ------------
Provision for
loan and lease
losses........... (7,134)(4) 21,569
Noninterest
income from
external
customers ....... (20,356)(4) 183,184
Intersegment
noninterest
income.......... (36,527)(3) --
Noninterest
expense.......... 32,808(4) 325,250
Intersegment
noninterest
expense......... (55,079)(3) --
---------------- ------------
Income before
income taxes..... (85,472) 227,080
Provision for
income taxes..... (19,924)(4) 73,072
---------------- ------------
Net income....... $ (65,548) $ 154,008
================ ============
Identifiable
segment assets... $(3,416,114)(4) $42,826,213
================ ============
</TABLE>
----
(1) Financial data from segments below the quantitative thresholds requiring
disclosure are attributable to a number of smaller operating segments.
Those segments include BB&T's nonbank consumer finance operations, a
factoring subsidiary, a subsidiary specializing in financing commercial
lawn care equipment 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 the intersegment noninterest income described above and
the elimination of intersegment noninterest expense allocated to the
various segments.
(4) To reflect elimination entries necessary to consolidate the segment data.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ANALYSIS OF FINANCIAL CONDITION
BB&T's total assets at March 31, 2000, were $46.6 billion, a $1.2 billion
increase from the balance at December 31, 1999. The balance sheet categories
that accounted for most of the increase were loans and leases, including loans
held for sale, which grew $729.6 million, securities available for sale, which
increased $320.1 million and other assets, which increased $306.8 million
primarily as a result of increased purchases of bank-owned life insurance used
as a funding source for post-retirement benefits. These increases were
partially offset by declines in cash and due from banks, interest-bearing
deposits with banks, Federal funds sold and securities purchased under resale
agreements or similar arrangements and loans held for sale, which declined by
a collective $268.7 million compared to year-end 1999.
Total deposits at March 31, 2000, increased $705.9 million from December 31,
1999, while short-term borrowed funds declined $113.9 million and long-term
debt increased $484.8 million during the first three months of 2000. Total
shareholders' equity increased $85.2 million during the same time frame.
The factors causing the fluctuations in these balance sheet categories are
further discussed in the following sections.
Loans and Leases
BB&T's overall loan growth has been solid during the first quarter of 2000,
with end of period loans, excluding loans held for sale, increasing 10.8% on
an annualized basis since the end of 1999. Average total loans for the quarter
ended March 31, 2000 increased 10.9% compared to the same period of 1999. The
overall growth in average loans for the first quarter of 2000 was reduced by
an $824.2 million decline in loans held for sale, which is directly related to
the volume of mortgage loan production. Excluding the effect of loans held for
sale, average loans for the three months ended March 31, 2000 increased $3.9
billion, or 14.4% from the first quarter of 1999.
BB&T continues to focus lending efforts on commercial and consumer loans,
which generally have greater profit margins than mortgage loans. BB&T has
acquired a number of community banks and thrift institutions in recent years,
which has resulted in a significant percentage of the consolidated loan
portfolio being composed of mortgages. Through securitization programs and the
sales of fixed rate mortgage loan originations, the mix of the loan portfolio
has changed in the current period compared to 1999. Average mortgage loans
decreased 13.2% in the first quarter of 2000 compared to the same period of
1999 and represented 19.2% of average total loans at March 31, 2000, compared
to 24.5% a year ago. Excluding loans held for sale, average mortgage loans
decreased $82.6 million, or 1.4%, in the current quarter compared to the 1999
period and comprised 18.4% of average total loans, excluding loans held for
sale, in the first quarter of 2000 compared to 21.4% in the 1999 quarter.
Average commercial loans, including leasing, increased 19.4% in this year's
first quarter compared to the first quarter of 1999. Average consumer loans,
which includes sales finance, revolving credit and direct retail, increased
17.4% in the three months ended March 31, 2000 compared to the same period in
1999.
The growth rates of average loans for the first quarter of 2000 include the
full effect of loans that were acquired during 1999 as a part of acquisitions
accounted for as purchases and the effect of securitizing $304.8 million of
mortgage loans during 1999 and $247.9 million in the first quarter of 2000.
During 1999, loans totaling $140.9 million were included as a part of the
acquisition of Scott & Stringfellow, $414.1 million were acquired through the
purchase of Matewan and $75.9 million in loans were added as a result of
Premier's acquisition of Farmers and Merchants Bank. Excluding the effect of
these purchase accounting transactions and the loan securitizations, average
"internal" loan growth for the three months ended March 31, 2000, was 10.1%
compared to the first quarter of 1999. By category, excluding these purchase
accounting transactions and loan securitizations, average mortgage loans,
including loans held for sale, decreased 10.3%, commercial loans grew 18.5%,
and consumer loans increased 13.3% in the first quarter of 2000 compared to
1999.
14
<PAGE>
The change in loan mix to a higher percentage of commercial and consumer
loans, the growth of the overall loan portfolio and the increase in the yield
on the portfolio resulted in a 17.4% increase in interest income from loans
and leases in the current quarter compared to the 1999 period. The average
annualized fully taxable equivalent ("FTE") yields on commercial, consumer and
mortgage loans for the three months of 2000 were 9.24%, 10.10%, and 7.66%,
respectively, resulting in an average yield on the total loan portfolio of
9.17%. This reflects an increase of 42 basis points over the 8.75% earned on
total average loans during the first quarter of 1999. The increase in yields
resulted from a higher average prime rate during 2000, as well as generally
higher interest rates prevalent in the debt securities markets compared to the
first quarter of 1999. During the three months ended March 31, 2000, the prime
rate, which is the basis for pricing many commercial and consumer loans,
averaged 8.66%, compared to 7.75% for the comparable period of 1999.
Securities
Securities available for sale, which totaled $11.1 billion at March 31,
2000, increased $320.2 million from December 31, 1999. Securities available
for sale had net unrealized losses, net of deferred income taxes, of $296.4
million at March 31, 2000, compared to $281.5 million at December 31, 1999.
Securities held to maturity totaled $83.9 million, down $13.3 million from
year-end 1999. The annualized FTE yield on the average total securities
portfolio for the first quarter of 2000 was 6.71%, an increase of 16 basis
points from the yield earned in the first quarter of 1999. The increase in the
yield on securities is the result of the generally higher interest rate
environment that has existed during the first quarter of 2000 compared to
1999.
Other Interest-Earning Assets
Federal funds sold and securities purchased under resale agreements or
similar arrangements at March 31, 2000 decreased $5.3 million and the balances
of interest-bearing deposits with banks declined $51.3 million from December
31, 1999. These categories of earning assets are subject to large daily
fluctuations based on the availability of these types of funds. The average
yield on other interest-earning assets for the first quarter of 2000 was
5.82%, an increase from the 4.47% earned during the first three months of
1999. The increase in the yield on other interest earning assets is
principally the result of the increase in the average Federal funds rate to
5.66% for the first quarter of 2000 compared to 4.75% for the comparable
period of 1999.
Other Assets
BB&T's other noninterest-earning assets, excluding premises and equipment,
increased $306.8 million from December 31, 1999 to March 31, 2000. The
increase resulted primarily from the purchases of additional bank-owned life
insurance, which is used as a funding source for certain post-retirement
benefits, at a cost of $350 million.
Deposits
Total end of period deposits increased $705.9 million from December 31, 1999
to March 31, 2000. Average deposits for the first three months of 2000
increased $1.8 billion, or 6.6%, compared to the first quarter of 1999. The
categories of deposits with the highest average rates of growth from the 1999
quarter were: certificates of deposit and other time deposits, which grew $1.0
billion, or 7.2%; money rate savings accounts, including investor deposit
accounts and noninterest-bearing deposits, which increased $810.7 million, or
10.9%; and noninterest-bearing deposits, which grew $257.9 million, or 6.8%.
The growth realized in these categories was partially offset by declines of
$254.9 million, or 11.1%, in savings and interest checking.
The growth in average deposits reflects deposits acquired in purchase
accounting transactions completed in the latter quarters of 1999, growth of
$537.1 million in the investor deposit product and an $863.1 million increase
in foreign deposits. The August 27, 1999, purchase of Matewan resulted in the
addition of $575.1 million in deposits while Farmers and Merchants Bank, which
was purchased by Premier on November 5, 1999, accounted for $151.1 million in
deposit growth. Balances in investor deposit accounts averaged $3.6 billion
for
15
<PAGE>
the first three months of 2000, an increase of 17.3% from the 1999 period.
Investor deposit accounts composed 12.2% of total average deposits for the
three months ended March 31, 2000.
The annualized average cost of total interest-bearing deposits during the
first three months of 2000 was 4.46%, an increase of 31 basis points from the
comparable period of 1999.
Short-term Borrowed Funds
As a result of asset growth rates in excess of deposit growth rates in
recent years, cost-effective alternative funding sources, such as Federal Home
Loan Bank ("FHLB") advances, master notes, purchases of Federal funds and
sales of securities under repurchase agreements have been increasingly
utilized to support balance sheet growth.
At March 31, 2000, end of period short-term borrowed funds totaled $6.9
billion, a decrease of $219.1 million, or 3.1%, compared to December 31, 1999.
For the first quarter of 2000, average short-term borrowed funds totaled $6.6
billion, which reflects an increase of $2.3 billion, or 52.7%, from the
comparable period of 1999. The overall increase in average short-term borrowed
funds was composed primarily of increases in short-term bank notes, Federal
funds purchased and securities sold under repurchase agreements, and the
Treasury tax and loan depository note account. The average annualized rate
paid on short-term borrowed funds was 5.52% for the first three months of
2000, an increase of 84 basis points from the average rate of 4.68% paid in
the first quarter of 1999.
Long-term Debt
Long-term debt consists primarily of FHLB advances, medium term bank notes
and corporate subordinated debt. These borrowings are currently being utilized
because they are relatively cost-effective funding sources and provide BB&T
with the flexibility to structure borrowings in a manner that aids in the
management of interest rate risk and liquidity. Long-term debt totaled $6.1
billion at March 31, 2000, an increase of $625.5 million, or 11.3%, from the
balance at December 31, 1999. On average, long-term debt totaled $5.5 billion
in the first three months of 2000, an increase of $29.5 million, or .5%,
compared to the first quarter of 1999. Long-term debt has been utilized for a
variety of funding needs, including the repurchase of common stock in
conjunction with certain acquisitions.
Asset Quality
BB&T's asset quality, as measured by relative levels of nonperforming assets
and net charge-offs, has remained excellent compared to historic levels and to
published industry averages. Nonperforming assets, composed of foreclosed real
estate and repossessions, nonaccrual loans and restructured loans, totaled
$139.7 million at March 31, 2000, compared to $138.3 million at December 31,
1999. Nonperforming assets, as a percentage of loan-related assets, were .44%
at March 31, 2000, compared to .45% at December 31, 1999. Loans 90 days or
more past due and still accruing interest totaled $43.0 million compared to
$54.5 million at year-end 1999.
BB&T's net charge-offs totaled $17.4 million and amounted to .23% of average
loans and leases, on an annualized basis, in the first three months of 2000,
compared to $14.9 million, or .22% of average loans and leases, in the
corresponding period in 1999.
The allowance for loan and lease losses was $417.2 million, or 1.33% of
loans and leases, at March 31, 2000, compared to $411.2 million, or 1.34% of
loans and leases, at December 31, 1999.
The provision for loan and lease losses for the first quarter of 2000 was
$23.5 million, compared to $21.6 million in the comparable quarter of 1999.
The increased provision in 2000 was principally the result of higher net
charge-offs during the quarter as the levels of nonaccrual loans and leases
and other nonperforming assets, measured as a percentage of loan-related
assets, have remained at low levels.
16
<PAGE>
Asset quality statistics for the last five calendar quarters are presented in
the accompanying table.
ASSET QUALITY ANALYSIS
<TABLE>
<CAPTION>
03/31/00 12/31/99 09/30/99 06/30/99 03/31/99
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance For Loan & Lease
Losses
Beginning balance......... $411,188 $400,869 $393,306 $387,133 $378,531
Allowance for acquired
loans.................... -- 1,120 7,473 169 1,935
Provision for loan and
lease losses............. 23,500 37,737 21,862 23,499 21,569
Net charge-offs........... (17,444) (28,538) (21,772) (17,495) (14,902)
-------- -------- -------- -------- --------
Ending balance............ $417,244 $411,188 $400,869 $393,306 $387,133
======== ======== ======== ======== ========
Risk Assets
Nonaccrual loans and
leases................... $108,176 $108,708 $ 95,367 $ 97,787 $109,664
Foreclosed real estate.... 15,968 15,123 19,262 19,060 24,221
Other foreclosed proper-
ty....................... 14,654 13,398 10,728 8,812 10,965
Restructured loans........ 925 1,094 1,378 1,560 3,103
-------- -------- -------- -------- --------
Total nonperforming assets.. $139,723 $138,323 $126,735 $127,219 $147,953
======== ======== ======== ======== ========
Loans 90 days or more past
due and still accruing... $ 42,961 $ 54,493 $ 49,902 $ 45,021 $ 41,801
======== ======== ======== ======== ========
Asset Quality Ratios
Nonaccrual loans and leases
as a percentage of total
loans and leases*.......... .34% .35% .32% .34% .39%
Total nonperforming assets
as a percentage of:
Total assets.............. .30 .30 .28 .29 .35
Loans and leases plus
foreclosed property*..... .44 .45 .42 .44 .52
Annualized net charge-offs
as a percentage of average
loans and leases*.......... .23 .37 .29 .24 .22
Allowance for loan and lease
losses as a percentage of
loans and leases*.......... 1.33 1.34 1.34 1.36 1.36
Ratio of allowance for loan
and lease losses to:
Net charge-offs........... 5.95x 3.63x 4.64x 5.60x 6.41x
Nonaccrual and restruc-
tured loans and leases... 3.82 3.74 4.14 3.96 3.43
</TABLE>
--------
* All items referring to loans and leases include loans held for sale and are
net of unearned income.
17
<PAGE>
MARKET RISK MANAGEMENT
As a financial institution, BB&T's most significant market risk exposure is
interest rate risk. The primary objective of interest rate risk management is
to minimize the effect that changes in interest rates have on net interest
income. This is accomplished through active management of asset and liability
portfolios with a focus on the strategic pricing of asset and liability
accounts and management of maturity mixes for assets and liabilities. The goal
of these activities is the development of appropriate maturity and repricing
opportunities in BB&T's portfolios of assets and liabilities that will produce
consistent net interest income during periods of changing interest rates.
BB&T's Asset/Liability Management Committee ("ALCO") monitors loan, investment
and liability portfolios to ensure comprehensive management of interest rate
risk. These portfolios are analyzed for proper fixed-rate and variable-rate
mixes under various interest rate scenarios.
The asset/liability management process is designed to achieve relatively
stable net interest margins and assure liquidity by coordinating the volumes,
maturities or repricing opportunities of earning assets, deposits and borrowed
funds. It is the responsibility of the ALCO to determine and achieve the most
appropriate volume and mix of earning assets and interest-bearing liabilities,
as well as ensure an adequate level of liquidity and capital, within the
context of corporate performance goals. The ALCO also sets policy guidelines
and establishes long-term strategies with respect to interest rate risk
exposure and liquidity. The ALCO meets regularly to review BB&T's interest
rate risk and liquidity positions in relation to present and prospective
market and business conditions, and adopts funding and balance sheet
management strategies that are intended to ensure that the potential impact on
earnings and liquidity as a result of fluctuations in interest rates is within
acceptable standards.
The majority of assets and liabilities of financial institutions are
monetary in nature and, therefore, differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. Fluctuations in interest rates and actions of the Board of
Governors of the Federal Reserve System ("FRB") to regulate the availability
and cost of credit have a greater effect on a financial institution's
profitability than do the effects of higher costs for goods and services.
Through its balance sheet management function, BB&T is positioned to respond
to changing interest rates and inflationary trends.
Management uses Interest Sensitivity Simulation Analysis ("Simulation") to
measure the sensitivity of projected earnings to changes in interest rates.
Simulation takes into account the current contractual agreements that BB&T has
made with its customers on deposits, borrowings, loans, investments and any
commitments to enter into those transactions. Management monitors BB&T's
interest sensitivity by means of a computer model that incorporates the
current volumes, average rates earned and paid, scheduled maturities and
payments of asset and liability portfolios, together with multiple scenarios
of projected prepayments, repricing opportunities and anticipated volume
growth. Using this information, the model projects earnings based on projected
portfolio balances under multiple interest rate scenarios. This level of
detail is needed to simulate the effect that changes in interest rates and
portfolio balances may have on the earnings of BB&T. This method is subject to
the accuracy of the assumptions that underlie the process, but it provides a
better illustration of the sensitivity of earnings to changes in interest
rates than other analyses such as static or dynamic gap.
The asset/liability management process requires a number of key assumptions.
Management determines the most likely outlook for the economy and interest
rates by analyzing external factors, including published economic projections
and data, the effects of likely monetary and fiscal policies as well as any
enacted or prospective regulatory changes. BB&T's current and prospective
liquidity position, current balance sheet volumes and projected growth,
accessibility of funds for short-term needs and capital maintenance are also
considered. This data is combined with various interest rate scenarios to
provide management with information necessary to analyze interest sensitivity
and to aid in the development of strategies to reach performance goals.
18
<PAGE>
The following table represents the interest sensitivity of BB&T as of March
31, 2000. Key assumptions in the preparation of the table include prepayment
speeds of mortgage-related assets; cash flows and maturities of derivative
financial instruments; changes in market conditions, loan and deposit volumes
and pricing; customer preferences; and capital plans. This tabular data does
not reflect the impact of any changes in the credit quality of BB&T's assets.
To attempt to quantify the potential change in net interest income given a
change in interest rates, various interest rate scenarios are applied to
projected balances of assets and liabilities incorporating the projected
effect of maturities and repricing opportunities. The resulting change in net
interest income reflects the level of sensitivity that net interest income has
in relation to changing interest rates.
Interest Sensitivity Simulation Analysis
<TABLE>
<CAPTION>
Annualized
Hypothetical
Interest Rate Scenario Percentage
------------------------------------ Change in
Prime Net Interest
Linear Rate Income
------ ----- ------------
<S> <C> <C>
+3.00% 12.00% -2.57%
+1.50 10.50 -1.68
-1.50 7.50 1.36
-3.00 6.00 1.33
</TABLE>
Management has established parameters for asset/liability management which
prescribe a maximum impact on net interest income of 3% for a 150 basis point
parallel change in interest rates over three months from the most likely
interest rate scenario, and a maximum of 6% for a 300 basis point change over
12 months. It is management's ongoing objective to effectively manage the
impact of changes in interest rates and minimize the resulting effect on
earnings as evidenced by the preceding table. At March 31, 2000, the
sensitivity of BB&T's net interest income to changes in interest rates was
within management's targets, as illustrated in the accompanying table.
Derivatives and Off-Balance Sheet Financial Instruments
BB&T utilizes a variety of off-balance sheet financial instruments to manage
interest rate sensitivity and net interest income. These instruments, commonly
referred to as derivatives, primarily consist of interest rate swaps, caps,
floors, financial forward and futures contracts and options written and
purchased. 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 and floors
that are designated as hedges is accrued and recognized as an adjustment to
the interest income or expense of the related asset or liability. For interest
rate forwards, futures and options qualifying as a hedge, gains and losses are
deferred and are recognized in income as an adjustment of yield. Gains and
losses from early terminations of derivatives are deferred and amortized as
yield adjustments over the shorter of the remaining term of the hedged asset
or liability or the remaining term of the derivative instrument. Upon
disposition or settlement of the asset or liability being hedged, deferral
accounting is discontinued and any gains or losses are recognized in income.
Derivative financial instruments that fail to qualify as a hedge are carried
at fair value with gains and losses recognized in current earnings.
A derivative is a financial instrument that derives its cash flows, and
therefore its value, by reference to an underlying instrument, index or
reference rate. Credit risk arises when amounts receivable from a counterparty
exceed those payable. The risk of loss with any counterparty is limited to a
small fraction of the notional amount. BB&T deals only with national market
makers with strong credit ratings in its derivatives activities. BB&T
19
<PAGE>
further controls the risk of loss by subjecting counterparties to credit
reviews and approvals similar to those used in making loans and other
extensions of credit. All of the derivative contracts to which BB&T is a party
settle monthly, quarterly or semiannually. Accordingly, the amount of off-
balance sheet credit risk to which BB&T is exposed at any time as a result of
these instruments is immaterial. Further, BB&T has netting agreements with the
dealers with which it does business. Because of these factors, BB&T's off-
balance sheet credit risk exposure at March 31, 2000 was immaterial.
Derivative contracts are written in amounts referred to as notional amounts.
Notional amounts only provide the basis for calculating payments between
counterparties and do not represent amounts to be exchanged between parties
and are not a measure of financial risks. On March 31, 2000, BB&T had
outstanding interest rate swaps, caps and floors outstanding with notional
amounts totaling $1.9 billion. The estimated fair value of open contracts used
for risk management purposes reflected net unrealized gains of $1.9 million at
March 31, 2000.
BB&T uses derivative contracts as synthetic instruments to hedge specified
assets or groups of assets, liabilities or groups of liabilities, forward
commitments and anticipated transactions. BB&T's derivatives are primarily
used to hedge specific assets or groups of assets, specific liabilities or
groups of liabilities, forward commitments and anticipated transactions.
BB&T's derivatives are primarily used to hedge variable rate commercial loans,
adjustable rate mortgage loans, retail certificates of deposit and floating
rate notes. These hedges resulted in a $1.3 million increase in net interest
income in the first quarter of 2000 compared to a decrease of $1.5 million in
the comparable period of 1999.
SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments," requires, among other things, certain
quantitative and qualitative disclosures with regard to the amounts, nature
and terms of derivative financial instruments. The following tables set forth
certain information concerning BB&T's interest rate swaps, caps, floors and
collars at March 31, 2000:
Interest Rate Swaps, Caps, Floors and Collars
March 31, 2000
(Dollars in thousands)
<TABLE>
<CAPTION>
Net
Unrealized
Notional Receive Gains
Type Amount Rate Pay Rate (Losses)
---- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Receive fixed swaps............ $1,395,000 7.75% 7.09% $ (5,272)
Pay fixed swaps................ 495,951 5.99 5.34 7,202
Caps, floors & collars......... 47,250 -- -- --
---------- ----------- --------- -----------
Total........................ $1,938,201 7.11% 6.47% $ 1,930
========== =========== ========= ===========
<CAPTION>
Receive Caps,
Fixed Pay Fixed Floors &
Year-to-date Activity Swaps Swaps Collars Total
--------------------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1999..... $ 745,000 $ 494,361 $ 62,250 $ 1,301,611
Additions...................... 810,000 10,000 -- 820,000
Maturities/amortizations....... (160,000) (8,410) (15,000) (183,410)
---------- ----------- --------- -----------
Balance, March 31, 2000...... $1,395,000 $ 495,951 $ 47,250 $1,938,201
========== =========== ========= ===========
<CAPTION>
After
One Year One to Five Five
Maturity Schedule* or Less Years Years Total
------------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Receive fixed swaps............ $ 325,000 $ 770,000 $ 300,000 $ 1,395,000
Pay fixed swaps................ 10,535 445,105 40,311 495,951
Caps, floors & collars......... -- 47,250 -- 47,250
---------- ----------- --------- -----------
Total........................ $ 335,535 $1,262,355 $340,311 $1,938,201
========== =========== ========= ===========
</TABLE>
--------
* Maturities are based on full contract extensions.
20
<PAGE>
CAPITAL ADEQUACY AND RESOURCES
The maintenance of appropriate levels of capital is a management priority
and is monitored on an ongoing basis. BB&T's principal goals related to
capital are to provide an adequate return to shareholders, while retaining a
sufficient base to support future growth and comply with all regulatory
standards.
Total shareholders' equity was $3.5 billion at March 31, 2000 and $3.4
billion at December 31, 1999. BB&T's book value per common share at March 31,
2000, was $9.99 compared to $9.76 at December 31, 1999.
Bank holding companies and their subsidiaries are subject to regulatory
requirements with respect to risk-based capital adequacy. Risk-based capital
ratios measure capital as a percentage of a combination of risk-weighted
balance sheet and off-balance sheet risk. The risk-weighted values of both
balance sheet and off-balance sheet items are determined in accordance with
risk factors specified by Federal regulatory pronouncements.
Tier 1 capital (total shareholders' equity excluding unrealized gains or
losses on debt securities available for sale, net of tax effect, plus certain
mandatorily redeemable capital securities, less nonqualifying intangible
assets) is required to be at least 4% of risk-weighted assets, and total
capital (Tier 1 capital, a qualifying portion of the allowance for loan and
lease losses and qualifying subordinated debt) must be at least 8% of risk-
weighted assets, with one half of the minimum consisting of Tier 1 capital.
In addition to the risk-based capital measures described above, regulators
have also established minimum leverage capital requirements for banking
organizations. This is the primary measure of capital adequacy used by BB&T's
management, and is calculated by dividing period-end Tier 1 capital by average
tangible assets for the most recent quarter. The minimum required Tier 1
leverage ratio ranges from 3% to 5% depending upon Federal bank regulatory
agency evaluation of an organization's overall safety and soundness.
BB&T's capital adequacy ratios for the last five quarters are presented in
the accompanying table:
CAPITAL ADEQUACY RATIOS
<TABLE>
<CAPTION>
2000 1999
------- -------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Risk-based capital ratios:
Tier 1 capital....................... 9.6% 9.4% 9.6% 9.7% 10.0%
Total capital........................ 13.1 13.0 13.3 13.5 14.1
Tier 1 leverage ratio.................. 7.0 6.8 6.8 6.7 7.1
</TABLE>
ANALYSIS OF RESULTS OF OPERATIONS
Net income for the first quarter of 2000 totaled $162.2 million, an increase
of 5.3% over the $154.0 million earned during the comparable quarter of 1999.
On a diluted per share basis, earnings for the three months ended March 31,
2000 were $.46, compared to $.44 for the same period in 1999, an increase of
4.5%. BB&T's operating results for the first quarter of 2000 produced an
annualized return on average assets of 1.42% and an annualized return on
average shareholders' equity of 18.99% compared to prior year ratios of 1.50%
and 18.67%, respectively.
BB&T's earnings for the first quarters of 2000 and 1999 were adversely
affected by costs principally associated with consummating mergers and
acquisitions. During the first quarter of 2000, BB&T incurred $19.8 million in
after-tax merger-related charges, primarily associated with completing the
Premier merger. These charges included professional fees, as well as costs in
connection with the reduction of staffing levels, early retirement packages
and other personnel-related expenses, and a loss on the sale of securities.
BB&T also
21
<PAGE>
incurred after-tax charges totaling $10.4 million during the first quarter of
1999 associated with the acquisition of MainStreet.
Excluding the impact of these merger-related charges on 2000 and 1999
operating results, BB&T would have had net income for the first quarter of
2000 totaling $182.0 million, an increase of 10.7% over the $164.4 million
earned during the first quarter of 1999. On a diluted per share basis,
earnings for the three months ended March 31, 2000, excluding merger charges,
were $.52, compared to $.47 for the same period in 1999, an increase of 10.6%.
BB&T's recurring operating results for the first quarter of 2000 produced an
annualized return on average assets of 1.60% and an annualized return on
average shareholders' equity of 21.30% compared to prior year ratios of 1.60%
and 19.93%, respectively.
BB&T's growth in earnings in the first quarter of 2000 principally resulted
from increased FTE net interest income due to solid growth in average loans
and securities along with a more profitable mix of loans. Also, the effective
management of noninterest expense growth played a significant role in
achieving the increase in the current quarter's operating results. Excluding
the effect of nonrecurring merger-related charges and the effect of business
combinations accounted for as purchases that were completed in 1999, total
noninterest expenses for the first quarter of 2000 increased less than 1% from
the comparable period of 1999. In addition, the maintenance of excellent
overall asset quality remained a critical element in BB&T's performance. The
first quarter of 2000 continued the trend of nonperforming assets and credit
losses remaining at low levels relative to the size of the loan portfolio.
This has resulted in provisions for loan and lease losses that are
commensurate with portfolio growth, which is an important element in achieving
increased earnings.
PROFITABILITY MEASURES
<TABLE>
<CAPTION>
2000 1999
------- -------------------------------
First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Return on average assets.............. 1.42% 1.28% 1.34% 1.52% 1.50%
Return on average equity.............. 18.99 16.85 18.00 19.60 18.67
Net interest margin................... 4.25 4.30 4.27 4.28 4.26
Fee Income ratio (taxable equiva-
lent)*............................... 32.1 31.0 31.3 32.4 30.9
Efficiency ratio (taxable equiva-
lent)*............................... 52.9 53.0 54.4 54.4 52.1
</TABLE>
--------
*Excludes securities gains (losses), foreclosed property expense and
nonrecurring items.
Net Interest Income and Net Interest Margin
Net interest income on an FTE basis was $454.1 million for the first quarter
of 2000 compared to $409.9 million for the same period in 1999, a 10.8%
increase. For the three months ended March 31, 2000, average earning assets
increased $4.1 billion, or 10.7%, to $42.9 billion over the comparable period
of 1999, while average interest-bearing liabilities increased by $3.9 billion.
During the same time period, the net interest margin decreased from 4.26% in
the first quarter of 1999 to 4.25% in the current quarter. The one basis point
decline in the margin was primarily the result of increased cost of interest-
bearing deposits and borrowed funds.
22
<PAGE>
The following tables set forth the major components of net interest income
and the related yields for the first quarter of 2000 compared to the first
quarter of 1999 and the variances between the periods caused by changes in
interest rates versus changes in volumes.
NET INTEREST INCOME AND RATE/VOLUME ANALYSIS
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Average Balances Yield/Rate Income/Expense Change due to
----------------------- ------------ ----------------- ----------------
Increase
2000 1999 2000 1999 2000 1999 (Decrease) Rate Volume
----------- ----------- ----- ----- -------- -------- ---------- ------- -------
Fully Taxable Equivalent--(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Securities(1):
U.S. Treasury,
government and
other(5).............. $10,797,409 $ 9,868,324 6.63% 6.47% $179,100 $159,622 $ 19,478 $ 4,092 $15,386
States and political
subdivisions.......... 634,829 482,792 7.85 7.99 12,458 9,644 2,814 (170) 2,984
----------- ----------- ----- ----- -------- -------- -------- ------- -------
Total securities(5).... 11,432,238 10,351,116 6.71 6.55 191,558 169,266 22,292 3,922 18,370
Other earning as-
sets(2)................ 318,907 309,390 5.82 4.47 4,611 3,412 1,199 1,091 108
Loans and leases, net of
unearned
income(1)(3)(4)(5)..... 31,137,746 28,078,948 9.17 8.75 710,447 607,320 103,127 28,941 74,186
----------- ----------- ----- ----- -------- -------- -------- ------- -------
Total earning assets... 42,888,891 38,739,454 8.49 8.13 906,616 779,998 126,618 33,954 92,664
----------- ----------- ----- ----- -------- -------- -------- ------- -------
Non-earning assets..... 2,981,448 2,820,968
----------- -----------
Total assets.......... $45,870,339 $41,560,422
=========== ===========
Liabilities and
Shareholders' Equity
Interest-bearing depos-
its:
Savings and interest-
checking.............. $ 2,047,804 $ 2,302,711 1.65 1.74 8,401 9,903 (1,502) (446) (1,056)
Money rate savings..... 8,268,478 7,457,822 3.38 2.88 69,582 52,961 16,621 10,478 6,143
Other time deposits.... 15,284,504 14,254,296 5.41 5.21 205,733 182,948 22,785 7,519 15,266
----------- ----------- ----- ----- -------- -------- -------- ------- -------
Total interest-bearing
deposits.............. 25,600,786 24,014,829 4.46 4.15 283,716 245,812 37,904 17,551 20,353
Short-term borrowed
funds.................. 6,586,123 4,312,588 5.52 4.68 90,462 49,802 40,660 10,140 30,520
Long-term debt.......... 5,482,509 5,453,044 5.74 5.50 78,374 74,492 3,882 3,478 404
----------- ----------- ----- ----- -------- -------- -------- ------- -------
Total interest-bearing
liabilities........... 37,669,418 33,780,461 4.83 4.44 452,552 370,106 82,446 31,169 51,277
----------- ----------- ----- ----- -------- -------- -------- ------- -------
Noninterest-bearing
deposits.............. 4,065,783 3,807,843
Other liabilities...... 698,706 626,546
Shareholders' equity... 3,436,432 3,345,572
----------- -----------
Total liabilities and
shareholders' equity.. $45,870,339 $41,560,422
=========== ===========
Average interest rate
spread................. 3.66 3.69
Net yield on earning as-
sets................... 4.25% 4.26% $454,064 $409,892 $ 44,172 $ 2,785 $41,387
===== ===== ======== ======== ======== ======= =======
Taxable equivalent
adjustment............. $ 21,588 $ 19,177
======== ========
</TABLE>
--------
(1) Yields related to securities, loans and leases wholly or partially exempt
from income taxes 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.
23
<PAGE>
Noninterest Income
Noninterest income for the three months ended March 31, 2000, was $213.9
million compared to $183.2 million for the same period in 1999, an increase of
16.8%. The results for the first quarter of 2000 period includes growth of
214.8% in investment banking and brokerage fees and commissions as well as an
increase of 66.4% in agency insurance commissions, both of which benefited
from the purchase accounting acquisitions made in 1999. These increases were
partially offset by a 44.5% decrease in mortgage banking revenue that
primarily resulted from a reduction in mortgage loan origination volume.
During the first quarter of 2000, service charges on deposits, investment
banking and brokerage fees, agency insurance commissions, trust income and
other nondeposit fees and commissions all registered gains compared to the
corresponding prior year period. These increases were offset in part by the
aforementioned decline in mortgage banking revenue. The percentage of total
revenues (tax-equivalent net interest income plus noninterest income excluding
securities gains or losses) derived from noninterest income was 32.1% for the
three months ended March 31, 2000, up from 30.9% for the first quarter of
1999.
Service charges on deposits totaled $53.9 million for the first quarter of
2000, an increase of $2.4 million, or 4.6%, compared to the first quarter of
1999. The largest components of the growth within service charges on deposits
included account analysis fees on commercial transaction accounts and NSF and
overdraft charges on personal and commercial accounts.
Trust income totaled $14.9 million for the current quarter, an increase of
$1.7 million, or 13.0%, compared to the same period a year ago. The increase
in trust income was the result of an increase of approximately 5% in assets
under management, which totaled $10.1 billion at March 31, 2000, increased
revenues from general trust services and higher mutual fund management fees
compared to the 1999 period.
Investment banking and brokerage fees totaled $44.8 million during the first
quarter of 2000, an increase of $30.5 million, or 214.8%, compared to the
first quarter of 1999. This significant boost in revenue was primarily the
result of the acquisition of Scott & Stringfellow on March 26, 1999. This
acquisition was accounted for as a purchase; therefore, its operating results
were only included in BB&T's accounts in periods following the acquisition.
Agency insurance commissions totaled $28.1 million for the first quarter of
2000, an increase of $11.2 million, or 66.4%, compared to the same three-month
period of 1999. This growth in revenue resulted from the purchase of
additional agencies during 1999, internal growth in property and casualty
insurance commissions and increased contingent insurance commissions.
Income from mortgage banking activities totaled $25.7 million for the first
quarter of 2000, a decrease of $20.6 million, or 44.5%, from the same period
of 1999. This decline resulted from lower volumes of mortgage loans
originations in the 2000 period and the recapture in the 1999 quarter of $3
million in valuation allowances related to capitalized mortgage servicing
rights. The recapture of valuation allowances during the 1999 period, which
were established in 1998, resulted from a slowing in prepayment speeds related
to the mortgage loans which underlie the capitalized servicing rights.
Increased fees in the 2000 period from servicing mortgage loans and gains from
the sale of servicing rights (substantially all of which were from servicing
portfolios of merged banks) on mortgages that were located outside of the
geographic area of BB&T's servicing portfolio served to offset a portion of
the above described declines in mortgage banking income.
Other nondeposit fees and commissions totaled $26.9 million for the first
quarter of 2000, an increase of $2.5 million, or 10.5%, compared to the three
months ended March 31, 1999. Fees generated by credit and debit card products,
including merchant discounts, were responsible for generating most of the
increase in this category of revenue.
24
<PAGE>
Other income increased $3.6 million, or 26.5%, during the 2000 quarter
compared to the first three months of 1999. Included in this total is the cash
value buildup on bank-owned life insurance used to fund certain post-
retirement benefits, which increased $2 million as a result of purchases of
additional coverage.
Noninterest Expense
Noninterest expenses totaled $384.7 million for the first quarter of 2000
compared to $325.3 million for the same period a year ago, an increase of
18.3%. Noninterest expense for the first quarter of 2000 includes $30.6
million of nonrecurring expenses principally associated with the acquisition
of Premier, while the first three months of 1999 include $15.8 million of
costs resulting from the merger with MainStreet. Excluding these merger costs
from both years, noninterest expenses increased $44.7 million, or 14.4%, for
the three months ended March 31, 2000, compared to the same period in 1999.
Excluding the effects of business combinations accounted for as purchases that
were completed in 1999, and the aforementioned merger-related expenses,
noninterest expenses for the first quarter 2000 would have increased less than
one percent from the comparable period of 1999. BB&T's efficiency ratio
(noninterest expenses, excluding the nonrecurring expenses referred to above
and costs related to foreclosed assets, as a percent of FTE net interest
income plus noninterest income excluding securities gains and losses) was
52.9% for the first quarter of 2000 compared to 52.1% for the first quarter of
1999.
Personnel expense, the largest component of noninterest expense, was $204.7
million for the first quarter of 2000 compared to $164.8 million for the same
period in 1999, an increase of $39.8 million, or 24.2%. These amounts include
merger-related charges of $6.6 million in the first quarter of 2000 and $5.5
million in the first quarter of 1999. Excluding the merger-related charges,
personnel expense in the 2000 quarter would have increased $38.7 million, or
24.3%, from the 1999 period. This growth included the effect of acquisitions
completed in 1999 that were accounted for as purchases (Scott & Stringfellow,
Matewan, Farmers and Merchants and a number of insurance agencies). Excluding
the effects of the merger-related charges and the purchase acquisitions,
personnel expense for the first quarter of 2000 increased $10.3 million, or
6.6%, over the first quarter of 1999. This increase was primarily the result
of annual salary adjustments and higher costs of providing employee medical
benefits.
Occupancy and equipment expense for the three months ended March 31, 2000,
totaled $59.9 million, an increase of $6.4 million, or 11.9%, compared to
1999. These amounts include merger-related charges of $5.6 million in the
first quarter of 2000 and $4.0 million in the first quarter of 1999. Excluding
the merger-related charges, occupancy and equipment expense in the 2000
quarter would have increased $4.7 million, or 9.6%, from the 1999 period. This
growth included the effect of acquisitions completed in the later quarters of
1999 that were accounted for as purchases. Excluding the effect of the merger-
related charges and the purchase acquisitions, occupancy and equipment expense
for the three months ended March 31, 2000, would have increased $800 thousand,
or 1.6%, compared to the same period of 1999. This increase was primarily the
result of increased expenses associated with computer and communications
equipment.
The amortization of intangible assets and mortgage servicing rights totaled
$18.0 million for the three months ended March 31, 2000, an increase of $400
thousand, or 2.5%, from the amount incurred in the first quarter of 1999. This
increase was the result of a $4.4 million increase in amortization of goodwill
and other intangibles, due to acquisitions consummated using purchase
accounting, which was largely offset by a decline of $4 million in mortgage
servicing rights amortization. The majority of the reduction in mortgage
servicing rights amortization was due to lower volumes of originated servicing
and refinancings compared to the first quarter of 1999. Total goodwill and
other intangibles, including mortgage servicing rights, have increased from
$650 million at March 31, 1999, to $814 million at March 31, 2000.
Other noninterest expenses for the first quarter of 2000 totaled $102.2
million, an increase of $12.8 million, or 14.4%, compared to 1999. These
amounts include merger-related costs of $17.9 million in the first quarter of
2000 and $6.4 million in the first quarter of 1999. Excluding these costs,
other noninterest expenses for the three months ended March 31, 2000 increased
$1.3 million, or 1.6%, from the comparable 1999 period.
25
<PAGE>
Provision for Income Taxes
The provision for income taxes totaled $75.9 million for the first quarter
of 2000, an increase of $2.9 million, or 3.9%, compared to the first quarter
of 1999. The effective tax rates on pretax income were 31.9% and 32.2% for the
three months ended March 31, 2000 and 1999, respectively. Excluding the tax
benefits associated with the merger-related charges discussed above from both
the 2000 and 1999 quarters, the provision for income taxes would have been
$88.6 million during the first three months of 2000, an increase of $10.0
million, or 12.8%, compared to the first quarter of 1999.
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11--"Computation of Earnings Per Share" is included herein as
Note E.
Exhibit 27--"Financial Data Schedule" is included in the electronically-
filed document as required.
(b) Current Reports on Form 8-K during the Quarter ended March 31, 2000.
On January 12, 2000, BB&T filed a Current Report on Form 8-K under Item 5 to
report the results of operations for the fourth quarter of 1999. On February
7, 2000, BB&T filed a Current Report on Form 8-K under Item 5 to announce that
BB&T had entered into a definitive agreement to merge with One Valley Bancorp,
Inc. of Charleston, West Virginia, and to file certain analysts presentation
material related to this transaction. On February 9, 2000, BB&T filed a
Current Report on Form 8-K under Item 5 to file the merger Agreement and Plan
of Reorganization between BB&T and One Valley Bancorp, Inc. of Charleston,
West Virginia. On April 11, 2000, BB&T filed a Current Report on Form 8-K
under Item 5 to report the results of operations for the first quarter of
2000. On April 28, 2000, BB&T filed a Current Report on Form 8-K under Item 5
to report BB&T's operations and financial condition restated for the accounts
of Premier, which was acquired on January 13, 2000.
27
<PAGE>
SIGNATURES
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 thereunto duly authorized.
BB&T CORPORATION
(Registrant)
Date: June 5, 2000 By: /s/ Scott E. Reed
-----------------------------------
Scott E. Reed, Senior Executive
Vice
President and Chief Financial
Officer
Date: June 5, 2000 By: /s/ Sherry A. Kellett
-----------------------------------
Sherry A. Kellett, Senior
Executive Vice
President and Controller
(Principal Accounting Officer)
28
