<PAGE>
Exhibit 99.2
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Assets
Cash and due from banks............................. $ 1,466,071 $ 1,367,503
Interest-bearing deposits with banks................ 81,927 56,280
Federal funds sold and securities purchased under
resale agreements or similar arrangements.......... 432,877 372,068
Trading securities at market value.................. 93,221 60,422
Securities available for sale at market value....... 12,257,822 11,173,754
Securities held to maturity at amortized cost
(market value: $398,527 at December 31, 1999 and
$692,030 at December 31, 1998)..................... 404,897 673,643
Loans held for sale................................. 367,243 1,340,420
Loans and leases, net of unearned income............ 35,389,063 31,190,279
Allowance for loan and lease losses................ (477,296) (442,341)
----------- -----------
Loans and leases, net............................. 34,911,767 30,747,938
----------- -----------
Premises and equipment, net......................... 713,089 686,493
Other assets........................................ 2,271,922 1,711,973
----------- -----------
Total assets...................................... $53,000,836 $48,190,494
=========== ===========
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing deposits....................... $ 4,847,976 $ 4,724,402
Savings and interest checking...................... 2,978,811 3,068,160
Money rate savings................................. 9,592,326 9,114,951
Other time deposits................................ 16,199,129 15,667,905
Foreign deposits................................... 529,401 638,676
----------- -----------
Total deposits.................................... 34,147,643 33,214,094
----------- -----------
Short-term borrowed funds........................... 7,971,873 4,815,734
Long-term debt...................................... 6,073,428 5,499,873
Accounts payable and other liabilities.............. 744,273 629,864
----------- -----------
Total liabilities................................. 48,937,217 44,159,565
----------- -----------
Shareholders' equity:
Preferred stock, $5 par, 5,000,000 shares
authorized, none issued or outstanding............ -- --
Common stock, $5 par, 500,000,000 shares
authorized; issued and outstanding, 398,742,188 at
December 31, 1999 and 396,201,255 at December 31,
1998.............................................. 1,993,711 1,981,006
Additional paid-in capital......................... 379,363 376,670
Retained earnings.................................. 2,011,627 1,601,130
Loan to employee stock ownership plan and unvested
restricted stock.................................. (11,676) (980)
Accumulated other nonshareholder changes in equity,
net of deferred income taxes of $(185,516) at
December 31, 1999 and $46,122 at December 31,
1998.............................................. (309,406) 73,103
----------- -----------
Total shareholders' equity........................ 4,063,619 4,030,929
----------- -----------
Total liabilities and shareholders' equity........ $53,000,836 $48,190,494
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
(Dollars in thousands, except per
share data)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans and leases..... $ 2,954,252 $2,737,983 $2,467,599
Interest and dividends on securities...... 799,304 730,527 678,395
Interest on short-term investments........ 21,997 24,303 17,896
----------- ---------- ----------
Total interest income.................... 3,775,553 3,492,813 3,163,890
----------- ---------- ----------
Interest Expense
Interest on deposits...................... 1,201,467 1,190,659 1,136,012
Interest on short-term borrowed funds..... 306,545 273,223 209,485
Interest on long-term debt................ 334,593 269,226 195,064
----------- ---------- ----------
Total interest expense................... 1,842,605 1,733,108 1,540,561
----------- ---------- ----------
Net Interest Income........................ 1,932,948 1,759,705 1,623,329
Provision for loan and lease losses....... 114,433 114,729 123,096
----------- ---------- ----------
Net Interest Income After Provision for
Loan and Lease Losses..................... 1,818,515 1,644,976 1,500,233
----------- ---------- ----------
Noninterest Income
Service charges on deposits............... 241,904 215,021 191,158
Mortgage banking income................... 163,562 127,122 82,107
Trust income.............................. 70,079 54,851 47,716
Investment banking and brokerage fees and
commissions.............................. 128,609 45,723 28,272
Agency insurance commissions.............. 79,499 52,186 40,149
Other insurance commissions............... 13,991 13,099 15,314
Bankcard fees and merchant discounts...... 42,883 36,657 28,400
Other nondeposit fees and commissions..... 76,871 68,418 55,616
Securities (losses) gains, net............ (6,149) 10,155 5,932
Other income.............................. 64,230 67,195 93,683
----------- ---------- ----------
Total noninterest income................. 875,479 690,427 588,347
----------- ---------- ----------
Noninterest Expense
Personnel expense......................... 834,888 700,259 656,464
Occupancy and equipment expense........... 245,851 208,315 209,453
Federal deposit insurance expense......... 10,531 6,537 8,195
Amortization of intangibles and mortgage
servicing rights......................... 81,699 61,523 31,402
Advertising and public relations expense.. 32,057 34,751 36,266
Professional services..................... 78,937 69,928 67,894
Other expense............................. 363,574 295,602 316,983
----------- ---------- ----------
Total noninterest expense................ 1,647,537 1,376,915 1,326,657
----------- ---------- ----------
Earnings
Income before income taxes................ 1,046,457 958,488 761,923
Provision for income taxes................ 340,883 306,744 260,197
----------- ---------- ----------
Net income................................ 705,574 651,744 501,726
Preferred dividend requirements........... -- -- 113
----------- ---------- ----------
Income applicable to common shares....... $ 705,574 $ 651,744 $ 501,613
=========== ========== ==========
Per Common Share
Net income:
Basic.................................... $ 1.78 $ 1.67 $ 1.29
=========== ========== ==========
Diluted.................................. $ 1.75 $ 1.64 $ 1.27
=========== ========== ==========
Cash dividends paid by BB&T Corporation... $ .75 $ .66 $ .58
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other
Shares of Additional Retained Nonshareholder Total
Common Preferred Common Paid-In Earnings Changes in Shareholders'
Stock Stock Stock Capital and Other* Equity Equity
----------- --------- ---------- ---------- ---------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996, as previously
reported............... 168,635,924 $7,564 $ 843,180 $375,587 $1,466,457 $ 13,743 $2,706,531
Merger with Hardwick
accounted for as a
pooling-of-interests.. 1,863,641 -- 9,318 10,689 26,646 324 46,977
Merger with First
Banking Company
accounted for as a
pooling-of-interests.. 1,955,080 -- 9,775 4,982 27,216 (24) 41,949
Merger with One Valley
accounted for as a
pooling-of-interests.. 17,316,442 -- 86,582 211,185 183,226 2,065 483,058
----------- ------ ---------- -------- ---------- --------- ----------
Balance, December 31,
1996, restated......... 189,771,087 7,564 948,855 602,443 1,703,545 16,108 3,278,515
----------- ------ ---------- -------- ---------- --------- ----------
Add (Deduct):
Nonshareholder changes
in equity:**
Net income............ -- -- -- -- 501,726 -- 501,726
Unrealized holding
gains arising during
the period.......... -- -- -- -- -- 50,699 50,699
Less:
reclassification
adjustment, net of
tax of $4,603....... -- -- -- -- -- (3,711) (3,711)
---------- --------- ----------
Total nonshareholder
changes in equity..... -- -- -- -- 501,726 46,988 548,714
---------- --------- ----------
Common stock issued.... 12,625,083 -- 63,127 269,727 (58,224) -- 274,630
Redemption of common
stock................. (8,280,543) -- (41,404) (295,387) (2,322) -- (339,113)
Preferred stock
redemptions and
conversions........... 350,610 (7,564) 1,753 5,811 -- -- --
Cash dividends declared
on common stock....... -- -- -- -- (215,287) -- (215,287)
Other, net............. -- -- -- (2,786) 2,159 -- (627)
----------- ------ ---------- -------- ---------- --------- ----------
Balance, December 31,
1997................... 194,466,237 -- 972,331 579,808 1,931,597 63,096 3,546,832
Add (Deduct):
Nonshareholder changes
in equity:**
Net income............ -- -- -- -- 651,744 -- 651,744
Unrealized holding
gains arising during
the period.......... -- -- -- -- -- 16,374 16,374
Less:
reclassification
adjustment, net of
tax of $3,936....... -- -- -- -- -- (6,351) (6,351)
---------- --------- ----------
Total nonshareholder
changes in equity..... -- -- -- -- 651,744 10,023 661,767
---------- --------- ----------
Common stock issued.... 13,665,967 68,331 324,217 (1,345) -- 391,203
Redemption of common
stock................. (6,795,376) -- (33,977) (311,053) -- -- (345,030)
2-for-1 stock split
effective August 3,
1998.................. 194,897,159 -- 974,486 (218,928) (721,913) -- 33,645
Reconciliation of
fiscal year of First
Citizens to calendar
year.................. (32,732) -- (165) (211) (1,209) (16) (1,601)
Cash dividends declared
on common stock....... -- -- -- -- (257,291) -- (257,291)
Other, net............. -- -- -- 2,837 (1,433) -- 1,404
----------- ------ ---------- -------- ---------- --------- ----------
Balance, December 31,
1998................... 396,201,255 -- 1,981,006 376,670 1,600,150 73,103 4,030,929
Add (Deduct):
Nonshareholder changes
in equity:**
Net income............ -- -- -- -- 705,574 -- 705,574
Unrealized holding
losses arising
during the period... -- -- -- -- -- (387,063) (387,063)
Less:
reclassification
adjustment, net of
tax benefit of
$22,451............. -- -- -- -- -- 5,473 5,473
---------- --------- ----------
Total nonshareholder
changes in equity..... -- -- -- -- 705,574 (381,590) 323,984
---------- --------- ----------
Common stock issued.... 13,186,347 65,933 335,118 10,033 -- 411,084
Redemption of common
stock................. (10,649,502) -- (53,248) (332,425) -- -- (385,673)
Reconciliation of
fiscal year of First
Liberty to calendar
year.................. 4,088 -- 20 -- 1,622 (919) 723
Cash dividends declared
on common stock....... -- -- -- -- (308,226) -- (308,226)
Other, net............. -- -- -- -- (9,202) -- (9,202)
----------- ------ ---------- -------- ---------- --------- ----------
Balance, December 31,
1999................... 398,742,188 $ -- $1,993,711 $379,363 $1,999,951 $(309,406) $4,063,619
=========== ====== ========== ======== ========== ========= ==========
</TABLE>
--------
* Other includes unearned income, unvested restricted stock and a loan to the
employee stock ownership plan.
** Comprehensive income as defined by SFAS No. 130.
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income............................... $ 705,574 $ 651,744 $ 501,726
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan and lease losses..... 114,433 114,729 123,096
Depreciation of premises and equipment.. 101,462 89,066 81,778
Amortization of intangibles and mortgage
servicing rights....................... 81,699 61,523 31,402
Accretion of negative goodwill.......... (6,243) (6,243) (6,180)
Amortization of unearned stock
compensation........................... 3,906 1,325 8,232
Discount accretion and premium
amortization on securities, net........ 1,708 5,355 6,972
Net decrease (increase) in trading
account securities..................... (20,774) 7,456 (25,688)
Loss (gain) on sales of securities,
net.................................... 6,149 (10,155) (5,932)
Loss (gain) on sales of loans and
mortgage loan servicing rights, net.... (26,213) (36,227) (17,687)
Loss (gain) on disposals of premises and
equipment, net......................... (5,756) (15,723) 27,457
Proceeds from sales of loans held for
sale................................... 4,057,061 5,350,770 2,015,995
Purchases of loans held for sale........ (961,404) (1,811,810) (934,992)
Origination of loans held for sale, net
of principal collected................. (2,097,356) (4,148,521) (1,278,945)
Reconciliation of fiscal year of merged
companies to calendar year............. 3,216 4,991 --
Decrease (increase) in:
Accrued interest receivable............ (46,982) (21,442) (3,524)
Other assets........................... (209,092) (82,503) (138,769)
Increase (decrease) in:
Accrued interest payable............... 43,973 15,154 12,465
Accounts payable and other
liabilities........................... 110,235 76,755 102,391
Other, net.............................. 16,227 (5,383) (10,412)
----------- ---------- ----------
Net cash provided by operating
activities............................ 1,871,823 240,861 489,385
----------- ---------- ----------
Cash Flows From Investing Activities:
Proceeds from sales of securities
available for sale...................... 874,774 1,637,182 2,077,491
Proceeds from maturities, calls and
paydowns of securities available for
sale.................................... 3,503,261 3,348,678 2,238,293
Purchases of securities available for
sale.................................... (5,278,597) (5,097,268) (5,187,509)
Proceeds from sales of securities held to
maturity................................ -- -- 26,170
Proceeds from maturities, calls and
paydowns of securities held to
maturity................................ 61,764 220,287 133,436
Purchases of securities held to
maturity................................ (35,756) (162,215) (199,766)
Leases made to customers................. (126,066) (94,615) (74,420)
Principal collected on leases............ 74,314 65,186 57,581
Loan originations, net of principal
collected............................... (3,711,076) (1,790,445) (1,683,759)
Purchases of loans....................... (364,663) (341,812) (447,963)
Net cash acquired in transactions
accounted for under the purchase
method.................................. 302,032 191,740 95,205
Purchases and originations of mortgage
servicing rights........................ (79,437) (86,954) (42,599)
Proceeds from disposals of premises and
equipment............................... 37,596 25,693 14,634
Purchases of premises and equipment...... (137,237) (140,893) (175,243)
Proceeds from sales of foreclosed
property................................ 28,221 28,911 17,333
Proceeds from sales of other real estate
held for development or sale............ 12,439 4,341 17,341
Other, net............................... 764 (38,472) 5,195
----------- ---------- ----------
Net cash used in investing activities.. (4,837,667) (2,230,656) (3,128,580)
----------- ---------- ----------
Cash Flows From Financing Activities:
Net increase in deposits................. 163,413 1,320,680 969,595
Net increase (decrease) in short-term
borrowed funds.......................... 3,029,260 (207,276) 813,267
Proceeds from long-term debt............. 3,188,096 3,436,289 6,356,359
Repayments of long-term debt............. (2,602,804) (2,053,611) (4,748,081)
Net proceeds from common stock issued.... 48,740 71,397 35,381
Redemption of common stock............... (385,673) (345,030) (339,113)
Preferred stock cancellations and
conversions............................. -- -- (38)
Cash dividends paid on common and
preferred stock......................... (289,467) (246,361) (203,115)
Other, net............................... (697) (355) (38,736)
----------- ---------- ----------
Net cash provided by financing
activities............................ 3,150,868 1,975,733 2,845,519
----------- ---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents.............................. 185,024 (14,062) 206,324
Cash and Cash Equivalents at Beginning of
Year..................................... 1,795,851 1,809,913 1,603,589
----------- ---------- ----------
Cash and Cash Equivalents at end of Year.. $ 1,980,875 $1,795,851 $1,809,913
=========== ========== ==========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
Interest................................ $ 1,532,010 $1,509,736 $1,304,560
Income taxes............................ 115,005 168,371 177,424
Noncash financing and investing
activities:
Transfer of securities from held to
maturity to available for sale......... 231,529 114,401 --
Transfer of securities from available
for sale to held to maturity........... -- -- 1,493
Transfer of loans to foreclosed
property............................... 26,306 26,954 24,574
Transfer of fixed assets to other real
estate owned........................... 7,405 14,165 15,429
Restricted stock issued................. -- -- 74
Securitization of mortgage loans........ 304,795 478,768 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
10
<PAGE>
BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1999, 1998 and 1997
BB&T Corporation ("BB&T" or "Parent Company") is a financial holding company
organized under the laws of North Carolina. Branch Banking and Trust Company
("BB&T-NC"); BB&T Financial Corporation of South Carolina, parent company of
Branch Banking and Trust Company of South Carolina ("BB&T-SC"); BB&T Financial
Corporation of Virginia, parent company of Branch Banking and Trust Company of
Virginia ("BB&T-VA"), (collectively, the "Banks"), Regional Acceptance
Corporation ("Regional Acceptance"), BB&T Factors and Scott & Stringfellow
Financial, Inc., ("Scott & Stringfellow") comprise BB&T's principal direct
subsidiaries.
BB&T is also the parent company for fifteen subsidiary banks acquired
through the mergers with Hardwick, First Banking Company and One Valley. These
banks are expected to be merged with and into BB&T-NC and BB&T-VA based on
their states of operation.
The accounting and reporting policies of BB&T Corporation and its
subsidiaries are in accordance with generally accepted accounting principles
and conform to general practices within the banking industry. The following is
a summary of the more significant policies.
NOTE A. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of BB&T include the accounts of BB&T
Corporation and its subsidiaries. In consolidation, all significant
intercompany accounts and transactions have been eliminated. Prior period
financial statements have been restated to include the accounts of companies
acquired in material transactions accounted for as poolings of interests. The
results of operations of companies acquired in transactions accounted for as
purchases are included only from the dates of acquisition. (See Note B).
In certain instances, amounts reported in prior years' consolidated
financial statements have been reclassified to conform to statement
presentations selected for 1999. Such reclassifications had no effect on
previously reported shareholders' equity or net income.
Nature of Operations
BB&T is a financial holding company headquartered in Winston-Salem, North
Carolina. BB&T conducts its operations in North Carolina, South Carolina,
Virginia, Maryland, Georgia, West Virginia, Kentucky and the metropolitan
Washington, D.C. area through its commercial banking subsidiaries and, to a
lesser extent, through its other subsidiaries. BB&T's principal banking
subsidiaries, BB&T-NC, BB&T-SC and 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 located in this geographic area.
Subsidiaries of BB&T's commercial banking units offer lease financing to
commercial 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.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
11
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing
bank balances, Federal funds sold and securities purchased under resale
agreements or similar arrangements. Generally, both cash and cash equivalents
are considered to have maturities of three months or less. Accordingly, the
carrying amount of such instruments is considered a reasonable estimate of
fair value.
Securities
BB&T classifies investment securities as held to maturity, available for
sale or trading. Debt securities acquired with both the intent and ability to
be held to maturity are classified as held to maturity and reported at
amortized cost. Gains or losses realized from the sale of securities held to
maturity, if any, are determined by specific identification and are included
in noninterest income.
Debt securities, which may be sold to meet liquidity needs arising from
unanticipated deposit and loan fluctuations, changes in regulatory capital and
investment requirements, or unforeseen changes in market conditions, including
interest rates, market values or inflation rates, are classified as available
for sale. In addition, all investments in equity securities are classified as
available for sale. Securities available for sale are reported at estimated
fair value, with unrealized gains and losses reported as a separate component
of shareholders' equity, net of deferred income taxes. Gains or losses
realized from the sale of securities available for sale are determined by
specific identification and are included in noninterest income.
Trading account securities are primarily held by Scott & Stringfellow,
BB&T's investment banking and full-service brokerage subsidiary. Trading
account securities are reported on the Consolidated Balance Sheets at fair
value. Market adjustments, fees, and gains or losses earned on trading account
securities are included in noninterest income. Interest income on trading
account securities is included in other interest income. Gains or losses
realized from the sale of trading securities are determined by specific
identification.
During 1999 and 1998, BB&T transferred securities with amortized costs of
$231.5 million and $114.4 million, respectively, from the held-to-maturity
portfolio to the available-for-sale portfolio. These securities were
previously classified as held-to-maturity by entities that merged into BB&T
under the pooling-of-interests method of accounting. BB&T transferred these
amounts pursuant to the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," to conform the combined investment portfolios to BB&T's
existing policies.
Loans Held for Sale
Loans held for sale are reported at the lower of cost or market value on an
aggregate loan basis. Gains or losses realized on the sales of loans are
recognized at the time of sale and are determined by the difference between
the net sales proceeds and the carrying value of the loans sold, adjusted for
any servicing asset or liability.
Loans and Leases
Loans and leases that management has the intent and ability to hold for the
foreseeable future are reported at their outstanding principal balances
adjusted for any deferred fees or costs and unamortized premiums or discounts.
The net amount of nonrefundable loan origination fees, commitment fees and
certain direct costs associated with the lending process are deferred and
amortized to interest income over the contractual lives of the loans using
methods which approximate level-yield, with adjustments for prepayments as
they occur. If the loan commitment expires unexercised, the income is
recognized upon expiration of the commitment. Discounts and premiums are
amortized to interest income over the estimated life of the loans using
methods that approximate level-yield.
12
<PAGE>
Commercial loans and substantially all installment loans accrue interest on
the unpaid balance of the loans. Lease receivables consist primarily of direct
financing leases on rolling stock, equipment and real property. Lease
receivables are stated at the total amount of lease payments receivable plus
guaranteed residual values, less unearned income. Recognition of income over
the lives of the lease contracts approximates the level-yield method.
As of January 1, 1995, BB&T adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," which was amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures." SFAS
No. 114, as amended, requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral-dependent.
A loan is impaired when, based on current information and events, it is
probable that BB&T will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When the fair value of the impaired
loan is less than the recorded investment in the loan, the impairment is
recorded through a valuation allowance.
It is BB&T's policy to classify and disclose all commercial loans greater
than $250,000 that are on nonaccrual status as impaired loans. Substantially
all other loans made by BB&T are excluded from the scope of SFAS No. 114 as
they are comprised of large groups of smaller balance homogeneous loans
(residential mortgage and consumer installment) that are collectively
evaluated for impairment.
Allowance for Loan and Lease Losses
The allowance for loan and lease losses is the estimated amount considered
adequate to cover credit losses inherent in the outstanding loan and lease
portfolio at the balance sheet date. The allowance is established through the
provision for loan and lease losses, which is reflected in the Consolidated
Statements of Income.
The allowance is composed of general reserves, specific reserves and an
unallocated reserve. General reserves for commercial loans are determined by
applying loss percentages to the portfolio based on management's evaluation
and "risk grading" of the commercial loan portfolio. General reserves are
provided for noncommercial loan categories based on a three-year weighted
average of actual loss experience, which is applied to the total outstanding
loan balance of each loan category. Specific reserves are provided on all
commercial loans that are classified in the Special Mention, Substandard or
Doubtful risk grades. The specific reserves are determined on a loan-by-loan
basis based on management's evaluation of BB&T's exposure for each credit,
given the current payment status of the loan and the value of any underlying
collateral. Commercial loans for which a specific reserve is provided are
excluded from the calculations of general reserves. The allowance calculation
also incorporates specific reserves based on the results of measuring impaired
loans as required by SFAS No. 114, as described above.
The unallocated reserve consists of an amount deemed appropriate to cover
the elements of imprecision and estimation risk inherent in the general and
specific reserves and an amount determined based on management's evaluation of
various conditions that are not directly measured by any other component of
the allowance. This evaluation includes general economic and business
conditions affecting key lending areas, credit quality trends, collateral
values, loan volumes and concentrations, seasoning of the loan portfolio, the
findings of our internal credit examiners and results from external bank
regulatory examinations.
While management uses the best information available to establish the
allowance for loan and lease losses, future adjustments to the allowance may
be necessary if economic conditions differ substantially from the assumptions
used in making the valuations or, if required by regulators, based upon
information available to them at the time of their examinations. Such
adjustments to original estimates, as necessary, are made in the period in
which these factors and other relevant considerations indicate that loss
levels may vary from previous estimates.
13
<PAGE>
Nonperforming Assets
Nonperforming assets include loans and leases on which interest is not being
accrued and foreclosed property. Foreclosed property consists of real estate
and other assets acquired through customers' loan defaults. Commercial and
unsecured consumer loans and leases are generally placed on nonaccrual status
when concern exists that principal or interest is not fully collectible, or
when any portion of principal or interest becomes 90 days past due, whichever
occurs first. Mortgage loans and most other consumer loans past due 90 days or
more may remain on accrual status if management determines that concern over
the collectibility of principal and interest is not significant. When loans
are placed on nonaccrual status, interest receivable is reversed against
interest income in the current period. Interest payments received thereafter
are applied as a reduction to the remaining principal balance as long as
concern exists as to the ultimate collection of the principal. Loans and
leases are removed from nonaccrual status when they become current as to both
principal and interest and when concern no longer exists as to the
collectibility of principal or interest.
Assets acquired as a result of foreclosure are carried at the lower of cost
or fair value less estimated selling costs. Cost is determined based on the
sum of unpaid principal, accrued but unpaid interest and acquisition costs
associated with the loan. Any excess of unpaid principal over fair value at
the time of foreclosure is charged to the allowance for loan and lease losses.
Generally, such properties are appraised annually and the carrying value, if
greater than the fair value, less selling costs, is adjusted with a charge to
income. Routine maintenance costs, declines in market value and net losses on
disposal are included in other noninterest expense.
Premises and Equipment
Premises, equipment, capital leases and leasehold improvements are stated at
cost less accumulated depreciation or amortization. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the related assets. Leasehold improvements are amortized on a straight-line
basis over the lesser of the lease terms or the estimated useful lives of the
improvements. Capitalized leases are amortized by the same methods as premises
and equipment over the estimated useful lives or the lease term, whichever is
less. Obligations under capital leases are amortized using the interest method
to allocate payments between principal reduction and interest expense.
Income Taxes
The provision for income taxes is based upon income for financial statement
purposes, adjusted for nontaxable income and nondeductible expenses. Deferred
income taxes have been provided when different accounting methods have been
used in determining income for income tax purposes and for financial reporting
purposes. Deferred tax assets and liabilities are recognized based on future
tax consequences of the differences arising from their carrying values and
respective tax bases. In the event of changes in the tax laws, deferred tax
assets and liabilities are adjusted in the period of the enactment of those
changes, with effects included in the income tax provision. BB&T and its
subsidiaries file a consolidated Federal income tax return. Each subsidiary
pays its proportional share of Federal income taxes to BB&T based on its
taxable income. Institutions acquired during the current fiscal year file
separate Federal income tax returns for the periods prior to consummation of
the acquisitions.
Derivatives and Off-Balance Sheet Instruments
BB&T utilizes a variety of derivative financial instruments to manage
various financial risks. These instruments include financial forward and
futures contracts, options written and purchased, interest rate caps and
floors and interest rate swaps. Management accounts for these financial
instruments as hedges when the following conditions are met: (1) the specific
assets, liabilities, firm commitments or anticipated transactions (or an
identifiable group of essentially similar items) to be hedged expose BB&T to
interest rate risk or price risk; (2) the financial instrument reduces that
exposure; (3) the financial instrument is designated as a hedge at inception;
and (4) at the inception of the hedge and throughout the hedge period, there
is a high correlation of changes in the fair value or the net interest income
associated with the financial instrument and the hedged items.
14
<PAGE>
The net interest payable or receivable on interest rate swaps, caps and
floors that are designated as hedges is accrued and recognized as an
adjustment to the interest income or expense of the related asset or
liability. For interest rate forwards, futures and options qualifying as a
hedge, gains and losses are deferred and are recognized in income as an
adjustment of yield. Gains and losses from early terminations of derivatives
are deferred and amortized as yield adjustments over the shorter of the
remaining term of the hedged asset or liability or the remaining term of the
derivative instrument. Upon disposition or settlement of the asset or
liability being hedged, deferral accounting is discontinued and any gains or
losses are recognized in income. Derivative financial instruments that fail to
qualify as a hedge are carried at fair value with gains and losses recognized
in current earnings.
BB&T utilizes written covered over-the-counter call options on specific
securities in the available-for-sale securities portfolio in order to enhance
returns. Fees received are deferred and recognized in noninterest income upon
exercise or expiration. Written options are carried at estimated fair value.
Unrealized and realized gains and losses on written call options are included
in the Consolidated Statements of Income as securities gains and losses.
BB&T also utilizes over-the-counter purchased put options and net purchased
put options (combination of purchased put option and written call option) in
its mortgage banking activities. These options are used to hedge the mortgage
loan inventory and applications and mortgage loans in process against
increasing interest rates. Written call options are used in tandem with
purchased put options to create a net purchased put option that reduces the
cost of the hedge. Net unrealized gains and losses on purchased put options
and net purchased put options are included with loans held for sale at the
lower of cost or market on an aggregate basis. Realized gains and losses on
purchased put options and net purchased put options are included in mortgage
banking income.
Per Share Data
Effective December 31, 1997, BB&T adopted the provisions of SFAS No. 128,
"Earnings Per Share." This statement established standards for computing and
presenting earnings per share ("EPS") and simplifies the standards for
computation previously found in Accounting Principles Board ("APB") Opinion
No. 15, "Earnings Per Share," making them more comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires dual presentation of basic and diluted EPS (which
replaces the former fully diluted EPS) for all entities with complex capital
structures. The EPS information reported herein reflects the implementation of
SFAS No. 128. Prior periods have been restated to include the provisions of
the statement.
Basic net income per common share has been computed by dividing net income
applicable to common shares by the weighted average number of shares of common
stock outstanding during the years presented.
Diluted net income per common share has been computed by dividing net
income, as adjusted for the interest expense related to convertible debt where
applicable, by the weighted average number of shares of common stock, common
stock equivalents and other potentially dilutive securities outstanding.
Restricted stock grants are considered as issued for purposes of calculating
net income per share.
Weighted average numbers of shares were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Basic.................................... 395,871,173 390,777,294 387,666,595
Diluted.................................. 402,553,284 398,607,854 394,996,137
</TABLE>
On June 23, 1998, BB&T's Board of Directors approved a 2-for-1 stock split
in the Corporation's common stock effected in the form of a 100% stock
dividend paid August 3, 1998. All per share amounts presented herein and the
weighted average shares reflected above have been restated as appropriate to
retroactively reflect the stock split.
15
<PAGE>
Intangible Assets
BB&T's intangible assets consist of the cost in excess of the fair value of
net assets acquired in transactions accounted for as purchases (goodwill),
premiums paid for acquisitions of deposits (core deposit intangibles) and
other identifiable intangible assets. Such assets are included in other assets
in the "Consolidated Balance Sheets," and are being amortized on straight-line
or accelerated bases over periods ranging from 5 to 25 years. At December 31,
1999, BB&T had $680.9 million in unamortized goodwill and $15.8 million in
unamortized core deposit and other intangibles. Negative goodwill is created
when the fair value of the net assets purchased exceeds the purchase price.
Such balances are included in other liabilities in the "Consolidated Balance
Sheets" and are being amortized over periods ranging from 10 to 15 years. At
December 31, 1999, BB&T had negative goodwill totaling $20.5 million, net of
accumulated amortization.
Mortgage Servicing Rights
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities." This statement was superseded by SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which BB&T adopted on January 1, 1997. SFAS
No. 122, as superseded by SFAS No. 125, requires that mortgage banking
enterprises recognize, as separate assets, rights to service mortgage loans
for others, however those servicing rights are acquired. Amounts paid to
acquire the right to service mortgage loans are capitalized and amortized over
the estimated lives of the loans to which they relate. BB&T also capitalizes
servicing rights on loans originated internally as required under the
statement. SFAS No. 122 further requires mortgage banking enterprises to
assess their capitalized mortgage servicing rights for impairment based on the
fair value of those rights. At December 31, 1999, BB&T had capitalized
mortgage servicing rights totaling $189.8 million. Income from mortgage
servicing fees is reflected as mortgage banking income on the Consolidated
Statements of Income.
Changes in Accounting Principles and Effects of New Accounting Pronouncements
In February of 1997, the FASB issued SFAS No. 128, "Earnings Per Share," as
discussed above. The statement was effective for financial statements issued
for periods ending after December 15, 1997, including interim periods, and
requires restatement of all prior periods presented. Accordingly, BB&T adopted
the provisions of the statement effective December 31, 1997, including
retroactive restatement of prior periods. The implementation of the statement
did not have a material impact on BB&T's consolidated financial position or
consolidated results of operations.
In February of 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure," which establishes standards for
disclosing information about an entity's capital structure by continuing and
amending existing standards. The statement was effective for financial
statements for periods ending after December 15, 1997. Management determined
that BB&T was and is in compliance with the disclosure requirements of SFAS
No. 129, and, therefore, the implementation of the statement did not affect
the capital structure disclosures made by BB&T.
In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income (revenues, expenses, gains and losses) in a full set of
general purpose financial statements. Comprehensive income is the
nonshareholder-related change in equity (net assets) of a company during a
period from transactions and other events. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997, including interim periods, and
requires restatement of all prior periods presented. BB&T adopted the
provisions of the statement effective January 1, 1998, including retroactive
application to prior periods. The standard does not address issues of
recognition or measurement of comprehensive income; therefore, the
implementation of the statement did not have a material impact on BB&T's
consolidated financial position or consolidated results of operations.
16
<PAGE>
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes standards for the
way that business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. BB&T adopted the provisions of
the statement effective December 31, 1998. The standard does not address
issues of recognition or measurement and, therefore, the implementation of the
statement did not have an impact on the consolidated financial position or
consolidated results of operations of BB&T. See Note S. in the "Notes to
Consolidated Financial Statements" for disclosures related to the
implementation of this statement.
In March of 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which revises the
disclosure requirements for pensions and other postretirement benefit plans.
BB&T adopted the provisions of this statement effective December 31, 1998,
including restatement of all prior periods presented. The statement does not
address issues of recognition or measurement and, therefore, the
implementation of the statement did not have an impact on BB&T's consolidated
financial position or consolidated results of operations. See Note L. in the
"Notes to Consolidated Financial Statements" for disclosures related to the
implementation of this statement.
During the first quarter of 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") No. 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires capitalization of computer software costs that meet certain criteria.
BB&T adopted the provisions of this statement effective January 1, 1999. This
implementation of the SOP did not have a material effect on BB&T's
consolidated financial position or consolidated results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. 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. In June of 2000, the FASB issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities", which amends SFAS No. 133. SFAS No. 138 addresses a limited
number of issues related to the implementation of SFAS No. 133.
The notional amount of derivative financial instruments held at September
30, 2000, was $2.7 billion with unrealized gains of $1.4 million compared to
$2.0 billion with unrealized gains of $4.5 million at December 31, 1999. The
transition obligation related to the adoption of SFAS No. 133, as amended, is
not expected to have a material effect on BB&T's consolidated financial
position or consolidated results of operations. Additionally, management
believes that substantially all of BB&T's derivatives should qualify for hedge
accounting and be highly effective in offsetting the hedged risk. Accordingly,
the adoption of SFAS No. 133, as amended, is not expected to have a material
impact on BB&T's consolidated financial position or consolidated results of
operations.
During the second quarter of 1998, the American Institute of Certified
Public Accountants issued SOP 98-5, "Accounting for Start-up Costs." SOP 98-5
provides guidance on the financial reporting of start-up costs and
organization costs and requires start-up costs to be expensed as incurred.
BB&T adopted the provisions of the SOP effective January 1, 1999. The adoption
of the statement did not have a material impact on BB&T's consolidated
financial position or consolidated results of operations.
17
<PAGE>
During October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-
Backed Securities Retained after the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." The statement amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities." BB&T adopted the
provisions of the statement effective January 1, 1999. The implementation of
the statement did not have a material impact on BB&T's consolidated financial
position or consolidated results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
replaces SFAS No. 125. SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. The statements provide accounting and
reporting standards for such transactions based on consistent application of a
financial components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. Portions of the statement are effective
immediately and have been adopted by BB&T. Other portions become effective for
transactions occurring after March 31, 2001. The adoption of the continuing
provisions of SFAS No. 125 did not have a material impact on BB&T's
consolidated financial position or consolidated results of operations.
Management does not anticipate that the adoption of the new provisions of SFAS
No. 140 will have a material impact on BB&T's consolidated financial position
or consolidated results of operations.
Supplemental Disclosures of Cash Flow Information
As referenced in the "Consolidated Statements of Cash Flows," BB&T acquired
assets and assumed liabilities in transactions accounted for under the
purchase method of accounting. The fair values of these assets acquired and
liabilities assumed, at acquisition, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Fair Value of Net Assets acquired......... $ 101,722 $ 116,701 $ 138,029
Purchase Price............................ (288,984) (310,618) (287,031)
--------- --------- ---------
Excess of Purchase Price over Net Assets
acquired................................. $(187,262) $(193,917) $(149,002)
========= ========= =========
</TABLE>
Income and Expense Recognition
Items of income and expense are recognized using the accrual basis of
accounting, except for some immaterial amounts that are recognized when
received or paid.
18
<PAGE>
NOTE B. Mergers and Acquisitions
The following table presents summary information with respect to mergers and
acquisitions completed during the last three years and during 2000:
Summary of Completed Mergers and Acquisitions
<TABLE>
<CAPTION>
Date of Accounting Goodwill
Acquisition Acquired Institution Headquarters Total Assets Method Recorded
------------------ ------------------------------------------- -------------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
July 6, 2000 One Valley Bancorp, Inc. Charleston, W.Va. $ 6.4 billion Pooling $ N/A
June 15, 2000 First Banking Company of Southeast Georgia Statesboro, Ga. 420.0 million Pooling N/A
June 13, 2000 Hardwick Holding Company Dalton, Ga. 507.2 million Pooling N/A
January 13, 2000 Premier Bancshares, Inc. Atlanta, Ga. 2.0 billion Pooling N/A
--------------------------------------------------------------------------------------------------------------------------------
November 10, 1999 First Liberty Financial Corp. Macon, Ga. $ 1.7 billion Pooling $ N/A
August 27, 1999 Matewan BancShares, Inc. Williamson, W.Va. 734.7 million Purchase 92.8 million
July 14, 1999 Mason-Dixon Bancshares, Inc. Westminster, Md. 1.2 billion Pooling N/A
July 9, 1999 First Citizens Corporation Newnan, Ga. 417.8 million Pooling N/A
March 26, 1999 Scott & Stringfellow Financial, Inc. Richmond, Va. 262.1 million Purchase 72.8 million
March 5, 1999 MainStreet Financial Corporation Martinsville, Va. 2.0 billion Pooling N/A
--------------------------------------------------------------------------------------------------------------------------------
September 30, 1998 Maryland Federal Bancorp, Inc. Hyattsville, Md. $ 1.3 billion Purchase $ 158.8 million
July 1, 1998 Franklin Bancorporation Inc. Washington, D.C. 674.9 million Pooling N/A
June 30, 1998 W.E. Stanley & Company Inc. Greensboro, N.C. 12.2 million Purchase 10.3 million
June 18, 1998 Dealers' Credit Inc. Menomonee Falls, Wi. 41.3 million Purchase 9.5 million
March 1, 1998 Life Bancorp, Inc. Norfolk, Va. 1.5 billion Pooling N/A
--------------------------------------------------------------------------------------------------------------------------------
December 1, 1997 Virginia First Financial Corporation Petersburg, Va. $ 822.9 million Purchase $ 89.5 million
October 1, 1997 Craigie Incorporated Richmond, Va. 138.7 million Purchase 6.8 million
July 31, 1997 Refloat, Inc. Mount Airy, N.C. 48.4 million Purchase 3.0 million
July 1, 1997 United Carolina Bancshares Corporation Whiteville, N.C. 4.5 billion Pooling N/A
May 20, 1997 Phillips Factors Corporation (BB&T Factors) High Point, N.C. 43.5 million Purchase 11.1 million
March 1, 1997 Fidelity Financial Bankshares Corporation Richmond, Va. 329.2 million Purchase 37.9 million
--------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
BB&T Common
Goodwill Shares Issued
Date of Amortization to Complete
Acquisition Period Transaction
-------------------- ------------ -------------
<S> <C> <C>
July 6, 2000 N/A 43.1 million
June 15, 2000 N/A 4.1 million
June 13, 2000 N/A 3.9 million
January 13, 2000 N/A 16.8 million
--------------------------------------------------------------------------------------------------------------------------------
November 10, 1999 N/A 12.4 million
August 27, 1999 15 Years 3.2 million
July 14, 1999 N/A 6.6 million
July 9, 1999 N/A 3.2 million
March 26, 1999 15 Years 3.6 million
March 5, 1999 N/A 16.8 million
--------------------------------------------------------------------------------------------------------------------------------
September 30, 1998 15 Years 8.7 million
July 1, 1998 N/A 4.9 million
June 30, 1998 15 Years 174,000
June 18, 1998 15 Years 115,000
March 1, 1998 N/A 11.6 million
--------------------------------------------------------------------------------------------------------------------------------
December 1, 1997 15 Years 3.8 million
October 1, 1997 25 Years 926,000
July 31, 1997 15 Years 750,000
July 1, 1997 N/A 55.4 million
May 20, 1997 15 Years N/A
March 1, 1997 15 Years 3.2 million
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/A--Not Applicable
The table above does not include mergers and acquisitions of acquired
companies.
During 2000, BB&T acquired five insurance agencies, which were accounted for
as purchases. In conjunction with these transactions, BB&T issued 1.1 million
shares of common stock and recorded $30.4 million in goodwill, which is being
amortized using the straight-line method over 15 years. During 1999, BB&T
acquired eleven insurance agencies and the books of business from another
agency. These acquisitions were accounted for as purchases. In conjunction
with the transactions, BB&T issued a total of 1.5 million shares of common
stock and recorded $52.8 million of goodwill, which is being amortized using
the straight-line method over 15 years. During 1998, BB&T acquired four
insurance agencies and the book of business of another agency. These
acquisitions were accounted for as purchases. In conjunction with these
transactions, BB&T issued approximately 475,000 shares of common stock and
recorded $17.5 million of goodwill, which is being amortized using the
straight-line method over 15 years.
For acquisitions accounted for under the purchase method of accounting, the
financial information contained herein includes data relevant to the acquirees
since the date of acquisition. The following unaudited presentation reflects
key line items on a Pro Forma basis as if these purchase transactions had been
acquired as of the beginning of the years presented:
<TABLE>
<CAPTION>
For the Years Ended
---------------------
1999 1998
---------- ----------
(Dollars in
thousands, except per
share data)
<S> <C> <C>
Total revenues......................................... $2,858,813 $2,616,163
========== ==========
Net income............................................. $ 697,721 $ 646,439
========== ==========
Basic EPS.............................................. $ 1.76 $ 1.65
========== ==========
Diluted EPS............................................ $ 1.73 $ 1.62
========== ==========
</TABLE>
19
<PAGE>
Under the provisions of SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchase Enterprises," BB&T typically provides an allocation
period, not to exceed one year, to identify and quantify the assets acquired
and liabilities assumed in business combinations accounted for as purchases.
Management currently does not anticipate any material adjustments to the
assigned values of the assets and liabilities of acquired companies.
For acquisitions accounted for as poolings of interests, the financial
information contained herein has been restated to include the accounts of the
merged institutions. The following presentation reflects key line items on an
historical basis for BB&T, Hardwick, First Banking Company and One Valley, and
on a pro forma combined basis assuming the mergers were effective as of and
for the periods presented.
<TABLE>
<CAPTION>
Historical Basis
--------------------------------------------
First BB&T
BB&T Hardwick Banking One Valley restated
------------ --------- --------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
As of/For the Year Ended
December 31, 1999
------------------------
Net interest income..... $ 1,658,082 $ 21,757 $ 21,644 $ 231,465 $ 1,932,948
Net income.............. 614,360 3,453 6,937 80,824 705,574
Net earnings per share
Basic................. 1.78 .83 1.24 2.39 1.78
Diluted............... 1.75 .83 1.24 2.37 1.75
Assets.................. 45,479,056 520,290 421,043 6,580,447 53,000,836
Deposits................ 28,791,574 436,816 338,389 4,580,864 34,147,643
Shareholders' equity.... 3,396,411 53,073 55,406 558,729 4,063,619
As of/For the Year Ended
December 31, 1998
------------------------
Net interest income..... $ 1,497,487 $ 21,430 $ 20,064 $ 220,724 $ 1,759,705
Net income.............. 566,948 5,087 6,664 73,045 651,744
Net earnings per share
Basic................. 1.67 1.27 1.22 2.19 1.67
Diluted............... 1.63 1.26 1.22 2.15 1.64
Assets.................. 41,243,749 536,920 446,245 5,963,580 48,190,494
Deposits................ 27,842,986 442,536 375,684 4,552,888 33,214,094
Shareholders' equity.... 3,326,602 56,117 52,677 595,533 4,030,929
</TABLE>
Pending Mergers and Acquisitions
On July 27, 2000, BB&T announced plans to merge with FCNB Corp, of
Frederick, Maryland. FCNB Corp has approximately $1.6 billion in assets and
operates 34 banking offices, primarily in central Maryland. FCNB Corp's
shareholders will receive .725 shares of BB&T common stock in exchange for
each share of FCNB Corp held. The transaction is expected to be accounted for
as a pooling of interests and projected to close in the first quarter of 2001.
On August 23, 2000, BB&T announced plans to acquire BankFirst Corporation
("BankFirst"), of Knoxville, Tennessee. BankFirst has approximately $848.8
million in assets and operates 32 banking offices in eastern Tennessee. In
conjunction with the acquisition, shareholders of BankFirst will receive .4554
shares of BB&T common stock in exchange for each share of BankFirst common
stock held. The transaction is expected to be accounted for as a purchase and
projected to close in the fourth quarter of 2000.
On September 6, 2000, BB&T announced plans to acquire FirstSpartan Financial
Corp. ("FirstSpartan"), of Spartanburg, South Carolina. FirstSpartan has
approximately $586 million in assets and operates 11 banking offices in the
Upstate Region of South Carolina. In conjunction with the acquisition,
shareholders of FirstSpartan will receive 1.0 share of BB&T common stock in
exchange for each share of FirstSpartan common stock held. The transaction is
expected to be accounted for as a purchase and is projected to close in the
first quarter of 2001.
20
<PAGE>
NOTE C. Securities
The amortized costs and approximate fair values of securities held to
maturity and available for sale were as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------------------- ----------------------------------------
Gross Unrealized Gross Unrealized
Amortized ---------------- Estimated Amortized ---------------- Estimated
Cost Gains Losses Fair Value Cost Gains Losses Fair Value
----------- ------- -------- ----------- ----------- -------- ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity:
U.S. Treasury,
government and agency
obligations........... $ 23,184 $ 4 $ 6 $ 23,182 $ 59,823 $ 354 $ 2 $ 60,175
Mortgage-backed
securities............ -- -- -- -- 71,663 953 351 72,265
States and political
subdivisions.......... 379,822 2,580 8,948 373,454 533,371 17,921 703 550,589
Other securities....... 1,891 -- -- 1,891 8,786 215 -- 9,001
----------- ------- -------- ----------- ----------- -------- ------- -----------
Total securities held
to maturity........... 404,897 2,584 8,954 398,527 673,643 19,443 1,056 692,030
----------- ------- -------- ----------- ----------- -------- ------- -----------
Securities available for
sale:
U.S. Treasury,
government and agency
obligations........... 5,762,670 1,716 175,600 5,588,786 4,863,895 65,474 4,776 4,924,593
Mortgage-backed
securities............ 4,376,959 5,129 125,084 4,257,004 4,571,346 47,354 13,243 4,605,457
States and political
subdivisions.......... 639,225 8,692 32,039 615,878 224,272 5,323 252 229,343
Equity and other
securities............ 1,973,599 516 177,961 1,796,154 1,395,285 22,930 3,854 1,414,361
----------- ------- -------- ----------- ----------- -------- ------- -----------
Total securities
available for sale.... 12,752,453 16,053 510,684 12,257,822 11,054,798 141,081 22,125 11,173,754
----------- ------- -------- ----------- ----------- -------- ------- -----------
Total securities....... $13,157,350 $18,637 $519,638 $12,656,349 $11,728,441 $160,524 $23,181 $11,865,784
=========== ======= ======== =========== =========== ======== ======= ===========
</TABLE>
Securities with a book value of approximately $6.6 billion and $6.2 billion
at December 31, 1999 and 1998, respectively, were pledged to secure municipal
deposits, securities sold under agreements to repurchase, Federal Reserve
discount window borrowings and for other purposes as required by law.
At December 31, 1999 and 1998, there were no concentrations of investments
in obligations of states and political subdivisions that were payable from the
same taxing authority or secured by the same revenue source that exceeded ten
percent of shareholders' equity. Trading securities totaling $93.2 million in
1999 and $60.4 million in 1998 are excluded from the accompanying tables.
Proceeds from sales of securities during 1999, 1998 and 1997 were $874.8
million, $1.6 billion and $2.1 billion, respectively. Gross gains of $4.0
million, $16.1 million and $10.1 million and gross losses of $10.1 million,
$6.0 million and $4.2 million were realized on those sales in 1999, 1998 and
1997, respectively.
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1999, by contractual maturity, are shown in the accompanying
table. The expected life of mortgage-backed securities will differ from
contractual maturities because borrowers may have the right to call or prepay
the underlying mortgage loans with or without call or prepayment penalties.
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings
based on the weighted average contractual maturities of underlying collateral.
21
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------
Held to Maturity Available for Sale
------------------- -----------------------
Estimated
Amortized Fair Amortized Estimated
Cost Value Cost Fair Value
--------- --------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Debt Securities:
Due in one year or less.......... $ 80,174 $ 80,240 $ 1,247,217 $ 1,243,722
Due after one year through five
years........................... 186,713 186,765 3,615,996 3,522,248
Due after five years through ten
years........................... 123,373 116,801 2,028,912 1,947,183
Due after ten years.............. 12,746 12,830 4,540,937 4,225,108
-------- -------- ----------- -----------
Total debt securities.......... $403,006 $396,636 $11,433,062 $10,938,261
======== ======== =========== ===========
</TABLE>
NOTE D. Loans and Leases
Loans and leases were composed of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Loans:
Commercial, financial and agricultural............ $ 5,382,373 $ 5,055,051
Real estate--construction and land development.... 3,818,396 2,932,284
Real estate--mortgage............................. 20,237,959 18,272,695
Consumer.......................................... 4,589,510 4,035,015
----------- -----------
Loans held for investment....................... 34,028,238 30,295,045
Leases:............................................. 2,606,002 1,620,326
----------- -----------
Total loans and leases.......................... 36,634,240 31,915,371
Less: unearned income......................... 1,245,177 725,092
----------- -----------
Loans and leases, net of unearned income...... $35,389,063 $31,190,279
=========== ===========
</TABLE>
The net investment in direct financing leases was $1.5 billion and $986.9
million at December 31, 1999 and 1998, respectively. BB&T had loans held for
sale at December 31, 1999 and 1998 totaling $367.2 million and $1.3 billion,
respectively.
BB&T had $24.4 billion in loans secured by real estate at December 31, 1999.
However, these loans were not concentrated in any specific market or
geographic area other than the Banks' primary markets.
The following table sets forth certain information regarding BB&T's impaired
loans as defined under SFAS No. 114.
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(Dollars in
thousands)
<S> <C> <C>
Total recorded investment--impaired loans................ $39,107 $50,749
------- -------
Total recorded investment with related valuation
allowance............................................... 39,107 49,368
Valuation allowance assigned to impaired loans........... (8,335) (9,791)
------- -------
Net carrying value--impaired loans..................... $30,772 $39,577
======= =======
Average balance of impaired loans........................ $36,558 $57,996
======= =======
Cash basis interest income recognized on impaired loans.. $ 822 $ 440
======= =======
</TABLE>
22
<PAGE>
The following table provides an analysis of loans made to directors,
executive officers and their interests, which in the aggregate exceeded
$60,000 at any time during 1999. All amounts shown represent loans made by
BB&T's subsidiary banks in the ordinary course of business at the Banks'
normal credit terms, including interest rate and collateralization prevailing
at the time for comparable transactions with other persons.
<TABLE>
<CAPTION>
(Dollars in thousands)
----------------------
<S> <C>
Balance, December 31, 1998............................ $ 309,414
Additions........................................... 133,342
Reductions.......................................... (105,920)
---------
Balance, December 31, 1999............................ $ 336,836
=========
</TABLE>
NOTE E. Allowance for Loan and Lease Losses
An analysis of the allowance for loan and lease losses is presented in the
following table:
<TABLE>
<CAPTION>
For the Years Ended December
31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Beginning Balance......................... $ 442,341 $ 388,867 $ 346,111
Provision for losses charged to
expense................................ 114,433 114,729 123,096
Allowances of purchased companies....... 10,392 25,087 17,439
Loans and leases charged-off............ (122,478) (114,752) (123,486)
Recoveries of previous charge-offs...... 32,303 28,346 25,707
--------- --------- ---------
Net loans and leases charged-off...... (90,175) (86,406) (97,779)
--------- --------- ---------
Reconciliation of fiscal year of merged
companies to calander year............. 305 64 --
--------- --------- ---------
Ending Balance............................ $ 477,296 $ 442,341 $ 388,867
========= ========= =========
</TABLE>
At December 31, 1999, 1998 and 1997, loans not currently accruing interest
totaled $119.0 million, $119.1 million and $128.1 million, respectively. Loans
90 days or more past due and still accruing interest totaled $60.0 million,
$63.3 million and $57.0 million, at December 31, 1999, 1998 and 1997,
respectively. The gross interest income that would have been earned during
1999 if the outstanding nonaccrual loans and leases had been current in
accordance with the original terms and had been outstanding throughout the
period (or since origination, if held for part of the period) was
approximately $10.8 million. Foreclosed property totaled $31.9 million, $37.2
million and $46.8 million at December 31, 1999, 1998 and 1997, respectively.
NOTE F. Premises and Equipment
A summary of premises and equipment is presented in the accompanying table:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Land and land improvements............................ $ 139,545 $ 129,415
Buildings and building improvements................... 555,608 531,842
Furniture and equipment............................... 564,877 546,668
Capitalized leases on premises and equipment.......... 3,945 5,069
---------- ----------
1,263,975 1,212,994
Less--accumulated depreciation and amortization....... 550,886 526,501
---------- ----------
Net premises and equipment.......................... $ 713,089 $ 686,493
========== ==========
</TABLE>
23
<PAGE>
Depreciation expense, which is included in occupancy and equipment expense,
was $101.5 million, $89.1 million and $81.8 million in 1999, 1998 and 1997,
respectively.
BB&T has noncancelable leases covering certain premises and equipment. Total
rent expense applicable to operating leases was $64.0 million, $43.7 million
and $59.6 million for 1999, 1998 and 1997, respectively. Future minimum lease
payments for operating and capitalized leases for years subsequent to 1999 are
as follows:
<TABLE>
<CAPTION>
Leases
---------------------
Operating Capitalized
--------- -----------
(Dollars in
thousands)
<S> <C> <C>
Years ended December 31:
2000............................................... $ 38,096 $ 445
2001............................................... 34,485 394
2002............................................... 28,869 395
2003............................................... 24,423 355
2004............................................... 22,372 303
2005 and years later............................... 107,645 2,784
-------- ------
Total minimum lease payments......................... $255,890 4,676
========
Less--amount representing interest................... 2,141
------
Present value of net minimum payments on capitalized
leases (Note I)..................................... $2,535
======
</TABLE>
NOTE G. Loan Servicing
The following is an analysis of capitalized mortgage servicing rights
included in other assets in the Consolidated Balance Sheets:
<TABLE>
<CAPTION>
Capitalized
Mortgage
Servicing Rights
------------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Balance, January 1,...................................... $119,613 $ 79,250
Amount capitalized..................................... 79,437 86,954
Amount sold............................................ -- (1,118)
Amortization expense................................... (28,730) (28,042)
Change in valuation allowance.......................... 19,489 (17,431)
-------- --------
Balance, December 31,.................................... $189,809 $119,613
======== ========
</TABLE>
Capitalized mortgage servicing rights are being amortized on a disaggregated
loan basis using an accelerated method over the estimated life of the
underlying loans. The servicing rights portfolio is analyzed each quarter to
identify possible impairment using a disaggregated discounted cash flow
methodology that is stratified by predominant risk characteristics. These
characteristics include stratification based on interest rates in intervals of
150 basis points, type of loan and maturity of loan.
24
<PAGE>
Following is an analysis of the aggregate changes in the valuation allowance
for mortgage servicing rights in 1999 and 1998 including the effects of
related hedging instruments:
<TABLE>
<CAPTION>
Valuation
Allowance for
Mortgage
Servicing Rights
-----------------
1999 1998
-------- -------
(Dollars in
thousands)
<S> <C> <C>
Balance, January 1,....................................... $ 21,031 $ 3,600
Additions............................................... 462 17,704
Reductions.............................................. (19,951) (273)
-------- -------
Balance, December 31,..................................... $ 1,542 $21,031
======== =======
</TABLE>
Mortgage loans serviced for others are not included in loans on the
accompanying Consolidated Balance Sheets. The unpaid principal balances of
mortgage loans serviced for others were $15.2 billion and $12.7 billion at
December 31, 1999 and 1998, respectively.
NOTE H. Short-Term Borrowed Funds
Short-term borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Federal funds purchased............................... $ 304,793 $ 960,717
Term Federal funds purchased.......................... -- 25,000
Securities sold under agreements to repurchase........ 2,639,879 2,349,138
Master notes.......................................... 698,704 675,141
U.S. Treasury tax and loan deposit notes payable...... 1,252,469 194,293
Short-term Federal Home Loan Bank advances............ 461,657 272,250
Short-term bank notes................................. 1,645,000 73,181
Other short-term borrowed funds....................... 969,371 266,014
---------- ----------
Total short-term borrowed funds..................... $7,971,873 $4,815,734
========== ==========
</TABLE>
Federal funds purchased represent unsecured borrowings from other banks and
generally mature daily. Term Federal funds purchased are identical to Federal
funds; however, maturities vary and are greater than one day. Securities sold
under agreements to repurchase are borrowings collateralized by securities of
the U.S. Government or its agencies and have maturities ranging from one to
ninety days. U.S. Treasury tax and loan deposit notes payable are payable upon
demand to the U.S. Treasury. Master notes are unsecured, non-negotiable
obligations of BB&T (variable rate commercial paper). Short-term Federal Home
Loan Bank advances deposit notes generally mature daily. Short-term bank notes
are unsecured borrowings issued by the banking subsidiaries that generally
mature in less than one year.
25
<PAGE>
NOTE I. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Capitalized leases, varying maturities to 2028 with
rates from 8.11% to 12.65%. Balance represents the
unamortized amounts due on leases of various
facilities............................................. $ 2,535 $ 3,507
Medium-term bank notes, unsecured, varying maturities to
2008 with variable rates from 5.279% to 7.48%.......... 969,945 1,389,890
Advances from Federal Home Loan Bank, varying maturities
to 2018 with rates from 1.00% to 8.75%................. 4,115,086 3,113,399
Subordinated Notes, unsecured, dated May 21, 1996, June
3, 1997 and June 30, 1998 (1); maturing May 23, 2003,
June 15, 2007 and June 30, 2025; with interest rates of
7.05%, 7.25% and 6.375%, respectively. (2)............. 857,272 859,303
CMO Bonds, secured by investments, dated 1985, callable
July 1, 2001, with an interest rate of 11.25%.......... 8,128 10,558
Corporation-obligated mandatorily redeemable capital
securities, dated June 15, 1997, maturing June 15,
2027, with interest at 10.07%; June 15, 1997, maturing
June 15, 2028, with interest at 8.40%; November 19,
1997, maturing November 19, 2027, with interest at
8.90%; and November 30, 1997, maturing December 31,
2007, with interest at 9.00% (3)....................... 117,987 116,750
Other mortgage indebtedness............................. 2,475 6,466
---------- ----------
Total long-term debt.................................. $6,073,428 $5,499,873
========== ==========
</TABLE>
--------
(1) The $350 million in subordinated debt, issued June 30, 1998, is
mandatorally puttable to BB&T on June 30, 2005, and contains a remarketing
option that allows the debt to be reissued by the holder of the option to
the stated maturity of June 30, 2025.
(2) Subordinated notes qualify under the risk-based capital guidelines as Tier
2 supplementary capital.
(3) Securities qualify under the risk-based capital guidelines as Tier 1
capital.
Excluding the capitalized leases set forth in Note F, future debt maturities
are $1.4 billion, $665.2 million, $172.0 million, $297.4 million and $7.2
million for the next five years. The maturities for 2005 and later years total
$3.5 billion.
NOTE J. Shareholders' Equity
The authorized capital stock of BB&T consists of 500,000,000 shares of
common stock, $5 par value, and 5,000,000 shares of preferred stock, $5 par
value. At December 31, 1999, 398,742,188 shares of common stock and no shares
of preferred stock were issued and outstanding.
26
<PAGE>
Stock Option Plans
At December 31, 1999, BB&T had the following stock-based compensation plans:
the 1994 and 1995 Omnibus Stock Incentive Plans ("Omnibus Plans"), the
Incentive Stock Option Plan ("ISOP"), the Non-Qualified Stock Option Plan
("NQSOP") and the Non-Employee Directors' Stock Option Plan ("Directors'
Plan"), which are described below. BB&T accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined based on the fair value at
the grant dates for awards under those plans granted after December 31, 1994,
consistent with the method described by SFAS No. 123, BB&T's pro forma net
income and pro forma earnings per share would have been as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1999 1998 1997
-------- -------- --------
(Dollars in thousands,
except per share data)
<S> <C> <C> <C>
Net income applicable to common shares:
As reported.................................... $705,574 $651,744 $501,613
Pro Forma...................................... 687,295 638,991 491,807
Basic EPS:
As reported.................................... 1.78 1.67 1.29
Pro Forma...................................... 1.74 1.64 1.27
Diluted EPS:
As reported.................................... 1.75 1.64 1.27
Pro Forma...................................... 1.71 1.60 1.25
</TABLE>
The SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995; therefore, the weighted average fair value
of options granted prior to that date has not been calculated. The fair value
of each option grant was estimated on the date of grant using the Black-
Scholes option-pricing model with the following weighted-average assumptions
used for grants in 1999, 1998 and 1997, respectively: dividend yield of 2.5%
in 1999, 2.4% in 1998 and 2.7% in 1997; expected volatility of 25% in 1999,
24% in 1998 and 22% in 1997; risk free interest rates of 5.3%, 5.7% and 6.2%
for 1999, 1998 and 1997, respectively; and expected lives of 6.0 years, 6.3
years and 6.3 years for 1999, 1998 and 1997, respectively.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
In April, 1994 and February, 1995, the shareholders approved the Omnibus
Plans which cover the award of incentive stock options, non-qualified stock
options, shares of restricted stock, performance shares and stock appreciation
rights. In April 1996, the shareholders approved an amendment to the 1995
Omnibus Plan that increased the maximum number of shares issuable under the
terms of the plan, after giving effect to the August 3, 1998, 2-for-1 stock
split, to 12,000,000. The provisions of the 1995 Omnibus Plan also provide for
an automatic increase in the authorized number of shares issuable, equal to 3%
of any increase in the Corporation's outstanding common shares. Including
options authorized under these provisions, the maximum number of shares
issuable under the plan was 16,601,000 at December 31, 1999. The combined
shares issuable under both Omnibus Plans, after giving effect to the 2-for-1
stock split and the automatic increase provided by the terms of the 1995
Omnibus Plan, is 24,601,000 at December 31, 1999. The Omnibus Plans are
intended to allow BB&T to recruit and retain employees with ability and
initiative and to associate the employees' interests with those of BB&T and
its shareholders. At December 31, 1999, 9,448,043 qualified stock options at
prices ranging from $4.29 to $51.41 and 4,786,292 non-qualified stock options
at prices ranging from $.005 to $56.98 were outstanding. The stock options
generally vest over 3 years and have a 10-year term.
The ISOP and the NQSOP were established to retain key officers and key
management employees and to offer them the incentive to use their best efforts
on behalf of BB&T. The plans, which expire on December 19, 2000, further
provide for up to 2,202,000 shares of common stock to be reserved for the
granting of options,
27
<PAGE>
which have a four year vesting schedule and must be exercised within ten years
from the date granted. Incentive stock options granted must have an exercise
price equal to at least 100% of the fair market value of common stock on the
date granted, and the non-qualified stock options must have an exercise price
equal to at least 85% of the fair market value on the date granted. At
December 31, 1999, options to purchase 142,526 shares of common stock at
prices ranging from $4.75 to $8.375 were outstanding pursuant to the NQSOP. At
December 31,1999, options to purchase 102,546 shares of common stock at an
exercise price of $9.8885 were outstanding pursuant to the ISOP.
The Directors' Stock Option Plan is intended to provide incentives to non-
employee directors to remain on the Board of Directors and share in the
profitability of BB&T. The plan creates a deferred compensation system for
participating non-employee directors. Each non-employee director may elect to
defer 0%, 50% or 100% of the annual retainer fee for each calendar year and
apply that percentage toward the grant of options to purchase BB&T common
stock. Such elections are required to be in writing and are irrevocable for
each calendar year. The exercise price at which shares of BB&T common stock
may be purchased shall be equal to 75% of the market value of the common stock
as of the date of grant. Options are vested in six months and may be exercised
anytime thereafter until the expiration date, which is 10 years from the date
of grant. The Directors' Plan provides for the reservation of up to 1,800,000
shares of BB&T common stock. At December 31, 1999, options to purchase 814,370
shares of common stock at prices ranging from $6.3578 to $28.8719 were
outstanding pursuant to the Directors' Plan.
BB&T also has options outstanding that were granted by certain acquired
companies. These options, which have not been included in the plans described
above, totaled 166,742 as of December 31, 1999, with option prices ranging
from $1.3334 to $11.8535.
A summary of the status of the Company's stock option plans at December 31,
1999, 1998 and 1997 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 15,508,850 $15.14 16,308,031 $11.21 16,939,077 $ 9.29
Granted................. 3,146,317 34.01 3,392,532 28.03 3,032,363 18.09
Exercised............... (2,907,228) 10.89 (4,046,474) 9.49 (3,494,915) 7.79
Forfeited or Expired.... (287,420) 36.28 (145,239) 22.21 (168,494) 13.15
---------- ------ ---------- ------ ---------- ------
Outstanding at end of
year................... 15,460,519 $19.38 15,508,850 $15.14 16,308,031 $11.21
========== ====== ========== ====== ========== ======
Options exercisable at
year-end............... 12,983,505 $16.49 12,110,860 $12.08 13,709,765 $10.04
========== ====== ========== ====== ========== ======
</TABLE>
The weighted average fair value of options granted was $9.11, $8.61 and
$4.94 per option at December 31, 1999, 1998 and 1997, respectively.
28
<PAGE>
The following table summarizes information about the options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices 12/31/99 Life Price 12/31/99 Price
---------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 to $ 2.50 6,384 4.7 yrs $ 1.13 6,384 $ 1.13
$ 2.51 to $ 3.75 9,202 3.4 3.23 9,202 3.23
$ 3.76 to $ 5.50 91,754 2.6 4.74 91,754 4.74
$ 5.51 to $ 8.25 1,339,145 2.5 6.94 1,339,145 6.94
$ 8.26 to $12.25 4,681,272 4.8 10.33 4,681,272 10.34
$12.26 to $18.25 2,443,923 6.2 13.80 2,443,923 13.80
$18.26 to $27.25 2,058,202 7.5 21.12 1,675,689 21.30
$27.26 to $40.31 4,518,913 8.7 33.01 2,424,412 31.84
$40.32 to $56.98 311,724 8.8 47.44 311,724 47.44
---------- --- ------ ---------- ------
15,460,519 6.3 yrs $19.38 12,983,505 $16.49
========== === ====== ========== ======
</TABLE>
Shareholder Rights Plan
On January 17, 1997, pursuant to the Rights Agreement approved by the Board
of Directors, BB&T distributed to shareholders one preferred stock purchase
right for each share of BB&T's common stock then outstanding. Subsequent to
this date, all shares issued are accompanied by a stock purchase right.
Initially, the rights, which expire in 10 years, are not exercisable and are
not transferable apart from the common stock. The rights will become
exercisable only if a person or group acquires 20% or more of BB&T's common
stock, or BB&T's Board of Directors determines, pursuant to the terms of the
Rights Agreement, that any person or group that has acquired 10% or more of
BB&T's common stock is an "Adverse Person." Each right would then enable the
holder to purchase 1/100th of a share of a new series of BB&T preferred stock
at an initial exercise price of $145.00. The Board of Directors will be
entitled to redeem the rights at $.01 per right under certain circumstances
specified in the Rights Agreement.
Under the terms of the Rights Agreement, if any person or group becomes the
beneficial owner of 25% or more of BB&T's common stock, with certain
exceptions, or if the Board of Directors determines that any 10% or more
stockholder is an "Adverse Person," each right will entitle its holder (other
than the person triggering exercisability of the rights) to purchase, at the
right's then-current exercise price, shares of BB&T's common stock having a
value of twice the right's exercise price. In addition, if after any person or
group has become a 20% or more stockholder, BB&T is involved in a merger or
other business combination transaction with another person in which its common
stock is changed or converted, or sells 50% or more of its assets or earning
power to another person, each right will entitle its holder to purchase, at
the right's then-current exercise price, shares of common stock of such other
person having a value of twice the right's exercise price.
29
<PAGE>
Note K. Income Taxes
The provision for income taxes was composed of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Current expense:
Federal.................................. $ 151,492 $ 244,547 $ 261,285
State.................................... 10,958 15,651 16,093
--------- --------- ---------
162,450 260,198 277,378
Deferred expense (benefit)................. 178,433 46,546 (17,181)
--------- --------- ---------
Provision for income taxes................. $ 340,883 $ 306,744 $ 260,197
========= ========= =========
The reasons for the difference between the provision for income taxes and
the amount computed by applying the statutory Federal income tax rate to
income before income taxes were as follows:
<CAPTION>
Years Ended December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Federal income taxes at statutory rates of
35%....................................... $ 366,048 $ 335,251 $ 267,275
Tax-exempt income from securities, loans
and leases less related non-deductible
interest expense.......................... (24,088) (19,724) (19,027)
State income taxes, net of Federal tax
benefit................................... 9,821 12,112 9,543
Other, net................................. (10,898) (20,895) 2,406
--------- --------- ---------
Provision for income taxes................. $ 340,883 $ 306,744 $ 260,197
========= ========= =========
Effective income tax rate.................. 32.6% 32.0% 34.2%
========= ========= =========
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the net deferred tax assets (liabilities) in the "Consolidated
Balance Sheets" were:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
(Dollars in
thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan and lease losses..................... $174,411 $160,494
Net unrealized depreciation on securities available for
sale................................................... 185,516 --
Deferred compensation................................... 38,498 31,026
Postretirement benefits other than pensions............. 21,177 21,665
Other................................................... 63,359 46,852
-------- --------
Total tax deferred assets................................. 482,961 260,037
-------- --------
Deferred tax liabilities:
Depreciation............................................ (19,295) (23,707)
Net unrealized appreciation on securities available for
sale................................................... -- (46,122)
Lease financing......................................... (254,197) (75,933)
Mortgage servicing rights............................... (41,359) (3,807)
Other................................................... (33,970) (37,278)
-------- --------
Total tax deferred liabilities............................ (348,821) (186,847)
-------- --------
Net deferred tax asset.................................... $134,140 $ 73,190
======== ========
</TABLE>
30
<PAGE>
Securities transactions resulted in income tax (benefits) expense of $(2.3
million), $3.9 million and $2.3 million related to securities (losses) gains
for the years ended December 31, 1999, 1998 and 1997, respectively.
NOTE L. Benefit Plans
BB&T provides various benefit plans to existing employees and employees of
acquired entities. Employees of acquired entities generally participate in
existing BB&T plans upon consummation of the business combinations. Credit is
usually given to these employees for years of service at the acquired
institution.
The following table discloses expenses relating to employee benefit plans
restated for transactions accounted for as poolings of interests.
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Defined benefit plans............................ $ 19,050 $ 12,991 $ 18,493
Defined contribution and ESOP plans.............. 16,968 21,582 29,448
-------- -------- --------
Total expense related to benefit plans......... $ 36,018 $ 34,573 $ 47,941
======== ======== ========
</TABLE>
Retirement Plans
BB&T provides a defined benefit retirement plan qualified under the Internal
Revenue Code that covers substantially all employees. Benefits are based on
years of service, age at retirement and the employee's compensation during the
five highest consecutive years of earnings within the last ten years of
employment. BB&T's contributions to the plan are in amounts between the
minimum required for funding standard accounts and the maximum deductible for
federal income tax purposes.
The combination of actuarial information for the benefit plans of acquired
entities is typically not meaningful because the benefits offered in those
plans and assumptions used in the calculations related to those plans are
superseded by the benefits offered in the BB&T plans and the assumptions used
in the BB&T calculations. Accordingly, the actuarial information presented for
retirement plans and postretirement benefits in the accompanying tables is
that of BB&T as originally presented.
Supplemental retirement benefits are provided to certain key officers under
supplemental defined benefit executive retirement plans, which are not
qualified under the Internal Revenue Code. Although technically unfunded
plans, insurance policies on the lives of the covered employees partially fund
future benefits.
The tables below summarize data relative to the plans for the years as
indicated:
<TABLE>
<CAPTION>
Net Periodic Pension Cost 1999 1998 1997
------------------------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost................................... $ 18,935 $ 15,059 $ 12,412
Interest cost.................................. 22,457 19,765 17,971
Estimated return on plan assets................ (26,017) (22,869) (17,987)
Net amortization and other..................... (2,134) 1,257 790
-------- -------- --------
Net periodic pension cost.................... $ 13,241 $ 13,212 $ 13,186
======== ======== ========
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Plans for which Plans for which
assets exceed accumulated
accumulated benefits exceed
benefits assets
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(Dollars in thousands)
Change in Projected Benefit
Obligation
---------------------------
<S> <C> <C> <C> <C>
Projected benefit obligation,
January 1,..................... $ 300,136 $ 244,769 $ 32,820 $ 24,188
Service cost.................. 17,784 13,932 1,151 1,127
Interest cost................. 20,420 17,765 2,037 2,000
Actuarial (gain) loss......... (57,384) 26,529 (6,606) 6,190
Benefits paid................. (16,522) (10,502) (669) (685)
Change in plan provisions..... (2,418) 2,813 75 --
Other, net.................... 6,384 4,830 (1) --
--------- --------- --------- ---------
Projected benefit obligation,
December 31,................... $ 268,400 $ 300,136 $ 28,807 $ 32,820
========= ========= ========= =========
<CAPTION>
Change in Plan Assets 1999 1998 1999 1998
--------------------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Fair value of plan assets,
January 1,..................... $ 321,474 $ 284,905 $ -- $ --
Actual return on plan assets.. 15,091 35,965 -- --
Employer contributions........ 1,693 5,349 669 685
Benefits paid................. (16,522) (10,502) (669) (685)
Other, net.................... 6,384 5,757 -- --
--------- --------- --------- ---------
Fair value of plan assets,
December 31,................... $ 328,120 $ 321,474 $ -- $ --
========= ========= ========= =========
<CAPTION>
Net Amount Recognized 1999 1998 1999 1998
--------------------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Funded status................... $ 59,719 $ 21,338 $ (28,807) $ (32,820)
Unrecognized transition (asset)
obligation..................... (4,262) (5,400) 191 234
Unrecognized prior service
cost........................... (20,949) (20,909) 2,781 3,114
Unrecognized net loss........... (26,890) 19,568 3,678 11,215
Other, net...................... -- -- -- --
--------- --------- --------- ---------
Net amount recognized........... $ 7,618 $ 14,597 $ (22,157) $ (18,257)
========= ========= ========= =========
<CAPTION>
Reconciliation of Net Pension
Asset (Liability) 1999 1998 1999 1998
----------------------------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Prepaid pension cost, January 1, $ 14,597 $ 16,446 $ (18,257) $ (13,086)
Contributions 1,693 5,349 517 519
Net periodic pension cost (8,672) (8,126) (4,452) (4,489)
Other, net -- 928 35 (1,201)
--------- --------- --------- ---------
Prepaid (accrued) pension cost,
December 31, $ 7,618 $ 14,597 $ (22,157) $ (18,257)
========= ========= ========= =========
<CAPTION>
Weighted Average Assumptions December 31,
---------------------------- --------------------
1999 1998
--------- ---------
<S> <C> <C>
Weighted average assumed
discount rate.................. 7.75% 6.75%
Weighted average expected long-
term rate of return on plan
assets......................... 8.00 8.00
Assumed rate of annual
compensation increases......... 5.50 5.50
</TABLE>
Pension plan assets consist primarily of investments in mutual funds
consisting of equity investments, obligations of the U.S. Treasury and Federal
agencies and corporations. Plan assets included $18.5 million and $26.8
million of BB&T common stock at December 31, 1999 and 1998, respectively. The
market value of total plan assets was $328.1 million and $321.5 million at
December 31, 1999 and 1998, respectively.
32
<PAGE>
Postretirement Benefits
BB&T revised its retiree health care plans in preparation for the
implementation of SFAS No. 106, "Accounting for Postretirement Benefits Other
Than Pensions." The new plan covers employees retiring after December 31, 1995
who are eligible for participation in the BB&T pension plan and have at least
ten years of service. The plan requires retiree contributions, with a subsidy
by BB&T based upon years of service of the employee at the time of retirement.
The subsidy is periodically reviewed for adjustment. The plan provides
flexible benefits to retirees or their dependents.
The following tables set forth the components of the retiree benefit plan
and the amount recognized in the consolidated financial statements at December
31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
Net Periodic Postretirement Benefit Cost: 1999 1998 1997
----------------------------------------- --------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C>
Service cost.................................. $ 1,126 $ 1,550 $ 733
Interest cost................................. 3,314 3,422 2,586
Amortization and other........................ 518 519 (37)
--------- --------- ------
Total expense............................... $ 4,958 $ 5,491 $3,282
========= ========= ======
<CAPTION>
1999 1998
--------- ---------
(Dollars in
thousands)
Change in Projected Benefit Obligation
--------------------------------------
<S> <C> <C>
Projected benefit obligation, January 1,...... $ 53,630 $ 38,342
Service cost................................ 1,126 1,550
Interest cost............................... 3,314 3,422
Plan participants' contributions............ 727 475
Actuarial loss (gain)....................... (8,286) 4,958
Benefits paid............................... (1,793) (1,859)
Other, net.................................. 2,480 6,742
--------- ---------
Projected benefit obligation, December 31,.... $ 51,198 $ 53,630
========= =========
<CAPTION>
Change in Plan Assets 1999 1998
--------------------- --------- ---------
(Dollars in
thousands)
<S> <C> <C>
Fair value of plan assets, January 1,......... $ -- $ --
Actual return on plan assets................ -- --
Employer contributions...................... 1,066 1,384
Plan participants' contributions............ 727 475
Benefits paid............................... (1,793) (1,859)
--------- ---------
Fair value of plan assets, December 31,....... $ -- $ --
========= =========
<CAPTION>
Net Amount Recognized 1999 1998
--------------------- --------- ---------
(Dollars in
thousands)
<S> <C> <C>
Funded status................................. $ (51,198) $ (53,630)
Unrecognized prior service cost............... 5,704 6,223
Unrecognized net (gain) loss.................. (7,740) 600
--------- ---------
Net amount recognized......................... $ (53,234) $ (46,807)
========= =========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Reconciliation of Postretirement Benefit 1999 1998
---------------------------------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C>
Prepaid (accrued) postretirement benefit,
January 1,.................................. $ (46,807) $ (42,700)
Contributions.............................. 1,066 1,384
Net periodic postretirement benefit cost... (4,958) (5,491)
Other, net................................. (2,535) --
--------- ---------
Prepaid (accrued) postretirement benefit
cost, December 31, ......................... (53,234) $ (46,807)
========= =========
<CAPTION>
Weighted Average Assumptions December 31,
---------------------------- --------------------------
1999 1998
----------- -----------
<S> <C> <C>
Weighted average assumed discount rate....... 7.75% 6.75%
Medical trend rate--initial year............. 8.00 9.00
Medical trend rate--ultimate................. 5.00 5.00
Select period................................ 3 yrs 4 yrs
<CAPTION>
1% Increase 1% Decrease
----------- -----------
<S> <C> <C>
Impact of a 1% change in assumed health care
cost on:
Service and interest costs................. 1.90% (1.70)%
Accumulated postretirement benefit
obligation................................ 1.80 (1.60)
</TABLE>
401-k Savings Plan
Effective January 1, 1996, BB&T's Employee Stock Ownership Plan was merged
into the former BB&T Financial Corporation Savings and Thrift Plan to form the
BB&T Corporation 401-k Savings Plan. The plan permits employees to contribute
up to 16% of their compensation. BB&T matches up to 6% of the employee's
compensation with a 100% matching contribution.
Settlement Agreements
In connection with a merger, an executive officer of a merged institution
agreed to retire during 1997. BB&T entered into a settlement and
noncompetition agreement with this executive officer to settle an existing
employment contract and to require the officer not to compete with BB&T. The
settlement agreement provides for annual payments of $769,392 (to be adjusted
annually in accordance with the Consumer Price Index) until the executive
reaches the age of 65 in 2002, at which time the annual payments will be
reduced to 70% of the amount paid during the final year pursuant the
agreement, estimated to be approximately $623,000, less the company-provided
portion of benefits payable under certain existing benefit plans. The reduced
payments will continue for the life of the executive. If the executive's
current wife survives him, payments will continue to her in the annual amount
equal to 35% of the amount paid to the executive during the final year
pursuant to the agreement. The executive officer has agreed not to compete in
a defined geographic area for ten years.
Other
There are various other employment contracts, deferred compensation
arrangements and covenants not to compete with selected members of management
and certain retirees.
NOTE M. Commitments and Contingencies
BB&T is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of clients and to reduce
exposure to fluctuations in interest rates. These financial instruments
include commitments to extend credit, options written, standby letters of
credit and financial guarantees, interest rate caps and floors written,
interest rate swaps and forward and futures contracts.
34
<PAGE>
BB&T's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by
the contractual notional amount of those instruments. BB&T uses the same
credit policies in making commitments and conditional obligations as it does
for on-balance sheet transactions.
<TABLE>
<CAPTION>
Contract or Notional
Amount at December 31,
-----------------------
1999 1998
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Financial instruments whose contracts amounts
represent credit risk:
Commitments to extend, originate or purchase
credit............................................. $13,398,955 $11,816,516
Standby letters of credit and financial guarantees
written............................................ 504,350 424,105
Commercial letters of credit........................ 40,417 36,277
Financial instruments whose notional or contract
amounts exceed the amount of credit risk:
Forward and futures contracts....................... $ 319,411 $ 1,274,620
Foreign exchange contracts.......................... 72,228 136,628
</TABLE>
Commitments to extend credit are arrangements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Historically, many commitments expire
without being drawn upon; therefore, the total commitment amounts shown in the
above table are not necessarily indicative of future cash requirements. BB&T
evaluates each customer's creditworthiness on a case-by-case basis. The amount
and type of collateral obtained, if deemed necessary by BB&T upon extension of
credit, is based on management's evaluation of the creditworthiness of the
counterparty.
Standby letters of credit and financial guarantees written are conditional
commitments issued by BB&T to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper issuance, bond
financing and similar transactions. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers, and letters of credit are collateralized when
necessary.
Forward commitments to sell mortgage loans and mortgage-backed securities
are contracts for delayed delivery of securities in which BB&T agrees to make
delivery at a specified future date of a specified instrument, at a specified
price or yield. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in securities' values and
interest rates.
Legal Proceedings
The nature of the business of BB&T's banking subsidiaries ordinarily results
in a certain amount of litigation. The subsidiaries of BB&T are involved in
various legal proceedings, all of which are considered incidental to the
normal conduct of business. Management believes that the liabilities, if any,
arising from these proceedings will not have a materially adverse effect on
the consolidated financial position or consolidated results of operations of
BB&T.
35
<PAGE>
NOTE N. Regulatory Requirements and Other Restrictions
BB&T's subsidiary banks are required by the Board of Governors of the
Federal Reserve System to maintain reserve balances in the form of vault cash
or deposits with the Federal Reserve Bank based on certain percentages of
deposit types, subject to various adjustments. At December 31, 1999, the net
reserve requirement amounted to $313.5 million.
BB&T's subsidiary banks are prohibited from paying dividends from their
capital stock and additional paid-in capital accounts and are required by
regulatory authorities to maintain minimum capital levels. Subject to
restrictions imposed by state laws and federal regulations, the Boards of
Directors of the subsidiary banks could have declared dividends from their
retained earnings up to $1.6 billion at December 31, 1999.
BB&T is subject to various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on BB&T's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Corporation must meet specific
capital guidelines that involve quantitative measures of BB&T's assets,
liabilities and certain off-balance-sheet items calculated pursuant to
regulatory directives. BB&T's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors. BB&T was in compliance with these requirements
at December 31, 1999.
Quantitative measures established by regulation to ensure capital adequacy
require BB&T to maintain minimum amounts and ratios of total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to average assets.
The following table provides summary information regarding regulatory
capital for BB&T and its significant banking subsidiaries as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
---------------------------- -----------------------------
For For Minimum
Actual Minimum Actual Capital
----------------- Adequacy ----------------- Adequacy
Ratio Amount Purposes Ratio Amount Purposes
----- ---------- ---------- ----- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital
BB&T................... 9.9% $3,679,736 $1,485,137 11.1% $3,536,006 $1,276,624
BB&T-NC................ 9.8 2,099,547 859,215 10.9 1,951,554 718,964
BB&T-SC................ 9.7 366,991 151,036 12.7 421,891 133,225
BB&T-VA................ 11.3 373,412 132,495 14.8 477,894 129,551
Premier................ 11.6 144,673 49,779 12.8 135,562 42,356
One Valley Bank-
National.............. 10.4 161,249 61,835 10.6 141,810 53,677
One Valley Bank-Central
Virginia.............. 12.9 92,752 28,713 13.2 87,914 26,664
-----------------------------------------------------------------------------------
Total Capital
BB&T................... 13.2% $4,901,622 $2,970,274 14.9% $4,762,957 $2,553,248
BB&T-NC................ 10.9 2,347,895 1,718,430 12.2 2,184,679 1,437,928
BB&T-SC................ 11.0 413,911 302,071 13.9 463,895 266,451
BB&T-VA................ 12.5 415,120 264,990 16.0 518,525 259,103
Premier................ 12.9 160,269 99,558 13.9 147,417 84,711
One Valley Bank-
National.............. 11.7 180,224 123,670 11.8 158,602 107,353
One Valley Bank-Central
Virginia.............. 14.2 101,653 57,426 14.4 96,252 53,328
-----------------------------------------------------------------------------------
Leverage Capital
BB&T................... 7.1% $3,679,736 $1,563,747 7.5% $3,536,006 $1,406,418
BB&T-NC................ 6.8 2,099,547 932,759 7.2 1,951,554 806,452
BB&T-SC................ 7.7 366,991 142,148 9.3 421,891 135,789
BB&T-VA................ 7.5 373,412 148,745 9.4 477,894 153,013
Premier................ 9.6 144,673 45,125 11.1 135,562 36,517
One Valley Bank-
National.............. 7.0 161,249 68,929 6.8 141,810 62,462
One Valley Bank-Central
Virginia.............. 7.8 92,752 35,583 7.5 87,914 35,261
-----------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
NOTE O. Parent Company Financial Statements
Condensed Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(Dollars in
thousands)
<S> <C> <C>
Assets
Cash and due from banks.................................. $ 9,001 $ 18,694
Interest-bearing bank balances........................... 582,032 648,077
Securities............................................... 64,560 112,637
Investment in banking subsidiaries....................... 4,005,374 4,248,524
Investment in other subsidiaries......................... 563,357 178,098
---------- ----------
Total investments in subsidiaries.................... 4,568,731 4,426,622
---------- ----------
Advances to subsidiaries................................. 348,000 359,600
Premises and equipment................................... 7,312 6,787
Receivables from subsidiaries and other assets........... 290,454 201,699
---------- ----------
Total assets......................................... $5,870,090 $5,774,116
========== ==========
Liabilities and Shareholders' Equity
Short-term borrowed funds................................ $ 707,163 $ 688,109
Dividends payable........................................ 69,785 52,110
Accounts payable and accrued liabilities................. 49,684 47,739
Long-term debt........................................... 979,839 955,229
---------- ----------
Total liabilities.................................... 1,806,471 1,743,187
---------- ----------
Total shareholders' equity........................... 4,063,619 4,030,929
---------- ----------
Total liabilities and shareholders' equity........... $5,870,090 $5,774,116
========== ==========
</TABLE>
Condensed Income Statements
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Income
Dividends from subsidiaries................... $660,478 $513,962 $338,723
Interest and other income from subsidiaries... 92,109 96,159 75,301
Interest on investment securities............. 322 971 1,782
Other income.................................. 9,738 27,914 10,600
-------- -------- --------
Total income................................ 762,647 639,006 426,406
-------- -------- --------
Expenses
Interest expense.............................. 85,583 93,213 57,404
Other expenses................................ 61,228 67,216 50,816
-------- -------- --------
Total expenses.............................. 146,811 160,429 108,220
-------- -------- --------
Income before income taxes and equity in
undistributed earnings of subsidiaries......... 615,836 478,577 318,186
Income tax benefit.............................. (11,192) (11,781) (6,039)
-------- -------- --------
Income before equity in undistributed earnings
of subsidiaries................................ 627,028 490,358 324,225
Equity in undistributed earnings of
subsidiaries................................... 78,546 161,386 177,501
-------- -------- --------
Net income...................................... $705,574 $651,744 $501,726
======== ======== ========
</TABLE>
37
<PAGE>
Condensed Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................... $ 705,574 $ 651,744 $ 501,726
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of subsidiaries less than (in
excess of) dividends from subsidiaries..... (78,546) (161,386) (177,501)
Depreciation of premises and equipment...... 492 783 779
Amortization of unearned compensation....... 3,906 1,325 8,232
Discount accretion and premium
amortization............................... -- 142 431
Loss (gain) on sales of securities.......... 954 (15) (7)
Loss on disposals of other real estate
owned...................................... 1 191 --
Reconciliation of fiscal year of merged
company to calendar year................... -- (158) --
Decrease (increase) in other assets......... (93,875) (120,385) (31,006)
Increase (decrease) in accounts payable and
accrued liabilities........................ 183 5,928 (90)
--------- --------- ---------
Net cash provided by operating
activities............................... 538,689 378,169 302,564
--------- --------- ---------
Cash Flows From Investing Activities:
Proceeds from sales of securities available
for sale................................... 64,143 68,801 14,718
Proceeds from maturities, calls and paydowns
of securities available for sale........... -- 3,779 35,482
Purchases of securities available for sale.. (18,050) (137,709) (223,307)
Investment in subsidiaries.................. (86,371) (95,345) (13,913)
Advances to subsidiaries.................... (728,586) (677,728) (446,844)
Proceeds from repayment of advances to
subsidiaries............................... 740,186 530,967 369,435
Net cash (paid) received in purchase
accounting transactions.................... 588 (6,051) (45,852)
Other, net.................................. 645 17,373 5,617
--------- --------- ---------
Net cash used in investing activities..... (27,445) (295,913) (304,664)
--------- --------- ---------
Cash Flows From Financing Activities:
Net increase in long-term debt.............. 19,806 393,178 422,831
Net increase in short-term borrowed funds... 19,054 32,613 156,250
Advances from subsidiaries.................. -- 4,191 --
Repayment of advances from subsidiaries..... -- (3,260) --
Net proceeds from common stock issued....... 48,740 71,397 35,381
Redemption of common stock.................. (385,673) (345,030) (339,113)
Cash dividends paid on common and preferred
stock...................................... (289,467) (246,361) (203,115)
Other, net.................................. 558 (1,375) (20,687)
--------- --------- ---------
Net cash (used in) provided by financing
activities............................... (586,982) (94,647) 51,547
--------- --------- ---------
Net (Decrease) Increase in Cash and Cash
Equivalents.................................. (75,738) (12,391) 49,447
Cash and Cash Equivalents at Beginning of
Year......................................... 666,771 679,162 629,715
--------- --------- ---------
Cash and Cash Equivalents at End of Year...... $ 591,033 $ 666,771 $ 679,162
========= ========= =========
</TABLE>
38
<PAGE>
NOTE P. Disclosures about Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the estimated fair value of on- and off-balance sheet
financial instruments. A financial instrument is defined by SFAS No. 107 as
cash, evidence of an ownership interest in an entity or a contract that
creates a contractual obligation or right to deliver or receive cash or
another financial instrument from a second entity on potentially favorable or
unfavorable terms.
Fair value estimates are made at a point in time, based on relevant market
data and information about the financial instrument. SFAS No. 107 specifies
that fair values should be calculated based on the value of one trading unit
without regard to any premium or discount that may result from concentrations
of ownership of a financial instrument, possible tax ramifications, estimated
transaction costs that may result from bulk sales or the relationship between
various financial instruments. No readily available market exists for a
significant portion of BB&T's financial instruments. Fair value estimates for
these instruments are based on judgments regarding current economic
conditions, currency and interest rate risk characteristics, loss experience
and other factors. Many of these estimates involve uncertainties and matters
of significant judgment and cannot be determined with precision. Therefore,
the calculated fair value estimates in many instances cannot be substantiated
by comparison to independent markets and, in many cases, may not be realizable
in a current sale of the instrument. Changes in assumptions could
significantly affect the estimates.
The following methods and assumptions were used by BB&T in estimating the
fair value of its financial instruments:
Cash and cash equivalents: For these short-term instruments, the carrying
amounts are a reasonable estimate of fair values.
Securities: Fair values for securities are based on quoted market prices, if
available. If quoted market prices are not available, fair values are based on
quoted market prices for similar securities.
Loans receivable: The fair values for loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans
with similar terms and credit quality. The carrying amounts of accrued
interest approximate fair values.
Deposit liabilities: The fair values for demand deposits, interest-checking
accounts, savings accounts and certain money market accounts are, by
definition, equal to the amount payable on demand at the reporting date, i.e.,
their carrying amounts. Fair values for certificates of deposit are estimated
using a discounted cash flow calculation that applies current interest rates
to aggregate expected maturities.
Short-term borrowed funds: The carrying amounts of Federal funds purchased,
borrowings under repurchase agreements, master notes and other short-term
borrowed funds approximate their fair values.
Long-term debt: The fair values of long-term debt are estimated based on
quoted market prices for similar instruments or by using discounted cash flow
analyses, based on BB&T's current incremental borrowing rates for similar
types of instruments.
Interest rate swap agreements: The fair values of interest rate swaps (used
for hedging purposes) are the estimated amounts that BB&T would receive or pay
to terminate the swap agreements at the reporting date, taking into account
current interest rates and the current creditworthiness of the swap
counterparties.
Commitments to extend credit, standby letters of credit and financial
guarantees written: The fair values of commitments are estimated using the
fees charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair values also consider the
difference between current levels of interest rates and the committed rates.
The fair values of guarantees and letters of credit are estimated based on
fees currently charged for similar agreements.
39
<PAGE>
Other off-balance sheet instruments: The fair values for off-balance sheet
instruments (futures, forwards, options, and commitments to sell or purchase
financial instruments) are estimated based on quoted prices, if available. For
instruments for which there are no quoted prices, fair values are estimated
using current settlement values or pricing models.
The following is a summary of the carrying amounts and fair values of BB&T's
financial assets and liabilities as of the periods indicated:
<TABLE>
<CAPTION>
1999 1998
------------------------ -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents.............. $ 1,980,875 $ 1,980,875 $ 1,795,851 $ 1,795,851
Trading securities........ 93,221 93,221 60,422 60,422
Securities available for
sale..................... 12,257,822 12,257,822 11,173,754 11,173,754
Securities held to
maturity................. 404,897 398,527 673,643 692,030
Loans and leases:.........
Loans................... 33,150,304 33,714,819 30,910,373 32,103,781
Leases.................. 2,606,002 N/A 1,620,326 N/A
Allowance for losses.... (477,296) N/A (442,341) N/A
----------- ------------
Net loans and leases.. $35,279,010 $ 32,088,358
=========== ============
Financial liabilities:
Deposits.................. $34,147,643 34,130,120 $ 33,214,094 33,282,387
Short-term borrowed
funds.................... 7,971,873 7,971,873 4,815,734 4,815,734
Long-term debt............ 6,070,893 6,048,780 5,496,366 5,549,435
Capitalized leases........ 2,535 N/A 3,507 N/A
</TABLE>
The following is a summary of the notional or contractual amounts and fair
values of BB&T's off-balance sheet financial instruments as of the periods
indicated:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Notional/ Notional/
Contract Fair Contract Fair
Amount Value Amount Value
----------- ---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Off balance sheet financial
intruments:
Interest rate swaps, caps and
floors...................... $ 1,701,611 $ 2,007 $ 4,025,596 $ 34,605
Commitments to extend,
originate or purchase
credit...................... 13,398,955 1,264,116 11,816,516 1,513,161
Standby and commercial
letters of credit and
financial guarantees
written..................... 544,767 33,691 460,382 33,304
Forward and futures
contracts................... 319,411 2,544 1,274,620 196,952
Foreign exchange contracts... 72,228 1,149 136,628 319
Option contracts purchased... 15,000 (10) 35,000 623
Option contracts written..... 47,250 236 1,267,250 (257)
</TABLE>
--------
N/A--not applicable
40
<PAGE>
NOTE Q. Derivatives and Off-Balance Sheet Financial Instruments
BB&T utilizes interest rate swaps, caps, floors and collars in the
management of interest rate risk. Interest rate swaps are contractual
agreements between two parties to exchange a series of cash flows representing
interest payments. A swap allows both parties to alter the repricing
characteristics of assets or liabilities without affecting the underlying
principal positions. Through the use of a swap assets and liabilities may be
transformed from fixed to a floating rate, from floating rates to fixed rates,
or from one type of floating rate to another. Swap terms generally range from
one year to ten years depending on the need. At December 31, 1999, derivatives
with a total notional value of $1.7 billion, with terms ranging up to sixteen
years, were outstanding.
The following tables set forth certain information concerning BB&T's
interest rate swaps at December 31, 1999:
Interest Rate Swaps, Caps, Floors and Collars
December 31, 1999
<TABLE>
<CAPTION>
Notional Receive
Type Amount Rate Pay Rate Fair Value
---- ---------- ----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Receive fixed swaps............ $ 945,000 6.17% 5.99% $ (7,083)
Pay fixed swaps................ 644,361 5.71 5.52 8,420
Caps, Floors & Collars......... 112,250 -- -- 670
---------- ----------- ---------- -----------
Total........................ $1,701,611 6.11% 5.84% $ 2,007
========== =========== ========== ===========
<CAPTION>
Receive Caps,
Fixed Pay Fixed Floors &
Year-to-date Activity Swaps Swaps Collars Total
--------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998..... $1,286,200 $ 1,392,146 $1,347,250 $ 4,025,596
Additions...................... 240,000 385,175 15,000 640,175
Maturities/amortizations....... (581,200) (1,051,553) (550,000) (2,182,753)
Terminations................... -- (81,407) (700,000) (781,407)
---------- ----------- ---------- -----------
Balance, December 31, 1999... $ 945,000 $ 644,361 $ 112,250 $ 1,701,611
========== =========== ========== ===========
<CAPTION>
One Year One to Five Five to 10
Maturity Schedule or Less Years Years Total
----------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Receive fixed swaps............ $ 385,000 $ 270,000 $ 290,000 $ 945,000
Pay fixed swaps................ 18,215 595,397 30,749 644,361
Caps, Floors & Collars......... 15,000 97,250 -- 112,250
---------- ----------- ---------- -----------
Total........................ $ 418,215 $ 962,647 $ 320,749 $ 1,701,611
========== =========== ========== ===========
</TABLE>
As of December 31, 1999, deferred gains from new swap transactions initiated
during 1999 were $195,000. There were no unamortized deferred gains or losses
from terminated transactions remaining at year end. Active transactions
resulted in a pretax net loss of $2.9 million.
In addition to interest rate swaps, BB&T utilizes written covered over-the-
counter call options on specific securities in the available-for-sale
portfolio in order to enhance returns. During 1999, options were written on
securities totaling $1.7 billion. Option fee income was $2.5 million for 1999.
There were no unexercised options outstanding at December 31, 1999 or 1998.
BB&T also utilizes over-the-counter purchased put options and net purchased
put options (combination of purchased put option and written call option) in
its mortgage banking activities. These options are used to hedge the mortgage
warehouse and mortgage applications and loans in process against increasing
interest rates. Written call options are used in tandem with purchased put
options to create a net purchased put option that reduces the cost of the
hedge. At December 31, 1999, net purchased put option contracts with a
notional value of $15.0 million were outstanding.
41
<PAGE>
The $1.7 billion notional amount of derivatives used in interest rate risk
management are primarily used to hedge variable rate commercial loans,
adjustable rate mortgage loans, retail certificates of deposit and fixed rate
notes. BB&T does not utilize derivatives for trading purposes.
Although off-balance sheet derivative financial instruments do not expose
BB&T to credit risk equal to the notional amount, such agreements generate
credit risk to the extent of the fair value gain in an off-balance sheet
derivative financial instrument if the counterparty fails to perform. Such
risk is minimized based on the creditworthiness of the counterparties and the
consistent monitoring of these agreements. The counterparties to these
arrangements were primarily large commercial banks and investment banks. All
counterparties are reviewed annually for creditworthiness by BB&T's credit
policy group. Where appropriate, master netting agreements are arranged or
collateral is obtained in the form of rights to securities. At December 31,
1999, BB&T's interest rate swaps, caps, floors and collars reflected an
unrealized gain of $2.0 million.
Other risks associated with interest-sensitive derivatives include the
impact on fixed rate positions during periods of changing interest rates.
Indexed amortizing swaps' notional amounts and maturities change based on
certain interest rate indices. Generally, as rates fall the notional amounts
decline more rapidly, and as rates increase notional amounts decline more
slowly. Under unusual circumstances, financial derivatives also increase
liquidity risk, which could result from an environment of rising interest
rates in which derivatives produce negative cash flows while being offset by
increased cash flows from variable rate loans. Such risk is considered
insignificant due to the relatively small derivative positions held by BB&T.
At December 31, 1999, BB&T had no indexed amortizing swaps outstanding.
NOTE R. Calculations of Earnings Per Share
The basic and diluted earnings per share calculations are presented in the
following table:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1999 1998 1997
------------ ------------ ------------
(Dollars in thousands, except per
share data)
<S> <C> <C> <C>
Basic Earnings Per Share:
Net income............................ $ 705,574 $ 651,744 $ 501,726
Less:
Preferred dividend requirement...... -- -- 113
------------ ------------ ------------
Income available for common shares...... $ 705,574 $ 651,744 $ 501,613
============ ============ ============
Weighted average number of common shares
outstanding during the period.......... 395,871,173 390,777,294 387,666,595
------------ ------------ ------------
Basic earnings per share................ $ 1.78 $ 1.67 $ 1.29
============ ============ ============
Diluted Earnings Per Share:
Net income............................ $ 705,574 $ 651,744 $ 501,726
============ ============ ============
Weighted average number of common
shares............................... 395,871,173 390,777,294 387,666,595
Add:
Shares issuable assuming conversion
of convertible preferred stock..... -- 90,202 395,572
Dilutive effect of outstanding
options (as determined by
application of treasury stock
method)............................ 6,682,111 7,740,358 6,789,382
Issuance of additional shares under
share repurchase agreement,
contingent upon market price....... -- -- 144,588
------------ ------------ ------------
Weighted average number of common
shares, as adjusted.................. 402,553,284 398,607,854 394,996,137
============ ============ ============
Diluted earnings per share............ $ 1.75 $ 1.64 $ 1.27
============ ============ ============
</TABLE>
42
<PAGE>
NOTE S. Operating Segments
BB&T's operations are divided into six reportable business segments: the
Banking Network, Mortgage Banking, Trust Services, Agency Insurance,
Investment Banking and Brokerage and Treasury. These operating segments have
been identified based primarily on BB&T's existing organizational structure.
The segments require unique technology and marketing strategies and offer
different products and services. While BB&T is managed as an integrated
organization, individual executive managers are held accountable for the
operations of these business segments.
BB&T measures and presents information for internal reporting purposes in a
variety of different ways. Information for BB&T's reportable segments is
available based on organizational structure, product offerings and customer
relationships. The internal reporting system presently utilized by management
in the planning and measuring of operating activities, as well as the system
to which most managers are held accountable, is based on organizational
structure.
BB&T emphasizes revenue growth by focusing on client service, sales
effectiveness and relationship management. The segment results contained
herein are presented based on internal management accounting policies, which
were designed to support these strategic objectives. Unlike financial
accounting, there is no comprehensive authoritative body of guidance for
management accounting equivalent to generally accepted accounting principles.
Therefore, the performance of the segments is not necessarily comparable with
BB&T's consolidated results or with similar information presented by any other
financial institution. Additionally, because of the interrelationships of the
various segments, the information presented is not necessarily indicative of
the segments' financial performance if they operated as independent entities.
BB&T's internal reporting system was significantly modified during 1999 and
1998, and information from 1997 has not been presented herein to reflect the
new reporting system because it is not practicable to restate prior period
results. During 1999, BB&T revised the methods used to allocate noninterest
expenses among the various segments. The information presented for 1998 has
been restated to reflect these revisions. Also, BB&T has completed various
mergers and acquisitions accounted for as poolings of interests, which present
additional practical limitations to the presentation of comparable 1997
information.
The management accounting process uses various estimates and allocation
methodologies to measure the performance of the operating segments. To
determine financial performance for each segment, BB&T allocates capital,
funding charges and credits, an economic provision for loan and lease losses,
certain noninterest expenses and income tax provisions to each segment, as
applicable. Also, to promote revenue growth, certain revenues of Mortgage
Banking, Trust Services, Agency Insurance and the Investment Banking and
Brokerage segments are reflected in the individual segments and also allocated
to the Banking Network. This double counting of revenue is reflected in
intersegment noninterest revenues and eliminated to arrive at consolidated
results. Allocation methodologies are subject to periodic adjustment as the
internal management accounting system is revised and business or product lines
within the segments change. Also, because the development and application of
these methodologies is a dynamic process, the financial results presented may
be periodically revised.
BB&T's overall objective is to maximize shareholder value by optimizing
return on equity and limiting risk. Allocations of capital and the economic
provision for loan and lease losses are designed to address this objective.
Capital is assigned to each segment on an economic basis, using management's
assessment of the inherent risks associated with the segment. Required
economic capital allocations are made to cover the following risk categories:
credit risk, funding risk, interest rate risk, option risk, basis risk, market
risk and operational risk. Each segment is evaluated based on a risk-adjusted
return on capital. Capital assignments are not equivalent to regulatory
capital guidelines and the total amount assigned to all segments may vary from
consolidated shareholders' equity. All unallocated capital is retained in the
Treasury segment.
The economic provision for loan and lease losses is also allocated to the
relevant segments based on management's assessment of the segments' risks as
described above. Unlike the provision for loan and lease
43
<PAGE>
losses recorded pursuant to generally accepted accounting principles, the
economic provision adjusts for the impact of expected credit losses over the
effective lives of the related loans and leases. Any unallocated provision for
loan and lease losses is retained in the Corporate Office, reflected in the
accompanying tables as "other revenues and expenses."
BB&T has implemented an extensive noninterest expense allocation process to
support organizational and product profitability. BB&T allocates expenses to
the reportable segments based on various cost allocation methodologies,
including the number of items processed, overall percentage of time spent,
full-time equivalent employees assigned to functions, functional position
surveys and activity-based costing. A portion of corporate overhead expenses
is not allocated, but is retained in corporate accounts reflected as other
expenses in the accompanying tables. Income taxes are allocated to the various
segments using effective tax rates.
BB&T utilizes a funds transfer pricing ("FTP") system to eliminate the
effect of interest rate risk from the segments' net interest income because
such risk is centrally managed within the Treasury segment. The FTP system
credits or charges the segments with the true value or cost of the funds the
segments create or use. The FTP system provides a funds credit for sources of
funds and a funds charge for the use of funds by each segment. The net FTP
credit or charge is reflected as net intersegment interest income (expense) in
the accompanying tables.
Banking Network
BB&T's Banking Network, which operates in North Carolina, South Carolina,
Virginia, Maryland, Georgia, West Virginia, Kentucky and Washington, D.C.,
serves commercial and retail clients by offering a variety of loan and deposit
products and other financial services. The Banking Network is primarily
responsible for client relationships, and, therefore, is credited with revenue
from the Mortgage Banking, Trust Services, Agency Insurance and Investment
Banking and Brokerage segments, which is reflected in intersegment noninterest
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in the Annual Report on Form 10-K for the year ended
December 31, 1999, for additional discussion concerning the functions of the
Banking Network.
Mortgage Banking
The Mortgage Banking segment retains and services mortgage loans originated
by the Banking Network and purchased from various correspondent originators.
Mortgage loan products include fixed- and adjustable-rate government and
conventional loans for the purpose of constructing, purchasing or refinancing
owner-occupied properties. Fixed-rate mortgage loans are typically sold to
government agencies and private investors with servicing rights retained by
BB&T, while adjustable-rate loans are typically held in the portfolio. The
Mortgage Banking segment earns interest on loans held in the warehouse and
portfolio, fee income from the origination and servicing of mortgage loans and
reflects gains or losses from the sale of mortgage loans. The Banking Network
receives an interoffice credit for the origination of loans and servicing
rights, with the corresponding charge remaining in the Corporate Office.
Trust Services
BB&T's Trust Services segment provides personal trust administration and
estate planning, investment counseling and management, employee benefits
services, and corporate trust services to individuals, corporations,
institutions, foundations and government entities. The Banking Network
receives an interoffice credit for trust fees in the initial year the account
is referred, with the corresponding charge remaining in the Corporate Office.
44
<PAGE>
Agency Insurance
BB&T has the largest independent insurance agency network in the Carolinas.
BB&T Insurance Services provides property and casualty, life and health
insurance to businesses and individuals. It also provides small business and
corporate products, such as workers compensation and professional liability,
as well as provides surety coverage and title insurance. The Banking Network
receives credit for insurance commissions on referred accounts, with the
corresponding charge retained in the Corporate Office. These revenues and
expenses are reflected in the accompanying tables as intersegment noninterest
income and expense.
Investment Banking and Brokerage
BB&T's Investment Banking and Brokerage segment offers customers investment
alternatives, including discount brokerage services, fixed-rate and variable-
rate annuities, mutual funds and government and municipal bonds and various
other investment products through BB&T Investment Services, Inc., a subsidiary
of BB&T-NC. The Investment Banking and Brokerage segment includes Scott &
Stringfellow, Inc., a full-service brokerage and investment banking firm
headquartered in Richmond, Virginia. Scott & Stringfellow specializes in the
origination, trading and distribution of fixed-income securities and equity
products in both the public and private capital markets. Scott & Stringfellow
also has a public finance department that provides investment banking
services, financial advisory services and municipal bond financing to a
variety of regional tax-exempt issuers. The Banking Network is credited for
investment service revenues on referred accounts, with the corresponding
charge retained in the Corporate Office. These revenues and expenses are
reflected in the accompanying tables as intersegment noninterest income and
expense.
Treasury
BB&T's Treasury segment is responsible for the management of the securities
portfolios, overall balance sheet funding and liquidity, and overall
management of interest rate risk. See the Market Risk Management section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional information about the responsibilities of the
Treasury segment.
45
<PAGE>
The following tables disclose selected financial information for BB&T's
reportable business segments:
BB&T Corporation
Reportable Segments
For the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Investment
Agency Banking and
Banking Network Mortgage Banking Trust Services Insurance Brokerage
----------------------- ---------------------- -------------------- --------------- -----------------
1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
----------- ----------- ---------- ---------- --------- --------- ------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest
income (expense)
from external
customers........ $ 1,270,691 $ 1,179,084 $ 423,158 $ 411,227 $ (33,668) $ (33,717) $ -- $ -- $ 7,561 $ 1,127
Net intersegment
interest income
expense.......... 327,072 286,820 (307,484) (270,173) 42,197 37,989 -- -- -- --
----------- ----------- ---------- ---------- --------- --------- ------- ------- -------- --------
Net interest
income.......... 1,597,763 1,465,904 115,674 141,054 8,529 4,272 -- -- 7,561 1,127
----------- ----------- ---------- ---------- --------- --------- ------- ------- -------- --------
Provision for
loan and lease
losses........... 129,284 116,735 3,802 4,171 -- -- -- -- -- --
Noninterest
income from
external
customers........ 431,381 381,306 114,811 103,937 57,290 43,635 78,125 50,252 132,519 48,604
Intersegment
noninterest
income.......... 123,549 150,672 -- -- -- -- -- -- -- --
Noninterest
expense.......... 922,946 809,930 61,161 76,365 38,022 28,666 59,688 39,420 121,900 37,472
Intersegment
noninterest
expense......... 261,420 209,820 18,918 16,207 2,532 1,947 2,748 2,415 1,792 948
----------- ----------- ---------- ---------- --------- --------- ------- ------- -------- --------
Income before
income taxes..... 839,043 861,397 146,604 148,248 25,265 17,294 15,689 8,417 16,388 11,311
Provision for
income taxes.... 279,535 316,858 45,128 56,125 8,039 6,528 6,278 3,367 7,693 4,524
----------- ----------- ---------- ---------- --------- --------- ------- ------- -------- --------
Net income....... $ 559,508 $ 544,539 $ 101,476 $ 92,123 $ 17,226 $ 10,766 $ 9,411 $ 5,050 $ 8,695 $ 6,787
=========== =========== ========== ========== ========= ========= ======= ======= ======== ========
Identifiable
segment assets... $33,363,342 $30,584,031 $5,689,889 $6,344,073 $ 31,469 $ 26,664 $63,873 $40,262 $699,100 $238,622
=========== =========== ========== ========== ========= ========= ======= ======= ======== ========
<CAPTION>
All Other
Treasury Segments (1) Total Segments
------------------------ --------------------- -----------------------
1999 1998 1999 1998 1999 1998
------------ ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest
income (expense)
from external
customers........ $ 162,459 $ 126,762 $ 222,397 $ 203,497 $ 2,052,598 $ 1,887,980
Net intersegment
interest income
expense.......... (22,111) (135) -- -- 39,674 54,501
------------ ----------- ---------- ---------- ----------- -----------
Net interest
income.......... 140,348 126,627 222,397 203,497 2,092,272 1,942,481
------------ ----------- ---------- ---------- ----------- -----------
Provision for
loan and lease
losses........... 90 103 16,631 20,557 149,807 141,566
Noninterest
income from
external
customers........ 1,031 11,631 28,850 24,648 844,007 664,013
Intersegment
noninterest
income.......... -- -- -- -- 123,549 150,672
Noninterest
expense.......... 4,783 4,325 53,406 49,109 1,261,906 1,045,287
Intersegment
noninterest
expense......... 8,258 5,383 4,910 7,279 300,578 243,999
------------ ----------- ---------- ---------- ----------- -----------
Income before
income taxes..... 128,248 128,447 176,300 151,200 1,347,537 1,326,314
Provision for
income taxes.... 32,403 46,415 47,284 9,990 426,360 443,807.00
------------ ----------- ---------- ---------- ----------- -----------
Net income....... $ 95,845 $ 82,032 $ 129,016 $ 141,210 $ 921,177 $ 882,507
============ =========== ========== ========== =========== ===========
Identifiable
segment assets... $11,510,760 $9,417,056 $1,056,125 $2,374,665 $52,414,558 $49,025,373
============ =========== ========== ========== =========== ===========
</TABLE>
46
<PAGE>
Total segment results are reconciled to consolidated results in the
accompanying tables.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net Interest
Income
Net interest
income from
segments........ $ 2,092,272 $ 1,942,481
Other net
interest
income(2)....... 77,973 47,564
Elimination of
net intersegment
interest
income(3) ...... (237,297) (230,340)
----------- -----------
Consolidated net
interest
income......... $ 1,932,948 $1,759,705
=========== ===========
Net income
Net income from
segments........ $ 921,177 $ 882,507
Other net income
(loss)(2)....... (93,778) (123,535)
Elimination of
intersegment net
income(3)....... (121,825) (107,228)
----------- -----------
Consolidated net
income......... $ 705,574 $ 651,744
=========== ===========
<CAPTION>
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Total Assets
Total assets from
segments........ $52,414,558 $49,025,373
Other assets(2).. 2,835,382 1,651,609
Elimination of
intersegment
assets(3)....... (2,249,104) (2,486,488)
----------- -----------
Consolidated
total assets... $53,000,836 $48,190,494
=========== ===========
</TABLE>
--------
(1) Financial data from segments below the quantitative thresholds requiring
disclosure are attributable to nonbank consumer finance operations,
factoring, commercial lawn care equipment financing, leasing and other
smaller banking subsidiaries.
(2) Other net interest income, other net income (loss) and other assets
include amounts incurred by or applicable to BB&T's support functions that
are not allocated to the various segments.
(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 funds transfer pricing
credits and charges and the elimination of intersegment noninterest income
and noninterest expense described above. These amounts are allocated to
the various segments using BB&T's internal accounting methods.
47
