-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J7bi0fvX6YvZq/2b24qJqBGVGUhhRt+w4ADrGPhG3e0yVh7ocapRGpp3ukV2ZLEA x0h2FT+Y02rGzOTLT8wP7Q== /in/edgar/work/0000916641-00-001536/0000916641-00-001536.txt : 20001030 0000916641-00-001536.hdr.sgml : 20001030 ACCESSION NUMBER: 0000916641-00-001536 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001027 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20001027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BB&T CORP CENTRAL INDEX KEY: 0000092230 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 560939887 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10853 FILM NUMBER: 747217 BUSINESS ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 3367332000 MAIL ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NATIONAL CORP /NC/ DATE OF NAME CHANGE: 19920703 8-K 1 0001.txt FORM 8-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 8-K CURRENT REPORT ---------------- Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 October 27, 2000 Date of Report (Date of earliest event recorded) BB&T Corporation (Exact name of registrant as specified in its charter) Commission file number: 1-10853 ---------------- North Carolina 56-0939887 (State of Incorporation) (I.R.S. Employer Identification No.) 200 West Second Street Winston-Salem, North Carolina 27101 (Address of Principal Executive (Zip Code) Offices) (336) 733-2000 (Registrant's Telephone Number, Including Area Code) ---------------- This Form 8-K has 65 pages. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 5. Other Events On June 13, 2000, BB&T Corporation ("BB&T") completed its merger with Hardwick Holding Company ("Hardwick"), of Dalton, Georgia. To consummate the merger, Hardwick's shareholders received .932 shares of BB&T common stock in exchange for each share of Hardwick common stock held, resulting in the issuance of 3.9 million shares of BB&T common stock. On June 15, 2000, BB&T completed its merger with First Banking Company of Southeast Georgia ("First Banking Company"), headquartered in Statesboro, Georgia. To complete the merger, First Banking Company's shareholders received .74 shares of BB&T common stock in exchange for each share of First Banking Company common stock held, resulting in the issuance of 4.1 million shares of BB&T common stock. On July 6, 2000, BB&T completed its merger with One Valley Bancorp, Inc. ("One Valley"), based in Charleston, West Virginia. To consummate the merger, One Valley's shareholders received 1.28 shares of BB&T common stock in exchange for each share of One Valley common stock held, resulting in the issuance of 43.1 million shares of BB&T common stock. These transactions were accounted for as poolings of interests. Accordingly, the consolidated financial statements (including notes to consolidated financial statements), and supplemental financial information contained in BB&T's Current Report on Form 8-K filed on April 28, 2000, for the years ended December 31, 1999, 1998 and 1997, restated for the accounts of Hardwick, First Banking Company and One Valley, are included in this Current Report on Form 8- K. Item 7. Financial Statements and Exhibits
Exhibit Description 11 Computation of Earnings Per Share. Filed herewith as Note R. of the "Notes to Consolidated Financial Statements." 23 Consent of Independent Public Filed herewith on page 4. Accountants. 27 Financial Data Schedule. Filed herewith as an exhibit to the electronically filed document as required. 99.1 Report of Independent Public Filed herewith on page 5. Accountants. 99.2 BB&T's restated audited financial Filed herewith beginning on statements and notes thereto, page 7. including the accounts of Hardwick, First Banking Company and One Valley. 99.3 BB&T's restated Securities Act Filed herewith beginning on Guide 3 statistical disclosures, page 47. including the accounts of Hardwick, First Banking Company and One Valley.
2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BB&T CORPORATION (Registrant) /s/ Sherry A. Kellett By: _________________________________ Sherry A. Kellett Senior Executive Vice President and Controller (Principal Accounting Officer) Date: October 27, 2000. 3 EX-23 2 0002.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K into BB&T Corporation's previously filed Registration Statement File Nos. 33-52367, 33-57865, 33-57867, 33-57871, 333- 03989, 333-50035, 333-69823, 333-81471, 333-36540 and 333-36538 filed on Form S-8 and Registration Statement File Nos. 33-57859, 33-57861, 333-02899, 333-27755 and 333-35879 filed on Form S-3. Arthur Andersen LLP Charlotte, North Carolina, October 27, 2000. 4 EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,466,071 81,927 432,877 93,221 12,257,822 404,897 398,527 35,756,306 477,296 53,000,836 34,147,643 7,971,873 744,273 6,073,428 0 0 1,993,711 2,069,908 53,000,836 2,954,252 799,304 21,997 3,775,553 1,201,467 1,842,605 1,932,948 114,433 (6,149) 1,647,537 1,046,457 1,046,457 0 0 705,574 1.78 1.75 4.27 118,975 59,974 1,681 0 442,341 122,478 32,303 477,296 477,296 0 103,603
EX-99.1 4 0004.txt REPORT OF INDEPENDENT ACCOUNTANTS Exhibit 99.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To BB&T Corporation: We have audited the accompanying consolidated balance sheets of BB&T Corporation (a North Carolina corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BB&T Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Charlotte, North Carolina, October 27, 2000. 5 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of BB&T is responsible for the preparation of the financial statements, related financial data and other information in this Current Report on Form 8-K. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this Current Report on Form 8-K is consistent with the financial statements. BB&T's accounting system, which records, summarizes and reports financial transactions, is supported by an internal control structure which provides reasonable assurance that assets are safeguarded and that transactions are recorded in accordance with BB&T's policies and established accounting procedures. As an integral part of the internal control structure, BB&T maintains a professional staff of internal auditors who monitor compliance with and assess the effectiveness of the internal control structure. The Audit Committee of BB&T's Board of Directors, composed solely of outside directors, meets regularly with BB&T's management, internal auditors and independent public accountants to review matters relating to financial reporting, internal control structure and the nature, extent and results of the audit effort. The independent public accountants and the internal auditors have access to the Audit Committee with or without management present. The financial statements have been audited by Arthur Andersen LLP, independent public accountants, who render an independent opinion on management's financial statements. Their appointment was recommended by the Audit Committee, approved by the Board of Directors and ratified by the shareholders. Their examination provides an objective assessment of the degree to which BB&T's management meets its responsibility for financial reporting. Their opinion on the financial statements is based on auditing procedures, which include reviewing the internal control structure to determine the timing and scope of audit procedures and performing selected tests of transactions and records as they deem appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the financial statements are fairly presented in all material respects. John A. Allison Scott E. Reed Sherry A. Kellett Chairman and Chief Financial Officer Controller Chief Executive Officer 6 EX-99.2 5 0005.txt RESTATED AUDITED FINANCIAL STATEMENTS Exhibit 99.2 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 ----------- ----------- (Dollars in thousands, except per share data) 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 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 7 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ---------- ---------- (Dollars in thousands, except per share data) 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 =========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 8 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 1999, 1998 and 1997
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) 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 =========== ====== ========== ======== ========== ========= ==========
- -------- * 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 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ---------- ---------- (Dollars in thousands) 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 --
The accompanying notes are an integral part of these consolidated financial statements 10 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 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 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 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 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:
1999 1998 1997 ----------- ----------- ----------- Basic.................................... 395,871,173 390,777,294 387,666,595 Diluted.................................. 402,553,284 398,607,854 394,996,137
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 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 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 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:
1999 1998 1997 --------- --------- --------- (Dollars in thousands) 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) ========= ========= =========
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 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
Date of Accounting Goodwill Acquisition Acquired Institution Headquarters Total Assets Method Recorded ------------------ ------------------------------------------- -------------------- --------------- ---------- --------------- 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 - -------------------------------------------------------------------------------------------------------------------------------- BB&T Common Goodwill Shares Issued Date of Amortization to Complete Acquisition Period Transaction - -------------------- ------------ ------------- 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 - --------------------------------------------------------------------------------------------------------------------------------
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:
For the Years Ended --------------------- 1999 1998 ---------- ---------- (Dollars in thousands, except per share data) 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 ========== ==========
19 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.
Historical Basis -------------------------------------------- First BB&T BB&T Hardwick Banking One Valley restated ------------ --------- --------- ----------- ------------ (Dollars in thousands, except per share data) 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
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 NOTE C. Securities The amortized costs and approximate fair values of securities held to maturity and available for sale were as follows:
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) 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 =========== ======= ======== =========== =========== ======== ======= ===========
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
December 31, 1999 ------------------------------------------- Held to Maturity Available for Sale ------------------- ----------------------- Estimated Amortized Fair Amortized Estimated Cost Value Cost Fair Value --------- --------- ----------- ----------- (Dollars in thousands) 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 ======== ======== =========== ===========
NOTE D. Loans and Leases Loans and leases were composed of the following:
December 31, ----------------------- 1999 1998 ----------- ----------- (Dollars in thousands) 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 =========== ===========
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.
December 31, ---------------- 1999 1998 ------- ------- (Dollars in thousands) 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 ======= =======
22 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.
(Dollars in thousands) ---------------------- Balance, December 31, 1998............................ $ 309,414 Additions........................................... 133,342 Reductions.......................................... (105,920) --------- Balance, December 31, 1999............................ $ 336,836 =========
NOTE E. Allowance for Loan and Lease Losses An analysis of the allowance for loan and lease losses is presented in the following table:
For the Years Ended December 31, ------------------------------- 1999 1998 1997 --------- --------- --------- (Dollars in thousands) 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 ========= ========= =========
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:
December 31, --------------------- 1999 1998 ---------- ---------- (Dollars in thousands) 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 ========== ==========
23 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:
Leases --------------------- Operating Capitalized --------- ----------- (Dollars in thousands) 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 ======
NOTE G. Loan Servicing The following is an analysis of capitalized mortgage servicing rights included in other assets in the Consolidated Balance Sheets:
Capitalized Mortgage Servicing Rights ------------------ 1999 1998 -------- -------- (Dollars in thousands) 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 ======== ========
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 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:
Valuation Allowance for Mortgage Servicing Rights ----------------- 1999 1998 -------- ------- (Dollars in thousands) Balance, January 1,....................................... $ 21,031 $ 3,600 Additions............................................... 462 17,704 Reductions.............................................. (19,951) (273) -------- ------- Balance, December 31,..................................... $ 1,542 $21,031 ======== =======
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:
December 31, --------------------- 1999 1998 ---------- ---------- (Dollars in thousands) 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 ========== ==========
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 NOTE I. Long-Term Debt Long-term debt is summarized as follows:
December 31, --------------------- 1999 1998 ---------- ---------- (Dollars in thousands) 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 ========== ==========
- -------- (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 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:
For the Years Ended December 31, -------------------------- 1999 1998 1997 -------- -------- -------- (Dollars in thousands, except per share data) 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
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 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:
1999 1998 1997 --------------------- --------------------- --------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------- --------- ---------- --------- ---------- --------- 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 ========== ====== ========== ====== ========== ======
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 The following table summarizes information about the options outstanding at December 31, 1999:
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 ---------------- ----------- ----------- --------- ----------- --------- $ 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 ========== === ====== ========== ======
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 Note K. Income Taxes The provision for income taxes was composed of the following:
Years Ended December 31, ------------------------------- 1999 1998 1997 --------- --------- --------- (Dollars in thousands) 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: Years Ended December 31, ------------------------------- 1999 1998 1997 --------- --------- --------- (Dollars in thousands) 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% ========= ========= =========
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:
December 31, ------------------ 1999 1998 -------- -------- (Dollars in thousands) 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 ======== ========
30 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.
1999 1998 1997 -------- -------- -------- (Dollars in thousands) 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 ======== ======== ========
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:
Net Periodic Pension Cost 1999 1998 1997 ------------------------- -------- -------- -------- (Dollars in thousands) 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 ======== ======== ========
31
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 --------------------------- 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 ========= ========= ========= ========= Change in Plan Assets 1999 1998 1999 1998 --------------------- --------- --------- --------- --------- (Dollars in thousands) 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 $ -- $ -- ========= ========= ========= ========= Net Amount Recognized 1999 1998 1999 1998 --------------------- --------- --------- --------- --------- (Dollars in thousands) 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) ========= ========= ========= ========= Reconciliation of Net Pension Asset (Liability) 1999 1998 1999 1998 ----------------------------- --------- --------- --------- --------- (Dollars in thousands) 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) ========= ========= ========= ========= Weighted Average Assumptions December 31, ---------------------------- -------------------- 1999 1998 --------- --------- 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
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 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.
Net Periodic Postretirement Benefit Cost: 1999 1998 1997 ----------------------------------------- --------- --------- ------ (Dollars in thousands) 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 ========= ========= ====== 1999 1998 --------- --------- (Dollars in thousands) Change in Projected Benefit Obligation -------------------------------------- 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 ========= ========= Change in Plan Assets 1999 1998 --------------------- --------- --------- (Dollars in thousands) 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,....... $ -- $ -- ========= ========= Net Amount Recognized 1999 1998 --------------------- --------- --------- (Dollars in thousands) 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) ========= =========
33
Reconciliation of Postretirement Benefit 1999 1998 ---------------------------------------- ----------- ----------- (Dollars in thousands) 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) ========= ========= Weighted Average Assumptions December 31, ---------------------------- -------------------------- 1999 1998 ----------- ----------- 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 1% Increase 1% Decrease ----------- ----------- 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)
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 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.
Contract or Notional Amount at December 31, ----------------------- 1999 1998 ----------- ----------- (Dollars in thousands) 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
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 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:
December 31, 1999 December 31, 1998 ---------------------------- ----------------------------- For For Minimum Actual Minimum Actual Capital ----------------- Adequacy ----------------- Adequacy Ratio Amount Purposes Ratio Amount Purposes ----- ---------- ---------- ----- ---------- ----------- (Dollars in thousands) 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 - -----------------------------------------------------------------------------------
36 NOTE O. Parent Company Financial Statements Condensed Balance Sheets December 31, 1999 and 1998
1999 1998 ---------- ---------- (Dollars in thousands) 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 ========== ==========
Condensed Income Statements For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 -------- -------- -------- (Dollars in thousands) 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 ======== ======== ========
37 Condensed Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 --------- --------- --------- (Dollars in thousands) 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 ========= ========= =========
38 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 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:
1999 1998 ------------------------ ------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ----------- ----------- ------------ ----------- (Dollars in thousands) 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
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:
1999 1998 ---------------------- ---------------------- Notional/ Notional/ Contract Fair Contract Fair Amount Value Amount Value ----------- ---------- ----------- ---------- (Dollars in thousands) 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)
- -------- N/A--not applicable 40 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
Notional Receive Type Amount Rate Pay Rate Fair Value - ---- ---------- ----------- ---------- ----------- (Dollars in thousands) 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 ========== =========== ========== =========== Receive Caps, Fixed Pay Fixed Floors & Year-to-date Activity Swaps Swaps Collars Total - --------------------- ---------- ----------- ---------- ----------- 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 ========== =========== ========== =========== One Year One to Five Five to 10 Maturity Schedule or Less Years Years Total - ----------------- ---------- ----------- ---------- ----------- 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 ========== =========== ========== ===========
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 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:
Years Ended December 31, -------------------------------------- 1999 1998 1997 ------------ ------------ ------------ (Dollars in thousands, except per share data) 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 ============ ============ ============
42 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 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 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 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
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) 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 =========== =========== ========== ========== ========= ========= ======= ======= ======== ======== All Other Treasury Segments (1) Total Segments ------------------------ --------------------- ----------------------- 1999 1998 1999 1998 1999 1998 ------------ ----------- ---------- ---------- ----------- ----------- 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 ============ =========== ========== ========== =========== ===========
46 Total segment results are reconciled to consolidated results in the accompanying tables.
For the Years Ended December 31, ------------------------ 1999 1998 ----------- ----------- 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 =========== =========== December 31, ------------------------ 1999 1998 ----------- ----------- 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 =========== ===========
- -------- (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 EX-99.3 6 0006.txt RESTATE SECURITIES ACT GUIDE 3 Exhibit 99.3 FIVE YEAR FINANCIAL SUMMARY AND SELECTED RATIOS (Dollars in thousands, except per share data)
As of/For the Years Ended December 31, --------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Summary of Operations Interest income........ $ 3,775,553 $ 3,492,813 $ 3,163,890 $ 2,858,370 $ 2,681,366 Interest expense....... 1,842,605 1,733,108 1,540,561 1,371,882 1,325,225 ----------- ----------- ----------- ----------- ----------- Net interest income.... 1,932,948 1,759,705 1,623,329 1,486,488 1,356,141 Provision for loan and lease losses.......... 114,433 114,729 123,096 77,919 54,694 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan and lease losses................ 1,818,515 1,644,976 1,500,233 1,408,569 1,301,447 Noninterest income..... 875,479 690,427 588,347 445,134 346,430 Noninterest expense.... 1,647,537 1,376,915 1,326,657 1,159,092 1,119,710 ----------- ----------- ----------- ----------- ----------- Income before income taxes................. 1,046,457 958,488 761,923 694,611 528,167 Provision for income taxes................. 340,883 306,744 260,197 227,302 173,453 ----------- ----------- ----------- ----------- ----------- Net income............. $ 705,574 $ 651,744 $ 501,726 $ 467,309 $ 354,714 =========== =========== =========== =========== =========== Per Common Share Average shares outstanding (000's): Basic.................. 395,871 390,777 387,667 387,598 386,109 Diluted................ 402,553 398,608 394,996 396,127 400,369 Basic earnings per share................. $ 1.78 $ 1.67 $ 1.29 $ 1.20 $ 0.90 =========== =========== =========== =========== =========== Diluted earnings per share................. $ 1.75 $ 1.64 $ 1.27 $ 1.18 $ 0.89 =========== =========== =========== =========== =========== Cash dividends paid.... $ .75 $ .66 $ .58 $ .50 $ .43 Shareholders' equity... 10.19 10.17 9.12 8.62 8.34 Average Balances Securities, at amortized cost........ $13,217,708 $11,548,592 $10,567,862 $ 9,731,073 $ 9,311,950 Loans and leases *..... 33,904,439 30,543,475 27,100,788 24,438,883 22,659,115 Other assets........... 3,742,090 3,389,861 2,715,990 2,522,365 2,417,805 ----------- ----------- ----------- ----------- ----------- Total assets.......... $50,864,237 $45,481,928 $40,384,640 $36,692,321 $34,388,870 =========== =========== =========== =========== =========== Deposits............... $33,726,798 $31,193,327 $29,243,442 $27,728,536 $25,665,570 Other liabilities...... 6,976,907 5,898,139 4,469,812 3,583,192 4,375,395 Long-term debt......... 6,116,548 4,647,116 3,303,968 2,232,005 1,398,506 Common shareholders' equity................ 4,043,984 3,743,346 3,363,646 3,125,865 2,869,490 Preferred shareholders' equity................ -- -- 3,772 22,723 79,909 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity............... $50,864,237 $45,481,928 $40,384,640 $36,692,321 $34,388,870 =========== =========== =========== =========== =========== Period End Balances Total assets........... $53,000,836 $48,190,494 $43,606,211 $38,612,527 $35,810,281 Deposits............... 34,147,643 33,214,094 30,601,384 28,731,109 26,966,326 Long-term debt......... 6,073,428 5,499,873 4,183,462 2,611,973 1,701,433 Shareholders' equity... 4,063,619 4,030,929 3,546,832 3,278,515 3,155,310 Selected Ratios Rate of return on: Average total assets... 1.39% 1.43% 1.24% 1.27% 1.03% Average common shareholders' equity.. 17.45 17.41 14.91 14.92 12.15 Dividend payout........ 42.13 39.52 44.96 41.67 47.78 Average equity to average assets........ 7.95 8.23 8.34 8.58 8.58
- -------- * Loans and leases are net of unearned income and include loans held for sale. NM Not meaningful. 47 Table 1 Selected Financial Data of Significant Banking & Thrift Subsidiaries As of/For the Years Ended December 31, 1999, 1998 and 1997
One Valley One Valley - Central BB&T-NC BB&T-SC BB&T-VA Premier - National Va. ----------- ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) 1999 - -------------------------------------------------------------------------------------------- Total assets............ $31,396,668 $4,842,462 $5,098,872 $1,542,443 $2,499,477 $1,218,907 Securities.............. 8,139,270 477,705 1,308,673 160,119 574,153 331,880 Loans and leases, net of unearned income*....... 20,604,518 3,698,046 3,294,038 802,712 1,518,392 793,838 Deposits................ 19,068,875 3,686,484 3,462,041 1,217,053 1,389,653 901,062 Shareholder's equity.... 2,253,961 364,060 471,938 147,098 154,423 128,916 Net interest income..... 1,027,813 216,781 188,522 63,852 75,914 40,054 Provision for loan and lease losses........... 52,781 15,491 6,689 8,824 6,776 455 Noninterest income...... 586,246 68,473 51,170 8,926 48,021 6,017 Noninterest expense..... 956,414 126,689 145,242 44,050 72,812 29,458 Net income.............. 426,214 91,059 54,457 14,675 29,312 10,614 1998 - -------------------------------------------------------------------------------------------- Total assets............ $28,375,063 $4,641,393 $5,257,737 $ 919,166 $2,136,229 $1,194,908 Securities.............. 7,057,881 783,727 1,177,446 80,423 506,502 380,867 Loans and leases, net of unearned income*....... 18,879,630 3,266,871 3,321,677 746,185 1,415,722 683,278 Deposits................ 18,934,238 3,702,383 3,496,787 805,853 1,434,102 940,389 Shareholder's equity.... 2,294,145 429,572 612,083 94,776 145,856 137,103 Net interest income..... 951,972 201,132 187,189 45,596 73,573 39,821 Provision for loan and lease losses........... 52,283 13,455 12,227 480 5,939 1,337 Noninterest income...... 479,326 71,945 52,550 7,972 40,551 5,135 Noninterest expense..... 841,668 119,224 143,515 26,365 65,894 26,364 Net income.............. 380,574 89,653 52,526 17,976 27,890 11,262 1997 - -------------------------------------------------------------------------------------------- Total assets............ $24,523,930 $4,364,982 $5,260,598 $ 366,053 $1,876,021 $ 981,854 Securities.............. 5,835,463 1,020,554 1,469,392 42,177 489,421 406,969 Loans and leases, net of unearned income*....... 16,660,073 3,052,755 3,274,679 292,194 1,199,527 518,092 Deposits................ 17,356,397 3,401,236 3,507,108 311,328 1,363,028 689,015 Shareholder's equity.... 1,918,190 374,871 574,742 27,365 139,833 119,013 Net interest income..... 910,497 184,341 123,738 14,690 67,897 31,374 Provision for loan and lease losses........... 60,513 14,109 8,537 350 3,360 535 Noninterest income...... 455,422 70,916 27,008 1,994 33,719 2,760 Noninterest expense..... 861,218 135,018 90,649 10,520 58,709 19,109 Net income.............. 294,059 68,024 34,089 3,692 26,662 8,805
- -------- * Includes loans held for sale. 48 Table 2 Composition of Loan and Lease Portfolio *
December 31, ----------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Loans: Commercial, financial and agricultural..... $ 5,382,373 $ 5,055,051 $ 4,602,571 $ 4,013,399 $ 3,502,071 Real estate-- construction and land development.......... 3,818,396 2,932,284 2,790,483 2,125,963 1,568,065 Real estate-- mortgage............. 20,237,959 18,272,695 16,424,868 14,616,876 13,953,171 Consumer.............. 4,589,510 4,035,015 3,952,321 3,997,544 3,603,052 ----------- ----------- ----------- ----------- ----------- Loans held for investment......... 34,028,238 30,295,045 27,770,243 24,753,782 22,626,359 Loans held for sale............... 367,243 1,340,420 627,900 303,632 328,971 ----------- ----------- ----------- ----------- ----------- Total loans....... 34,395,481 31,635,465 28,398,143 25,057,414 22,955,330 Leases.................. 2,606,002 1,620,326 788,462 576,991 376,152 ----------- ----------- ----------- ----------- ----------- Total loans and leases........... $37,001,483 $33,255,791 $29,186,605 $25,634,405 $23,331,482 =========== =========== =========== =========== ===========
- -------- * Balances include unearned income. 49 Table 3 Selected Loan Maturities and Interest Sensitivity *
December 31, 1999 ------------------------------------- Commercial, Financial and Real Estate: Agricultural Construction Total ------------ ------------- ---------- (Dollars in thousands) Fixed rate: 1 year or less (2)..................... $ 272,548 $ 570,850 $ 843,398 1-5 years.............................. 1,157,285 307,381 1,464,666 After 5 years.......................... 299,524 -- 299,524 ---------- ---------- ---------- Total................................ 1,729,357 878,231 2,607,588 ---------- ---------- ---------- Variable rate: 1 year or less (2)..................... 1,912,354 1,999,312 3,911,666 1-5 years.............................. 1,574,450 940,853 2,515,303 After 5 years.......................... 166,212 -- 166,212 ---------- ---------- ---------- Total................................ 3,653,016 2,940,165 6,593,181 ---------- ---------- ---------- Total loans and leases (1)......... $5,382,373 $3,818,396 $9,200,769 ========== ========== ==========
- -------- * Balances include unearned income. Scheduled repayments are reported in the maturity category in which the payment is due. Determinations of maturities are based upon contract terms. BB&T's credit policy does not permit automatic renewals of loans. At the scheduled maturity date (including balloon payment date), the customer must request a new loan to replace the matured loan and execute a new note with rate, terms and conditions negotiated at that time. (1)The table excludes:
(Dollars in thousands) ----------- (i) consumer loans to individuals for household, family and other personal expenditures...................... $ 4,589,510 (ii) real estate mortgage loans........................... 20,237,959 (iii) loans held for sale.................................. 367,243 (iv) leases............................................... 2,606,002 ----------- $27,800,714 ===========
(2)Includes loans due on demand. 50 Table 4 Allocation of Allowance for Loan and Lease Losses by Category
1999 1998 1997 1996 1995 ----------------- ----------------- ----------------- ----------------- ----------------- % Loans % Loans % Loans % Loans % Loans in each in each in each in each in each Amount category Amount category Amount category Amount category Amount category -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (Dollars in thousands) Balance at end of period applicable to: Commercial, financial and agricultural...... $ 89,744 15% $ 80,508 16% $ 80,869 16% $ 82,291 15% $ 80,069 14% Real estate: Construction and land development........... 42,714 55 35,645 55 26,902 56 19,410 55 23,838 58 Mortgage............... 162,673 12 132,420 12 126,665 14 111,087 15 108,559 14 -------- --- -------- --- -------- --- -------- --- -------- --- Real estate--total..... 205,387 67 168,065 67 153,567 70 130,497 70 132,397 72 -------- --- -------- --- -------- --- -------- --- -------- --- Consumer............... 56,836 12 60,510 13 54,662 13 48,101 15 39,876 13 Leases................. 21,726 6 12,737 4 8,021 2 5,207 1 3,325 1 Unallocated............ 103,603 -- 120,521 -- 91,748 -- 80,015 -- 64,932 -- -------- --- -------- --- -------- --- -------- --- -------- --- Total................. $477,296 100% $442,341 100% $388,867 100% $346,111 100% $320,599 100% ======== === ======== === ======== === ======== === ======== ===
51 Table 5 Analysis of Allowance for Loan and Lease Losses
December 31, --------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Balance, beginning of period................. $ 442,341 $ 388,867 $ 346,111 $ 320,599 $ 306,793 ----------- ----------- ----------- ----------- ----------- Charge-offs: Commercial, financial and agricultural...... (29,147) (18,765) (24,094) (16,793) (15,480) Real estate............ (17,192) (13,831) (16,226) (13,306) (15,005) Consumer............... (75,146) (80,989) (82,495) (59,862) (39,035) Lease receivables...... (993) (1,167) (671) (768) (614) ----------- ----------- ----------- ----------- ----------- Total charge-offs.... (122,478) (114,752) (123,486) (90,729) (70,134) ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial, financial and agricultural...... 11,994 9,269 8,138 10,454 8,916 Real estate............ 4,146 4,153 5,882 7,171 4,424 Consumer............... 16,056 14,499 11,455 10,868 11,178 Lease receivables...... 107 425 232 136 395 ----------- ----------- ----------- ----------- ----------- Total recoveries..... 32,303 28,346 25,707 28,629 24,913 ----------- ----------- ----------- ----------- ----------- Net charge-offs........ (90,175) (86,406) (97,779) (62,100) (45,221) ----------- ----------- ----------- ----------- ----------- Provision charged to expense............... 114,433 114,729 123,096 77,919 54,694 ----------- ----------- ----------- ----------- ----------- Allowance of loans acquired in purchase transactions.......... 10,392 25,087 17,439 9,693 4,333 Reconciliation of fiscal year of merged companies to calender year.................. 305 64 -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, end of period.. $ 477,296 $ 442,341 $ 388,867 $ 346,111 $ 320,599 =========== =========== =========== =========== =========== Average loans and leases *............... $33,904,439 $30,543,475 $27,100,788 $24,438,883 $22,659,115 Net charge-offs as a percentage of average loans and leases....... .27% .28% .36% .25% .20% =========== =========== =========== =========== ===========
- -------- * Loans and leases are net of unearned income and include loans held for sale. 52 Table 6 Composition of Securities Portfolio
December 31, ----------------------------------- 1999 1998 1997 ----------- ----------- ----------- (Dollars in thousands) Trading Securities (at estimated fair value):.................................. $ 93,221 $ 60,422 $ 67,878 ----------- ----------- ----------- Securities held to maturity (at amortized cost): U.S. Treasury, government and agency obligations.......................... 23,184 59,823 178,016 States and political subdivisions..... 379,822 533,371 531,277 Mortgage-backed securities............ -- 71,663 210,436 Other securities...................... 1,891 8,786 9,405 ----------- ----------- ----------- Total securities held to maturity....... 404,897 673,643 929,134 ----------- ----------- ----------- Securities available for sale (at estimated fair value): U.S. Treasury, government and agency obligations.......................... 5,588,786 4,924,593 5,765,414 States and political subdivisions..... 615,878 229,343 135,791 Mortgage-backed securities............ 4,257,004 4,605,457 3,748,253 Other securities...................... 1,796,154 1,414,361 559,706 ----------- ----------- ----------- Total securities available for sale..... 12,257,822 11,173,754 10,209,164 ----------- ----------- ----------- Total securities.......................... $12,755,940 $11,907,819 $11,206,176 =========== =========== ===========
53 Table 7 Scheduled Maturities of Time Deposits $100,000 and Greater December 31, 1999 (Dollars in thousands) Maturity Schedule Less than three months............................................ $1,739,543 Three through six months.......................................... 840,924 Seven through twelve months....................................... 1,019,092 Over twelve months................................................ 831,267 ---------- Total........................................................... $4,430,826 ==========
54 Table 8 Short-Term Borrowed Funds The following information summarizes certain pertinent information for the past three years on short-term borrowed funds:
1999 1998 1997 ---------- ---------- ---------- (Dollars in thousands) Maximum outstanding at any month-end during the year.......................... $8,101,034 $6,851,348 $4,918,840 Average outstanding during the year....... 6,270,755 5,255,111 3,965,541 Average interest rate during the year..... 4.89% 5.20% 5.28% Average interest rate at end of year...... 4.28 4.82 5.51
55 Table 9 Capital Adequacy for BB&T Corporation and Principal Banking and Thrift Subsidiaries
One One Valley Regulatory BB&T- BB&T- BB&T- Valley Central Minimums BB&T NC SC VA Premier National Virginia ---------- ---- ----- ----- ----- ------- -------- -------- Risk-based capital ratios: Tier 1 capital(1)..... 4.0% 9.9% 9.8% 9.7% 11.3% 11.6% 10.4% 12.9% Total risk-based capital(2)........... 8.0 13.2 10.9 11.0 12.5 12.9 11.7 14.2 Tier 1 leverage ratio(3)............... 3.0 7.1 6.8 7.7 7.5 9.6 7.0 7.8
- -------- (1) Shareholders' equity less nonqualifying intangible assets; computed as a ratio of risk- weighted assets, as defined in the risk-based capital guidelines. (2) Tier 1 capital plus qualifying loan loss allowance and subordinated debt; computed as a ratio of risk-weighted assets as defined in the risk-based capital guidelines. (3) Tier 1 capital computed as a percentage of fourth quarter average assets less nonqualifying intangibles. 56 Table 10 Securities
December 31, 1999 ------------------------------- Carrying Value Average Yield(3) -------------- ---------------- (Dollars in thousands) U.S. Treasury, government and agency obligations (1): Within one year............................. $ 1,176,090 6.42% One to five years........................... 3,380,495 6.22 Five to ten years........................... 1,684,880 6.47 After ten years............................. 3,627,509 6.46 ----------- ---- Total..................................... 9,868,974 6.37 ----------- ---- States and political subdivisions: Within one year............................. 71,372 9.51 One to five years........................... 285,836 8.01 Five to ten years........................... 370,338 7.27 After ten years............................. 268,154 7.51 ----------- ---- Total..................................... 995,700 7.70 ----------- ---- Other securities: Within one year............................. 76,434 6.34 One to five years........................... 42,630 6.36 Five to ten years........................... 15,338 7.11 After ten years............................. 342,191 6.54 ----------- ---- Total..................................... 476,593 6.51 ----------- ---- Securities with no stated maturity............ 1,414,673 5.85 ----------- ---- Total securities (2)........................ $12,755,940 6.43% =========== ====
- -------- (1) Included in U.S. Treasury, government and agency obligations are mortgage- backed securities totaling $4.3 billion classified as available for sale and disclosed at estimated fair value. These securities are included in each of the categories based upon final stated maturity dates. The original contractual lives of these securities range from five to 30 years; however, a more realistic average maturity would be substantially shorter because of the monthly return of principal on certain securities. (2) Includes securities held to maturity of $404.9 million carried at amortized cost and securities available for sale and trading securities carried at estimated fair values of $12.3 billion and $93.2 million, respectively. (3) Taxable equivalent basis as applied to amortized cost. 57 Table 11 Asset Quality
December 31, ---------------------------- 1999 1998 1997 -------- -------- -------- (Dollars in thousands) Nonaccrual loans and leases*..................... $118,975 $119,138 $128,105 Restructured loans............................... 1,681 3,744 3,141 Foreclosed property.............................. 31,894 37,231 46,773 -------- -------- -------- Nonperforming assets........................... $152,550 $160,113 $178,019 ======== ======== ======== Loans 90 days or more past due and still accruing...................................... $ 59,974 $ 63,316 $ 57,047 ======== ======== ======== Asset Quality Ratios: Nonaccrual and restructured loans and leases as a percentage of loans and leases.............. .34% .38% .45% Nonperforming assets as a percentage of: Total assets................................... .29 .33 .41 Loans and leases plus foreclosed property...... .43 .49 .62 Net charge-offs as a percentage of average loans and leases.............................. .27 .28 .36 Allowance for losses as a percentage of loans and leases.................................... 1.33 1.37 1.35 Ratio of allowance for losses to: Net charge-offs.............................. 5.29x 5.12x 3.98x Nonaccrual and restructured loans and leases...................................... 3.96 3.60 2.96
- -------- NOTE: Items referring to loans and leases are net of unearned income and include loans held for sale. * Includes $39.1 million, $50.7 million and $58.1 million of impaired loans at December 31, 1999, 1998 and 1997, respectively. See Note D in the "Notes to Consolidated Financial Statements." 58 Table 12 FTE Net Interest Income and Rate/Volume Analysis For the Years Ended December 31, 1999, 1998 and 1997
Average Balances Yield / Rate Income / Expense ----------------------------------- ---------------- -------------------------------- 1999 1998 1997 1999 1998 1997 1999 1998 1997 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- (Dollars in thousands) Assets Securities (1): U.S. Treasury, government and other (5)....... $12,261,714 $10,899,209 $ 9,956,160 6.49% 6.65% 6.70% $ 795,483 $ 725,280 $ 667,284 States and political subdivision..... 955,994 649,383 611,702 7.65 7.99 8.09 73,100 51,888 49,496 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total securities (5)............. 13,217,708 11,548,592 10,567,862 6.57 6.73 6.78 868,583 777,168 716,780 Other earning assets (2)...... 434,495 438,079 301,010 5.06 5.56 5.97 21,997 24,345 17,958 Loans and leases, net of unearned income(1)(3)(4)(5).. 33,904,439 30,543,475 27,100,788 8.79 9.07 9.21 2,981,635 2,769,855 2,495,684 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total earning assets.......... 47,556,642 42,530,146 37,969,660 8.14 8.40 8.51 3,872,215 3,571,368 3,230,422 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Non-earning assets.......... 3,307,595 2,951,782 2,414,980 ----------- ----------- ----------- Total assets.... $50,864,237 $45,481,928 $40,384,640 =========== =========== =========== Liabilities and Shareholders' Equity Interest- bearing deposits: Savings and interest- checking........ $ 3,205,315 $ 3,519,414 $ 3,952,692 1.90 2.13 2.10 60,897 75,056 82,929 Money rate savings......... 8,795,744 7,123,108 5,698,302 2.98 3.13 3.21 262,344 222,767 182,922 Other time deposits........ 17,044,678 16,302,152 15,808,238 5.15 5.48 5.50 878,226 892,836 870,161 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total interest- bearing deposits........ 29,045,737 26,944,674 25,459,232 4.14 4.42 4.46 1,201,467 1,190,659 1,136,012 Short-term borrowed funds.. 6,270,755 5,255,111 3,965,541 4.89 5.20 5.28 306,545 273,223 209,485 Long-term debt.. 6,116,548 4,647,116 3,303,968 5.47 5.79 5.90 334,593 269,226 195,064 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total interest- bearing liabilities..... 41,433,040 36,846,901 32,728,741 4.45 4.70 4.71 1,842,605 1,733,108 1,540,561 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Noninterest- bearing deposits........ 4,681,061 4,248,653 3,784,210 Other liabilities..... 706,152 643,028 504,271 Shareholders' equity.......... 4,043,984 3,743,346 3,367,418 ----------- ----------- ----------- Total liabilities and shareholders' equity.......... $50,864,237 $45,481,928 $40,384,640 =========== =========== =========== Average interest rate spread..... 3.69 3.70 3.80 Net yield on earning assets.. 4.27% 4.32% 4.45% $2,029,610 $1,838,260 $1,689,861 ---- ---- ---- ---------- ---------- ---------- Taxable equivalent adjustment...... $ 96,662 $ 78,555 $ 66,532 ========== ========== ========== 1999 v. 1998 1998 v. 1997 ------------------------------ ------------------------------- Change due to Change due to Increase ------------------- Increase -------------------- (Decrease) Rate Volume (Decrease) Rate Volume ---------- --------- --------- ---------- ---------- --------- Assets Securities (1): U.S. Treasury, government and other (5)....... $ 70,203 $(18,570) $ 88,773 $ 57,996 $ (4,790) $ 62,786 States and political subdivision..... 21,212 (2,321) 23,533 2,392 (625) 3,017 ---------- --------- --------- ---------- ---------- --------- Total securities (5)............. 91,415 (20,891) 112,306 60,388 (5,415) 65,803 Other earning assets (2)...... (2,348) (2,150) (198) 6,387 (1,303) 7,690 Loans and leases, net of unearned income(1)(3)(4)(5).. 211,780 (85,779) 297,559 274,171 (38,549) 312,720 ---------- --------- --------- ---------- ---------- --------- Total earning assets.......... 300,847 (108,820) 409,667 340,946 (45,267) 386,213 ---------- --------- --------- ---------- ---------- --------- Non-earning assets.......... Total assets.... Liabilities and Shareholders' Equity Interest- bearing deposits: Savings and interest- checking........ (14,159) (7,789) (6,370) (7,873) 1,348 (9,221) Money rate savings......... 39,577 (10,710) 50,287 39,845 (4,824) 44,669 Other time deposits........ (14,610) (54,230) 39,620 22,675 (4,395) 27,070 ---------- --------- --------- ---------- ---------- --------- Total interest- bearing deposits........ 10,808 (72,729) 83,537 54,647 (7,871) 62,518 Short-term borrowed funds.. 33,322 (17,073) 50,395 63,738 (3,359) 67,097 Long-term debt.. 65,367 (15,727) 81,094 74,162 (3,717) 77,879 ---------- --------- --------- ---------- ---------- --------- Total interest- bearing liabilities..... 109,497 (105,529) 215,026 192,547 (14,947) 207,494 ---------- --------- --------- ---------- ---------- --------- Noninterest- bearing deposits........ Other liabilities..... Shareholders' equity.......... Total liabilities and shareholders' equity.......... Average interest rate spread..... Net yield on earning assets.. $191,350 $ (3,291) $194,641 $148,399 $ (30,320) $178,719 ---------- --------- --------- ---------- ---------- --------- Taxable equivalent adjustment......
- ---- (1) Yields related to securities, loans and leases exempt from income taxes are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented. (2) Includes Federal funds sold and securities purchased under resale agreements or similar arrangements. (3) Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes. (4) Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income. (5) Includes assets which were held for sale or available for sale at amortized cost and trading securities at estimated fair value. 59 Table 13 Noninterest Income
% Change ------------- Years Ended December 31, 1999 1998 --------------------------- v. v. 1999 1998 1997 1998 1997 -------- -------- -------- ------ ----- (Dollars in thousands) Service charges on deposits........ $241,904 $215,021 $191,158 12.5% 12.5% Mortgage banking income............ 163,562 127,122 82,107 28.7 54.8 Trust income....................... 70,079 54,851 47,716 27.8 15.0 Agency insurance commissions....... 79,499 52,186 40,149 52.3 30.0 Other insurance commissions........ 13,991 13,099 15,314 6.8 (14.5) Securities (losses) gains, net..... (6,149) 10,155 5,932 (160.6) 71.2 Bankcard fees and merchant discounts......................... 42,883 36,657 28,400 17.0 29.1 Investment banking and brokerage fees and commissions.............. 128,609 45,723 28,272 181.3 61.7 Other bank service fees and commissions....................... 70,751 63,855 51,931 6.2 28.0 International income............... 6,120 4,563 3,685 34.1 23.8 Amortization of negative goodwill.. 6,243 6,243 6,180 -- 1.0 Other noninterest income........... 57,987 60,952 87,503 (.4) (33.4) -------- -------- -------- ------ ----- Total noninterest income......... $875,479 $690,427 $588,347 26.8% 17.4% ======== ======== ======== ====== =====
60 Table 14 Noninterest Expense
% Change Years Ended December 31, --------------- -------------------------------- 1999 v. 1998 v. 1999 1998 1997 1998 1997 ---------- ---------- ---------- ------- ------- (Dollars in thousands) Salaries and wages........... $ 683,624 $ 578,696 $ 525,099 18.1% 10.2% Pension and other employee benefits.................... 151,264 121,563 131,365 24.4 (7.5) Net occupancy expense on bank premises.................... 103,896 89,018 104,177 16.7 (14.6) Furniture and equipment expense..................... 141,955 119,297 105,276 19.0 13.3 Federal deposit insurance premiums.................... 10,531 6,537 8,195 61.1 (20.2) Foreclosed property expense.. 4,816 2,880 3,944 67.2 (27.0) Amortization of intangibles and mortgage servicing rights...................... 81,699 61,523 31,402 32.8 95.9 Software..................... 19,299 11,610 15,541 66.2 (25.3) Telephone.................... 32,487 27,162 24,463 19.6 11.0 Donations.................... 14,526 7,828 8,332 85.6 (6.0) Advertising and public relations................... 32,057 34,751 36,266 (7.8) (4.2) Travel and transportation.... 16,526 12,640 10,668 30.7 18.5 Professional services........ 78,937 69,928 67,894 12.9 3.0 Supplies..................... 26,563 25,111 23,104 5.8 8.7 Loan and lease expense....... 38,137 28,657 44,431 33.1 (35.5) Deposit related expense...... 19,721 16,109 19,054 22.4 (15.5) Other noninterest expenses... 191,499 163,605 167,446 17.0 (2.3) ---------- ---------- ---------- ---- ----- Total noninterest expense.. $1,647,537 $1,376,915 $1,326,657 19.7% 3.8% ========== ========== ========== ==== =====
61 Table 15 Interest Rate Sensitivity Gap Analysis December 31, 1999
Expected Repricing or Maturity Date -------------------------------------------------------------- Within One to Three to After Five One Year Three Years Five Years Years Total ----------- ----------- ----------- ---------- ----------- (Dollars in thousands) Assets Securities and other interest-earning assets*.............. $ 3,134,690 $ 3,068,227 $ 4,270,939 $2,858,357 $13,332,213 Federal funds sold and securities purchased under resale agreements or similar arrangements......... 432,877 -- -- -- 432,877 Loans and leases**.... 19,260,950 5,890,213 5,970,931 4,634,212 35,756,306 ----------- ----------- ----------- ---------- ----------- Total interest-earning assets................. 22,828,517 8,958,440 10,241,870 7,492,569 49,521,396 ----------- ----------- ----------- ---------- ----------- Liabilities Savings and interest checking***.......... -- 1,787,287 595,762 595,762 2,978,811 Money rate savings***........... 4,796,163 4,796,163 -- -- 9,592,326 Other time deposits... 12,717,441 3,051,699 365,782 64,207 16,199,129 Foreign deposits...... 529,401 -- -- -- 529,401 Federal funds purchased and securities sold under repurchase agreements or similar arrangements......... 2,944,672 -- -- -- 2,944,672 Long-term debt and other borrowings..... 6,879,766 649,973 161,938 3,408,952 11,100,629 ----------- ----------- ----------- ---------- ----------- Total interest-bearing liabilities............ 27,867,443 10,285,122 1,123,482 4,068,921 $43,344,968 ----------- ----------- ----------- ---------- =========== Asset-liability gap..... (5,038,926) (1,326,682) 9,118,388 3,423,648 ----------- ----------- ----------- ---------- Derivatives affecting interest rate sensitivity: Pay fixed interest rate swaps........... 476,146 (4,361) (441,036) (30,749) Receive fixed interest rate swaps........... (560,000) -- 270,000 290,000 Caps, floors and collars.............. (47,250) -- 47,250 -- ----------- ----------- ----------- ---------- (131,104) (4,361) (123,786) 259,251 ----------- ----------- ----------- ---------- Interest rate sensitivity gap........ $(5,170,030) $(1,331,043) $ 8,994,602 $3,682,899 =========== =========== =========== ========== Cumulative interest rate sensitivity gap........ $(5,170,030) $(6,501,073) $ 2,493,529 $6,176,428 =========== =========== =========== ==========
- -------- * Securities based on amortized cost. ** Loans and leases include loans held for sale and are net of unearned income. *** Projected runoff of deposits that do not have a contractual maturity date was computed based upon decay rate assumptions developed by bank regulators to assist banks in addressing FDICIA rule 305. 62 Table 16 Capital--Components and Ratios
December 31, ---------------------- 1999 1998 ---------- ---------- (Dollars in thousands) Tier 1 capital.......................................... $3,679,736 $3,536,006 Tier 2 capital.......................................... 1,221,886 1,226,951 ---------- ---------- Total regulatory capital................................ $4,901,622 $4,762,957 ========== ========== Risk-based capital ratios: Tier 1 capital........................................ 9.9% 11.1% Total regulatory capital.............................. 13.2 14.9 Tier 1 leverage ratio................................... 7.1 7.5
63 Table 17 Quarterly Common Stock Summary
1999 1998 ------------------------------ ------------------------------ Closing Sales Prices Closing Sales Prices -------------------- Dividends -------------------- Dividends High Low Last Paid High Low Last Paid ------ ------ ------ --------- ------ ------ ------ --------- Quarter Ended: March 31........ $40.44 $34.94 $36.19 $.175 $33.84 $29.03 $33.84 $.155 June 30......... 40.25 33.81 36.69 .175 34.06 32.03 33.81 .155 September 30.... 36.63 30.50 32.38 .20 36.03 28.00 29.94 .175 December 31..... 36.94 27.31 27.38 .20 40.63 27.31 40.31 .175 ----- ----- Year............ $40.44 $27.31 $27.38 $ .75 $40.63 $27.31 $40.31 $ .66 ===== =====
64 Table 18 Quarterly Financial Summary--Unaudited
1999 1998 -------------------------------------------------- ----------------------------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) Consolidated Summary of Operations: Net interest income FTE.................. $ 527,314 $ 517,565 $ 505,242 $ 479,489 $ 470,316 $ 459,299 $ 465,903 $ 442,742 FTE adjustment........ 24,729 25,620 24,817 21,496 21,258 19,566 19,157 18,574 Provision for loan and lease losses......... 40,032 24,352 26,078 23,971 28,729 26,012 30,933 29,055 Securities (losses) gains, net........... (1,969) (1,882) (2,895) 597 2,290 2,951 1,547 3,367 Other noninterest income............... 225,672 224,494 228,622 202,840 176,090 174,949 170,884 158,349 Noninterest expense... 435,382 433,583 401,785 376,787 357,168 349,459 341,028 329,260 Provision for income taxes................ 84,083 82,843 89,759 84,198 75,397 76,849 80,149 74,349 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income............ $ 166,791 $ 173,779 $ 188,530 $ 176,474 $ 166,144 $ 165,313 $ 167,067 $ 153,220 =========== =========== =========== =========== =========== =========== =========== =========== Diluted net income per share................ $ .41 $ .43 $ .47 $ .44 $ .41 $ .42 $ .42 $ .39 =========== =========== =========== =========== =========== =========== =========== =========== Selected Average Balances: Assets................ $52,637,610 $51,666,605 $50,659,620 $48,438,057 $46,999,671 $44,751,958 $45,021,635 $43,985,980 Securities, at amortized cost....... 13,447,769 13,814,500 13,450,238 12,137,366 11,992,065 11,250,808 11,487,441 11,312,606 Loans and leases *.... 35,347,402 34,133,559 33,414,854 32,690,226 31,474,634 30,310,038 30,216,203 29,340,754 Total earning assets.. 49,182,038 48,447,313 47,342,887 45,200,706 43,965,871 41,876,879 42,170,942 41,166,403 Deposits.............. 34,276,123 33,991,978 33,523,225 33,100,026 32,010,188 30,614,237 30,920,835 30,266,399 Short-term borrowed funds................ 6,940,113 6,676,203 6,337,899 5,104,085 5,142,493 5,039,161 5,556,845 5,232,419 Long-term debt........ 6,582,262 6,316,154 6,048,556 5,505,189 5,206,440 4,825,067 4,239,944 4,262,363 Total interest-bearing liabilities.......... 42,951,801 42,256,418 41,264,928 39,208,742 37,865,445 36,224,625 36,515,021 35,793,474 Shareholders' equity.. 4,101,967 3,967,306 4,057,292 4,049,638 4,005,258 3,622,461 3,639,884 3,591,370
- -------- * Loans and leases are net of unearned income and include loans held for sale. 65 -----END PRIVACY-ENHANCED MESSAGE-----