10-Q 1 d10q.txt FORM 10-Q ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-Q ---------------- Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended: March 31, 2001 Commission file number: 1-10853 BB&T CORPORATION (Exact name of registrant as specified in its charter) North Carolina 56-0939887 (State of Incorporation) (I.R.S. Employer Identification No.)
200 West Third Street Winston-Salem, North Carolina 27101 (Address of Principal Executive Offices) (Zip Code)
(336) 733-2000 (Registrant's Telephone Number, Including Area Code) ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] At April 30, 2001, 407,251,781 shares of the registrant's common stock, $5 par value, were outstanding. This Form 10-Q has 30 pages. The Exhibit Index begins on page 26. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- BB&T CORPORATION FORM 10-Q March 31, 2001 INDEX
Page No. -------- Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited)............................ 2 Consolidated Financial Statements............................... 2 Notes to Consolidated Financial Statements...................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 Analysis of Financial Condition................................. 13 Market Risk Management.......................................... 17 Capital Adequacy and Resources.................................. 19 Analysis of Results of Operations............................... 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 17 Part II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 26 Item 6. Exhibits and Reports on Form 8-K............................ 26 SIGNATURES............................................................ 30
1 Part I. FINANCIAL INFORMATION Item 1. Financial Statements BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
March 31, December 31, 2001 2000 ------------ ------------ (unaudited) Assets Cash and due from banks........................... $ 1,387,598 $ 1,508,396 Interest-bearing deposits with banks.............. 71,905 52,529 Federal funds sold and securities purchased under resale agreements or similar arrangements........ 174,980 261,156 Trading securities at market value................ 187,218 96,719 Securities available for sale at market value..... 14,261,958 14,220,870 Securities held to maturity at amortized cost (approximate market values of $35,853 at March 31, 2001, and $69,727 at December 31, 2000)...... 35,952 69,274 Loans held for sale............................... 1,272,136 846,830 Loans and leases, net of unearned income.......... 41,274,942 40,447,069 Allowance for loan and lease losses............... (555,532) (532,203) ------------ ------------ Loans and leases, net............................ 40,719,410 39,914,866 ------------ ------------ Premises and equipment, net....................... 827,067 801,833 Other assets...................................... 3,182,080 3,157,845 ------------ ------------ Total assets..................................... $ 62,120,304 $ 60,930,318 ============ ============ Liabilities and Shareholders' Equity Deposits: Noninterest-bearing deposits..................... $ 5,191,963 $ 5,312,128 Savings and interest checking.................... 2,135,908 2,301,042 Money rate savings............................... 11,908,702 11,318,362 Other time deposits.............................. 19,809,227 20,244,866 ------------ ------------ Total deposits................................... 39,045,800 39,176,398 ------------ ------------ Short-term borrowed funds......................... 5,737,235 7,012,313 Long-term debt.................................... 10,912,207 8,625,074 Accounts payable and other liabilities............ 1,378,181 1,240,443 ------------ ------------ Total liabilities................................ 57,073,423 56,054,228 ------------ ------------ Shareholders' equity: Preferred stock, $5 par, 5,000,000 shares authorized, none issued and outstanding......... -- -- Common stock, $5 par, 1,000,000,000 shares authorized; 409,668,557 issued and outstanding at March 31, 2001, and 410,352,471 at December 31, 2000........................................ 2,048,343 2,051,762 Additional paid-in capital....................... 349,493 426,154 Retained earnings................................ 2,429,660 2,305,902 Unvested restricted stock........................ (5,737) (7,071) Accumulated other nonshareholder changes in equity, net of deferred income taxes of $148,554 at March 31, 2001 and $69,129 at December 31, 2000............................................ 225,122 99,343 ------------ ------------ Total shareholders' equity....................... 5,046,881 4,876,090 ------------ ------------ Total liabilities and shareholders' equity....... $ 62,120,304 $ 60,930,318 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 2 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Three Months Ended March 31, ------------------------- 2001 2000 ------------ ------------ (Dollars in thousands, except per share data) Interest Income Interest and fees on loans and leases............. $ 919,255 $ 830,309 Interest and dividends on securities.............. 236,617 209,920 Interest on short-term investments................ 4,492 5,912 ------------ ------------ Total interest income............................ 1,160,364 1,046,141 ------------ ------------ Interest Expense Interest on deposits.............................. 403,219 339,796 Interest on short-term borrowed funds............. 86,562 100,174 Interest on long-term debt........................ 147,997 90,997 ------------ ------------ Total interest expense........................... 637,778 530,967 ------------ ------------ Net Interest Income................................ 522,586 515,174 Provision for loan and lease losses............... 38,850 26,767 ------------ ------------ Net Interest Income After Provision for Loan and Lease Losses...................................... 483,736 488,407 ------------ ------------ Noninterest Income Service charges on deposit accounts............... 73,419 61,801 Investment banking and brokerage fees and commissions...................................... 43,202 45,711 Mortgage banking income........................... 5,224 27,369 Trust income...................................... 24,143 18,746 Agency insurance commissions...................... 39,458 31,531 Other insurance commissions....................... 2,634 3,189 Other nondeposit fees and commissions............. 40,967 32,918 Securities gains (losses), net.................... 71,972 (104) Other income...................................... 14,574 18,411 ------------ ------------ Total noninterest income......................... 315,593 239,572 ------------ ------------ Noninterest Expense Personnel expense................................. 258,177 237,007 Occupancy and equipment expense................... 75,314 69,111 Amortization of intangibles....................... 17,019 15,569 Other noninterest expense......................... 139,582 126,999 ------------ ------------ Total noninterest expense........................ 490,092 448,686 ------------ ------------ Earnings Income before income taxes........................ 309,237 279,293 Provision for income taxes........................ 90,876 89,458 ------------ ------------ Net income....................................... $ 218,361 $ 189,835 ============ ============ Per Common Share Net income: Basic............................................ $ .53 $ .47 ============ ============ Diluted.......................................... $ .53 $ .46 ============ ============ Cash dividends paid by BB&T Corporation........... $ .23 $ .20 ============ ============ Average Shares Outstanding Basic............................................. 409,201,404 407,978,573 ============ ============ Diluted........................................... 415,546,150 412,608,438 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Three Months Ended March 31, 2001 and 2000 (Unaudited) (Dollars in thousands)
Accumulated Retained Other Shares of Additional Earnings Nonshareholder Total Common Common Paid-In and Changes in Shareholders' Stock Stock Capital Other* Equity Equity ----------- ---------- ---------- ---------- -------------- ------------- Balance, December 31, 1999, as restated............ 407,386,925 $2,036,935 $ 402,379 $2,032,532 $(318,462) $4,153,384 Add (Deduct) Nonshareholder changes in equity:** Net income............. -- -- -- 189,835 -- 189,835 Unrealized holding gains (losses) arising during the period............... -- -- -- -- (22,190) (22,190) Less: reclassification adjustment, net of tax of ($36)......... -- -- -- -- (68) (68) ----------- ---------- --------- ---------- --------- ---------- Net unrealized gains (losses) on securities............ -- -- -- -- (22,258) (22,258) ----------- ---------- --------- ---------- --------- ---------- Total nonshareholder changes in equity..... -- -- -- 189,835 (22,258) 167,577 ----------- ---------- --------- ---------- --------- ---------- Common stock issued.... 902,074 4,510 9,154 -- -- 13,664 Cash dividends declared on common stock....... -- -- -- (79,871) -- (79,871) Other.................. -- -- -- (1,214) -- (1,214) ----------- ---------- --------- ---------- --------- ---------- Balance, March 31, 2000................... 408,288,999 $2,041,445 $ 411,533 $2,141,282 $(340,720) $4,253,540 =========== ========== ========= ========== ========= ========== Balance, December 31, 2000, as restated............ 410,352,471 $2,051,762 $ 426,154 $2,298,831 $ 99,343 $4,876,090 Add (Deduct) Nonshareholder changes in equity:** Net income............. -- -- -- 218,361 -- 218,361 Unrealized holding gains (losses) arising during the period............... -- -- -- -- 88,270 88,270 Less: reclassification adjustment, net of tax of $25,190....... -- -- -- -- 46,782 46,782 ----------- ---------- --------- ---------- --------- ---------- Net unrealized gains (losses) on securities............ -- -- -- -- 135,052 135,052 ----------- ---------- --------- ---------- --------- ---------- Unrecognized loss on cash flow hedge, net of tax of $6,050...... -- -- -- -- (9,273) (9,273) ----------- ---------- --------- ---------- --------- ---------- Total nonshareholder changes in equity..... -- -- -- 218,361 125,779 344,140 ----------- ---------- --------- ---------- --------- ---------- Common stock issued.... 5,077,386 25,387 100,320 -- -- 125,707 Redemption of common stock................. (5,761,300) (28,806) (182,154) -- -- (210,960) Cash dividends declared on common stock....... -- -- -- (94,603) -- (94,603) Other.................. -- -- 5,173 1,334 -- 6,507 ----------- ---------- --------- ---------- --------- ---------- Balance, March 31, 2001................... 409,668,557 $2,048,343 $ 349,493 $2,423,923 $ 225,122 $5,046,881 =========== ========== ========= ========== ========= ==========
-------- * Other includes unearned income and unvested restricted stock. ** Comprehensive income as defined by SFAS No. 130. The accompanying notes are an integral part of these consolidated financial statements. 4 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2001 and 2000 (Unaudited)
2001 2000 ----------- ----------- (Dollars in thousands) Cash Flows From Operating Activities: Net income.......................................... $ 218,361 $ 189,835 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses................. 38,850 26,767 Depreciation of premises and equipment.............. 29,440 22,753 Amortization of intangibles and mortgage servicing rights............................................. 25,020 19,894 Accretion of negative goodwill...................... (1,560) (1,561) Amortization of unearned stock compensation......... (7,939) 1,287 Discount accretion and premium amortization on securities, net.................................... (1,018) (922) Net decrease (increase) in trading account securities......................................... (90,499) (11,191) Loss (gain) on sales of securities, net............. (71,972) 104 Loss (gain) on sales of loans and mortgage loan servicing rights, net.............................. (11,941) (2,865) Loss (gain) on disposals of premises and equipment, net................................................ (3,336) 3,360 Proceeds from sales of loans held for sale.......... 1,191,790 514,514 Purchases of loans held for sale.................... (459,004) (130,000) Origination of loans held for sale, net of principal collected................................ (1,146,151) (298,691) Decrease (increase) in: Accrued interest receivable........................ 1,709 (14,996) Other assets....................................... 57,368 (339,195) Increase (decrease) in: Accrued interest payable........................... 19,852 31 Accounts payable and other liabilities............. (27,837) 35,242 Other, net.......................................... 731 (56) ----------- ----------- Net cash (used in) provided by operating activities....................................... (238,136) 14,310 ----------- ----------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale............................................... 300,270 70,214 Proceeds from maturities, calls and paydowns of securities available for sale...................... 291,892 548,509 Purchases of securities available for sale.......... (234,403) (668,856) Proceeds from maturities, calls and paydowns of securities held to maturity........................ 1,100 21,647 Purchases of securities held to maturity............ (2,213) (4,147) Leases made to customers............................ (32,537) (29,255) Principal collected on leases....................... 25,686 21,066 Loan originations, net of principal collected....... (346,492) (1,061,243) Purchases of loans.................................. (14,740) (76,574) Net cash acquired in transactions accounted for under the purchase method.......................... 32,527 194 Purchases and originations of mortgage servicing rights............................................. (42,267) (4,775) Proceeds from disposals of premises and equipment... 5,756 18,689 Purchases of premises and equipment................. (50,130) (33,365) Proceeds from sales of foreclosed property.......... 10,285 5,128 Proceeds from sales of other real estate held for development or sale................................ 1,645 3,171 ----------- ----------- Net cash used in investing activities............. (53,621) (1,189,597) ----------- ----------- Cash Flows From Financing Activities: Net increase (decrease) in deposits................. (566,738) 771,188 Net increase (decrease) in short-term borrowed funds.............................................. (1,275,078) (460,638) Proceeds from long-term debt........................ 2,574,870 2,283,794 Repayments of long-term debt........................ (341,061) (1,609,546) Net proceeds from common stock issued............... 17,634 7,021 Redemption of common stock.......................... (210,960) -- Cash dividends paid on common stock................. (94,603) (79,871) Other, net.......................................... 95 (430) ----------- ----------- Net cash provided by financing activities......... 104,159 911,518 ----------- ----------- Net Decrease in Cash and Cash Equivalents............ (187,598) (263,769) Cash and Cash Equivalents at Beginning of Period..... 1,822,081 2,057,252 ----------- ----------- Cash and Cash Equivalents at End of Period........... $ 1,634,483 $ 1,793,483 =========== =========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest............................................ $ 533,999 $ 514,818 Income taxes........................................ (9,595) 13,219 Noncash financing and investing activities: Transfer of securities held to maturity to available for sale................................. 34,435 -- Transfer of loans to foreclosed property............ 16,880 7,294 Transfer of fixed assets to other real estate owned.............................................. 1,368 81 Tax benefit from exercise of stock options.......... 5,172 --
The accompanying notes are an integral part of these consolidated financial statements. 5 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (Unaudited) A. Basis of Presentation In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets of BB&T Corporation and subsidiaries (referred to herein as "BB&T", "the Corporation" or "the Company") as of March 31, 2001 and December 31, 2000; the consolidated statements of income for the three months ended March 31, 2001 and 2000; the consolidated statements of changes in shareholders' equity for the three months ended March 31, 2001 and 2000; and the consolidated statements of cash flows for the three months ended March 31, 2001 and 2000. The consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in BB&T's 2000 Annual Report on Form 10-K, as restated in BB&T's Current Report on Form 8-K filed on April 27, 2001, should be referred to in connection with the reading of these unaudited interim consolidated financial statements. In certain instances, amounts reported in the 2000 financial statements have been reclassified to conform to the 2001 statement presentation. Such reclassifications had no effect on shareholders' equity or net income. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Forward-Looking Statements This report contains forward-looking statements with respect to the financial condition, results of operations and business of BB&T. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of BB&T, and on the information available to management at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins; (3) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit; (4) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which BB&T is engaged; (5) costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected; (6) expected cost savings associated with pending mergers may not be fully realized or realized within the expected time frame; (7) deposit attrition, customer loss or revenue loss following pending mergers may be greater than expected; (8) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than BB&T; and (9) adverse changes may occur in the securities markets. B. Nature of Operations BB&T Corporation ("BB&T" or "the Corporation") is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations through its subsidiaries primarily in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky and Washington, D.C. BB&T's principal banking subsidiaries, Branch Banking and Trust Company ("BB&T-NC"), Branch Banking and Trust Company of South Carolina ("BB&T-SC") and Branch Banking and Trust Company of 6 Virginia ("BB&T-VA"), provide a wide range of traditional banking services to individuals and commercial customers. BB&T is also the parent company for nine subsidiary banks acquired through mergers with Hardwick Holding Company, First Banking Company of Southeast Georgia, BankFirst Corporation and FirstSpartan Financial Corp. These banks are expected to be merged with and into BB&T-NC, BB&T-SC or BB&T-VA based on their states of operation. Substantially all of BB&T's loans are to individuals residing in the market areas described above or to businesses that are 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 and property and casualty insurance on an agency basis and insurance premium financing. Direct nonbank subsidiaries of BB&T provide a variety of financial services including automobile lending, equipment financing, factoring, full-service securities brokerage, investment banking and corporate finance services. C. New Accounting Pronouncements The Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," on January 1, 2001. SFAS No. 133 established accounting and reporting standards that require 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. SFAS No. 133 requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In conjunction with the adoption of SFAS No. 133, BB&T recorded a transition adjustment of $7.9 million, after taxes, to accumulated other nonshareholder changes in equity on January 1, 2001. There was no material impact on net income at the date of adoption. Substantially all of the transition adjustment will be reversed into net income during 2001. The notional amount of derivative financial instruments held by BB&T at March 31, 2001, was $2.7 billion with unrealized net losses of $13.2 million, compared to a total notional value of $2.2 billion with unrealized net losses of $12.3 million at December 31, 2000. The transition adjustment and first quarter 2001 impact of the statement are based on the interpretive guidance issued thus far by the Financial Accounting Standards Board ("FASB"). However, the FASB continues to issue guidance that could affect BB&T's application of the statement and require adjustments to the transition amount or amounts and disclosures in the consolidated financial statements. See "Derivative Financial Instruments" herein for additional disclosures related to the adoption of SFAS No. 133. 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. Certain portions of the statement became effective for transactions occurring after March 31, 2001. The adoption of these provisions did not have a material impact on BB&T's consolidated financial position or consolidated results of operations. 7 D. Mergers and Acquisitions The following table presents summary information with respect to mergers and acquisitions completed by BB&T Corporation during 2000 and thus far during 2001: SUMMARY OF COMPLETED MERGERS AND ACQUISITIONS (Dollars in millions)
BB&T Common Shares Goodwill Issued to Date of Total Accounting Goodwill Amortization Complete Acquisition Acquired Company Headquarters Assets Method Recorded Period Transaction ----------- ---------------- ------------ ------ ---------- -------- ------------ ----------- March 2, 2001 FirstSpartan $ 591.0 million Purchase $ 42.0 million 15 years Financial Corp. Spartanburg, SC 3.8 million January 8, 2001 FCNB Corp. Frederick, MD 1.6 billion Pooling N/A N/A 8.7 million ---------------------------------------------------------------------------------------------------------------------------- December 27, 2000 BankFirst $ 929.5 million Purchase $ 71.0 million 15 years Corporation Knoxville, TN 5.3 million November 15, 2000 Edgar M. Norris 3.7 million Purchase N/A N/A & Co. Greenville, SC N/A September 29, 2000 Laureate Capital 13.8 million Purchase N/A N/A Corp. Charlotte, NC N/A July 6, 2000 One Valley 6.4 billion Pooling N/A N/A Bancorp, Inc. Charleston, W.Va. 43.1 million June 15, 2000 First Banking Company of Southeast Georgia Statesboro, Ga. 420.0 million Pooling N/A N/A 4.1 million June 13, 2000 Hardwick Holding 507.2 million Pooling N/A N/A Company Dalton, Ga. 3.9 million January 13, 2000 Premier 2.0 billion Pooling N/A N/A Bancshares, Inc. Atlanta, Ga. 16.8 million ----------------------------------------------------------------------------------------------------------------------------
N/A--Not applicable or terms not disclosed. The table above does not include mergers and acquisitions of acquired companies prior to their acquisition by BB&T or insurance agency acquisitions, which are summarized below. During the four months ended April 30, 2001, BB&T acquired two insurance agencies that were accounted for as purchases. In conjunction with these two transactions, BB&T issued approximately 229,000 shares of common stock and recorded $7.7 million in goodwill, which is being amortized using the straight-line method over 15 years. BB&T acquired six insurance agencies during 2000, which were accounted for as purchases. In conjunction with these 2000 transactions, BB&T issued 1.4 million shares of common stock and recorded $38.9 million in goodwill, which is being amortized using the straight-line method over 15 years. 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. Pending Mergers and Acquisitions On December 5, 2000, BB&T announced plans to merge with Century South Banks Inc. ("Century South") of Alpharetta, Georgia. Century South has $1.6 billion in assets and operates 40 banking offices in Georgia, North Carolina, Tennessee, and Alabama. Shareholders of Century South will receive .93 shares of BB&T common stock in exchange for each share of Century South common stock held. The transaction, which is expected to be accounted for as a pooling of interests, is planned for completion in the second quarter of 2001. On January 24, 2001, BB&T announced plans to acquire Virginia Capital Bancshares Inc. ("VCAP") of Fredericksburg, Virginia. VCAP has $532.7 million in assets and operates four banking offices in the Washington-Baltimore combined metropolitan statistical area. Shareholders of VCAP will receive between .4958 and .6060 shares of BB&T common stock for each share of VCAP owned. The exact exchange ratio will be determined based on BB&T's closing market prices during a pricing period prior to the VCAP shareholders' meeting to vote on the proposed merger. The transaction, which is expected to be accounted for as a purchase, is planned for completion in the second quarter of 2001. 8 On January 24, 2001, BB&T announced plans to merge with F&M National Corporation ("F&M") of Winchester, Virginia. F&M has $4 billion in assets and operates 163 banking offices, 13 mortgage banking offices, three trust offices and six insurance agencies. Shareholders of F&M will receive 1.09 shares of BB&T common stock in exchange for each share of F&M common stock held. The transaction, which is expected to be accounted for as a pooling of interests, is planned for completion in the third quarter of 2001. E. Calculation of Earnings Per Common Share BB&T's basic and diluted earnings per common share amounts were calculated as follows: BB&T CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE For the Periods as Indicated
For the Three Months Ended March 31, ----------------------- 2001 2000 ----------- ----------- (Dollars in thousands, except per share data) Basic Earnings Per Share: Weighted average number of common shares outstanding during the period.................................... 409,201,404 407,978,573 =========== =========== Net income............................................ $ 218,361 $ 189,835 =========== =========== Basic earnings per share.............................. $ .53 $ .47 =========== =========== Diluted Earnings Per Share: Weighted average number of common shares.............. 409,201,404 407,978,573 Add: Dilutive effect of outstanding options (as determined by application of treasury stock method)............ 6,344,746 4,629,865 ----------- ----------- Weighted average number of common shares, as adjusted............................................. 415,546,150 412,608,438 =========== =========== Net income............................................ $ 218,361 $ 189,835 =========== =========== Diluted earnings per share............................ $ .53 $ .46 =========== ===========
F. Segment Disclosures BB&T's operations are divided into six reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Agency Insurance, Investment Banking and Brokerage, and Treasury. These operating segments have been identified based primarily on BB&T's existing organizational structure. The segments require unique technology and marketing strategies and offer different products and services. While BB&T is managed as an integrated organization, individual executive managers are held accountable for the operations of the business segments that report to them. BB&T's strategies for revenue growth are focused on developing and expanding client relationships through quality service delivery and an effective sales culture. The segment results presented herein are based on internal management accounting policies that are 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 individual segments is not comparable with BB&T's consolidated results or with similar information presented by any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not necessarily indicative of the segments' financial performance if they operated as independent entities. 9 Please refer to BB&T's Annual Report on Form 10-K, as restated in BB&T's Current Report on Form 8-K, filed on April 27, 2001, for a description of internal accounting policies and the basis of segmentation, including a description of the segments presented in the accompanying tables. There have been no significant changes from the methods used to develop the segment disclosures contained therein. 10 The following tables disclose selected financial information for BB&T's reportable business segments for the periods as indicated: BB&T Corporation Reportable Segments For the Three Months Ended March 31, 2001 and 2000
Investment Agency Banking and Banking Network Mortgage Banking Trust Services Insurance Brokerage ----------------------- ---------------------- ---------------- ---------------- ----------------- 2001 2000 2001 2000 2001 2000 2001 2000 2001 2000 ----------- ----------- ---------- ---------- ------- ------- -------- ------- -------- -------- (Dollars in thousands) Net interest income (expense) from external customers........ $ 317,092 $ 356,564 $ 146,715 $ 109,093 $(9,921) $(9,500) $ 24 $ (9) $ 2,372 $ 3,048 Net intersegment interest income (expense)........ 147,115 94,131 (112,949) (73,808) 12,893 12,557 -- -- -- -- ----------- ----------- ---------- ---------- ------- ------- -------- ------- -------- -------- Net interest income.......... 464,207 450,695 33,766 35,285 2,972 3,057 24 (9) 2,372 3,048 ----------- ----------- ---------- ---------- ------- ------- -------- ------- -------- -------- Provision for loan and lease losses........... 38,188 30,303 700 705 -- -- -- -- -- -- Noninterest income from external customers........ 109,421 118,691 4,434 28,720 24,573 19,556 38,291 30,433 42,934 44,483 Intersegment noninterest income........... 38,415 24,865 -- -- -- -- -- -- -- -- Noninterest expense.......... 198,670 237,282 18,683 21,453 15,348 12,777 30,136 21,646 42,223 43,751 Intersegment noninterest expense.......... 114,670 73,186 6,817 5,697 775 943 1,057 1,024 381 374 ----------- ----------- ---------- ---------- ------- ------- -------- ------- -------- -------- Income before income taxes..... 260,515 253,480 12,000 36,150 11,422 8,893 7,122 7,754 2,702 3,406 Provision for income taxes.... 67,515 81,700 4,059 12,228 2,200 3,015 2,846 3,069 1,048 1,571 ----------- ----------- ---------- ---------- ------- ------- -------- ------- -------- -------- Net income....... $ 193,000 $ 171,780 $ 7,941 $ 23,922 $ 9,222 $ 5,878 $ 4,276 $ 4,685 $ 1,654 $ 1,835 =========== =========== ========== ========== ======= ======= ======== ======= ======== ======== Identifiable segment assets... $32,728,147 $34,565,140 $8,729,592 $5,593,540 $41,955 $29,366 $102,188 $76,228 $689,467 $663,419 =========== =========== ========== ========== ======= ======= ======== ======= ======== ======== All Other Treasury Segments (1) Total Segments ----------------------- ---------------------- ----------------------- 2001 2000 2001 2000 2001 2000 ----------- ----------- ---------- ----------- ----------- ----------- Net interest income (expense) from external customers........ $ 33,041 $ 25,728 $ 70,959 $ 37,045 $ 560,282 $ 521,969 Net intersegment interest income (expense)........ 13,032 14,595 -- -- 60,091 47,475 ----------- ----------- ---------- ----------- ----------- ----------- Net interest income.......... 46,073 40,323 70,959 37,045 620,373 569,444 ----------- ----------- ---------- ----------- ----------- ----------- Provision for loan and lease losses........... 33 30 12,616 5,789 51,537 36,827 Noninterest income from external customers........ 6,399 6,126 40,416 8,827 266,468 256,836 Intersegment noninterest income........... -- -- -- -- 38,415 24,865 Noninterest expense.......... 1,770 755 28,096 16,581 334,926 354,245 Intersegment noninterest expense.......... 486 138 2,850 676 127,036 82,038 ----------- ----------- ---------- ----------- ----------- ----------- Income before income taxes..... 50,183 45,526 67,813 22,826 411,757 378,035 Provision for income taxes.... 10,414 7,598 10,098 7,480 98,180 116,661 ----------- ----------- ---------- ----------- ----------- ----------- Net income....... $ 39,769 $ 37,928 $ 57,715 $ 15,346 $ 313,577 $ 261,374 =========== =========== ========== =========== =========== =========== Identifiable segment assets... $17,852,945 $12,925,200 $4,077,507 $ 1,288,737 $64,221,801 $55,141,630 =========== =========== ========== =========== =========== ===========
---- (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 subsidiaries. 11 The following table presents a reconciliation of total segment results to consolidated results:
For the Three Months Ended March 31, ---------------------------- 2001 2000 ------------- ------------- Net Interest Income Net interest income from segments................ $ 620,373 $ 569,444 Other net interest income(1)..................... 36,091 20,849 Elimination of net intersegment interest income(2)....................................... (133,878) (75,119) ------------- ------------ Consolidated net interest income................ $ 522,586 $ 515,174 ============= ============ Net income Net income from segments......................... $ 313,577 $ 261,374 Other net income (loss)(1)....................... (2,079) (31,753) Elimination of intersegment net income(2)........ (93,137) (39,786) ------------- ------------ Consolidated net income......................... $ 218,361 $ 189,835 ============= ============
March 31, 2001 March 31, 2000 -------------- -------------- Total Assets Total assets from segments....................... $64,221,801 $55,141,630 Other assets(1).................................. 5,232,018 2,411,728 Elimination of intersegment assets(2)............ (7,333,515) (2,017,716) ----------- ----------- Consolidated total assets....................... $62,120,304 $55,535,642 =========== ===========
-------- (1) Other net interest income, other net income (loss) and other assets include amounts by BB&T's support functions not allocated to the various segments. (2) BB&T's reconciliation of total segment results to consolidated results requires the elimination of internal management accounting practices. These adjustments include the elimination of funds transfer pricing credits and charges and the elimination of intersegment noninterest income and noninterest expense, which are allocated to the various segments using BB&T's internal accounting methods. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ANALYSIS OF FINANCIAL CONDITION BB&T's total assets at March 31, 2001, were $62.1 billion, a $1.2 billion or 2.0% increase from the balance at December 31, 2000. The balance sheet category that produced the majority of the increase was loans and leases, including loans held for sale, which grew $1.3 billion. Loans held for sale increased $425.3 million or 50.2%. Trading securities increased $90.5 million, or 93.6% from the balance at December 31, 2000, while securities available for sale remained relatively flat with a $41.1 million or .3% increase. These increases were partially offset by declines in cash and due from banks, securities held to maturity, and federal funds sold and securities purchased under resale agreements or similar arrangements, which declined by a collective $240.3 million compared to year-end 2000. Total deposits at March 31, 2001, decreased $130.6 million from December 31, 2000. Short-term borrowed funds declined $1.3 billion and long-term debt increased $2.3 billion during the first three months of 2001. Total shareholders' equity increased $170.8 million during the same time frame. The factors causing the fluctuations in these balance sheet categories are further discussed in the following sections. Loans and Leases BB&T had strong loan growth during the first quarter of 2001, with end of period loans, excluding loans held for sale, increasing 8.3% on an annualized basis since the end of 2000. Average total loans for the quarter ended March 31, 2001, increased 12.4% compared to the same period of 2000. Management has continued to emphasize commercial and consumer lending at a faster rate than mortgage loans in order to improve the profitability of the overall loan portfolio. BB&T acquired a number of community banks and thrift institutions in recent years, which resulted in a significant percentage of the consolidated loan portfolio being composed of mortgages. Also, BB&T is the largest originator of mortgage loans in the Carolinas, with first quarter 2001 originations totaling $1.7 billion. Through the use of securitization programs and the sale of fixed-rate mortgage loan originations, combined with BB&T's commercial and consumer lending focus, the mix of the loan portfolio now includes a higher percentage of commercial and consumer loans and lower percentage of mortgage loans compared to prior years. Average mortgage loans, which increased 9.0% during the first three months of 2001 compared to the same period of 2000, represented 19.6% of average total loans and leases at March 31, 2001, compared to 20.2% a year ago. Average commercial loans, including lease receivables, increased 15.5% during the first three months of 2001, and now compose 53.6% of the loan portfolio compared to 52.2% in the first quarter of 2000. Average consumer loans, which include sales finance, revolving credit and direct retail, increased 9.1% for the three months ended March 31, 2001, compared to the same period in 2000 and compose the remaining 26.7% of average loans. The growth rates of average loans for the first quarter of 2001 include the full effect of loan portfolios held by companies that were acquired in purchase transactions during the last nine months of 2000 and the first quarter of 2001. Also, the securitization of $984.5 million of mortgage loans during 2000 affected the reported growth in average mortgage loans. During the first quarter of 2001, loans totaling $502.3 million were acquired through the purchase of FirstSpartan Financial Corp. ("FirstSpartan"). Excluding the effect of FirstSpartan, purchase accounting transactions completed during 2000 and mortgage loan securitizations, average "internal" loan growth for the three months ended March 31, 2001, was 12.7% compared to the first quarter of 2000. By category, excluding the effects of purchase accounting transactions and loan securitizations, average mortgage loans, including loans held for sale, increased 19.7%, commercial loans grew 12.9%, and consumer loans increased 7.1% in the first quarter of 2001 compared to 2000. The change in loan mix to a higher percentage of commercial and consumer loans, the growth of the overall loan portfolio and the increase in the yield of the portfolio, from 9.06% in the first quarter of 2000 to 9.15% in 13 the first quarter of 2001, resulted in a 10.7% increase in interest income from loans and leases in the first quarter of 2001 compared to the 2000 period. The average annualized fully taxable equivalent ("FTE") yield on commercial, consumer and mortgage loans for the first three months of 2001 were 9.23%, 10.23%, and 7.47%, respectively, resulting in an average yield on the total loan portfolio of 9.15%. Securities Securities available for sale totaled $14.3 billion at March 31, 2001, an increase of $41.1 million from December 31, 2000. Securities available for sale had net unrealized gains, net of deferred income taxes, of $234.4 million at March 31, 2001, compared to $99.4 million at December 31, 2000. Securities held to maturity totaled $36.0 million, down $33.3 million from year-end 2000. Trading securities totaled $187.2 million, an increase of $90.5 million compared to the balance at December 31, 2000. The annualized FTE yield on the average total securities portfolio for the first three months of 2001 was 7.32%, an increase of 66 basis points from the yield earned in the first three months of 2000. This increase resulted primarily from a restructuring of the securities portfolio during the second and third quarters of 2000 that was undertaken in order to improve the overall yield of the portfolio, improve the liquidity, and reduce the average duration of the portfolio. Other Interest Earning Assets Federal funds sold and securities purchased under resale agreements or similar arrangements totaled $175.0 million at March 31, 2001, a decrease of $86.2 million, or 33.0% compared to December 31, 2000. Interest-bearing deposits with banks increased $19.4 million from December 31, 2000. These categories of earning assets are subject to large daily fluctuations based on the availability of these types of funds. The average yield on other interest- earning assets for the first three months of 2001 was 5.85%, an increase from the 5.76% earned during the first three months of 2000. Other Assets BB&T's other noninterest-earning assets, excluding premises and equipment and noninterest-bearing cash and due from banks, increased $24.2 million from December 31, 2000 to March 31, 2001. The increase results from a $27.4 million increase in goodwill from purchase acquisitions. Deposits Total end of period deposits decreased $130.6 million from December 31, 2000, to March 31, 2001. However, average deposits for the first three months of 2001 increased $2.3 billion, or 6.4%, compared to the first three months of 2000. The categories of deposits with the highest average rates of growth in 2001 compared to 2000 were: certificates of deposit and other time deposits, which grew $1.6 billion, or 9.6%, and money rate savings accounts, including investor deposit accounts, which increased $1.7 billion, or 17.8%. The growth realized in these deposit categories was partially offset by declines of $831.8 million, or 25.7%, in average savings and interest checking, and a $183.4 million decrease in other time deposits. The growth in average deposits for the first quarter of 2001 include the effect of deposits acquired in purchase accounting transactions completed during the last nine months of 2000, and the first quarter of 2001. The purchase of FirstSpartan resulted in the addition of $436.1 million in deposits. Excluding the effects of purchase accounting transactions and official check outsourcing, which reduced noninterest-bearing deposits by $225.1 million, average deposits for the three months ended March 31, 2001 would have increased 4.5% compared to the first three months of 2000. Excluding purchase accounting, transaction account deposits, which include noninterest-bearing deposits, savings, interest checking and money rate savings, would have increased 3.6% compared to the first three months of 2000. Certificate accounts and other time deposits would have increased 7.0%, excluding purchase accounting transactions. 14 Other Borrowings The growth in loans, securities and other assets in recent years have exceeded the growth of total deposits. As a result, cost-effective alternative funding sources, such as Federal Home Loan Bank ("FHLB") advances, master notes, purchases of Federal funds and sales of securities under repurchase agreements have been increasingly utilized to support balance sheet growth. At March 31, 2001, short-term borrowed funds totaled $5.7 billion, a decrease of $1.3 billion, or 18.2%, compared to December 31, 2000. For the first quarter of 2001, average short-term borrowed funds totaled $6.4 billion, a decrease of $969.0 million, or 13.2%, from the comparable period of 2000. The average annualized rate paid on short-term borrowed funds was 5.49% for the first quarter of 2001, an increase of 2 basis points from the average rate of 5.47% paid in the first quarter of 2000. The slight increase in the cost of short-term borrowed funds results from the higher interest rate environment during 2000. Long-term debt consists primarily of FHLB advances, medium term bank notes and corporate subordinated debt. These borrowings provide BB&T with the flexibility to structure borrowings in a manner that aids in the management of interest rate risk and liquidity. Long-term debt totaled $10.9 billion at March 31, 2001, an increase of $2.3 billion, or 26.5%, from the balance at December 31, 2000. For the first three months of 2001, average long-term debt totaled $10.3 billion, an increase of $4.0 billion, or 62.8%, compared to the prior year. Long-term debt has been utilized for a variety of funding needs, including the repurchase of common stock in conjunction with certain acquisitions. The substantial increase in long-term borrowings during the year reflects BB&T's efforts to take advantage of declining interest rates and lock in these lower funding costs for a longer period of time. The average annualized rate paid on long-term borrowed funds was 5.79% for the first quarter of 2001, an increase of 4 basis points from the average rate of 5.75% paid in the first quarter of 2000. Asset Quality BB&T's asset quality, as measured by relative levels of nonperforming assets and net charge-offs, has remained excellent compared to published industry averages. Nonperforming assets, composed of foreclosed real estate, repossessions, nonaccrual loans and restructured loans, totaled $236.0 million at March 31, 2001, compared to $201.2 million at December 31, 2000. Nonperforming assets, as a percentage of loan-related assets, were .55% at March 31, 2001, compared to .49% at December 31, 2000. Loans 90 days or more past due and still accruing interest totaled $76.7 million compared to $73.7 million at year-end 2000. BB&T's net charge-offs totaled $25.6 million for the first quarter and amounted to .25% of average loans and leases, on an annualized basis, compared to $20.1 million, or .22% of average loans and leases, on an annualized basis, in the corresponding period in 2000. The allowance for loan and lease losses was $555.5 million, or 1.31% of loans and leases, at March 31, 2001, compared to $532.2 million, or 1.29% of loans and leases, at December 31, 2000. The provision for loan and lease losses for the first quarter of 2001 was $38.9 million, compared to $26.8 million in the comparable quarter of 2000. The increased provision during 2001 was necessary to cover higher net charge- offs, to maintain the allowance at a level considered adequate to absorb losses inherent in the loan portfolio at the balance sheet date, and to provide additional provisions for acquired entities to align their collection and charge-off policies and procedures with those of BB&T. 15 Asset quality statistics for the last five calendar quarters are presented in the accompanying table. ASSET QUALITY ANALYSIS (Dollars in thousands)
For the Three Months Ended ------------------------------------------------ 3/31/01 12/31/00 9/30/00 6/30/00 3/31/00 -------- -------- -------- -------- -------- Allowance For Loan & Lease Losses Beginning balance........... $532,203 $514,754 $498,358 $494,043 $487,339 Allowance for acquired loans...................... 10,084 12,934 -- -- -- Provision for loan and lease losses..................... 38,850 43,300 38,650 28,414 26,767 Net charge-offs............. (25,605) (38,785) (22,254) (24,099) (20,063) -------- -------- -------- -------- -------- Ending balance............. $555,532 $532,203 $514,754 $498,358 $494,043 ======== ======== ======== ======== ======== Risk Assets Nonaccrual loans and leases..................... $182,021 $156,342 $131,390 $129,280 $126,293 Foreclosed real estate...... 29,035 27,461 21,209 17,532 18,502 Other foreclosed property... 22,681 16,903 16,042 13,694 16,105 Restructured loans.......... 2,261 492 445 501 1,471 -------- -------- -------- -------- -------- Total nonperforming assets.................... $235,998 $201,198 $169,086 $161,007 $162,371 ======== ======== ======== ======== ======== Loans 90 days or more past due and still accruing..... $ 76,685 $ 73,699 $ 76,006 $ 63,771 $ 50,681 ======== ======== ======== ======== ======== Asset Quality Ratios Nonaccrual loans and leases as a percentage of total loans and leases*.......... .43% .38% .33% .34% .34% Total nonperforming assets as a percentage of: Total assets............... .38 .33 .29 .28 .29 Loans and leases plus foreclosed property*...... .55 .49 .43 .42 .43 Annualized net charge-offs as a percentage of average loans and leases*.......... .25 .39 .23 .25 .22 Allowance for loan and lease losses as a percentage of loans and leases*.......... 1.31 1.29 1.31 1.29 1.32 Ratio of allowance for loan and lease losses to: Net charge-offs............ 5.35x 3.45x 5.81x 5.14x 6.12x Nonaccrual and restructured loans and leases.......... 3.01 3.39 3.90 3.84 3.87
-------- * All items referring to loans and leases include loans held for sale and are net of unearned income. 16 MARKET RISK MANAGEMENT The effective management of market risk is essential to achieving BB&T's strategic financial objectives. As a financial institution, BB&T's most significant market risk exposure is interest rate risk. The primary objective of interest rate risk management is to minimize the effect that changes in interest rates have on net interest income. This is accomplished through active management of asset and liability portfolios with a focus on the strategic pricing of asset and liability accounts and management of maturity mixes for assets and liabilities. The goal of these activities is the development of appropriate maturity and repricing opportunities in BB&T's portfolios of assets and liabilities that will produce consistent net interest income during periods of changing interest rates. BB&T's Asset/Liability Management Committee ("ALCO") monitors loan, investment and liability portfolios to ensure comprehensive management of interest rate risk. The asset/liability management process is designed to achieve relatively stable net interest margins and assure liquidity by coordinating the volumes, maturities or repricing opportunities of earning assets, deposits and borrowed funds. It is the responsibility of the ALCO to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The ALCO also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The ALCO meets regularly to review BB&T's interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impact on earnings and liquidity as a result of fluctuations in interest rates is within acceptable standards. The majority of assets and liabilities of financial institutions are monetary in nature and differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Fluctuations in interest rates and actions of the Board of Governors of the Federal Reserve System ("FRB") to regulate the availability and cost of credit have a greater effect on a financial institution's profitability than do the effects of higher costs for goods and services. Through its balance sheet management function, BB&T is positioned to respond to changing interest rates and inflationary trends. Management uses Interest Sensitivity Simulation Analysis ("Simulation") to measure the sensitivity of projected earnings to changes in interest rates. Simulation takes into account the current contractual agreements that BB&T has made with its customers on deposits, borrowings, loans, investments and any commitments to enter into those transactions. Management monitors BB&T's interest sensitivity by means of a computer model that incorporates the current volumes, average rates and scheduled maturities and payments of asset and liability portfolios, together with multiple scenarios of projected prepayments, repricing opportunities and anticipated volume growth. Using this information, the model projects earnings based on projected portfolio balances under multiple interest rate scenarios. This level of detail is needed to simulate the effect that changes in interest rates and portfolio balances may have on the earnings of BB&T. This method is subject to the accuracy of the assumptions that underlie the process, however, it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap. The asset/liability management process requires a number of key assumptions. Management determines the most likely outlook for the economy and interest rates by analyzing external factors, including published economic projections and data, the effects of likely monetary and fiscal policies as well as any enacted or prospective regulatory changes. BB&T's current and prospective liquidity position, current balance sheet volumes and projected growth, accessibility of funds for short-term needs and capital maintenance are also considered. This data is combined with various interest rate scenarios to provide management with information necessary to analyze interest sensitivity and to aid in the development of strategies to reach performance goals. The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next twelve months under the "most likely" interest rate scenario incorporated into the Interest Sensitivity Simulation computer model. Key assumptions in the preparation of the table include 17 prepayment speeds of mortgage-related assets; cash flows and maturities of derivative financial instruments, changes in market conditions, loan volumes and pricing, deposit sensitivity; customer preferences and capital plans. The resulting change in net interest income reflects the level of sensitivity that net interest income has in relation to changing interest rates. INTEREST SENSITIVITY SIMULATION ANALYSIS
Annualized Hypothetical Interest Rate Scenario Percentage ---------------------- Change in Change in Prime Net Interest Prime Rate Rate Income ---------- ----- ------------ +3.00% 11.00% -1.26% +1.50 9.50 -0.85 -1.50 6.50 -.26 -3.00 5.00 .03
Management has established parameters for asset/liability management which prescribe a maximum impact on net interest income of 3% for a 150 basis point parallel change in interest rates over six months from the most likely interest rate scenario, and a maximum of 6% for a 300 basis point change over 12 months. It is management's ongoing objective to effectively manage the impact of changes in interest rates and minimize the resulting effect on earnings as evidenced by the preceding table. At March 31, 2001, the sensitivity of BB&T's net interest income to changes in interest rates was within management's targets, as illustrated in the accompanying table. Derivative Financial Instruments BB&T utilizes a variety of financial instruments to aid in the management of interest rate risk. These instruments, commonly referred to as derivatives, primarily consist of interest rate swaps, caps, floors, collars, financial forward and futures contracts and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. BB&T uses derivatives to hedge business loans, mortgage loans and certificates of deposit. Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. The risk of loss with any counterparty is limited to a small fraction of the notional amount. BB&T deals only with national market makers with strong credit ratings in its derivatives activities. BB&T further controls the risk of loss by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. All of the derivative contracts to which BB&T is a party settle monthly, quarterly or semiannually. Further, BB&T has netting agreements with the dealers with which it does business. Because of these factors, BB&T's credit risk exposure at March 31, 2001, was not material. Derivative contracts are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between parties and are not a measure of financial risks. On March 31, 2001, BB&T had derivative financial instruments outstanding with notional amounts totaling $2.7 billion. The estimated fair value of open contracts used for risk management purposes reflected net unrealized losses of $13.2 million at March 31, 2001. BB&T classifies its derivative financial instruments as either (1) a hedge of an exposure to changes in the fair value of a recorded asset or liability ("fair value hedge"), (2) a hedge of an exposure to changes in the cash flows of a recognized asset, liability or forecasted transaction ("cash flow hedge"), (3) a hedge of a foreign currency exposure ("foreign currency hedge"), of which BB&T has none, or (4) derivatives not designated as hedges. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the value of the 18 designated hedged item. For a qualifying cash flow hedge, changes in the value of the derivatives that have been highly effective are recognized in other nonshareholder changes in equity until the related cash flows from the hedged item are recognized. For either fair value hedges or cash flow hedges, net income may be affected to the extent that changes in the value of the derivative instruments do not perfectly offset changes in the value of the hedged items. During the first quarter of 2001, there was no impact on net income resulting from hedge ineffectiveness. BB&T recorded an unrecognized loss on cash flow hedges as a separate component reducing shareholders' equity by $9.3 million at March 31, 2001. Substantially all of this amount is attributable to forward commitments and options hedging the cash flows from forecasted sales of mortgage loans. The ultimate sale of the related loans will result in reclassification of these unrecognized amounts into earnings. If the cash flow hedge is discontinued because the forecasted transactions do not occur, these amounts will be immediately reclassified into earnings. BB&T expects to reclassify substantially all of the $9.3 million of unrecognized losses into earnings within the next 12 months. BB&T has a notional amount of $731.6 million of derivatives that do not meet the requirements for hedge accounting treatment under SFAS No. 133. Accordingly, these derivatives have been recorded at fair value in accordance with the statement. The related net gains or losses for these derivatives are recorded in current period earnings as other noninterest income, and resulted in a net gain of $1.4 million in the first quarter of 2001. BB&T's hedges resulted in a $.3 million increase in net interest income in the first quarter of 2001 compared to an increase of $1.9 million in the comparable period of 2000. The following tables set forth certain information concerning BB&T's derivative financial instruments at March 31, 2001: DERIVATIVE FINANCIAL INSTRUMENTS March 31, 2001 (Dollars in thousands)
Average Average Estimated Notional Receive Pay Fair Type Amount Rate Rate Value ---- ---------- ------- ------- --------- Receive fixed swaps..................... $ 113,000 6.69% 5.08% $ 1,265 Pay fixed swaps......................... 45,832 5.28 5.01 43 Caps, floors & collars.................. 76,050 -- -- -- Foreign exchange contracts.............. 154,982 -- -- 691 Forward contracts on mortgage loans..... 1,755,675 -- -- (14,712) Mortgage loan commitments............... 460,617 -- -- (22) Options on mortgage lending commitments............................ 115,000 -- -- (486) ---------- --------- Total................................. $2,721,156 $ (13,221) ========== =========
CAPITAL ADEQUACY AND RESOURCES The maintenance of appropriate levels of capital is a management priority and is monitored on an ongoing basis. BB&T's principal goals related to capital are to provide an adequate return to shareholders while retaining a sufficient base to support future growth and comply with all regulatory standards. Total shareholders' equity was $5.0 billion at March 31, 2001 and $4.9 billion at December 31, 2000. BB&T's book value per common share at March 31, 2001 was $12.32 compared to $11.88 at December 31, 2000. Financial holding companies and their subsidiaries are subject to regulatory requirements with respect to risk-based capital adequacy. Risk-based capital ratios measure capital as a percentage of a combination of risk- 19 weighted balance sheet and off-balance sheet risk. The risk-weighted values of both balance sheet and off-balance sheet items are determined in accordance with risk factors specified by Federal regulatory pronouncements. Tier 1 capital (total shareholders' equity excluding unrealized gains or losses on debt securities available for sale, net of tax effect, plus certain mandatorily redeemable capital securities, less nonqualifying intangible assets) is required to be at least 4% of risk-weighted assets, and total capital (Tier 1 capital, a qualifying portion of the allowance for loan and lease losses and qualifying subordinated debt) must be at least 8% of risk- weighted assets, with one half of the minimum consisting of Tier 1 capital. In addition to the risk-based capital measures described above, regulators have also established minimum leverage capital requirements for banking organizations. This is the primary measure of capital adequacy used by BB&T's management, and is calculated by dividing period-end Tier 1 capital by average tangible assets for the most recent quarter. The minimum required Tier 1 leverage ratio ranges from 3% to 5% depending upon Federal bank regulatory agency evaluation of an organization's overall safety and soundness. BB&T's capital adequacy ratios for the last five quarters are presented in the accompanying table: CAPITAL ADEQUACY RATIOS
2001 2000 ------- ------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- Risk-based capital ratios: Tier 1 capital...................... 9.2% 9.4% 9.4% 10.0% 10.1% Total capital....................... 11.8 12.0 12.2 12.8 13.3 Tier 1 leverage ratio................ 6.8 7.1 6.9 7.3 7.3
ANALYSIS OF RESULTS OF OPERATIONS Net income for the first quarter of 2001 totaled $218.4 million, an increase of 15.0% compared to the $189.8 million earned during the comparable quarter of 2000. On a diluted per share basis, earnings for the three months ended March 31, 2001 were $.53, compared to $.46 for the same period in 2000, an increase of 15.2%. BB&T's operating results for the first quarter of 2001 produced an annualized return on average assets of 1.45% and an annualized return on average shareholders' equity of 17.97% compared to prior year ratios of 1.40% and 18.16%, respectively. BB&T incurred significant expenses related principally to the consummation of mergers and acquisitions during both 2001 and 2000. These expenses are reflected in reported earnings. During 2001, BB&T recorded $24.9 million in after-tax nonrecurring charges primarily associated with the merger and related systems conversion with FCNB Corp., of Frederick, Maryland. During the first quarter of 2000, BB&T incurred $19.8 million in after-tax nonrecurring charges primarily associated with the acquisition of Premier Bancshares, Inc., of Atlanta, Georgia. Merger-related charges typically include the consolidation of branch offices and bank operating functions, merger-related personnel costs, professional services and other expenses. Excluding the effect of merger-related charges on 2001 and 2000 operating results, BB&T would have had net income for the first quarter of 2001 totaling $243.3 million, an increase of 16.1% over the $209.6 million that would have been earned during the first quarter of 2000. Merger-related charges include, but are not limited to, personnel-related expenses such as staff relocation, early retirement packages and contract settlements; occupancy, furniture and equipment expenses including branch consolidation; and other costs, such as operational charge-offs, professional fees, etc. On a diluted per share basis, earnings for the three months ended March 31, 2001, excluding merger charges, were $.59, compared to $.51 for the same period in 2000, an increase of 15.7%. BB&T's recurring operating results for the first quarter of 2001 produced an annualized return on 20 average assets of 1.61% and an annualized return on average shareholders' equity of 20.03% compared to prior year ratios of 1.54% and 20.05%, respectively. FTE net interest income increased 5.9% during the first quarter of 2001 compared to 2000 due to solid growth in average loans, improved yields on the loan and securities portfolios and a more profitable mix of loans. Fluctuations in net interest income, noninterest income and noninterest expenses will be further discussed in the following paragraphs. The following table sets forth selected financial ratios for the last five calendar quarters: PROFITABILITY MEASURES
2001 2000 ------- ------------------------------- First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ------- ------- ------- ------- ------- Return on average assets.............. 1.61% 1.58% 1.59% 1.55% 1.54% Return on average equity.............. 20.03 20.29 20.22 20.05 20.05 Net interest margin................... 4.08 4.15 4.14 4.19 4.22 Fee income ratio (taxable equivalent)*......................... 33.4 31.6 31.7 31.5 30.8 Efficiency ratio (taxable equivalent)*......................... 50.8 49.5 51.6 53.4 53.5
-------- * Excludes securities gains (losses), foreclosed property expense and nonrecurring items. Net Interest Income and Net Interest Margin Net interest income on an FTE basis was $571.0 million for the first quarter of 2001 compared to $539.4 million for the same period in 2000, a 5.9% increase. For the three months ended March 31, 2001, average earning assets increased $5.0 billion, or 9.8%, compared to the same period of 2000, while average interest-bearing liabilities increased by $5.3 billion, or 11.8%, and the net interest margin decreased from 4.22% in the first quarter of 2000 to 4.08% in the current quarter. The 14 basis point decline in the net interest margin was primarily the result of a 50 basis point increase in the cost of interest-bearing deposits, as well as purchases of bank owned life insurance products, which add to the cost of funds but produce revenue that is classified as noninterest income. These purchases had a four basis point negative impact on the net interest margin in the 2001 period. 21 The following table sets forth the major components of net interest income and the related yields for the first quarter of 2001 compared to the same period in 2000 and the variances between the periods caused by changes in interest rates versus changes in volumes. NET INTEREST INCOME AND RATE/VOLUME ANALYSIS For the Three Months Ended March 31, 2001 and 2000
Yield / Average Balances Rate Income / Expense Change due to ----------------------- ---------- ------------------- Increase ---------------- 2001 2000 2001 2000 2001 2000 (Decrease) Rate Volume ----------- ----------- ---- ---- --------- --------- ---------- ------- ------- Fully Taxable Equivalent--(Dollars in thousands) Assets Securities(1): U.S. Treasury, government and other(5)............... $13,279,284 $12,707,608 7.31% 6.58% $ 242,560 $ 209,195 $33,365 $23,707 $ 9,658 States and political subdivisions........... 980,216 1,013,256 7.47 7.55 18,308 19,134 (826) (211) (615) ----------- ----------- ---- ---- --------- --------- ------- ------- ------- Total securities(5).... 14,259,500 13,720,864 7.32 6.66 260,868 228,329 32,539 23,496 9,043 Other earning assets(2)............... 311,455 413,112 5.85 5.76 4,492 5,912 (1,420) 57 (1,477) Loans and leases, net of unearned income(1)(3)(4)(5)...... 41,702,846 37,096,449 9.15 9.06 943,416 836,104 107,312 10,222 97,090 ----------- ----------- ---- ---- --------- --------- ------- ------- ------- Total earning assets... 56,273,801 51,230,425 8.67 8.39 1,208,776 1,070,345 138,431 33,775 104,656 ----------- ----------- ---- ---- --------- --------- ------- ------- ------- Non-earning assets..... 4,989,750 3,460,462 ----------- ----------- Total assets.......... $61,263,551 $54,690,887 =========== =========== Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest- checking............... $ 2,401,054 $ 3,232,821 1.71 1.84 10,150 14,798 (4,648) (1,047) (3,601) Money rate savings..... 11,233,334 9,538,760 3.50 3.36 97,006 79,789 17,217 3,380 13,837 Other time deposits.... 19,711,310 18,294,798 6.09 5.39 296,063 245,209 50,854 30,947 19,907 ----------- ----------- ---- ---- --------- --------- ------- ------- ------- Total interest-bearing deposits............... 33,345,698 31,066,379 4.90 4.40 403,219 339,796 63,423 33,280 30,143 Short-term borrowed funds................... 6,391,458 7,360,496 5.49 5.47 86,562 100,174 (13,612) (380) (13,232) Long-term debt.......... 10,337,017 6,348,433 5.79 5.75 147,997 90,997 57,000 658 56,342 ----------- ----------- ---- ---- --------- --------- ------- ------- ------- Total interest-bearing liabilities............ 50,074,173 44,775,308 5.16 4.77 637,778 530,967 106,811 33,558 73,253 ----------- ----------- ---- ---- --------- --------- ------- ------- ------- Noninterest-bearing deposits............... 4,957,727 4,939,181 Other liabilities...... 1,304,568 771,883 Shareholders' equity... 4,927,083 4,204,515 ----------- ----------- Total liabilities and shareholders' equity.. $61,263,551 $54,690,887 =========== =========== Average interest rate spread.................. 3.51 3.62 Net yield on earning assets.................. 4.08% 4.22% $ 570,998 $ 539,378 $31,620 $ 217 $31,403 ==== ==== ========= ========= ======= ======= ======= Taxable equivalent adjustment.............. $ 48,412 $ 24,204 ========= =========
---- (1) Yields related to securities, loans and leases wholly or partially exempt from income taxes are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented. (2) Includes Federal funds sold and securities purchased under resale agreements or similar arrangements. (3) Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes. (4) Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income. (5) Includes assets which were held for sale or available for sale at amortized cost and trading securities at estimated fair value. 22 Noninterest Income Noninterest income for the three months ended March 31, 2001, was $315.6 million compared to $239.6 million for the same period in 2000, an increase of 31.7%. Noninterest income for the first quarter includes certain special nonrecurring items, including a $41.5 million writedown in the value of BB&T's capitalized mortgage servicing rights resulting from the declining interest rate environment, and a $63.0 million nonrecurring gain on an investment in an electronic transaction processing company. Excluding these items, noninterest income would have totaled $289.5 million for the first quarter of 2001, an increase of 20.7% compared to 2000. Excluding nonrecurring items and purchase accounting transactions, noninterest income would have increased 14.0% in the first quarter of 2001 compared to the first quarter of 2000. Recurring noninterest income as a percentage of net interest income plus noninterest income, or the "fee income ratio", was 33.4% for the first quarter of 2001, compared to 30.8% in the first quarter of 2000. This increase indicates that BB&T is deriving a greater percentage of its revenues from noninterest income sources. Service charges on deposits totaled $73.4 million for the first quarter of 2001, an increase of $11.6 million, or 18.8%, compared to the first quarter of 2000. The largest component of the growth within service charges on deposits in the 2001 period was NSF and overdraft charges on personal and commercial accounts, which contributed $6.7 million to the increase in the first quarter, as well as higher transaction volume. Account analysis fees on commercial transaction accounts contributed $2.0 million, and service charges on demand deposit accounts contributed $.7 million. Additionally, BankFirst was acquired and accounted for as a purchase on December 27, 2000, which contributed $1.1 million to the increase in service charges on deposits in the first quarter of 2001 compared to the prior year quarter. Trust income totaled $24.1 million for the current quarter, an increase of $5.4 million, or 28.8%, compared to the same period a year ago. The increase in trust income reflects healthy growth in personal and corporate trust fees compared to 2000. Assets under management totaled $14.6 billion at March 31, 2001, up from $14.2 billion, restated for the effects of One Valley, at March 31, 2000. Investment banking and brokerage fees and commissions totaled $43.2 million during the first quarter of 2001, a decrease of $2.5 million, or 5.5%, compared to the first quarter of 2000. The decrease resulted primarily from a decline in trading income and fee income at BB&T's full-service brokerage operation. This decrease was partially offset by income from Edgar M. Norris & Co., an independent broker/dealer based in Greenville, South Carolina, which was purchased on November 15, 2000. This acquisition was accounted for as a purchase; therefore its operating results were only included in BB&T's accounts in periods following the acquisition. Agency insurance commissions totaled $39.5 million for the first quarter of 2001, an increase of $7.9 million, or 25.1%, compared to the same three-month period of 2000. This substantial growth in revenue resulted from the purchase of additional agencies during 2000 and 2001, as well as internal growth. During the first quarter of 2001, property and casualty insurance commissions increased $5.6 million, other miscellaneous insurance fees and commissions increased $1.3 million and contingent insurance commissions, group health and other fees increased a collective $1.0 million. Income from mortgage banking activities totaled $5.2 million for the first quarter of 2001, a decrease of $22.1 million, or 80.9%, from the same period of 2000. This decline is due to a writedown in the value of BB&T's capitalized mortgage servicing rights as a result of the falling interest rate environment. This writedown was partially offset by an increase in servicing fee income and gains on the sale of mortgage loans. Excluding the writedown, mortgage income would have been $40.2 million, an increase of $12.9 million or 47.0% over the same period one year ago, reflecting the previously mentioned growth in servicing fee income and gains from loan sales. Other nondeposit fees and commissions totaled $41.0 million for the first quarter of 2001, an increase of $8.0 million, or 24.5%, compared to the three months ended March 31, 2000. The principal drivers of the increase were: income from the outsourcing of official checks, which added $4.5 million to revenue for the 23 quarter; ATM network fees and debit card income, which increased $1.7 million; and debit card interchange fees, which were up $1.3 million. Securities gains and losses totaled $72.0 million in the first quarter of 2001 compared to a loss of $.1 million in the first quarter last year. Excluding the $63.0 million gain from the sale of BB&T's ownership interest in the electronic payment processor mentioned above, securities gains for the current quarter would have been $2.9 million. Noninterest Expense Noninterest expenses totaled $490.1 million for the first quarter of 2001 compared to $448.7 million for the same period a year ago, an increase of 9.2%. Noninterest expense for the first quarter of 2001 includes $53.9 million of nonrecurring expenses principally associated with the acquisition and systems conversion of FCNB Corp., and certain other special nonrecurring charges, including the write-off of fixed assets rendered obsolete by technology changes that were removed from service in the first quarter, and buyouts of employment contracts and other personnel costs related to restructuring certain lines of business acquired through prior mergers. Excluding these costs, noninterest expenses would have totaled $436.2 million, an increase of $18.2 million or 4.3% over the same period one year ago. Excluding the effects of business combinations accounted for as purchases that were completed in 2000 and 2001, and the aforementioned nonrecurring expenses, noninterest expenses for the first quarter of 2001 would have actually decreased .5% from the comparable period of 2000. BB&T's efficiency ratio (noninterest expenses, excluding the nonrecurring expenses referred to above and costs related to foreclosed assets, as a percentage of FTE net interest income plus noninterest income excluding securities gains and losses) improved to 50.8% for the first quarter of 2001 compared to 53.5% for the first quarter of 2000. Personnel expense, the largest component of noninterest expense, was $258.2 million for the first quarter of 2001 compared to $237.0 million for the same period in 2000, an increase of $21.2 million, or 8.9%. These amounts include merger-related costs of $11.9 million in the first quarter of 2001 and $6.6 million in the first quarter of 2000. Excluding the merger-related charges, personnel expense in the 2001 quarter would have increased $15.8 million, or 6.9%, from the 2000 period. This growth included the effect of acquisitions completed in the last three quarters of 2000 and first quarter of 2001 that were accounted for as purchases. Excluding the effects of the merger-related charges and purchase acquisitions, personnel expense for the first quarter of 2001 would have increased $5.0 million, or 2.2%, over the first quarter of 2000. This increase was primarily the result of normal annual salary adjustments, higher social security taxes, staff relocation expenses, fringe benefits and 401(k) plan contributions. Occupancy and equipment expense for the three months ended March 31, 2001, totaled $75.3 million, an increase of $6.2 million, or 9.0%, compared to 2000. These amounts include merger-related charges of $7.4 million in the first quarter of 2001 and $5.6 million in the first quarter of 2000. Excluding the merger-related charges, occupancy and equipment expense would have been $67.9 million, an increase of $4.4 million, or 7.0% compared to the same period in 2000. The increase was principally the result of higher rent expense and an increase in information technology equipment expense. The amortization of intangible assets totaled $17.0 million for the three months ended March 31, 2001, an increase of $1.5 million, or 9.3%, from the amount incurred in the first quarter of 2000. This increase is primarily due to the acquisitions of BankFirst in the fourth quarter of 2000 and FirstSpartan in the first quarter of 2001, consummated using purchase accounting. Other noninterest expenses for the first quarter of 2001 totaled $140.0 million, an increase of $12.6 million, or 9.9%, compared to 2000. These amounts include merger-related costs of $34.5 million in the first quarter of 2001 and $18.4 million in the first quarter of 2000. Excluding these costs, other noninterest expenses for the three months ended March 31, 2001 would have decreased $4.0 million, or 3.7%, from the comparable 2000 24 period. This decline is due to reductions in contributions, advertising and public relations expense, and professional services expense, which decreased a collective $3.5 million. Provision for Income Taxes The provision for income taxes totaled $90.9 million for the first quarter of 2001, an increase of $1.4 million, or 1.6%, compared to the first quarter of 2000. The effective tax rates on pretax income were 29.4% and 32.0% for the three months ended March 31, 2001 and 2000, respectively. Excluding the tax benefits associated with merger-related and other nonrecurring charges, the provision for income taxes would have been $102.5 million during the first three months of 2001. Excluding the effect of nonrecurring items on pretax income and the income tax provision, BB&T's effective income tax rates were 29.6% and 32.8% for the three months ended March 31, 2001 and 2000, respectively. 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings The nature of the business of BB&T's banking subsidiaries ordinarily results in a certain amount of litigation. The subsidiaries of BB&T are involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities arising from these proceedings will not have a materially adverse effect on the consolidated financial position or consolidated results of operations of BB&T. Item 6. Exhibits and Reports on Form 8-K (a) EXHIBIT INDEX
Exhibit No. Description Location ------- ----------- -------- 2(a) Agreement and Plan of Reorganization Incorporated herein by dated as of July 29, 1994 and reference to Registration amended and restated as of October No. 33-56437. 22, 1994 between the Registrant and BB&T Financial Corporation. 2(b) Plan of Merger as of July 29, 1994 Incorporated herein by as amended and restated on October reference to Registration 22, 1994 between the Registrant and No. 33-56437. BB&T Financial Corporation. 2(c) Agreement and Plan of Reorganization Incorporated herein by dated as of November 1, 1996 between reference to Exhibit 3(a) the Registrant and United Carolina filed in the Annual Report Bancshares Corporation, as amended. on Form 10-K, filed March 17, 1997. 2(d) Agreement of Plan of Reorganization Incorporated herein by dated as of October 29, 1997 between reference to Registration the Registrant and Life Bancorp, No. 33-44183. Inc. 2(e) Agreement and Plan of Reorganization Incorporated herein by dated as of February 6, 2000 between reference to Exhibit 99.1 the Registrant and One Valley filed in the Current Report Bancorp, Inc. on Form 8-K, dated February 9, 2000. 3(a)(i) Amended and Restated Articles of Incorporated herein by Incorporation of the Registrant, as reference to Exhibit 3(a) amended. filed in the Annual Report on Form 10-K, filed March 17, 1997. 3(a)(ii) Articles of Amendment of Articles of Incorporated herein by Incorporation. reference to Exhibit 3(a)(ii) filed in the Annual Report on Form 10-K, filed March 18, 1998. 3(b) Bylaws of the Registrant, as Incorporated herein by amended. reference to Exhibit 3(b) filed in the Annual Report on Form 10-K, filed March 18, 1998. 4(a) Articles of Amendment to Amended and Incorporated herein by Restated Articles of Incorporation reference to Exhibit 3(a) of the Registrant related to Junior filed in the Annual Report Participating Preferred Stock. on Form 10-K, filed March 17, 1997.
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Exhibit No. Description Location ------- ----------- -------- 4(b) Rights Agreement dated as of December Incorporated herein by 17, 1996 between the Registrant and reference to Exhibit 1 filed Branch Banking and Trust Company, under Form 8-A, filed Rights Agent. January 10, 1997. 4(c) Subordinated Indenture (including Form Incorporated herein by of Subordinated Debt Security) between reference to Exhibit 4(d) of the Registrant and State Street Bank Registration No. 333-02899. and Trust Company, Trustee, dated as of May 24, 1996. 4(d) Senior Indenture (including Form of Incorporated herein by Senior Debt Security) between the reference to Exhibit 4(c) of Registrant and State Street Bank and Registration No. 333-02899. Trust company, Trustee, dated as of May 24, 1996. 10(a)* Death Benefit Only Plan, Dated April Incorporated herein by 23, 1990, by and between Branch reference to Registration Banking and Trust Company (as No. 33-33984. successor to Southern National Bank of North Carolina) and L. Glenn Orr, Jr. 10(b)* BB&T Corporation Non-Employee Incorporated herein by Directors' Deferred Compensation and reference to Exhibit 10(b) Stock Option Plan. of the Annual Report on Form 10-K, filed March 17, 1997. 10(c)* BB&T Corporation 1994 Omnibus Stock Incorporated herein by Incentive Plan. reference to Registration No. 33-57865. 10(d)* Settlement and Non-Compete Agreement, Incorporated herein by dated February 28, 1995, by and reference to Registration between the Registrant and L. Glenn No. 33-56437. Orr, Jr. 10(e)* Settlement Agreement, Waiver and Incorporated herein by General Release dated September 19, reference to Registration 1994, by and between the Registrant, No. 33-56437. Branch Banking and Trust Company (as successor to Southern National Bank of North Carolina) and Gary E. Carlton. 10(f) BB&T Corporation 401(k) Savings Plan Incorporated herein by (amended effective January 1, 2000). reference to Exhibit 10(f) in BB&T Corporation's Annual Report on Form 10-K filed on March 16, 2001. 10(g)* BB&T Corporation 1995 Omnibus Stock Incorporated herein by Incentive Plan. reference to Exhibit 10(g) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10(h)* Form of Branch Banking and Trust Incorporated by reference to Company Long-Term Incentive Plan. the identified exhibit under the Quarterly Report on Form 10-Q, filed May 14, 1991. 10(i)* Form of Branch Banking and Trust Incorporated by reference to Company Executive Incentive the identified exhibit under Compensation Plan. the Annual Report on Form 10-K, filed February 22, 1985.
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Exhibit No. Description Location ------- ----------- -------- 10(j)* Southern National Deferred Incorporated herein by Compensation Plan for Key Employees. reference to Exhibit 10(j) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10(k)* BB&T Corporation Target Pension Plan. Incorporated herein by reference to Exhibit 10(k) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10(l)* BB&T Corporation Supplemental Incorporated herein by Executive Retirement Plan. reference to Exhibit 10(l) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10(m)* Settlement and Noncompetition Incorporated herein by Agreement, dated July 1, 1997, by and reference to Exhibit 10(m) between the Registrant and E. Rhone filed in the Annual Report Sasser. on Form 10-K, filed March 18, 1998. 10(n)* BB&T Corporation Supplemental Defined Incorporated herein by Contribution Plan for Highly reference to Registration Compensated Employees. No. 333-69823. 10(o)* Scott & Stringfellow, Inc. Executive Incorporated herein by and Employee Retention Plan. reference to Registration No. 333-81471. 10(p)* BB&T Corporation Non-Qualified Defined Incorporated herein by Contribution Plan. reference to Registration No. 333-50035. 10(q)* BB&T Corporation Amended and Restated Filed herewith. 1996 Short-term Incentive Plan. 10(r)* Amendment to 1995 Omnibus Stock Incorporated herein by Incentive Plan. reference to Registration No. 333-36540. 10(s)* Employment Agreement dated February 6, Incorporated herein by 2000, by and between the Registrant reference to Exhibit 10(s) and J. Holmes Morrison. in BB&T Corporation's Annual Report on Form 10-K filed on March 16, 2001. 10(t) BB&T Corporation Pension Plan (amended Incorporated herein by effective January 1, 2000). reference to Exhibit 10(t) in BB&T Corporation's Annual Report on Form 10-K filed on March 16, 2001. 10(u)* Amendment to BB&T Corporation Incorporated herein by Nonqualified Defined Contribution reference to Exhibit 10(u) Plan. in BB&T Corporation's Annual Report on Form 10-K filed on March 16, 2001.
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Exhibit No. Description Location ------- ----------- -------- 10(v)* Amendment to BB&T Corporation Non- Incorporated herein by Employee Directors' Deferred reference to Exhibit 10(v) Compensation and Stock Option Plan. in BB&T Corporation's Annual Report on Form 10-K filed on March 16, 2001. 10(w)* Amendment to the BB&T Corporation Incorporated herein by Supplemental Defined Contribution Plan reference to Exhibit 10(w) for Highly Compensated Employees. in BB&T Corporation's Annual Report on Form 10-K filed on March 16, 2001. 11 Statement re Computation of Earnings Filed herewith as Note E. Per Share. 22 Proxy Statement for the 2001 Annual Incorporated herein by Meeting of Shareholders. reference to BB&T Corporation's Proxy Statement filed on March 16, 2001.
-------- * Management compensatory plan or arrangement. (b) Current Reports on Form 8-K during and following the quarter ended March 31, 2001. On January 12, 2001, BB&T filed a Current Report on Form 8-K under Item 5 to report the results of operations for the fourth quarter of 2000. On January 24, 2001, BB&T filed a Current Report on Form 8-K under Item 5 to announce that BB&T had entered into a definitive agreement to acquire Virginia Capital Bancshares, Inc. of Fredericksburg, Virginia, and to file certain presentation material related to this transaction. On January 24, 2001, BB&T filed a Current Report on Form 8-K under Item 5 to announce that BB&T had entered into a definitive agreement to merge with F&M National Corporation of Winchester, Virginia, and to file certain presentation material related to this transaction. On February 8, 2001, BB&T filed a Current Report on Form 8-K under Item 5 to file presentation material related to an Investor and Analyst Conference held on February 8, 2001. On April 11, 2001, BB&T filed a Current Report on Form 8-K under Item 5 to report the results of operations for the first quarter of 2001. On April 27, 2001, BB&T filed a Current Report on Form 8-K under Item 5 to report BB&T's operations and financial condition restated for the accounts of FCNB Corp., which was acquired on January 8, 2001. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BB&T CORPORATION (Registrant) Date: May 11, 2001 /s/ Scott E. Reed By: _________________________________ Scott E. Reed, Senior Executive Vice President and Chief Financial Officer Date: May 11, 2001 /s/ Sherry A. Kellett By: _________________________________ Sherry A. Kellett, Senior Executive Vice President and Controller (Principal Accounting Officer) 30