0000916641-01-501297.txt : 20011010 0000916641-01-501297.hdr.sgml : 20011010 ACCESSION NUMBER: 0000916641-01-501297 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011005 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BB&T CORP CENTRAL INDEX KEY: 0000092230 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560939887 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10853 FILM NUMBER: 1752694 BUSINESS ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 3367332000 MAIL ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NATIONAL CORP /NC/ DATE OF NAME CHANGE: 19920703 8-K 1 d8k.txt FORM 8-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 October 5, 2001 Date of Report (Date of earliest event recorded) ---------------- BB&T Corporation (Exact name of registrant as specified in its charter) Commission file number : 1-10853
North Carolina 56-0939887 (State of Incorporation) (I.R.S. Employer Identification No.) 200 West Second Street Winston-Salem, North Carolina 27101 (Address of Principal Executive Offices) (Zip Code)
(336) 733-2000 (Registrant's Telephone Number, Including Area Code) ---------------- This Form 8-K has 73 pages. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- ITEM 5. OTHER EVENTS On August 9, 2001, BB&T Corporation ("BB&T") completed its merger with F&M National Corporation ("F&M") of Winchester, Virginia. To consummate the merger, F&M's shareholders received 1.09 shares of BB&T common stock in exchange for each share of F&M common stock held, resulting in the issuance of 31.1 million shares of BB&T common stock. The transaction was accounted for as a pooling of interests. Accordingly, the consolidated financial statements (including notes to consolidated financial statements) for the years ended December 31, 2000, 1999 and 1998, and the supplemental financial information required by Industry Guide 3 contained in BB&T's Annual Report on Form 10-K filed on March 16, 2001, restated for the accounts of F&M, are included in this Current Report on Form 8-K. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit Description ------- ----------- 11 Computation of Earnings Per Share. Filed herewith as Note R. of the "Notes to Consolidated Financial Statements." 23 Consent of Independent Public Filed herewith on page 4. Accountants. 99.1 Report of Independent Public Filed herewith on page 5. Accountants. 99.2 BB&T's restated audited financial Filed herewith beginning on Page 7. statements and notes thereto, including the accounts of F&M. 99.3 BB&T's restated Securities Act Guide 3 Filed herewith beginning on page 55. statistical disclosures, including the accounts of F&M.
2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BB&T Corporation (Registrant) By: /s/ Sherry A. Kellett _______________________________ Sherry A. Kellett Senior Executive Vice President and Controller (Principal Accounting Officer) Date: October 5, 2001. 3 EX-23 3 dex23.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K into BB&T Corporation's previously filed Registration Statement File Nos. 33-52367, 33-57865, 33-57867, 33-57871, 333- 03989, 333-50035, 333-69823, 333-81471, 333-36540, 333-36538 and 333-52278 filed on Form S-8 and Registration Statement File Nos. 33-57859, 33-57861, 333- 02899, 333-27755, 333-35879 and 333-64074-01 filed on Form S-3. Arthur Andersen LLP Charlotte, North Carolina October 5, 2001 4 EX-99.1 4 dex991.txt REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 99.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To BB&T Corporation: We have audited the accompanying consolidated balance sheets of BB&T Corporation (a North Carolina corporation), and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BB&T Corporation and subsidiaries as of December 31, 2000 and 1999, and the results of operations and cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP Charlotte, North Carolina October 1, 2001 5 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The management of BB&T is responsible for the preparation of the financial statements, related financial data and other information in this Current Report on Form 8-K. The financial statements are prepared in accordance with generally accepted accounting principles and include amounts based on management's estimates and judgment where appropriate. Financial information appearing throughout this Current Report on Form 8-K is consistent with the financial statements. BB&T's accounting system, which records, summarizes and reports financial transactions, is supported by an internal control structure which provides reasonable assurance that assets are safeguarded and that transactions are recorded in accordance with BB&T's policies and established accounting procedures. As an integral part of the internal control structure, BB&T maintains a professional staff of internal auditors who monitor compliance with and assess the effectiveness of the internal control structure. The Audit Committee of BB&T's Board of Directors, composed solely of outside directors, meets regularly with BB&T's management, internal auditors and independent public accountants to review matters relating to financial reporting, internal control structure and the nature, extent and results of the audit effort. The independent public accountants and the internal auditors have access to the Audit Committee with or without management present. The financial statements have been audited by Arthur Andersen LLP, independent public accountants, who render an independent opinion on management's financial statements. Their appointment was recommended by the Audit Committee, approved by the Board of Directors and ratified by the shareholders. Their examination provides an objective assessment of the degree to which BB&T's management meets its responsibility for financial reporting. Their opinion on the financial statements is based on auditing procedures, which include reviewing the internal control structure to determine the timing and scope of audit procedures and performing selected tests of transactions and records as they deem appropriate. These auditing procedures are designed to provide a reasonable level of assurance that the financial statements are fairly presented in all material respects. John A. Allison Scott E. Reed Sherry A. Kellett Chairman and Chief Financial Officer Controller Chief Executive Officer
6 EX-99.2 5 dex992.txt BB&T'S RESTATED AUDITED FINANCIAL STATEMENTS Exhibit 99.2 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 (Dollars in thousands, except per share data)
2000 1999 ----------- ----------- ASSETS Cash and due from banks.............................. $ 1,715,284 $ 1,715,886 Interest-bearing deposits with banks................. 61,706 115,318 Federal funds sold and securities purchased under resale agreements or similar arrangements........... 329,637 541,563 Trading securities at market value................... 96,719 93,221 Securities available for sale at market value........ 15,231,123 13,402,254 Securities held to maturity at amortized cost (market value: $623,932 at December 31, 2000 and $903,852 at December 31, 1999).................................. 622,102 922,715 Loans held for sale.................................. 906,244 390,338 Loans and leases, net of unearned income............. 43,920,831 39,412,705 Allowance for loan and lease losses................ (578,107) (529,236) ----------- ----------- Loans and leases, net............................ 43,342,724 38,883,469 ----------- ----------- Premises and equipment, net.......................... 928,956 853,932 Other assets......................................... 3,318,328 2,461,737 ----------- ----------- Total assets..................................... $66,552,823 $59,380,433 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing deposits....................... $ 6,178,233 $ 5,769,807 Savings and interest checking...................... 3,397,973 4,465,367 Money rate savings................................. 11,853,614 9,961,069 CD's and other time deposits....................... 22,447,499 19,122,769 ----------- ----------- Total deposits................................... 43,877,319 39,319,012 ----------- ----------- Short-term borrowed funds............................ 7,309,978 8,392,344 Long-term debt....................................... 8,646,018 6,222,561 Accounts payable and other liabilities............... 1,299,699 806,327 ----------- ----------- Total liabilities................................ 61,133,014 54,740,244 ----------- ----------- Shareholders' equity: Preferred stock, $5 par, 5,000,000 shares authorized, none issued or outstanding............ -- -- Common stock, $5 par, 1,000,000,000 shares authorized; issued and outstanding, 453,307,379 at December 31, 2000 and 450,349,937 at December 31, 1999.............................................. 2,266,537 2,251,750 Additional paid-in capital......................... 423,404 400,215 Retained earnings.................................. 2,632,642 2,335,694 Unearned income and unvested restricted stock...... (7,071) (12,397) Accumulated other nonshareholder changes in equity, net of deferred income taxes of $77,092 at December 31, 2000 and ($199,495) at December 31, 1999.............................................. 104,297 (335,073) ----------- ----------- Total shareholders' equity....................... 5,419,809 4,640,189 ----------- ----------- Total liabilities and shareholders' equity....... $66,552,823 $59,380,433 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 7 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in thousands, except per share data)
2000 1999 1998 ---------- ---------- ---------- Interest Income Interest and fees on loans and leases.... $3,876,263 $3,304,651 $3,082,312 Interest and dividends on securities..... 972,762 896,737 815,926 Interest on short-term investments....... 29,585 31,774 38,423 ---------- ---------- ---------- Total interest income.................. 4,878,610 4,233,162 3,936,661 ---------- ---------- ---------- Interest Expense Interest on deposits..................... 1,685,329 1,370,334 1,365,693 Interest on short-term borrowed funds.... 416,303 327,148 290,318 Interest on long-term debt............... 462,280 340,971 272,430 ---------- ---------- ---------- Total interest expense................. 2,563,912 2,038,453 1,928,441 ---------- ---------- ---------- Net Interest Income........................ 2,314,698 2,194,709 2,008,220 Provision for loan and lease losses...... 147,187 126,559 126,269 ---------- ---------- ---------- Net Interest Income After Provision for Loan and Lease Losses..................... 2,167,511 2,068,150 1,881,951 ---------- ---------- ---------- Noninterest Income Service charges on deposits.............. 292,492 268,620 242,126 Mortgage banking income.................. 104,579 167,056 130,860 Trust income............................. 80,039 73,361 57,653 Investment banking and brokerage fees and commissions............................. 163,480 129,746 46,448 Agency insurance commissions............. 146,684 94,484 65,915 Other insurance commissions.............. 15,370 14,349 13,368 Bankcard fees and merchant discounts..... 57,851 47,825 41,011 Other nondeposit fees and commissions.... 108,687 89,572 73,490 Securities (losses) gains, net........... (219,366) (1,630) 14,512 Other income............................. 96,833 74,045 80,329 ---------- ---------- ---------- Total noninterest income............... 846,649 957,428 765,712 ---------- ---------- ---------- Noninterest Expense Personnel expense........................ 1,048,310 957,366 811,773 Occupancy and equipment expense.......... 302,087 282,387 241,155 Amortization of intangibles and mortgage servicing rights........................ 83,401 83,956 64,581 Advertising and public relations expense................................. 37,098 36,630 37,380 Professional services.................... 71,677 86,090 76,115 Other expense............................ 458,581 423,239 351,841 ---------- ---------- ---------- Total noninterest expense.............. 2,001,154 1,869,668 1,582,845 ---------- ---------- ---------- Earnings Income before income taxes............... 1,013,006 1,155,910 1,064,818 Provision for income taxes............... 314,518 377,185 343,854 ---------- ---------- ---------- Net income............................. $ 698,488 $ 778,725 $ 720,964 ========== ========== ========== Per Common Share Net income: Basic................................ $ 1.55 $ 1.74 $ 1.63 ========== ========== ========== Diluted.............................. $ 1.53 $ 1.71 $ 1.60 ========== ========== ========== Cash dividends paid by BB&T Corporation........................... $ .86 $ .75 $ .66 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 8 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in thousands)
Accumulated Shares of Additional Retained Other Total Common Common Paid-In Earnings Comprehensive Shareholders' Stock Stock Capital and Other* Income Equity ----------- ---------- ---------- ---------- ------------- ------------- Balance, December 31, 1997, as previously reported............... 203,848,866 $1,019,244 $649,979 $2,030,367 $ 67,548 $3,767,138 Merger with F&M National Corporation accounted for as a pooling-of-interests.. 14,568,668 72,843 79,065 173,099 3,250 328,257 ----------- ---------- -------- ---------- -------- ---------- Balance, December 31, 1997, restated......... 218,417,534 1,092,087 729,044 2,203,466 70,798 4,095,395 ----------- ---------- -------- ---------- -------- ---------- Add (Deduct): Nonshareholder changes in equity:** Net income............. -- -- -- 720,964 -- 720,964 Unrealized holding gains arising during the period........... -- -- -- -- 23,660 23,660 Less: reclassification adjustment, net of tax of $5,805........ -- -- -- -- 8,707 8,707 ----------- ---------- -------- ---------- -------- ---------- Total nonshareholder changes in equity..... -- -- -- 720,964 14,953 735,917 ----------- ---------- -------- ---------- -------- ---------- Common stock issued.... 14,268,675 102,651 297,597 (2,278) -- 397,970 Redemption of common stock................. (6,855,363) (34,273) (319,947) (297) -- (354,517) 2-for-1 stock split effective August 3, 1998.................. 221,345,758 1,075,418 (314,657) (724,654) -- 36,107 Cash dividends declared on common stock....... -- -- -- (286,642) -- (286,642) Other, net............. -- -- -- (2,671) (16) (2,687) ----------- ---------- -------- ---------- -------- ---------- Balance, December 31, 1998................... 447,176,604 2,235,883 392,037 1,907,888 85,735 4,621,543 Add (Deduct): Nonshareholder changes in equity:** Net income............. -- -- -- 778,725 -- 778,725 Unrealized holding losses arising during the period........... -- -- -- -- (420,867) (420,867) Less: reclassification adjustment, net of tax benefit of $652.. -- -- -- -- (978) (978) ----------- ---------- -------- ---------- -------- ---------- Total nonshareholder changes in equity..... -- -- -- 778,725 (419,889) 358,836 ----------- ---------- -------- ---------- -------- ---------- Common stock issued.... 13,969,835 69,852 356,782 (17,027) -- 409,607 Redemption of common stock................. (10,796,502) (53,985) (348,604) -- -- (402,589) Cash dividends declared on common stock....... -- -- -- (338,278) -- (338,278) Other, net............. -- -- -- (8,011) (919) (8,930) ----------- ---------- -------- ---------- -------- ---------- Balance, December 31, 1999................... 450,349,937 2,251,750 400,215 2,323,297 (335,073) 4,640,189 Add (Deduct): Nonshareholder changes in equity:** Net income............. -- -- -- 698,488 -- 698,488 Unrealized holding gains arising during the period........... -- -- -- -- 307,750 307,750 Less: reclassification adjustment, net of tax benefit of $87,747.............. -- -- -- -- (131,620) (131,620) ----------- ---------- -------- ---------- -------- ---------- Total nonshareholder changes in equity..... -- -- -- 698,488 439,370 1,137,858 ----------- ---------- -------- ---------- -------- ---------- Common stock issued.... 10,053,342 50,264 199,202 (154) -- 249,312 Redemption of common stock................. (7,095,900) (35,477) (182,065) -- -- (217,542) Cash dividends declared on common stock....... -- -- -- (400,757) -- (400,757) Other, net............. -- -- 6,052 4,697 -- 10,749 ----------- ---------- -------- ---------- -------- ---------- Balance, December 31, 2000................... 453,307,379 $2,266,537 $423,404 $2,625,571 $104,297 $5,419,809 =========== ========== ======== ========== ======== ==========
------- * Other includes unearned income, a loan to the employee stock ownership plan and unvested restricted stock. The accompanying notes are an integral part of these consolidated financial statements. 9 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in thousands)
2000 1999 1998 ---------- ---------- ---------- Cash Flows From Operating Activities: Net income................................ $ 698,488 $ 778,725 $ 720,964 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses....... 147,187 126,559 126,269 Depreciation of premises and equipment.... 116,247 115,436 100,678 Amortization of intangibles and mortgage servicing rights......................... 83,401 83,956 64,581 Accretion of negative goodwill............ (6,243) (6,243) (6,243) Amortization of unearned stock compensation............................. 4,605 3,906 1,325 Discount accretion and premium amortization on securities, net.......... (5,779) 3,015 5,499 Net decrease (increase) in trading account securities....................... (1,200) (20,774) 7,456 Loss (gain) on sales of securities, net... 219,366 1,630 (14,512) Loss (gain) on sales of loans and mortgage loan servicing rights, net...... (14,622) (27,085) (36,978) Loss (gain) on disposals of premises and equipment, net........................... 5,832 (5,765) (15,616) Proceeds from sales of loans held for sale..................................... 2,692,522 4,424,944 5,627,608 Purchases of loans held for sale.......... (1,014,372) (961,404) (1,811,810) Origination of loans held for sale, net of principal collected................... (2,179,434) (2,452,747) (4,418,257) Reconciliation of fiscal year of merged companies to calendar year............... -- 3,216 4,991 Decrease (increase) in: Accrued interest receivable.............. (134,931) (46,982) (21,442) Other assets............................. (631,249) (211,162) (91,029) Increase (decrease) in: Accrued interest payable................. 38,826 43,973 15,154 Accounts payable and other liabilities... 283,447 116,991 79,342 Other, net................................ (2,272) 13,346 (7,203) ---------- ---------- ---------- Net cash provided by operating activities............................. 299,819 1,983,535 330,777 ---------- ---------- ---------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale....................... 5,222,899 1,028,131 1,852,602 Proceeds from maturities, calls and paydowns of securities available for sale..................................... 1,533,606 3,787,224 3,673,237 Purchases of securities available for sale..................................... (6,584,173) (5,820,408) (5,878,188) Proceeds from maturities, calls and paydowns of securities held to maturity.. 97,570 156,956 464,100 Purchases of securities held to maturity.. (136,791) (157,419) (429,560) Leases made to customers.................. (119,017) (126,066) (94,615) Principal collected on leases............. 91,791 74,314 65,186 Loan originations, net of principal collected................................ (4,510,575) (3,999,411) (2,036,097) Purchases of loans........................ (381,219) (364,663) (341,812) Net cash acquired in transactions accounted for under the purchase method.. 239,620 302,032 233,576 Purchases and originations of mortgage servicing rights......................... (54,828) (79,437) (86,954) Proceeds from disposals of premises and equipment................................ 10,992 38,573 28,562 Purchases of premises and equipment....... (170,465) (156,273) (160,554) Proceeds from sales of foreclosed property................................. 39,375 36,924 33,951 Proceeds from sales of other real estate held for development or sale............. 5,565 15,623 7,890 Other, net................................ (1,027) 704 (81,924) ---------- ---------- ---------- Net cash used in investing activities... (4,716,677) (5,263,196) (2,750,600) ---------- ---------- ---------- Cash Flows From Financing Activities: Net increase in deposits.................. 3,411,190 344,043 1,663,788 Net increase (decrease) in short-term borrowed funds........................... (1,004,349) 3,026,648 (81,143) Proceeds from long-term debt.............. 6,650,026 3,225,374 3,503,034 Repayments of long-term debt.............. (4,358,813) (2,611,824) (2,068,356) Net proceeds from common stock issued..... 44,821 53,396 76,563 Redemption of common stock................ (217,542) (402,589) (354,517) Cash dividends paid on common and preferred stock.......................... (374,596) (324,280) (274,697) Other, net................................ (19) (860) (2,094) ---------- ---------- ---------- Net cash provided by financing activities............................. 4,150,718 3,309,908 2,462,578 ---------- ---------- ---------- Net (Decrease) Increase in Cash and Cash Equivalents............................... (266,140) 30,247 42,755 Cash and Cash Equivalents at Beginning of Year...................................... 2,372,767 2,342,520 2,299,765 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year... $2,106,627 $2,372,767 $2,342,520 ========== ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest.................................. $2,479,389 $1,727,514 $1,700,296 Income taxes.............................. 90,109 154,962 205,618 Noncash financing and investing activities: Transfer of securities from held to maturity to available for sale........... 324,734 231,529 114,401 Transfer of loans to foreclosed property................................. 44,574 31,888 39,838 Transfer of fixed assets to other real estate owned............................. 4,307 7,405 14,165 Transfer of other real estate owned to fixed assets............................. 3,675 1,306 -- Tax benefit from exercise of stock options.................................. 6,170 18,129 25,090 Securitization of mortgage loans.......... 984,518 304,795 478,768
The accompanying notes are an integral part of these consolidated financial statements. 10 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2000, 1999 and 1998 BB&T Corporation ("BB&T" or "Parent Company") is a financial holding company organized under the laws of North Carolina. Branch Banking and Trust Company ("BB&T-NC"); Branch Banking and Trust Company of South Carolina ("BB&T-SC"); Branch Banking and Trust Company of Virginia ("BB&T-VA"), (collectively, the "Banks"), Regional Acceptance Corporation ("Regional Acceptance"), and Scott & Stringfellow Financial, Inc., ("Scott & Stringfellow") comprise BB&T's principal direct subsidiaries. BB&T is also the parent company for 22 subsidiary banks acquired through the mergers with Century South Banks, Inc., and F&M National Corporation. These banks are expected to be merged with and into BB&T-NC, BB&T-SC or BB&T-VA, as appropriate, during 2001 and 2002. References to the "Banks" herein include these subsidiary banks. The accounting and reporting policies of BB&T Corporation and its subsidiaries are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The following is a summary of the more significant policies. Note A. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of BB&T include the accounts of BB&T Corporation and its subsidiaries. In consolidation, all significant intercompany accounts and transactions have been eliminated. Prior period financial statements have been restated to include the accounts of companies acquired in business combinations accounted for as poolings of interests. The results of operations of companies acquired in transactions accounted for as purchases are included only from the dates of acquisition. (See Note B. in the Notes to Consolidated Financial Statements). In certain instances, amounts reported in prior years' consolidated financial statements have been reclassified to conform to statement presentations selected for 2000. Such reclassifications had no effect on previously reported shareholders' equity or net income. Nature of Operations BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations primarily in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama and Washington, D.C. through its commercial banking subsidiaries and, to a lesser extent, through its other subsidiaries. BB&T's principal banking subsidiaries, BB&T-NC, BB&T-SC and BB&T-VA, provide a wide range of traditional banking services to individuals and businesses. BB&T's loans are primarily to individuals residing in the market areas described above or to businesses located in this geographic area. Subsidiaries of BB&T's commercial banking units offer lease financing to businesses and municipal governments, investment services, including discount brokerage services and a variety of annuities and mutual funds, life insurance, property and casualty insurance on an agency basis, insurance premium financing, loan servicing for financial institutions, asset and portfolio management. The 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 municipal and corporate finance services. 11 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan and lease losses and deferred tax assets or liabilities. Cash and Cash Equivalents Cash and cash equivalents include cash and due from banks, interest-bearing bank balances, Federal funds sold and securities purchased under resale agreements or similar arrangements. Generally, both cash and cash equivalents are considered to have maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a reasonable estimate of fair value. Securities BB&T classifies investment securities as held to maturity, available for sale or trading. Debt securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. Gains or losses realized from the sale of securities held to maturity, if any, are determined by specific identification and are included in noninterest income. Debt securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions, are classified as available for sale. In addition, all investments in equity securities are classified as available for sale. Securities available for sale are reported at estimated fair value, with unrealized gains and losses reported as a separate component of shareholders' equity, net of deferred income taxes. Gains or losses realized from the sale of securities available for sale are determined by specific identification and are included in noninterest income. Trading account securities are primarily held by Scott & Stringfellow, BB&T's investment banking and full-service brokerage subsidiary. Trading account securities are reported on the Consolidated Balance Sheets at fair value. Market adjustments, fees, and gains or losses earned on trading account securities are included in noninterest income. Interest income on trading account securities is included in other interest income. Gains or losses realized from the sale of trading securities are determined by specific identification and are included in noninterest income. During 2000, 1999 and 1998, BB&T transferred securities with amortized costs of $324.7 million, $231.5 million and $114.4 million, respectively, from the held-to-maturity portfolio to the available-for-sale portfolio. These securities were previously classified as held-to-maturity by entities that merged into BB&T under the pooling-of-interests method of accounting. BB&T transferred these amounts pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," to conform the combined investment portfolios to BB&T's existing policies. Loans Held for Sale Loans held for sale are reported at the lower of cost or market value on an aggregate loan portfolio basis. Gains or losses realized on the sales of loans are recognized at the time of sale and are determined by the 12 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) difference between the net sales proceeds and the carrying value of the loans sold, adjusted for any servicing asset or liability. Gains and losses on sales of loans are included in noninterest income. Loans and Leases Loans and leases that management has the intent and ability to hold for the foreseeable future are reported at their outstanding principal balances adjusted for any deferred fees or costs and unamortized premiums or discounts. The net amount of nonrefundable loan origination fees, commitment fees and certain direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the loans using methods which approximate level-yield. Discounts and premiums are amortized to interest income over the estimated life of the loans using methods that approximate level-yield. Commercial loans and substantially all installment loans accrue interest on the unpaid balance of the loans. Lease receivables consist primarily of direct financing leases on rolling stock, equipment and real property, leases to municipalities and investments in leveraged lease transactions. Lease receivables are stated at the total amount of lease payments receivable plus guaranteed residual values, less unearned income. Recognition of income over the lives of the lease contracts approximates the level-yield method. A loan is impaired when, based on current information and events, it is probable that BB&T will be unable to collect all amounts due according to the contractual terms of the loan agreement. It is BB&T's policy to classify and disclose all commercial loans greater than $300,000 that are on nonaccrual status as impaired loans. Substantially all other loans made by BB&T are excluded from the definition of impaired loans as they are comprised of large groups of smaller balance homogeneous loans (residential mortgage and consumer installment) that are collectively evaluated for impairment. SFAS No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. When the fair value of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. Allowance for Loan and Lease Losses The allowance for loan and lease losses is the estimated amount considered adequate to cover credit losses inherent in the outstanding loan and lease portfolio at the balance sheet date. The allowance is established through the provision for loan and lease losses, which is reflected in the Consolidated Statements of Income. The allowance is composed of general reserves, specific reserves and an unallocated reserve. General reserves for commercial loans are determined by applying loss percentages to the portfolio based on management's evaluation and "risk grading" of the commercial loan portfolio. General reserves are provided for noncommercial loan categories based on a four-year weighted average of actual loss experience, which is applied to the total outstanding loan balance of each loan category. Specific reserves are provided on all commercial loans that are classified in the Special Mention, Substandard or Doubtful risk grades. The specific reserves are determined on a loan-by-loan basis based on management's evaluation of BB&T's exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. Commercial loans for which a specific reserve is provided are excluded from the calculations of general reserves. The allowance calculation also incorporates specific reserves based on the results of measuring impaired loans, as described above. The unallocated reserve consists of an amount deemed appropriate to cover the elements of imprecision and estimation risk inherent in the general and specific reserves and an amount determined based on management's evaluation of various conditions that are not directly measured by any other component of the 13 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) allowance. This evaluation includes general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of internal credit examiners and results from external bank regulatory examinations. While management uses the best information available to establish the allowance for loan and lease losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information available to them at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates. Nonperforming Assets Nonperforming assets include loans and leases on which interest is not being accrued and foreclosed property. Foreclosed property consists of real estate and other assets acquired through customers' loan defaults. Commercial and unsecured consumer loans and leases are generally placed on nonaccrual status when concern exists that principal or interest is not fully collectible, or when any portion of principal or interest becomes 90 days past due, whichever occurs first. Mortgage loans and most other types of consumer loans past due 90 days or more may remain on accrual status if management determines that concern over the collectibility of principal and interest is not significant. When loans are placed on nonaccrual status, interest receivable is reversed against interest income in the current period. Interest payments received thereafter are applied as a reduction to the remaining principal balance as long as concern exists as to the ultimate collection of the principal. Loans and leases are removed from nonaccrual status when they become current as to both principal and interest and when concern no longer exists as to the collectibility of principal or interest. Assets acquired as a result of foreclosure are carried at the lower of cost or fair value less estimated selling costs. Cost is determined based on the sum of unpaid principal, accrued but unpaid interest and acquisition costs associated with the loan. Any excess of unpaid principal over fair value at the time of foreclosure is charged to the allowance for loan and lease losses. Generally, such properties are appraised annually and the carrying value, if greater than the fair value, less selling costs, is adjusted with a charge to noninterest expense. Routine maintenance costs, declines in market value and net losses on disposal are included in other noninterest expense. Premises and Equipment Premises, equipment, capital leases and leasehold improvements are stated at cost less accumulated depreciation or amortization. In addition, purchased software and costs of computer software developed for internal use is capitalized provided certain criteria are met. Depreciation is computed principally using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the improvements. Capitalized leases are amortized by the same methods as premises and equipment over the estimated useful lives or the lease term, whichever is less. Obligations under capital leases are amortized using the interest method to allocate payments between principal reduction and interest expense. Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase, which are classified as secured short-term borrowed funds, generally mature within one year from the transaction date. Securities sold under agreements to repurchase are 14 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) reflected at the amount of cash received in connection with the transaction. BB&T may be required to provide additional collateral based on the fair value of the underlying securities. Income Taxes The provision for income taxes is based upon income for financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial reporting purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. BB&T and its subsidiaries file a consolidated Federal income tax return. Each subsidiary pays its proportional share of Federal income taxes to BB&T based on its taxable income. Institutions acquired during the current fiscal year file separate Federal income tax returns for the periods prior to consummation of the acquisitions. Derivatives and Off-Balance Sheet Instruments BB&T utilizes a variety of derivative financial instruments to manage various financial risks. These instruments include financial forward and futures contracts, options written and purchased, interest rate caps and floors and interest rate swaps. Management accounts for these financial instruments as hedges when the following conditions are met: (1) the specific assets, liabilities, firm commitments or anticipated transactions (or an identifiable group of essentially similar items) to be hedged expose BB&T to interest rate risk or price risk; (2) the financial instrument reduces that exposure; (3) the financial instrument is designated as a hedge at inception; and (4) at the inception of the hedge and throughout the hedge period, there is a high correlation of changes in the fair value or the net interest income associated with the financial instrument and the hedged items. The net interest payable or receivable on interest rate swaps, caps and floors that are designated as hedges is accrued and recognized as an adjustment to the interest income or expense of the related asset or liability. For interest rate forwards, futures and options qualifying as a hedge, gains and losses are deferred and are recognized in income as an adjustment of yield. Gains and losses from early terminations of derivatives are deferred and amortized as yield adjustments over the shorter of the remaining term of the hedged asset or liability or the remaining term of the derivative instrument. Upon disposition or settlement of the asset or liability being hedged, deferral accounting is discontinued and any gains or losses are recognized in income. Derivative financial instruments that fail to qualify as a hedge are carried at fair value with gains and losses recognized in current earnings. BB&T utilizes written covered over-the-counter call options on specific securities in the available-for-sale securities portfolio in order to enhance returns. Fees received are deferred and recognized in noninterest income upon exercise or expiration. Written options are carried at estimated fair value. Unrealized and realized gains and losses on written call options are included in the Consolidated Statements of Income as securities gains and losses. BB&T also utilizes over-the-counter purchased put options and net purchased put options (combination of purchased put option and written call option) in its mortgage banking activities. These options are used to hedge the mortgage loan inventory and applications and mortgage loans in process against increasing interest rates. Written call options are used in tandem with purchased put options to create a net purchased put option that reduces the cost of the hedge. Net unrealized gains and losses on purchased put options and net purchased 15 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) put options are included with loans held for sale at the lower of cost or market on an aggregate basis. Realized gains and losses on purchased put options and net purchased put options are included in mortgage banking income. Per Share Data Basic net income per common share has been computed by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during the years presented. Diluted net income per common share has been computed by dividing net income, as adjusted for the interest expense related to convertible debt where applicable, by the weighted average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding. Restricted stock grants are considered as issued for purposes of calculating net income per share. See Note R. in the "Notes to Consolidated Financial Statements" for the calculation of basic and diluted earnings per share. On June 23, 1998, BB&T's Board of Directors approved a 2-for-1 stock split in the Corporation's common stock effected in the form of a 100% stock dividend paid August 3, 1998. All per share amounts presented herein and the weighted average shares reflected above have been restated as appropriate to retroactively reflect the stock split. Intangible Assets Intangible assets consist of the cost in excess of the fair value of net assets acquired in transactions accounted for as purchases (goodwill), premiums paid for acquisitions of core deposits (core deposit intangibles) and other identifiable intangible assets. Such assets are included in other assets in the "Consolidated Balance Sheets," and are being amortized on straight-line or accelerated bases over periods ranging from 5 to 25 years. At December 31, 2000, BB&T had $770.6 million in unamortized goodwill and $40.2 million in unamortized core deposit and other intangibles. Negative goodwill is created when the fair value of the net assets purchased exceeds the purchase price. Such balances are included in other liabilities in the "Consolidated Balance Sheets" and are being amortized over periods ranging from 10 to 15 years. At December 31, 2000, BB&T had unamortized negative goodwill totaling $14.3 million. Mortgage Servicing Rights The carrying value of purchased and internally originated mortgage servicing rights are included as other assets in the "Consolidated Balance Sheets". The cost of purchased mortgage servicing rights and the cost allocated to internally originated mortgage servicing rights are capitalized and amortized over the estimated lives of the loans to which they relate. BB&T periodically assesses the capitalized mortgage servicing rights for impairment based on the fair value of those rights. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Impairment is recognized through a valuation allowance established through a charge to mortgage banking income. At December 31, 2000, BB&T had capitalized mortgage servicing rights totaling $239.3 million reflected in other assets. Income from mortgage servicing fees is reflected as mortgage banking income on the "Consolidated Statements of Income." Loan Securitizations BB&T periodically transfers mortgage loans from the loan portfolio to securities available for sale by securitizing the mortgage loans in the secondary mortgage market. Following the transfers, the securities are reported at estimated fair value based on quoted market prices, with unrealized gains and losses reported as a separate component of shareholders' equity, net of deferred income taxes. Since the transfers are not considered 16 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) a sale, no gain or loss is recorded in conjunction with the transfers of the loans. BB&T also securitizes and sells loans to third party investors, while retaining the mortgage servicing on the loans sold. Gains or losses incurred on the loans sold are reflected in mortgage banking income. Changes in Accounting Principles and Effects of New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to be offset by related results on the hedged item in the income statement, and requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. In June of 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which amends SFAS No. 133. SFAS No. 138 addresses a limited number of issues related to the implementation of SFAS No. 133. The fair value of BB&T's derivative financial instruments was not reflected on the balance sheet as of December 31, 2000. BB&T adopted the provisions of SFAS No. 133, as amended, effective January 1, 2001, as required by the FASB. On that date, BB&T reassessed and designated derivative instruments used for risk management as fair value hedges, cash flow hedges and derivatives not qualifying for hedge accounting treatment, as appropriate. On January 1, 2001, BB&T had derivatives with a notional value of $2.0 billion. 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 transition adjustment is based on the interpretive guidance issued thus far by the 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. 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 disclosure requirements of the statement were effective immediately and have been adopted by BB&T. Other portions become effective for transactions occurring after March 31, 2001. The adoption of the continuing provisions of SFAS No. 125 did not have a material impact on BB&T's consolidated financial position or consolidated results of operations. Management does not anticipate that the adoption of the new provisions of SFAS No. 140 will have a material impact on BB&T's consolidated financial position or consolidated results of operations. See Note G. in the "Notes to Consolidated Financial Statements" for disclosures relating to SFAS No. 140. In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." The provisions of the Statement apply to all business combinations initiated after June 30, 2001. SFAS No. 141 requires that all business combinations be accounted for by the purchase method of accounting. This method requires the accounts of an acquired institution to be 17 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) included with the acquirer's accounts as of the date of acquisition with any excess of purchase price over the fair value of the net assets acquired to be capitalized as goodwill. The Statement also requires that the assets of an acquired institution be recognized as assets apart from goodwill if they meet specific criteria presented in the Statement. The Statement ends the use of the pooling-of-interests method of accounting for business combinations, which required the restatement of all prior period information for the accounts of the acquired institution. BB&T has historically been a frequent acquirer and has used both the pooling-of-interests and purchase methods of accounting. Following the adoption of the Statement, BB&T will account for all future acquisitions using the purchase method. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," which supersedes APB Opinion No. 17, "Intangible Assets." SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition, and addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Statement eliminates the requirement to amortize goodwill and other intangible assets that have indefinite useful lives, instead requiring the assets be tested at least annually for impairment based on the specific quidance in the Statement. BB&T will adopt the provisions of the Statement effective January 1, 2002, as required, and apply the provisions of the Statement to all goodwill and other intangible assets recognized in the financial statements. The Statement requires a transition impairment test of goodwill and other intangibles in conjunction with the initial application of the Statement. Any resulting impairment loss will be reflected as a change in accounting principle. Management has not yet determined the impact of adopting SFAS No. 142, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. Supplemental Disclosures of Cash Flow Information As referenced in the "Consolidated Statements of Cash Flows," BB&T acquired assets and assumed liabilities in transactions accounted for as purchases. The fair values of these assets acquired and liabilities assumed, at acquisition, were as follows:
2000 1999 1998 --------- --------- --------- (Dollars in thousands) Fair Value of Net Assets acquired...... $ 117,790 $ 141,285 $ 116,701 Purchase Price......................... (223,047) (330,820) (310,618) --------- --------- --------- Excess of Purchase Price over Net Assets Acquired....................... $(105,257) $(189,535) $(193,917) ========= ========= =========
Income and Expense Recognition Items of income and expense are recognized using the accrual basis of accounting, except for some immaterial amounts that are recognized when received or paid. 18 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note B. Mergers and Acquisitions The following table presents summary information with respect to mergers and acquisitions of financial institutions completed during the last three years: Summary of Completed Mergers and Acquisitions
BB&T Common Shares Goodwill Issued to Date of Acquired Total Accounting Goodwill Amortization Complete Acquisition Institution Headquarters Assets Method Recorded Period Transaction ----------- ---------------- -------------------- -------------- ---------- -------------- ------------ ------------ December 27, 2000 BankFirst Knoxville, Tenn. $929.5 million Purchase $ 71.0 million 15 Years 5.3 million Corporation November 15, 2000 Edgar M. Norris Greenville, S.C. 3.7 million Purchase N/A N/A N/A & Co. September 29, 2000 Laureate Capital Charlotte, N.C. 13.8 million Purchase N/A N/A N/A Corp. July 6, 2000 One Valley Charleston, W.Va. 6.4 billion Pooling N/A N/A 43.1 million Bancorp, Inc. 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 Dalton, Ga. 507.2 million Pooling N/A N/A 3.9 million Company January 13, 2000 Premier Atlanta, Ga. 2.0 billion Pooling N/A N/A 16.8 million Bancshares, Inc. ------------------------------------------------------------------------------------------------------------------------------ November 10, 1999 First Liberty Macon, Ga. $ 1.7 billion Pooling $ N/A N/A 12.4 million Financial Corp. August 27, 1999 Matewan Williamson, W.Va. 734.7 million Purchase 92.8 million 15 Years 3.2 million BancShares, Inc. July 14, 1999 Mason-Dixon Westminster, Md. 1.2 billion Pooling N/A N/A 6.6 million Bancshares, Inc. July 9, 1999 First Citizens Newnan, Ga. 417.8 million Pooling N/A N/A 3.2 million Corporation March 26, 1999 Scott & Richmond, Va. 262.1 million Purchase 72.8 million 15 Years 3.6 million Stringfellow Financial, Inc. March 5, 1999 MainStreet Martinsville, Va. 2.0 billion Pooling N/A N/A 16.8 million Financial Corporation ------------------------------------------------------------------------------------------------------------------------------ September 30, 1998 Maryland Federal Hyattsville, Md. $ 1.3 billion Purchase $158.8 million 15 Years 8.7 million Bancorp, Inc. July 1, 1998 Franklin Washington, D.C. 674.9 million Pooling N/A N/A 4.9 million Bancorporation Inc. June 30, 1998 W.E. Stanley & Greensboro, N.C. 12.2 million Purchase 10.3 million 15 Years 174,000 Company Inc. June 18, 1998 Dealers' Credit Menomonee Falls, Wi. 41.3 million Purchase 9.5 million 15 Years 115,000 Inc. March 1, 1998 Life Bancorp, Norfolk, Va. 1.5 billion Pooling N/A N/A 11.6 million Inc.
-------- N/A--Not applicable or undisclosed terms. The table above does not include mergers and acquisitions made by any acquired company. In addition to the mergers and acquisitions summarized in the above table, from January 1 through September 4, 2001, BB&T had acquired five insurance agencies during the year that were accounted for as purchases. In conjunction with these transactions, BB&T issued approximately 326,000 shares of common stock and recorded $15.1 million in goodwill, which is being amortized using the straight-line method over 15 years. During 2000, BB&T acquired six insurance agencies, which were accounted for as purchases. In conjunction with these 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. During 1999, BB&T acquired eleven insurance agencies and the book of business from another agency. These acquisitions were accounted for as purchases. In conjunction with the 1999 transactions, BB&T issued a total of 1.5 million shares of common stock and recorded $52.8 million of goodwill, which is being amortized using the straight-line method over 15 years. During 1998, BB&T acquired four insurance agencies and the book of business of another agency. These acquisitions were accounted for as purchases. For acquisitions accounted for as purchases, the financial information contained herein includes data relevant to the acquirees since the date of acquisition. For acquisitions accounted for as poolings of interests, the financial information contained herein has been restated to include the accounts of the merged institutions for all periods presented. 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. 19 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Management currently does not anticipate any material adjustments to the assigned values of the assets and liabilities of acquired companies. The following unaudited presentation reflects selected information from the "Consolidated Income Statements" on a Pro Forma basis as if the purchase transactions listed in the table above had been acquired as of the beginning of the years presented:
For the Years Ended --------------------- 2000 1999 ---------- ---------- (Dollars in thousands, except per share data) Total revenues...................................... $2,853,570 $2,896,815 ========== ========== Net income.......................................... $ 609,670 $ 707,286 ========== ========== Basic EPS........................................... $ 1.53 $ 1.79 ========== ========== Diluted EPS......................................... $ 1.51 $ 1.76 ========== ==========
The following presentation reflects key line items on an historical basis for BB&T and F&M, and on a pro forma combined basis assuming the merger was effective as of and for the periods presented.
Historical Basis ---------------------- BB&T BB&T F&M restated ----------- ---------- ----------- (Dollars in thousands, except per share data) As of / For the Year Ended December 31, 2000 -------------------------- Net interest income................... $ 2,145,567 $ 169,131 $ 2,314,698 Net income............................ 646,596 51,892 698,488 Net earnings per share................ Basic............................... 1.54 1.86 1.55 Diluted............................. 1.52 1.84 1.53 Assets................................ 62,575,133 3,978,795 66,552,823 Deposits.............................. 40,513,287 3,364,032 43,877,319 Shareholders' equity.................. 5,033,834 385,975 5,419,809 As of / For the Year Ended December 31, 1999 -------------------------- Net interest income................... $ 2,046,988 $ 147,721 $ 2,194,709 Net income............................ 731,783 46,942 778,725 Net earnings per share................ Basic............................... 1.76 1.67 1.74 Diluted............................. 1.73 1.66 1.71 Assets................................ 55,898,957 3,481,476 59,380,433 Deposits.............................. 36,366,111 2,952,901 39,319,012 Shareholders' equity.................. 4,289,469 350,720 4,640,189
Mergers Pending at December 31, 2000, or Announced Subsequent to December 31, 2000 On July 27, 2000, BB&T announced plans to acquire FCNB Corp. ("FCNB") of Frederick, Maryland. FCNB had $1.6 billion in assets and operated 34 banking offices primarily in Frederick and Montgomery 20 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) counties in central Maryland. The transaction, which was accounted for as a pooling of interests, was consummated on January 8, 2001. BB&T issued 8.7 million shares of common stock in exchange for all of the outstanding common shares of FCNB. The financial statements presented herein have been restated to include the accounts of FCNB. On September 6, 2000, BB&T announced plans to acquire FirstSpartan Financial Corp. ("FirstSpartan") of Spartanburg, South Carolina. FirstSpartan had $591 million in assets and operated eleven banking offices in Spartanburg and Greenville counties. The transaction, which was accounted for as a purchase, was consummated on March 2, 2001. BB&T issued 3.8 million shares of common stock in exchange for all of the outstanding common shares of FirstSpartan. BB&T recorded goodwill totaling $42.0 million in connection with this acquisition, which is being amortized using the straight-line method over 15 years. 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. The transaction, which was accounted for as a pooling of interests, was consummated on June 7, 2001. BB&T issued 12.7 million shares of common stock in exchange for all of the outstanding common shares of Century South. The financial statements presented herein have been restated to include the accounts of Century South. 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. The transaction, which was accounted for as a purchase, was consummated on June 27, 2001. BB&T issued 4.7 million shares of common stock in exchange for all of the outstanding common shares of VCAP. BB&T recorded goodwill totaling $15.2 million in connection with this acquisition, which is being amortized using the straight-line method over 15 years. 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 offices. The transaction, which was accounted for as a pooling of interests, was consummated on August 9, 2001. BB&T issued 31.1 million shares of common stock in exchange for all of the outstanding common shares of F&M. The financial statements presented herein have been restated to reflect the accounts of F&M. On July 10, 2001, BB&T announced plans to acquire Community First Banking Company ("CFBC") of Carrollton, Georgia. CFBC has $548.1 million in assets and operates nine banking offices, a consumer finance company, an insurance agency, and a full-service brokerage subsidiary. Shareholders of CFBC will receive .98 shares of BB&T common stock in exchange for each share of CFBC common stock held. The transaction, which will be accounted for as a purchase, is planned for completion in the fourth quarter of 2001. On August 29, 2001, BB&T announced plans to acquire The Southeastern Trust Company ("Southeastern"). Southeastern, a trust and asset management company, has more than $700 million in assets under management and operates through offices in Andersen, Charleston, Columbia and Greenville, South Carolina. The transaction, which will be accounted for as a purchase, is expected to be completed in the fourth quarter of 2001. 21 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note C. Securities The amortized costs and approximate fair values of securities held to maturity and available for sale were as follows:
December 31, 2000 December 31, 1999 ----------------------------------------- ---------------------------------------- Gross Unrealized Gross Unrealized Amortized ----------------- Estimated Amortized ---------------- Estimated Cost Gains Losses Fair Value Cost Gains Losses Fair Value ----------- -------- -------- ----------- ----------- ------- -------- ----------- (Dollars in thousands) Securities held to maturity: U.S. Treasury, government and agency obligations........... $ 536,863 $ 3,426 $ 2,729 $ 537,560 $ 468,243 $ 890 $ 13,498 $ 455,635 Mortgage-backed securities............ 1,739 2 7 1,734 7,542 7 152 7,397 States and political subdivisions.......... 80,479 1,163 69 81,573 441,772 3,580 9,762 435,590 Other securities....... 3,021 45 1 3,065 5,158 74 2 5,230 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Total securities held to maturity.......... 622,102 4,636 2,806 623,932 922,715 4,551 23,414 903,852 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Securities available for sale: U.S. Treasury, government and agency obligations........... 9,474,543 265,067 12,492 9,727,118 6,519,026 2,511 204,985 6,316,552 Mortgage-backed securities............ 2,781,031 26,986 2,410 2,805,607 4,550,983 5,219 129,899 4,426,303 States and political subdivisions.......... 1,033,958 12,235 7,638 1,038,555 709,219 9,239 33,625 684,833 Equity and other securities............ 1,760,202 2,178 102,537 1,659,843 2,157,594 3,506 186,534 1,974,566 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Total securities available for sale... 15,049,734 306,466 125,077 15,231,123 13,936,822 20,475 555,043 13,402,254 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Total securities...... $15,671,836 $311,102 $127,883 $15,855,055 $14,859,537 $25,026 $578,457 $14,306,106 =========== ======== ======== =========== =========== ======= ======== ===========
Securities with a book value of approximately $7.9 billion and $7.5 billion at December 31, 2000 and 1999, respectively, were pledged to secure municipal deposits, securities sold under agreements to repurchase, and for other purposes as required by law. At December 31, 2000 and 1999, there were no concentrations of investments in obligations of states and political subdivisions that were payable from the same taxing authority or secured by the same revenue source that exceeded ten percent of shareholders' equity. Trading securities totaling $96.7 million at December 31, 2000 and $93.2 million at December 31, 1999 are excluded from the accompanying tables. Proceeds from sales of securities during 2000, 1999 and 1998 were $5.2 billion, $1.0 billion and $1.9 billion, respectively. Gross gains of $7.2 million, $8.8 million and $20.7 million and gross losses of $226.6 million, $10.4 million and $6.2 million were realized on those sales in 2000, 1999 and 1998, respectively. 22 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The amortized cost and estimated fair value of the securities portfolio at December 31, 2000, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted average contractual maturities of underlying collateral.
December 31, 2000 -------------------------------------------- Held to Maturity Available for Sale -------------------- ----------------------- Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value --------- ---------- ----------- ----------- (Dollars in thousands) Debt Securities: Due in one year or less......... $ 80,936 $ 80,859 $ 411,738 $ 417,019 Due after one year through five years.......................... 382,081 381,743 5,553,834 5,699,984 Due after five years through ten years.......................... 101,006 101,974 4,626,862 4,740,289 Due after ten years............. 58,079 59,356 2,985,773 2,990,253 -------- -------- ----------- ----------- Total debt securities......... $622,102 $623,932 $13,578,207 $13,847,545 ======== ======== =========== ===========
Note D. Loans and Leases Loans and leases were composed of the following:
December 31, ------------------------ 2000 1999 ----------- ----------- (Dollars in thousands) Loans: Commercial, financial and agricultural............... $ 6,555,578 $ 6,025,337 Lease receivables........... 4,453,598 2,606,002 Real estate--construction and land development....... 4,264,275 4,227,146 Real estate--mortgage....... 25,239,698 22,712,509 Consumer.................... 5,891,059 5,091,840 ----------- ----------- Loans and leases held for investment............... 46,404,208 40,662,834 Less: unearned income... (2,483,377) (1,250,129) ----------- ----------- Loans and leases, net of unearned income........ $43,920,831 $39,412,705 =========== ===========
The net investment in direct financing leases was $2.1 billion and $1.5 billion at December 31, 2000 and 1999, respectively. BB&T had loans held for sale at December 31, 2000 and 1999 totaling $906.2 million and $390.3 million, respectively. BB&T had $30.4 billion in loans secured by real estate at December 31, 2000. However, these loans were not concentrated in any specific market or geographic area other than the Banks' primary markets. 23 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth certain information regarding BB&T's impaired loans as defined under SFAS No. 114.
December 31, ------------------ 2000 1999 -------- -------- (Dollars in thousands) Total recorded investment--impaired loans.............. $ 73,422 $ 68,381 -------- -------- Total recorded investment with related valuation allowance............................................. 70,001 64,694 Valuation allowance assigned to impaired loans......... (10,738) (13,565) -------- -------- Net carrying value--impaired loans................... $ 59,263 $ 51,129 ======== ======== Average balance of impaired loans...................... $ 59,437 $ 66,434 ======== ======== Cash basis interest income recognized on impaired loans................................................. $ 1,922 $ 2,897 ======== ========
The following table provides an analysis of loans made to directors, executive officers and their interests, which in the aggregate exceeded $60,000 at any time during 2000. All amounts shown represent loans made by BB&T's subsidiary banks in the ordinary course of business at the Banks' normal credit terms, including interest rate and collateralization prevailing at the time for comparable transactions with other persons.
(Dollars in thousands) ---------- Balance, December 31, 1999....................................... $ 439,853 Additions...................................................... 124,202 Reductions..................................................... (254,260) --------- Balance, December 31, 2000....................................... $ 309,795 =========
Note E. Allowance for Loan and Lease Losses An analysis of the allowance for loan and lease losses is presented in the following table:
For the Years Ended December 31, ------------------------------- 2000 1999 1998 --------- --------- --------- (Dollars in thousands) Beginning Balance........... $ 529,236 $ 490,619 $ 435,693 Allowances of purchased companies................ 14,311 10,697 24,593 Provision for losses charged to expense....... 147,187 126,559 126,269 Loans and leases charged- off...................... (150,515) (134,000) (126,442) Recoveries of previous charge-offs.............. 37,888 35,361 30,506 --------- --------- --------- Net loans and leases charged-off............ (112,627) (98,639) (95,936) --------- --------- --------- Ending Balance.............. $ 578,107 $ 529,236 $ 490,619 ========= ========= =========
At December 31, 2000, 1999 and 1998, loans not currently accruing interest totaled $180.6 million, $144.2 million and $145.6 million, respectively. Loans 90 days or more past due and still accruing interest totaled $81.6 million, $66.2 million and $68.4 million, at December 31, 2000, 1999 and 1998, respectively. The gross interest income that would have been earned during 2000 if the outstanding nonaccrual loans and leases had been current in accordance with the original terms and had been outstanding throughout the period (or since origination, if held for part of the period) was approximately $14.2 million. Foreclosed property totaled $55.2 million, $47.1 million and $60.0 million at December 31, 2000, 1999 and 1998, respectively. 24 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE F. Premises and Equipment A summary of premises and equipment is presented in the accompanying table:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in thousands) Land and land improvements............................ $ 165,532 $ 152,718 Buildings and building improvements................... 763,806 683,852 Furniture and equipment............................... 661,815 653,260 Capitalized leases on premises and equipment.......... 3,943 3,945 ---------- ---------- 1,595,096 1,493,775 Less--accumulated depreciation and amortization....... 666,140 639,843 ---------- ---------- Net premises and equipment.......................... $ 928,956 $ 853,932 ========== ==========
Depreciation expense, which is included in occupancy and equipment expense, was $116.2 million, $115.4 million and $100.7 million in 2000, 1999 and 1998, respectively. BB&T has noncancelable leases covering certain premises and equipment. Total rent expense applicable to operating leases was $66.4 million, $71.6 million and $50.0 million for 2000, 1999 and 1998, respectively. Future minimum lease payments for operating and capitalized leases for years subsequent to 2000 are as follows:
Leases --------------------- Operating Capitalized --------- ----------- (Dollars in thousands) Years ended December 31: 2001............................................... $ 48,460 $ 381 2002............................................... 42,010 381 2003............................................... 37,373 347 2004............................................... 34,103 289 2005............................................... 29,567 278 2006 and later..................................... 127,199 2,355 -------- ------ Total minimum lease payments......................... $318,712 4,031 ======== Less--amount representing interest................... 1,797 ------ Present value of net minimum payments on capitalized leases (Note I)..................................... $2,234 ======
25 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) NOTE G. Loan Servicing The following is an analysis of capitalized mortgage servicing rights included in other assets in the Consolidated Balance Sheets:
Capitalized Mortgage Servicing Rights ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Balance, January 1, ........................... $189,809 $119,613 $ 79,250 Amount capitalized........................... 54,828 79,437 86,954 Acquired in purchase transaction............. 12,153 -- -- Amount sold.................................. -- -- (1,118) Amortization expense......................... (18,733) (28,730) (28,042) Change in valuation allowance................ 1,194 19,489 (17,431) -------- -------- -------- Balance, December 31, ......................... $239,251 $189,809 $119,613 ======== ======== ========
Capitalized mortgage servicing rights are being amortized on a disaggregated loan basis using an accelerated method over the estimated life of the underlying loans. The servicing rights portfolio is analyzed each quarter to identify possible impairment using a disaggregated discounted cash flow methodology that is stratified by predominant risk characteristics. These characteristics include stratification based on type of loan, maturity of loan and interest rates in intervals of 150 basis points, except at December 31, 2000, when the interval was expanded to 200 basis points. Following is an analysis of the aggregate changes in the valuation allowance for mortgage servicing rights in 2000, 1999 and 1998 including the effects of related hedging instruments:
Valuation Allowance for Mortgage Servicing Rights -------------------------- 2000 1999 1998 ------- -------- ------- (Dollars in thousands) Balance, January 1, ............................. $ 1,542 $ 21,031 $ 3,600 Additions...................................... 107 462 17,704 Reductions..................................... (1,301) (19,951) (273) ------- -------- ------- Balance, December 31, ........................... $ 348 $ 1,542 $21,031 ======= ======== =======
Mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. The unpaid principal balances of mortgage loans serviced for others were $15.8 billion and $15.3 billion at December 31, 2000 and 1999, respectively. During 2000, BB&T securitized and sold $2.4 billion of fixed rate mortgage loans and recognized a pretax loss of $5.4 million, which was recorded in noninterest income. BB&T retained the related mortgage servicing rights and receives annual servicing fees approximating .25% of the outstanding balance of the mortgage loans. The investors in the resulting securities have no recourse against BB&T for any failure of the loans underlying the securities. BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights. These assumptions include prepayment speeds, net charge-off experience and discount rates commensurate with the risks involved. Since assumptions and estimates used by acquired entities may differ from those used by BB&T, and such assumptions will change following the dates of acquisition to reflect the assumptions and fair value methodologies of BB&T, the accompanying table includes disclosures concerning BB&T's capitalized mortgage servicing rights as originally reported. 26 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 2000, the sensitivity of the current fair value of the capitalized mortgage servicing rights to immediate 25% and 50% adverse changes in key economic assumptions are included in the accompanying table.
Key Assumptions in the Valuation of Mortgage Servicing Rights ---------------------- (Dollars in thousands) Fair Value of Mortgage Servicing Rights Retained in Loan Sale Transactions.................. $222,135 ======== Weighted Average Life................................. 10.0 yrs ======== Prepayment Speed...................................... 18.0 % Effect on fair value of a 25% increase.............. $(20,016) Effect on fair value of a 50% increase.............. (36,211) Expected credit losses................................ 0.4 % Effect on fair value of a 25% increase.............. $ (718) Effect on fair value of a 50% increase.............. (1,435) Discount Rate......................................... 8.00 % Effect on fair value of a 25% increase.............. $(15,179) Effect on fair value of a 50% increase.............. (28,248)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As the figures indicate, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the effect of the change. The following table includes a summary of mortgage loans outstanding, the portion securitized and derecognized during the periods presented and related delinquencies and net charge-offs.
2000 1999 ---------- ---------- (Dollars in thousands) Mortgage Loans Managed or Securitized*............... $9,828,583 $9,300,391 Loans Securitized and Transferred to Securities Available for Sale................................ 1,032,546 695,432 Loans Held for Sale................................ 906,244 390,338 ---------- ---------- Mortgage Loans Held for Investment................... $7,889,793 $8,214,621 ========== ========== Mortgage Loans on Nonaccrual Status.................. $ 37,642 $ 37,954 ---------- ---------- Mortgage Loans Past Due 90 Days and Still Accruing... $ 27,867 $ 23,119 ---------- ---------- Mortgage Loan Net Charge-offs........................ $ 1,623 $ 4,272 ---------- ----------
-------- * Mortgage loans managed or securitized include loans in which BB&T retains only the related servicing rights. Balances exclude loans serviced for others. 27 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note H. Short-Term Borrowed Funds Short-term borrowed funds are summarized as follows:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in thousands) Federal funds purchased.................................. $1,462,693 $ 315,815 Securities sold under agreements to repurchase........... 2,748,900 2,794,882 Master notes............................................. 731,149 718,045 U.S. Treasury tax and loan deposit notes payable......... 214,858 1,252,469 Short-term Federal Home Loan Bank advances............... 152,723 693,875 Short-term bank notes.................................... 1,890,000 1,645,000 Other short-term borrowed funds.......................... 109,655 972,258 ---------- ---------- Total short-term borrowed funds........................ $7,309,978 $8,392,344 ========== ==========
Federal funds purchased represent unsecured borrowings from other banks and generally mature daily. Term Federal funds purchased are identical to Federal funds; however, maturities vary and are greater than one day. Securities sold under agreements to repurchase are borrowings collateralized by securities of the U.S. Government or its agencies and have maturities ranging from one to ninety days. U.S. Treasury tax and loan deposit notes payable are payable upon demand to the U.S. Treasury. Master notes are unsecured, non-negotiable obligations (variable rate commercial paper). Short-term Federal Home Loan Bank advances generally mature daily. Short-term bank notes are unsecured borrowings issued by the banking subsidiaries that generally mature in less than one year. Note I. Long-Term Debt Long-term debt is summarized as follows:
December 31, --------------------- 2000 1999 ---------- ---------- (Dollars in thousands) Capitalized leases, varying maturities to 2028 with rates from 8.11% to 12.65%. Balance represents the unamortized amounts due on leases of various facilities............................................. $ 2,234 $ 2,535 Medium-term bank notes, unsecured, varying maturities to 2002 with variable rates from 5.70% to 7.05%........... 1,201,996 969,945 Advances from Federal Home Loan Bank, varying maturities to 2019 with rates from 1.00% to 8.51%................. 6,421,590 4,223,938 Subordinated Notes, unsecured, dated May 21, 1996, June 3, 1997 and June 30, 1998/1/; maturing May 23, 2003, June 15, 2007 and June 30, 2025; with interest rates of 7.05%, 7.25% and 6.375%, respectively./2............/.. 856,072 857,272 CMO Bonds, secured by investments, dated 1985, callable July 1, 2001, with an interest rate of 11.25%.......... 5,703 8,128 Corporation-obligated mandatorily redeemable capital securities, dated July 16, 1997, maturing June 15, 2027, with interest at 10.07%; November 19, 1997, maturing November 19, 2027, with interest at 8.90%; November 13, 1997, maturing December 31, 2027, with interest at 9.00%; April 22, 1998, maturing June 15, 2028, with interest at 8.40%; and July 13, 1998, maturing July 13, 2028, with interest at 8.25%./3.../.. 155,000 158,237 Other mortgage indebtedness............................. 3,423 2,506 ---------- ---------- Total long-term debt.................................. $8,646,018 $6,222,561 ========== ==========
28 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Excluding the capitalized leases set forth in Note F; future debt maturities are $496.3 million, $819.8 million, $369.6 million, $249.8 million and $386.5 million for the next five years. The maturities for 2006 and later years total $6.3 billion. (1) The $350 million in subordinated debt, issued June 30, 1998, is mandatorily puttable to BB&T on June 30, 2005, and contains a remarketing option that allows the debt to be reissued by the holder of the option to the stated maturity of June 30, 2025. (2) Subordinated notes qualify under the risk-based capital guidelines as Tier 2 supplementary capital. (3) Securities qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations. Redeemable Capital Securities In July, 1997, Mason-Dixon Capital Trust ("MDCT") issued $20 million of 10.07% Preferred Securities. MDCT, a statutory business trust created under the laws of the State of Delaware, was formed by Mason-Dixon Bancshares, Inc., ("Mason-Dixon") for the sole purpose of issuing the Preferred Securities and investing the proceeds thereof in 10.07% Junior Subordinated Debentures issued by Mason-Dixon. Mason Dixon, which merged into BB&T on July 14, 1999, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of MDCT's obligations under the Preferred Securities. MDCT's sole asset is the Junior Subordinated Debentures issued by Mason-Dixon and assumed by BB&T, which mature June 15, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after June 15, 2007. The Preferred Securities of MDCT, are subject to mandatory redemption in whole on June 15, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions. In November, 1997, MainStreet Capital Trust I ("MSCT I") issued $50 million of 8.90% Trust Securities. MSCT I, a statutory business trust created under the laws of the State of Delaware, was formed by MainStreet Financial Corporation, ("MainStreet") for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in 8.90% Junior Subordinated Debentures issued by MainStreet. MainStreet, which merged into BB&T on March 5, 1999, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of MSCT I's obligations under the Trust Securities. MSCT I's sole asset is the Junior Subordinated Debentures issued by MainStreet and assumed by BB&T, which mature December 1, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after December 1, 2007. The Trust Securities of MSCT I, are subject to mandatory redemption in whole on December 1, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions. One Valley Bancorp, Inc., which merged into BB&T Corporation on July 6, 2000 and a subsidiary of Mason-Dixon Bancshares, Inc, which merged into BB&T on July 14, 1999, each owned $2 million of the Trust Securities issued by MSCT I. As a result of these mergers, the outstanding balance of the MSCT I Trust Securities included in the consolidated balance sheets at December 31, 2000 and December 31, 1999 was $46 million. In November, 1997, Premier Capital Trust I ("PCT I") issued $28.75 million of 9.00% Preferred Securities. PCT I, a statutory business trust created under the laws of the State of Delaware, was formed by Premier Bancshares, Inc., ("Premier") for the purpose of issuing the Preferred Securities and investing the proceeds thereof in 9.00% Junior Subordinated Debentures issued by Premier. Premier, which merged into BB&T on January 13, 2000, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of PCT I's obligations under the Preferred Securities. PCT I's sole asset is the Junior Subordinated Debentures issued by Premier and assumed by BB&T, which 29 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) mature December 31, 2027, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after December 31, 2007. The Preferred Securities of PCT I, are subject to mandatory redemption in whole on December 31, 2027, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions. In April, 1998, Mason-Dixon Capital Trust II ("MDCT II") issued $20 million of 8.40% Preferred Securities. MDCT II, a Delaware statutory business trust, was formed by Mason-Dixon Bancshares, Inc., ("Mason-Dixon") for the sole purpose of issuing the Preferred Securities and investing the proceeds thereof in 8.40% Junior Subordinated Debentures issued by Mason-Dixon. Mason Dixon, which merged into BB&T on July 14, 1999, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of MDCT II's obligations under the Preferred Securities. MDCT II's sole asset is the Junior Subordinated Debentures issued by Mason-Dixon and assumed by BB&T, which mature June 30, 2028, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after June 30, 2003. The Preferred Securities of MDCT II, are subject to mandatory redemption in whole on June 30, 2028, or such earlier date in the event the Junior Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions. In July, 1998, FCNB Capital Trust ("FCNBCT") issued $40.25 million of 8.25% Trust Preferred Securities. FCNBCT, a statutory business trust created under the laws of the State of Delaware, was formed by FCNB Corp, ("FCNB") for the purpose of issuing the Trust Preferred Securities and investing the proceeds thereof in 8.25% Subordinated Debentures issued by FCNB. FCNB, which merged into BB&T on January 7, 2001, entered into agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of FCNBCT's obligations under the Trust Preferred Securities. FCNBCT's sole asset is the Subordinated Debentures issued by FCNB and assumed by BB&T, which mature July 31, 2028, but are subject to early mandatory redemption in whole under certain limited circumstances and are callable in whole or part anytime after July 31, 2003. The Trust Preferred Securities of FCNBCT, are subject to mandatory redemption in whole on July 31, 2028, or such earlier date in the event the Subordinated Debentures are redeemed by BB&T pursuant to one of the prescribed limited circumstances or pursuant to the call provisions. As a result of the mergers with MainStreet Financial Corporation, Mason- Dixon Bancshares, Inc., Premier Bancshares, Inc. and FCNB Corp, BB&T is the sole owner of the common stock of the above statutory Delaware business trusts and has assumed agreements which, taken collectively, fully, irrevocably and unconditionally guarantee, on a subordinated basis, all of the trusts' obligations under the Trust and Preferred Securities. The proceeds from the issuance of these securities qualify as Tier I capital under the risk-based capital guidelines established by the Federal Reserve. Note J. Shareholders' Equity The authorized capital stock of BB&T consists of 1,000,000,000 shares of common stock, $5 par value, and 5,000,000 shares of preferred stock, $5 par value. At December 31, 2000, 453,307,379 shares of common stock and no shares of preferred stock were issued and outstanding. Stock Option Plans At December 31, 2000, BB&T had the following stock-based compensation plans: the 1994 and 1995 Omnibus Stock Incentive Plans ("Omnibus Plans"), the Incentive Stock Option Plan ("ISOP"), the Non-Qualified Stock Option Plan ("NQSOP") and the Non-Employee Directors' Stock Option Plan ("Directors' 30 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Plan"), which are described below. BB&T accounts for these plans under APB Opinion No. 25 and related Interpretations, under which no compensation cost has been recognized. Had compensation cost for these plans been determined based on the fair value at the grant dates for awards under those plans granted after December 31, 1994, consistent with the method described by SFAS No. 123, BB&T's pro forma net income and pro forma earnings per share would have been as follows:
For the Years Ended December 31, -------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands, except per share data) Net income applicable to common shares: As reported.................................... $698,488 $778,725 $720,964 Pro Forma...................................... 677,438 759,248 705,978 Basic EPS: As reported.................................... 1.55 1.74 1.63 Pro Forma...................................... 1.50 1.70 1.60 Diluted EPS: As reported.................................... 1.53 1.71 1.60 Pro Forma...................................... 1.48 1.67 1.57
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield of 2.5% in 2000, 2.5% in 1999 and 2.3% in 1998; expected volatility of 29% in 2000, 25% in 1999 and 26% in 1998; risk free interest rates of 6.6%, 5.3% and 5.4% for 2000, 1999 and 1998, respectively; and expected lives of 6.0 years, 5.8 years and 6.2 years for 2000, 1999 and 1998, respectively. Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. In April, 1994 and February, 1995, the shareholders approved the Omnibus Plans which cover the award of incentive stock options, non-qualified stock options, shares of restricted stock, performance shares and stock appreciation rights. In April 1996, the shareholders approved an amendment to the 1995 Omnibus Plan that increased the maximum number of shares issuable under the terms of the plan, after giving effect to the August 3, 1998, 2-for-1 stock split, to 12,000,000. In May 2000, the shareholders approved an amendment to the 1995 Omnibus Plan that registered an additional 21.6 million shares for issuance under the Omnibus Plans. The provisions of the 1995 Omnibus Plan also provide for an automatic increase in the authorized number of shares issuable, equal to 3% of any increase in the Corporation's outstanding common shares. Including options authorized under these provisions, the maximum number of shares issuable under the 1995 Omnibus Plan was 35.7 million at December 31, 2000. The combined shares issuable under both Omnibus Plans, after giving effect to the 2-for-1 stock split and the automatic increase provided by the terms of the 1995 Omnibus Plan, is 43.7 million at December 31, 2000. The Omnibus Plans are intended to allow BB&T to recruit and retain employees with ability and initiative and to associate the employees' interests with those of BB&T and its shareholders. At December 31, 2000, 12,571,929 qualified stock options at prices ranging from $5.49 to $51.41 and 5,107,933 non-qualified stock options at prices ranging from $3.23 to $56.98 were outstanding. The stock options generally vest over 3 years and have a 10-year term. The ISOP and the NQSOP were established to retain key officers and key management employees and to offer them the incentive to use their best efforts on behalf of BB&T. The plans further provide for up to 2,202,000 shares of common stock to be reserved for the granting of options, which have a four year vesting 31 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) schedule and must be exercised within ten years from the date granted. These plans expired on December 19, 2000; however, any options previously granted under the plans will be available to be exercised for ten years. No additional grants will be made pursuant to these plans. Incentive stock options granted had an exercise price equal to at least 100% of the fair market value of common stock on the date granted, and the non-qualified stock options were required to have an exercise price equal to at least 85% of the fair market value on the date granted. At December 31, 2000, options to purchase 97,428 shares of common stock at prices ranging from $4.75 to $8.375 were outstanding pursuant to the NQSOP. At December 31, 2000, options to purchase 76,782 shares of common stock at an exercise price of $9.8885 were outstanding pursuant to the ISOP. The Directors' Stock Option Plan is intended to provide incentives to non- employee directors to remain on the Board of Directors and share in the profitability of BB&T. The plan creates a deferred compensation system for participating non-employee directors. Each non-employee director may elect to defer 0%, 50% or 100% of the annual retainer fee for each calendar year and apply that percentage toward the grant of options to purchase BB&T common stock. Such elections are required to be in writing and are irrevocable for each calendar year. The exercise price at which shares of BB&T common stock may be purchased shall be equal to 75% of the market value of the common stock as of the date of grant. Options are vested in six months and may be exercised anytime thereafter until the expiration date, which is 10 years from the date of grant. The Directors' Plan provides for the reservation of up to 1,800,000 shares of BB&T common stock. At December 31, 2000, options to purchase 671,142 shares of common stock at prices ranging from $6.3578 to $24.7774 were outstanding pursuant to the Directors' Plan. BB&T also has options outstanding that were granted by certain acquired companies. These options, which have not been included in the plans described above, totaled 158,156 as of December 31, 2000, with option prices ranging from $4.4327 to $11.8535. A summary of the status of the Company's stock option plans at December 31, 2000, 1999 and 1998 and changes during the years then ended is presented below:
2000 1999 1998 --------------------- --------------------- --------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price ---------- --------- ---------- --------- ---------- --------- Outstanding at beginning of year................ 16,505,624 $19.33 16,539,812 $11.40 17,553,930 $11.10 Issued in purchase transactions........... 645,342 13.95 241,086 10.68 591,955 11.22 Granted................. 4,753,707 23.79 3,273,310 32.60 3,054,055 27.80 Exercised............... (2,689,869) 12.49 (3,244,853) 10.88 (4,486,485) 9.33 Forfeited or Expired.... (531,434) 34.25 (303,731) 35.33 (173,643) 20.13 ---------- ------ ---------- ------ ---------- ------ Outstanding at end of year................... 18,683,370 $20.80 16,505,624 $19.33 16,539,812 $11.40 ========== ====== ========== ====== ========== ====== Options exercisable at year-end............... 14,303,728 $18.92 14,020,523 $16.59 13,141,821 $12.26 ========== ====== ========== ====== ========== ======
The weighted average fair value of options granted was $7.55, $8.35 and $7.77 per option at December 31, 2000, 1999 and 1998, respectively. 32 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table summarizes information about the options outstanding at December 31, 2000:
Options Outstanding Options Exercisable --------------------------------- --------------------- Weighted- Average Weighted- Weighted- Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices 12/31/00 Life Price 12/31/00 Price --------------- ----------- ----------- --------- ----------- --------- $ 3.23 to $ 4.75 41,368 1.6 yrs $ 4.30 41,368 $ 4.30 $ 4.76 to $ 7.25 453,669 2.0 6.38 453,669 6.38 $ 7.26 to $10.75 2,872,938 3.2 9.06 2,872,938 9.06 $10.76 to $16.00 3,834,109 4.9 12.86 3,834,109 12.86 $16.01 to $24.00 6,548,972 8.2 22.31 3,447,943 20.83 $24.01 to $36.00 2,803,860 7.6 30.02 2,392,648 29.79 $36.01 to $56.98 2,128,454 8.2 37.21 1,261,053 37.88 ---------- --- ------ ---------- ------ 18,683,370 6.5 yrs $20.80 14,303,728 $18.92 ========== === ====== ========== ======
Shareholder Rights Plan On January 17, 1997, pursuant to the Rights Agreement approved by the Board of Directors, BB&T distributed to shareholders one preferred stock purchase right for each share of BB&T's common stock then outstanding. Subsequent to this date, all shares issued are accompanied by a stock purchase right. Initially, the rights, which expire in 10 years, are not exercisable and are not transferable apart from the common stock. The rights will become exercisable only if a person or group acquires 20% or more of BB&T's common stock, or BB&T's Board of Directors determines, pursuant to the terms of the Rights Agreement, that any person or group that has acquired 10% or more of BB&T's common stock is an "Adverse Person." Each right would then enable the holder to purchase 1/100th of a share of a new series of BB&T preferred stock at an initial exercise price of $145.00. The Board of Directors will be entitled to redeem the rights at $.01 per right under certain circumstances specified in the Rights Agreement. Under the terms of the Rights Agreement, if any person or group becomes the beneficial owner of 25% or more of BB&T's common stock, with certain exceptions, or if the Board of Directors determines that any 10% or more stockholder is an "Adverse Person," each right will entitle its holder (other than the person triggering exercisability of the rights) to purchase, at the right's then-current exercise price, shares of BB&T's common stock having a value of twice the right's exercise price. In addition, if after any person or group has become a 20% or more stockholder, BB&T is involved in a merger or other business combination transaction with another person in which its common stock is changed or converted, or sells 50% or more of its assets or earning power to another person, each right will entitle its holder to purchase, at the right's then-current exercise price, shares of common stock of such other person having a value of twice the right's exercise price. 33 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note K. Income Taxes The provision for income taxes was composed of the following:
Years Ended December 31, -------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Current expense: Federal........................................ $124,378 $188,292 $277,647 State.......................................... 12,635 12,639 17,904 -------- -------- -------- Total current income tax expense................. 137,013 200,931 295,551 Deferred income tax expense...................... 177,505 176,254 48,303 -------- -------- -------- Provision for income taxes....................... $314,518 $377,185 $343,854 ======== ======== ========
The reasons for the difference between the provision for income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes were as follows:
Years Ended December 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Federal income taxes at statutory rates of 35%....................................... $354,204 $404,357 $372,467 Tax-exempt income from securities, loans and leases, net of related non-deductible interest expense.......................... (56,724) (39,429) (28,237) Amortization of goodwill................... 16,642 13,327 6,897 State income taxes, net of Federal tax benefit................................... 9,482 10,050 12,819 Other, net................................. (9,086) (11,120) (20,092) -------- -------- -------- Provision for income taxes................. $314,518 $377,185 $343,854 ======== ======== ======== Effective income tax rate.................. 31.0 % 32.6 % 32.3 % ======== ======== ========
During the fourth quarter of 2000, BB&T transferred responsibility for the management of certain operations to a subsidiary in a tax-advantaged jurisdiction, thereby lowering the effective income tax rate applicable to certain lease investments. In accordance with SFAS No. 13, Accounting for Leases, the net income from the affected leases was recalculated from inception based on the new effective income tax rate. The recalculation had the effect of reducing net interest income for 2000 by $14.3 million and reducing the current year's income tax provision by $19.8 million. BB&T intends to permanently reinvest the earnings of this subsidiary and, therefore, in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, deferred income taxes associated with the current year's income tax benefit have not been provided. 34 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The tax effects of temporary differences that gave rise to significant portions of the net deferred tax assets (liabilities) in the "Consolidated Balance Sheets" were:
December 31, ------------------- 2000 1999 --------- -------- (Dollars in thousands) Deferred tax assets: Allowance for loan and lease losses................. $ 214,959 $192,024 Net unrealized depreciation on securities available for sale........................................... -- 199,495 Deferred compensation............................... 48,765 40,808 Other............................................... 89,891 88,008 --------- -------- Total tax deferred assets............................. 353,615 520,335 --------- -------- Deferred tax liabilities: Net unrealized appreciation on securities available for sale........................................... (77,092) -- Lease financing..................................... (430,999) (254,197) Mortgage servicing rights........................... (65,280) (41,359) Other............................................... (70,806) (58,220) --------- -------- Total tax deferred liabilities........................ (644,177) (353,776) --------- -------- Net deferred tax asset (liability).................... $(290,562) $166,559 ========= ========
Securities transactions resulted in income tax (benefits) expense of ($76.8 million), ($.6 million) and $5.1 million related to securities (losses) gains for the years ended December 31, 2000, 1999 and 1998, respectively. Note L. Benefit Plans BB&T provides various benefit plans to existing employees and employees of acquired entities. Employees of acquired entities generally participate in existing BB&T plans upon consummation of the business combinations. The plans of acquired institutions are typically merged into the BB&T plans upon consummation of the mergers, and, under these circumstances, credit is usually given to these employees for years of service at the acquired institution for vesting and benefit accrual purposes. The following table summarizes expenses relating to employee retirement plans. These expenses are restated for business combinations accounted for as poolings of interests.
2000 1999 1998 ------- ------- ------- (Dollars in thousands) Defined benefit plans............................... $15,114 $19,050 $12,991 Defined contribution and ESOP plans................. 23,824 18,850 23,163 ------- ------- ------- Total expense related to benefit plans............ $38,938 $37,900 $36,154 ======= ======= =======
Defined Benefit Retirement Plans BB&T provides a defined benefit retirement plan qualified under the Internal Revenue Code that covers substantially all employees. Benefits are based on years of service, age at retirement and the employee's compensation during the five highest consecutive years of earnings within the last ten years of employment. BB&T's contributions to the plan are in amounts between the minimum required for funding standard accounts and the maximum deductible for federal income tax purposes. 35 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In addition, supplemental retirement benefits are provided to certain key officers under supplemental defined benefit executive retirement plans, which are not qualified under the Internal Revenue Code. Although technically unfunded plans, insurance policies on the lives of the covered employees partially fund future benefits. The combination of actuarial information for the benefit plans of F&M is not meaningful because the benefits offered in F&M's plans and the assumptions used in the calculations related to those plans are superseded by the benefits offered in the BB&T plans and the assumptions used in the BB&T calculations. Accordingly, the actuarial information presented below for retirement plans and postretirement benefits in the accompanying tables is that of BB&T as originally presented. Financial data relative to the defined benefit pension plans is summarized in the following tables for the years indicated:
2000 1999 1998 -------- -------- -------- (Dollars in thousands) Net Periodic Pension Cost Service cost................................... $ 19,390 $ 21,761 $ 15,059 Interest cost.................................. 28,040 26,831 19,765 Estimated return on plan assets................ (31,535) (31,376) (22,869) Net amortization and other..................... (2,653) (1,811) 1,257 -------- -------- -------- Net periodic pension cost.................... $ 13,242 $ 15,405 $ 13,212 ======== ======== ========
Plans for which Plans for which assets exceed accumulated accumulated benefits exceed benefits assets ------------------ ---------------- 2000 1999 2000 1999 -------- -------- ------- ------- (Dollars in thousands) Change in Projected Benefit Obligation Projected benefit obligation, January 1,..................................... $324,769 $361,597 $32,037 $36,105 Service cost.......................... 18,150 20,491 1,240 1,270 Interest cost......................... 25,427 24,578 2,613 2,254 Actuarial (gain) loss................. 23,379 (64,754) 3,597 (6,924) Benefits paid......................... (16,541) (20,474) (729) (741) Change in plan provisions............. (17,222) (3,054) (74) 75 Other, net............................ 4,636 6,385 1 (2) -------- -------- ------- ------- Projected benefit obligation, December 31,.................................... $362,598 $324,769 $38,685 $32,037 ======== ======== ======= =======
2000 1999 2000 1999 -------- -------- ----- ----- (Dollars in thousands) Change in Plan Assets Fair value of plan assets, January 1,......... $395,925 $382,554 $ -- $ -- Actual return on plan assets................ 17,842 20,173 -- -- Employer contributions...................... 1,871 7,286 729 741 Benefits paid............................... (16,541) (20,474) (729) (741) Other, net.................................. 6,235 6,386 -- -- -------- -------- ----- ----- Fair value of plan assets, December 31,....... $405,332 $395,925 $ -- $ -- ======== ======== ===== =====
36 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plans for which Plans for which assets exceed accumulated accumulated benefits exceed benefits assets ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- (Dollars in thousands) Net Amount Recognized Funded status......................... $ 42,734 71,156 $(38,685) $(32,037) Unrecognized transition (asset) obligation........................... (4,136) (5,453) 337 429 Unrecognized prior service cost....... (34,353) (19,505) 2,033 2,436 Unrecognized net loss (gain).......... 9,093 (27,978) 7,656 4,675 Other, net............................ (1) 1 -- 1 -------- -------- -------- -------- Net amount recognized................. $ 13,337 $ 18,221 $(28,659) $(24,496) ======== ======== ======== ========
2000 1999 2000 1999 ------- -------- -------- -------- (Dollars in thousands) Reconciliation of Net Pension Asset (Liability) Prepaid pension cost, January 1,....... $18,221 $ 21,266 $(24,496) $(20,164) Contributions........................ 1,871 7,286 729 741 Net periodic pension cost............ (8,353) (10,331) (4,889) (5,074) Other, net........................... 1,598 -- (3) 1 ------- -------- -------- -------- Prepaid (accrued) pension cost, December 31,.......................... $13,337 $ 18,221 $(28,659) $(24,496) ======= ======== ======== ========
December 31, ---------- 2000 1999 ---- ---- Weighted Average Assumptions Weighted average assumed discount rate............................. 7.50% 7.75% Weighted average expected long-term rate of return on plan assets.......................................................... 8.00 8.00 Assumed rate of annual compensation Increases.................... 5.50 5.50
Pension plan assets consist primarily of investments in mutual funds consisting of equity investments, obligations of the U.S. Treasury and Federal agencies and corporations. Plan assets included $26.0 million and $18.5 million of BB&T common stock at December 31, 2000 and 1999, respectively. The market value of total plan assets was $405.3 million and $395.9 million at December 31, 2000 and 1999, respectively. Postretirement Benefits Other than Pension BB&T provides certain postretirement benefits that cover employees retiring after December 31, 1995, who are eligible for participation in the BB&T pension plan and have at least ten years of service. The plan requires retiree contributions, with a subsidy by BB&T based upon years of service of the employee at the time of retirement. The subsidy is periodically reviewed for adjustment. The plan provides flexible benefits to retirees or their dependents. The following tables set forth the components of the retiree benefit plan and the amount recognized in the consolidated financial statements at December 31, 2000, 1999 and 1998.
2000 1999 1998 ------ ------ ------ (Dollars in thousands) Net Periodic Postretirement Benefit Cost: Service cost........................................... $2,141 $1,126 $1,550 Interest cost.......................................... 4,426 3,314 3,422 Amortization and other................................. 633 518 519 ------ ------ ------ Total expense........................................ $7,200 $4,958 $5,491 ====== ====== ======
37 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000 1999 ------- ------- (Dollars in thousands) Change in Projected Benefit Obligation Projected benefit obligation, January 1,................... $51,198 $53,630 Service cost............................................. 2,141 1,126 Interest cost............................................ 4,426 3,314 Plan participants' contributions......................... 567 727 Actuarial loss (gain).................................... 3,646 (8,286) Benefits paid............................................ (3,535) (1,793) Other, net............................................... 7,049 2,480 ------- ------- Projected benefit obligation, December 31,................. $65,492 $51,198 ======= =======
2000 1999 ------- ------- (Dollars in thousands) Change in Plan Assets Fair value of plan assets, January 1,...................... $ -- $ -- Actual return on plan assets............................. -- -- Employer contributions................................... 2,968 1,066 Plan participants' contributions......................... 567 727 Benefits paid............................................ (3,535) (1,793) ------- ------- Fair value of plan assets, December 31,.................... $ -- $ -- ======= =======
2000 1999 -------- -------- (Dollars in thousands) Net Amount Recognized Funded status........................................... $(65,492) $(51,198) Unrecognized prior service cost......................... 5,347 5,704 Unrecognized net (gain) loss............................ (5,899) (7,740) Unrecognized transition obligation...................... 2,622 -- -------- -------- Net amount recognized................................... $(63,422) $(53,234) ======== ========
2000 1999 -------- -------- (Dollars in thousands) Reconciliation of Postretirement Benefit Prepaid (accrued) postretirement benefit, January 1,... $(53,234) $(46,807) Contributions........................................ 2,968 1,066 Net periodic postretirement benefit cost............. (7,200) (4,958) Other, net........................................... (5,956) (2,535) -------- -------- Prepaid (accrued) postretirement benefit cost, December 31,................................................... $(63,422) $(53,234) ======== ========
December 31, ----------- 2000 1999 ---- ---- Weighted Average Assumptions Weighted average assumed discount rate.......... 7.50% 7.75% Medical trend rate-- initial year........... 6.00 8.00 Medical trend rate-- ultimate............... 5.00 5.00 Select period........... 1yr 3yrs
38 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1% 1% Increase Decrease -------- -------- Impact of a 1% change in assumed health care cost on: Service and interest costs............................. 1.00% (1.00)% Accumulated postretirement benefit obligation.......... 1.20 (1.00)
401(k) Savings Plan BB&T operates a 401(k) Savings Plan that permits employees to contribute up to 16% of their compensation. BB&T makes matching contributions of up to 6% of the employee's compensation. Other There are various other employment contracts, deferred compensation arrangements and covenants not to compete with selected members of management and certain retirees. Note M. Commitments and Contingencies BB&T is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of clients and to reduce exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, options written, standby letters of credit and financial guarantees, interest rate caps and floors written, interest rate swaps and forward and futures contracts. BB&T's exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments. BB&T uses the same credit policies in making commitments and conditional obligations as it does for on- balance sheet transactions.
Contract or Notional Amount at December 31, ----------------------- 2000 1999 ----------- ----------- (Dollars in thousands) Financial instruments whose contract amounts represent credit risk: Commitments to extend, originate or purchase credit.......................................... $17,104,232 $14,196,983 Standby letters of credit and financial guarantees written.............................. 760,138 554,199 Commercial letters of credit..................... 45,168 40,417 Financial instruments whose notional or contract amounts exceed the amount of credit risk: Forward and futures contracts.................... 869,000 319,411 Foreign exchange contracts....................... 131,148 72,228
Commitments to extend credit are arrangements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Historically, many commitments expire without being drawn upon; therefore, the total commitment amounts shown in the above table are not necessarily indicative of future cash requirements. BB&T evaluates each customer's creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by BB&T upon extension of credit, is based on management's evaluation of the creditworthiness of the counterparty. Standby letters of credit and financial guarantees written are conditional commitments issued by BB&T to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support 39 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers, and letters of credit are collateralized when necessary. Forward commitments to sell mortgage loans and mortgage-backed securities are contracts for delayed delivery of securities in which BB&T agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities' values and interest rates. Legal Proceedings The nature of the business of BB&T's subsidiaries ordinarily results in a certain amount of litigation. The subsidiaries of BB&T are involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities, if any, arising from these proceedings will not have a materially adverse effect on the consolidated financial position or consolidated results of operations of BB&T. Note N. Regulatory Requirements and Other Restrictions BB&T's subsidiary banks are required by the Board of Governors of the Federal Reserve System to maintain reserve balances in the form of vault cash or deposits with the Federal Reserve Bank based on specified percentages of certain deposit types, subject to various adjustments. At December 31, 2000, the net reserve requirement amounted to $244.1 million. BB&T's subsidiary banks are prohibited from paying dividends from their capital stock and additional paid-in capital accounts and are required by regulatory authorities to maintain minimum capital levels. Subject to restrictions imposed by state laws and federal regulations, the Boards of Directors of the subsidiary banks could have declared dividends from their retained earnings up to $2.3 billion at December 31, 2000. BB&T is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory--and possibly additional discretionary--actions by regulators that, if undertaken, could have a direct material effect on BB&T's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of BB&T's assets, liabilities and certain off-balance-sheet items calculated pursuant to regulatory directives. BB&T's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. BB&T was in compliance with these requirements at December 31, 2000. See "Regulatory Considerations" for additional information regarding BB&T's regulatory requirements. Quantitative measures established by regulation to ensure capital adequacy require BB&T to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets. 40 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table provides summary information regarding regulatory capital for BB&T and its significant banking subsidiaries as of December 31, 2000 and 1999:
December 31, 2000 December 31, 1999 ----------------------------- ----------------------------- Actual Capital Minimum Actual Capital Minimum ----------------- Capital ----------------- Capital Ratio Amount Requirement Ratio Amount Requirement ----- ---------- ----------- ----- ---------- ----------- (Dollars in thousands) Tier 1 Capital BB&T............... 9.7% $4,591,023 $1,895,668 10.3% $4,277,531 $1,654,203 BB&T--NC........... 9.5 3,246,394 1,359,759 10.0 2,748,333 1,096,321 BB&T--SC........... 9.0 374,771 166,559 9.7 366,991 151,036 BB&T--VA........... 10.2 440,942 173,072 11.5 482,278 167,717 Total Capital BB&T............... 12.2 5,800,668 3,791,336 13.4 5,555,045 3,308,405 BB&T--NC........... 10.7 3,649,247 2,719,518 11.2 3,066,536 2,192,642 BB&T--SC........... 10.2 425,217 333,118 11.0 413,911 302,071 BB&T--VA........... 11.4 495,222 346,144 12.8 534,840 335,434 Leverage Capital BB&T............... 7.3 4,591,023 1,893,837 7.3 4,277,531 1,748,112 BB&T--NC........... 6.8 3,246,394 1,426,668 7.0 2,748,333 1,185,127 BB&T--SC........... 7.4 374,771 152,417 7.7 366,991 142,148 BB&T--VA........... 7.4 440,942 178,357 7.6 482,278 191,292
41 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note O. Parent Company Financial Statements CONDENSED BALANCE SHEETS December 31, 2000 and 1999
2000 1999 ----------- ----------- (Dollars in thousands) ASSETS Cash and due from banks................................ $ 16,998 $ 24,979 Interest-bearing bank balances......................... 639,323 588,384 Securities............................................. 41,232 92,038 Investment in banking subsidiaries..................... 5,538,709 4,545,097 Investment in other subsidiaries....................... 463,859 563,357 ----------- ----------- Total investments in subsidiaries.................... 6,002,568 5,108,454 ----------- ----------- Advances to subsidiaries............................... 329,750 348,000 Premises and equipment................................. 11,476 15,060 Receivables from subsidiaries and other assets......... 282,058 346,808 ----------- ----------- Total assets......................................... $ 7,323,405 $ 6,523,723 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowed funds.............................. $ 731,149 $ 726,504 Dividends payable...................................... 94,347 69,785 Accounts payable and accrued liabilities............... 58,109 65,911 Long-term debt......................................... 1,019,991 1,021,334 ----------- ----------- Total liabilities.................................... 1,903,596 1,883,534 ----------- ----------- Total shareholders' equity........................... 5,419,809 4,640,189 ----------- ----------- Total liabilities and shareholders' equity........... $ 7,323,405 $ 6,523,723 =========== ===========
42 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED INCOME STATEMENTS For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 -------- -------- -------- (Dollars in thousands) Income Dividends from subsidiaries...................... $632,628 $726,160 $564,480 Interest and other income from subsidiaries...... 110,045 94,095 96,997 Other income..................................... 20,094 21,460 43,174 -------- -------- -------- Total income................................... 762,767 841,715 704,651 -------- -------- -------- Expenses Interest expense................................. 94,388 89,461 93,600 Other expenses................................... 73,512 78,907 83,096 -------- -------- -------- Total expenses................................. 167,900 168,368 176,696 -------- -------- -------- Income before income taxes and equity in undistributed earnings of subsidiaries............ 594,867 673,347 527,955 Income tax benefit................................. 9,373 13,912 12,143 -------- -------- -------- Income before equity in undistributed earnings of subsidiaries...................................... 604,240 687,259 540,098 Equity in undistributed earnings of subsidiaries... 94,248 91,466 180,866 -------- -------- -------- Net income......................................... $698,488 $778,725 $720,964 ======== ======== ========
43 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) CONDENSED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 --------- -------- -------- (Dollars in thousands) Cash Flows From Operating Activities: Net income.................................... $ 698,488 $778,725 $720,964 Adjustments to reconcile net income to net cash provided by operating activities:....... (94,248) (91,466) (180,866) Net income of subsidiaries less than (in excess of) dividends from subsidiaries..... 1,195 868 1,000 Depreciation of premises and equipment...... 4,990 4,287 1,956 Amortization of unearned compensation....... -- (4) 138 Discount accretion and premium amortization............................... 872 308 (1,115) Loss (gain) on sales of securities.......... -- 1 191 Loss on disposals of other real estate owned Decrease (increase) in other assets........ 51,720 (96,913) (123,870) Increase (decrease) in accounts payable and accrued liabilities........................ (13,845) 7,372 5,627 --------- -------- -------- Net cash provided by operating activities............................... 649,172 603,178 424,025 --------- -------- -------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale..................................... 40,168 66,995 72,635 Proceeds from maturities, calls and paydowns of securities available for sale............. 12,619 5,000 3,779 Purchases of securities available for sale.... (33,325) (31,666) (146,904) Investment in subsidiaries.................... (153,359) (87,450) (121,861) Advances to subsidiaries...................... (393,061) (728,586) (677,728) Proceeds from repayment of advances to subsidiaries................................. 465,311 740,186 530,967 Net cash (paid) received in purchase accounting transactions...................... (6,950) 588 (6,051) Other, net.................................... 2,169 (7,677) (401) --------- -------- -------- Net cash used in investing activities..... (66,428) (42,610) (345,564) --------- -------- -------- Cash Flows From Financing Activities: Net (decrease) increase in long-term debt..... (342) 19,386 435,093 Net increase in short-term borrowed funds..... 4,645 20,912 34,378 Advances from subsidiaries.................... -- -- 4,191 Repayment of advances from subsidiaries....... -- -- (3,260) Net proceeds from common stock issued......... 44,821 53,396 76,563 Redemption of common stock.................... (217,542) (402,589) (354,517) Cash dividends paid on common and preferred stock........................................ (374,596) (324,280) (274,697) Other, net.................................... 3,228 3,611 429 --------- -------- -------- Net cash used in financing activities..... (539,786) (629,564) (81,820) --------- -------- -------- Net (Decrease) Increase in Cash and Cash Equivalents.................................... 42,958 (68,996) (3,359) Cash and Cash Equivalents at Beginning of Year.. 613,363 682,359 685,718 --------- -------- -------- Cash and Cash Equivalents at End of Year........ $ 656,321 $613,363 $682,359 ========= ======== ========
44 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note P. Disclosures about Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of the estimated fair value of on-balance sheet and off- balance sheet financial instruments. A financial instrument is defined by SFAS No. 107 as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity on potentially favorable or unfavorable terms. Fair value estimates are made at a point in time, based on relevant market data and information about the financial instrument. SFAS No. 107 specifies that fair values should be calculated based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a significant portion of BB&T's financial instruments. Fair value estimates for these instruments are based on judgments regarding current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. Changes in assumptions could significantly affect the estimates. The following methods and assumptions were used by BB&T in estimating the fair value of its financial instruments: Cash and cash equivalents: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values. Securities: Fair values for securities are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities. Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms and credit quality. The carrying amounts of accrued interest approximate fair values. Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and certain money market accounts are, by definition, equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. Short-term borrowed funds: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements, master notes and other short-term borrowed funds approximate their fair values. Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on BB&T's current incremental borrowing rates for similar types of instruments. Interest rate swap agreements: The fair values of interest rate swaps (used for hedging purposes) are the estimated amounts that BB&T would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Commitments to extend credit, standby letters of credit and financial guarantees written: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the 45 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on fees currently charged for similar agreements. Other off-balance sheet instruments: The fair values for off-balance sheet instruments (futures, forwards, options, and commitments to sell or purchase financial instruments) are estimated based on quoted prices, if available. For instruments for which there are no quoted prices, fair values are estimated using current settlement values or pricing models. The following is a summary of the carrying amounts and fair values of BB&T's financial assets and liabilities as of the periods indicated:
2000 1999 ------------------------ ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ----------- ----------- ----------- ----------- (Dollars in thousands) Financial assets: Cash and cash equivalents.. $ 2,106,627 $ 2,106,627 $ 2,372,767 $ 2,372,767 Trading securities......... 96,719 96,719 93,221 93,221 Securities available for sale...................... 15,231,123 15,231,123 13,402,254 13,402,254 Securities held to maturity.................. 622,102 623,932 922,715 903,852 Loans and leases: Loans.................... 42,726,110 42,274,300 38,294,647 37,766,593 Leases................... 2,100,965 N/A 1,508,396 N/A Allowance for losses..... (578,107) N/A (529,236) N/A ----------- ----------- Net loans and leases... $44,248,968 $39,273,807 =========== =========== Financial liabilities: Deposits................... $43,877,319 43,767,957 $39,319,012 39,171,433 Short-term borrowed funds.. 7,309,978 7,309,978 8,392,344 8,392,344 Long-term debt............. 8,643,784 8,467,906 6,220,026 6,192,982 Capitalized leases......... 2,234 N/A 2,535 N/A
-------- NA--not applicable. 46 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following is a summary of the notional or contractual amounts and fair values of BB&T's off-balance sheet financial instruments as of the periods indicated:
2000 1999 -------------------- ---------------------- Notional/ Notional/ Contract Fair Contract Fair Amount Value Amount Value ----------- -------- ----------- ---------- (Dollars in thousands) Off balance sheet financial intruments: Interest rate swaps, caps and floors........................ $ 825,878 $ 348 $ 1,901,611 $ 1,971 Commitments to extend, originate or purchase credit.. 17,104,232 (31,741) 14,196,983 1,264,116 Standby and commercial letters of credit and financial guarantees written............ 805,306 (11,294) 594,616 33,691 Forward and futures contracts.. 869,000 (12,618) 319,411 2,544 Foreign exchange contracts..... 131,148 547 72,228 1,149 Option contracts purchased..... 50,000 (282) 15,000 (10) Option contracts written....... 76,050 -- 47,250 236
Note Q. Derivatives and Off-Balance Sheet Financial Instruments BB&T utilizes interest rate swaps, caps, floors and collars in the management of interest rate risk. Interest rate swaps are contractual agreements between two parties to exchange a series of cash flows representing interest payments. A swap allows both parties to alter the repricing characteristics of assets or liabilities without affecting the underlying principal positions. Through the use of a swap, assets and liabilities may be transformed from fixed to floating rates, from floating rates to fixed rates, or from one type of floating rate to another. Swap terms generally range from one year to ten years depending on the need. At December 31, 2000, derivatives with a total notional value of $825.9 million, with terms ranging up to sixteen years, were outstanding. See Note A. of the "Notes to Consolidated Financial Statements" herein for a summary of accounting policies related to derivative financial instruments. Effective January 1, 2001, the accounting for these instruments changed to comply with the provisions of SFAS No. 133, as explained in Note A. 47 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth certain information concerning BB&T's interest rate swaps, caps, floors and collars at December 31, 2000: Interest Rate Swaps, Caps, Floors and Collars December 31, 2000 (Dollars in thousands)
Notional Receive Amount Rate Pay Rate Fair Value ----------- --------- ------------ ----------- Type Receive fixed swaps........... $ 423,000 6.26% 6.70 % $ (87) Pay fixed swaps............... 226,828 6.76 5.60 354 Caps, Floors & Collars........ 176,050 -- -- 81 ----------- --------- -------- ----------- Total....................... $ 825,878 6.11% 5.84% $ 348 =========== ========= ======== =========== Receive Pay Fixed Caps, Floors Fixed Swaps Swaps & Collars Total ----------- --------- ------------ ----------- Year-to-date Activity Balance, December 31, 1999.... $ 955,000 $ 654,361 $292,250 $ 1,901,611 Additions..................... 728,000 14,100 -- 742,100 Maturities/amortizations...... (10,000) (65,978) (80,000) (155,978) Terminations.................. (1,250,000) (375,655) (36,200) (1,661,855) ----------- --------- -------- ----------- Balance, December 31, 2000.... $ 423,000 $ 226,828 $176,050 $ 825,878 =========== ========= ======== =========== One to One Year or Five Five to 10 Less Years Years Total ----------- --------- ------------ ----------- Maturity Schedule Receive fixed swaps........... $ 300,000 $ 30,000 $ 93,000 $ 423,000 Pay fixed swaps............... -- 203,943 22,885 226,828 Caps, Floors & Collars........ -- 176,050 -- 176,050 ----------- --------- -------- ----------- Total....................... $ 300,000 $ 409,993 $115,885 $ 825,878 =========== ========= ======== ===========
As of December 31, 2000, deferred gains from new swap transactions initiated during 2000 were $468,000. There were no unamortized deferred gains or losses from terminated transactions remaining at year end. Active transactions resulted in additional net interest expense totaling $8.1 million during 2000. BB&T utilizes written covered over-the-counter call options on specific securities in the available-for-sale portfolio in order to enhance returns. During 2000, options were written on securities totaling $150.0 million. Option fee income was $1.1 million for 2000. There were no unexercised options outstanding at December 31, 2000 or 1999. BB&T also utilizes over-the-counter purchased put options and net purchased put options (combination of purchased put option and written call option) in its mortgage banking activities. These options are used to hedge the mortgage loan warehouse and mortgage applications and loans in process against increasing interest rates. Written call options are used in tandem with purchased put options to create a net purchased put option that reduces the cost of the hedge. At December 31, 2000, net purchased put option contracts with a notional value of $50.0 million were outstanding. 48 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The $825.9 million notional amount of derivatives used in interest rate risk management are primarily used to hedge variable rate commercial loans, mortgage-backed securities, retail certificates of deposit and fixed rate notes. BB&T does not utilize derivatives for trading purposes. Although off-balance sheet derivative financial instruments do not expose BB&T to credit risk equal to the notional amount, such agreements generate credit risk to the extent of the fair value gain in an off-balance sheet derivative financial instrument if the counterparty fails to perform. Such risk is minimized through the creditworthiness of the counterparties and the consistent monitoring of these agreements. The counterparties to these arrangements were primarily large commercial banks and investment banks. All counterparties are reviewed annually for creditworthiness by BB&T's credit policy group. Where appropriate, master netting agreements are arranged or collateral is obtained in the form of rights to securities. At December 31, 2000, BB&T's interest rate swaps, caps, floors and collars reflected an unrealized gain of $348,000. Other risks associated with interest-sensitive derivatives include the effect on fixed rate positions during periods of changing interest rates. Indexed amortizing swaps' notional amounts and maturities change based on certain interest rate indices. Generally, as rates fall the notional amounts decline more rapidly, and as rates increase notional amounts decline more slowly. Under unusual circumstances, financial derivatives also increase liquidity risk, which could result from an environment of rising interest rates in which derivatives produce negative cash flows while being offset by increased cash flows from variable rate loans. Such risk is considered insignificant due to the relatively small derivative positions held by BB&T. At December 31, 2000, BB&T had no indexed amortizing swaps outstanding. Note R. Calculations of Earnings Per Share The basic and diluted earnings per share calculations are presented in the following table:
Years Ended December 31, -------------------------------------- 2000 1999 1998 ------------ ------------ ------------ (Dollars in thousands, except per share data) Basic Earnings Per Share: Net income............................ $ 698,488 $ 778,725 $ 720,964 ============ ============ ============ Weighted average number of common shares outstanding during the period............................... 450,789,079 447,569,021 442,423,057 ============ ============ ============ Basic earnings per share.............. $ 1.55 $ 1.74 $ 1.63 ============ ============ ============ Diluted Earnings Per Share: Net income............................ $ 698,488 $ 778,725 $ 720,964 ============ ============ ============ Weighted average number of common shares............................... 450,789,079 447,569,021 442,423,057 Add: Shares issuable assuming conversion of convertible preferred stock..... -- -- 90,202 Dilutive effect of outstanding options (as determined by application of treasury stock method)............................ 5,424,530 7,201,949 8,487,273 ------------ ------------ ------------ Weighted average number of common shares, as adjusted.................. 456,213,609 454,770,970 451,000,532 ============ ============ ============ Diluted earnings per share............ $ 1.53 $ 1.71 $ 1.60 ============ ============ ============
49 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note S. Operating Segments BB&T's operations are divided into six reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Agency Insurance, Investment Banking and Brokerage, and Treasury. These operating segments have been identified based on BB&T's organizational structure. The segments require unique technology and marketing strategies and offer different products and services. While BB&T is managed as an integrated organization, individual executive managers are held accountable for the operations of these business segments. BB&T measures and presents information for internal reporting purposes in a variety of different ways. Information for BB&T's reportable segments is available based on organizational structure, product offerings and customer relationships. The internal reporting system presently utilized by management in the planning and measuring of operating activities, as well as the system to which most managers are held accountable, is based on organizational structure. BB&T emphasizes revenue growth by focusing on client service, sales effectiveness and relationship management. The segment results contained herein are presented based on internal management accounting policies that were designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. Therefore, the performance of the segments is not necessarily comparable with BB&T's consolidated results or with similar information presented by any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. BB&T's internal reporting system was significantly modified during 1999 and 1998. During 1999, BB&T revised the methods used to allocate noninterest expenses among the various segments. The information presented for 1998 has been restated to reflect these revisions. Also, BB&T completed various mergers and acquisitions accounted for as poolings of interests in 2000. Prior period information presented herein has been restated to reflect the effect of those mergers on the segment results; however, BB&T does not restate prior periods for internal accounting methodologies, as discussed below. The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, BB&T allocates capital, funding charges and credits, an economic provision for loan and lease losses, certain noninterest expenses and income tax provisions to each segment, as applicable. Also, to promote revenue growth and provide a basis for employee incentives, certain revenues of Mortgage Banking, Trust Services, Agency Insurance and the Investment Banking and Brokerage segments are reflected in the individual segments and also allocated to the Banking Network. This double counting of revenue is reflected in intersegment noninterest revenues and eliminated to arrive at consolidated results. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and business or product lines within the segments change. Also, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised. As discussed above, funds transfer pricing and allocations derived by BB&T's internal accounting practices are not restated for mergers accounted for as poolings of interests. BB&T's overall objective is to maximize shareholder value by optimizing return on equity and limiting risk. Allocations of capital and the economic provision for loan and lease losses are designed to address this objective. Capital is assigned to each segment on an economic basis, using management's assessment of the inherent risks associated with the segment. Economic capital allocations are made to cover the following risk categories: credit risk, funding risk, interest rate risk, option risk, basis risk, market risk and operational risk. 50 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Each segment is evaluated based on a risk-adjusted return on capital. Capital assignments are not equivalent to regulatory capital guidelines and the total amount assigned to all segments may vary from consolidated shareholders' equity. All unallocated capital is retained in the Treasury segment. The economic provision for loan and lease losses is also allocated to the relevant segments based on management's assessment of the segments' risks as described above. Unlike the provision for loan and lease losses recorded pursuant to generally accepted accounting principles, the economic provision adjusts for the impact of expected credit losses over the effective lives of the related loans and leases. Any unallocated provision for loan and lease losses is retained in the Corporate Office. BB&T has implemented an extensive noninterest expense allocation process to support organizational profitability. BB&T allocates expenses to the reportable segments based on various cost allocation methodologies, including the number of items processed, overall percentage of time spent, full-time equivalent employees assigned to functions, functional position surveys and activity-based costing. A portion of corporate overhead expense is not allocated, but is retained in corporate accounts reflected as other expenses in the accompanying tables. Income taxes are allocated to the various segments using effective tax rates. BB&T utilizes a funds transfer pricing ("FTP") system to eliminate the effect of interest rate risk from the segments' net interest income because such risk is centrally managed within the Treasury segment. The FTP system credits or charges the segments with the true value or cost of the funds the segments create or use. The FTP system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The net FTP credit or charge is reflected as net intersegment interest income (expense) in the accompanying tables. Banking Network BB&T's Banking Network serves individual and business clients by offering a variety of loan and deposit products and other financial services. The Banking Network is primarily responsible for client relationships, and, therefore, is credited with revenue from the Mortgage Banking, Trust Services, Agency Insurance and Investment Banking and Brokerage segments, which is reflected in intersegment noninterest income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" in BB&T's Annual Report on Form 10-K for additional discussion concerning the functions of the Banking Network. Mortgage Banking The Mortgage Banking segment retains and services mortgage loans originated by the Banking Network as well as those purchased from various correspondent originators. Mortgage loan products include fixed- and adjustable-rate government and conventional loans for the purpose of constructing, purchasing or refinancing owner-occupied properties. Fixed-rate mortgage loans are typically sold to government agencies and private investors with servicing rights retained by BB&T, while adjustable-rate loans are typically held in the portfolio. The Mortgage Banking segment earns interest on loans held in the warehouse and portfolio, fee income from the origination and servicing of mortgage loans and recognizes gains or losses from the sale of mortgage loans. The Banking Network receives an interoffice credit for the origination of loans and servicing rights, with the corresponding charge remaining in the Corporate Office. Trust Services BB&T's Trust Services segment provides personal trust administration, estate planning, investment counseling, asset management, employee benefits services, and corporate trust services to individuals, corporations, institutions, foundations and government entities. The Banking Network receives an interoffice 51 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) credit for trust fees in the initial year the account is referred, with the corresponding charge remaining in the Corporate Office. Agency Insurance BB&T has the largest independent insurance agency network in the Carolinas. BB&T Insurance Services provides property and casualty, life and health insurance to businesses and individuals. It also provides small business and corporate products, such as workers compensation and professional liability, as well as provides surety coverage and title insurance. The Banking Network receives credit for insurance commissions on referred accounts, with the corresponding charge retained in the Corporate Office. These revenues and expenses are reflected in the accompanying tables as intersegment noninterest income and expense. Investment Banking and Brokerage BB&T's Investment Banking and Brokerage segment offers clients investment alternatives, including discount brokerage services, fixed-rate and variable- rate annuities, and mutual funds through BB&T Investment Services, Inc., a subsidiary of BB&T-NC. The Investment Banking and Brokerage segment includes Scott & Stringfellow, Inc., a full-service brokerage and investment banking firm headquartered in Richmond, Virginia. Scott & Stringfellow specializes in the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. Scott & Stringfellow also has a public finance department that provides investment banking services, financial advisory services and municipal bond financing to a variety of regional tax-exempt issuers. The Banking Network is credited for investment service revenues on referred accounts, with the corresponding charge retained in the Corporate Office. These revenues and expenses are reflected in the accompanying tables as intersegment noninterest income and expense. Treasury BB&T's Treasury segment is responsible for the management of the securities portfolios, overall balance sheet funding and liquidity, and overall management of interest rate risk. See the Market Risk Management section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in BB&T's Annual Report on Form 10-K for additional information about the responsibilities of the Treasury segment. 52 The following tables disclose selected financial information for BB&T's reportable business segments: BB&T Corporation Reportable Segments For the Years Ended December 31, 2000, 1999 and 1998 (Dollars in thousands)
Banking Network Mortgage Banking Trust Services ----------------------------------- ------------------------------------ ---------------------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Net interest income (expense) from external customers....... $ 1,441,523 $ 1,532,462 $ 1,427,599 $ 484,070 $ 423,158 $ 411,227 $ (39,785) $ (33,668) $ (33,717) Net intersegment interest income (expense)....... 486,591 327,072 286,820 (368,873) (307,484) (270,173) 53,566 42,197 37,989 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Net interest income.......... 1,928,114 1,859,534 1,714,419 115,197 115,674 141,054 13,781 8,529 4,272 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Provision for loan and lease losses.......... 148,913 141,410 128,275 3,183 3,802 4,171 -- -- -- Noninterest income from external customers....... 455,755 513,688 456,591 85,310 114,811 103,937 80,232 57,290 43,635 Intersegment noninterest income.......... 120,410 123,549 150,672 -- -- -- -- -- -- Noninterest expense......... 942,662 1,145,435 1,015,860 58,742 61,161 76,365 51,960 38,022 28,666 Intersegment noninterest expense......... 325,185 261,420 209,820 22,983 18,918 16,207 3,730 2,532 1,947 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Income before income taxes.... 1,087,519 948,506 967,727 115,599 146,604 148,248 38,323 25,265 17,294 Provision for income taxes.... 352,660 315,837 353,968 32,124 45,128 56,125 10,559 8,039 6,528 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Net income...... $ 734,859 $ 632,669 $ 613,759 $ 83,475 $ 101,476 $ 92,123 $ 27,764 $ 17,226 $ 10,766 =========== =========== =========== =========== =========== ========== ========== ========== ========== Identifiable segment assets.. $37,544,996 $39,744,016 $36,766,642 $ 8,318,744 $ 5,689,889 $6,344,073 $ 39,508 $ 31,469 $ 26,664 =========== =========== =========== =========== =========== ========== ========== ========== ========== Investment Banking and Brokerage Treasury All Other Segments (1) ----------------------------------- ------------------------------------ ---------------------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Net interest income (expense) from external customers....... $ 11,659 $ 7,561 $ 1,127 $ 160,043 $ 162,459 $ 126,762 $ 257,133 $ 222,397 $ 203,497 Net intersegment interest income (expense)....... -- -- -- 79,197 (22,111) (135) -- -- -- ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Net interest income.......... 11,659 7,561 1,127 239,240 140,348 126,627 257,133 222,397 203,497 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Provision for loan and lease losses.......... -- -- -- 121 90 103 46,657 16,631 20,557 Noninterest income from external customers....... 164,023 132,519 48,604 (188,841) 1,031 11,631 117,012 28,850 24,648 Intersegment noninterest income.......... -- -- -- -- -- -- -- -- -- Noninterest expense......... 159,598 117,945 37,175 6,154 4,783 4,325 88,169 53,406 49,109 Intersegment noninterest expense......... 1,497 1,792 948 555 8,258 5,383 8,917 4,910 7,279 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Income before income taxes.... 14,587 20,343 11,608 43,569 128,248 128,447 230,402 176,300 151,200 Provision for income taxes.... 3,195 7,693 4,524 733 32,403 46,415 59,030 47,284 9,990 ----------- ----------- ----------- ----------- ----------- ---------- ---------- ---------- ---------- Net income...... $ 11,392 $ 12,650 $ 7,084 $ 42,836 $ 95,845 $ 82,032 $ 171,372 $ 129,016 $ 141,210 =========== =========== =========== =========== =========== ========== ========== ========== ========== Identifiable segment assets.. $ 751,722 $ 699,100 $ 238,622 $17,084,443 $11,510,760 $9,417,056 $3,990,321 $1,056,125 $2,374,665 =========== =========== =========== =========== =========== ========== ========== ========== ========== Agency Insurance ------------------------------------ 2000 1999 1998 ------------ ----------- ----------- Net interest income (expense) from external customers....... $ (16) $ -- $ -- Net intersegment interest income (expense)....... -- -- -- ------------ ----------- ----------- Net interest income.......... ( 16) -- -- ------------ ----------- ----------- Provision for loan and lease losses.......... -- -- -- Noninterest income from external customers....... 122,241 78,125 50,252 Intersegment noninterest income.......... -- -- -- Noninterest expense......... 87,249 59,688 39,420 Intersegment noninterest expense......... 4,107 2,748 2,415 ------------ ----------- ----------- Income before income taxes.... 30,869 15,689 8,417 Provision for income taxes.... 12,315 6,278 3,367 ------------ ----------- ----------- Net income...... $ 18,554 $ 9,411 $ 5,050 ============ =========== =========== Identifiable segment assets.. $ 100,852 $ 63,873 $ 40,262 ============ =========== =========== Total Segments ------------------------------------ 2000 1999 1998 ------------ ----------- ----------- Net interest income (expense) from external customers....... $ 2,314,627 $ 2,314,369 $ 2,136,495 Net intersegment interest income (expense)....... 250,481 39,674 54,501 ------------ ----------- ----------- Net interest income.......... 2,565,108 2,354,043 2,190,996 ------------ ----------- ----------- Provision for loan and lease losses.......... 198,874 161,933 153,106 Noninterest income from external customers....... 835,732 926,314 739,298 Intersegment noninterest income.......... 120,410 123,549 150,672 Noninterest expense......... 1,394,534 1,480,440 1,250,920 Intersegment noninterest expense......... 366,974 300,578 243,999 ------------ ----------- ----------- Income before income taxes.... 1,560,868 1,460,955 1,432,941 Provision for income taxes.... 470,616 462,662 480,917 ------------ ----------- ----------- Net income...... $ 1,090,252 $ 998,293 $ 952,024 ============ =========== =========== Identifiable segment assets.. $67,830,586 $58,795,232 $55,207,984 ============ =========== ===========
---- (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. 53 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table presents a reconciliation of segments results to consolidated results:
For the Years Ended December 31, ------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Net Interest Income Net interest income from segments..... $ 2,565,108 $ 2,354,043 $ 2,190,996 Other net interest income(1).......... 153,649 77,973 47,564 Elimination of net intersegment interest income(2)................... (404,059) (237,307) (230,340) ----------- ----------- ----------- Consolidated net interest income.... $ 2,314,698 $ 2,194,709 $ 2,008,220 =========== =========== =========== Net income Net income from segments.............. $ 1,090,252 $ 998,293 $ 952,024 Other net income (loss)(1)............ 2,721 (93,778) (123,535) Elimination of intersegment net income(2)............................ (394,485) (125,790) (107,525) ----------- ----------- ----------- Consolidated net income............. $ 698,488 $ 778,725 $ 720,964 =========== =========== =========== December 31, ------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Total Assets Total assets from segments............ $67,830,586 $58,795,232 $55,207,984 Other assets(1)....................... 4,232,050 2,835,382 1,651,609 Elimination of intersegment assets(2)............................ (5,509,813) (2,250,181) (2,486,488) ----------- ----------- ----------- Consolidated total assets........... $66,552,823 $59,380,433 $54,373,105 =========== =========== ===========
-------- (1) Other net interest income, other net income (loss) and other assets include amounts incurred by or applicable to BB&T's support functions that are not allocated to the various segments. (2) BB&T's reconciliation of total segment results to consolidated results requires the elimination of the internal management accounting practices. These adjustments include the elimination of the funds transfer pricing credits and charges and the elimination of intersegment noninterest income and noninterest expense described above. These amounts are allocated to the various segments using BB&T's internal accounting methods. 54 EX-99.3 6 dex993.txt BB&T RESTATED SECURITIES ACT GUIDE 3 Exhibit 99.3 FIVE YEAR FINANCIAL SUMMARY AND SELECTED RATIOS (Dollars in thousands, except per share data)
As of/For the Years Ended December 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Summary of Operations Interest income....... $ 4,878,610 $ 4,233,162 $ 3,936,661 $ 3,576,789 $ 3,235,788 Interest expense...... 2,563,912 2,038,453 1,928,441 1,720,647 1,533,867 ----------- ----------- ----------- ----------- ----------- Net interest income... 2,314,698 2,194,709 2,008,220 1,856,142 1,701,921 Provision for loan and lease losses......... 147,187 126,559 126,269 136,863 83,931 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan and lease losses............... 2,167,511 2,068,150 1,881,951 1,719,279 1,617,990 Noninterest income.... 846,649 957,428 765,712 645,572 492,435 Noninterest expense... 2,001,154 1,869,668 1,582,845 1,510,803 1,328,167 ----------- ----------- ----------- ----------- ----------- Income before income taxes................ 1,013,006 1,155,910 1,064,818 854,048 782,258 Provision for income taxes................ 314,518 377,185 343,854 288,945 255,085 ----------- ----------- ----------- ----------- ----------- Net income............ $ 698,488 $ 778,725 $ 720,964 $ 565,103 $ 527,173 =========== =========== =========== =========== =========== Per Common Share Average shares outstanding (000's): Basic................ 450,789 447,569 442,423 438,808 438,627 Diluted.............. 456,214 454,771 451,001 446,846 447,810 Basic earnings per share................ $ 1.55 $ 1.74 $ 1.63 $ 1.29 $ 1.20 =========== =========== =========== =========== =========== Diluted earnings per share................ $ 1.53 $ 1.71 $ 1.60 $ 1.26 $ 1.18 =========== =========== =========== =========== =========== Cash dividends paid... $ .86 $ .75 $ .66 $ .58 $ .50 Shareholders' equity.. 11.96 10.30 10.33 9.38 8.80 Average Balances Securities, at amortized cost....... $15,241,243 $14,820,477 $12,936,731 $11,791,115 $10,779,101 Loans and leases *.... 41,933,641 37,819,870 34,216,258 30,534,941 27,595,056 Other assets.......... 4,638,531 4,410,712 4,137,790 3,423,680 3,170,760 ----------- ----------- ----------- ----------- ----------- Total assets....... $61,813,415 $57,051,059 $51,290,779 $45,749,736 $41,544,917 =========== =========== =========== =========== =========== Deposits.............. $41,417,119 $38,741,240 $35,977,426 $33,658,603 $31,724,334 Other liabilities..... 7,857,696 7,469,542 6,300,849 4,855,886 3,920,174 Long-term debt........ 7,627,165 6,207,966 4,694,418 3,329,176 2,253,734 Common shareholders' equity............... 4,911,435 4,632,311 4,318,086 3,902,299 3,623,952 Preferred shareholders' equity............... -- -- -- 3,772 22,723 ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' equity............ $61,813,415 $57,051,059 $51,290,779 $45,749,736 $41,544,917 =========== =========== =========== =========== =========== Period End Balances Total assets.......... $66,552,823 $59,380,433 $54,373,105 $49,240,765 $43,747,135 Deposits.............. 43,877,319 39,319,012 38,204,833 35,268,689 33,077,799 Long-term debt........ 8,646,018 6,222,561 5,561,216 4,202,137 2,625,211 Shareholders' equity.. 5,419,809 4,640,189 4,621,543 4,095,395 3,771,773 Selected Ratios Rate of return on: Average total assets.............. 1.13% 1.36% 1.41% 1.24% 1.27% Average common shareholders' equity.............. 14.22 16.81 16.70 14.48 14.53 Dividend payout....... 55.48 43.10 40.49 44.96 41.67 Average equity to average assets....... 7.95 8.12 8.42 8.54 8.78
-------- * Loans and leases are net of unearned income and include loans held for sale. 55 Table 1 Selected Financial Data of Significant Banking & Thrift Subsidiaries (Dollars in thousands)
As of / For the Year Ended December 31, 2000 --------------------------------- BB&T-NC BB&T-SC BB&T-VA ----------- ---------- ---------- Total assets................................. $47,913,330 $5,249,100 $6,254,434 Securities................................... 12,716,995 389,331 564,472 Loans and leases, net of unearned income*.... 31,065,543 4,008,789 4,028,827 Deposits..................................... 29,215,971 3,952,819 4,877,131 Shareholder's equity......................... 3,831,554 378,740 595,603 Net interest income.......................... 1,421,898 230,877 235,543 Provision for loan and lease losses.......... 79,612 12,554 12,529 Noninterest income........................... 633,992 55,306 23,704 Noninterest expense.......................... 1,323,816 125,123 178,203 Net income................................... 458,903 95,175 42,122 ------------------------------------------------------------------------------- As of / For the Year Ended December 31, 1999 --------------------------------- BB&T-NC BB&T-SC BB&T-VA ----------- ---------- ---------- Total assets................................. $41,060,416 $4,842,462 $6,550,666 Securities................................... 10,196,460 477,705 1,681,540 Loans and leases, net of unearned income*.... 26,852,336 3,698,046 4,265,276 Deposits..................................... 25,765,790 3,686,484 4,563,833 Shareholder's equity......................... 3,053,222 364,060 617,758 Net interest income.......................... 1,349,554 216,781 237,715 Provision for loan and lease losses.......... 75,796 15,491 7,376 Noninterest income........................... 700,251 68,473 59,324 Noninterest expense.......................... 1,228,596 126,689 180,430 Net income................................... 519,577 91,059 68,756 ------------------------------------------------------------------------------- As of / For the Year Ended December 31, 1998 --------------------------------- BB&T-NC BB&T-SC BB&T-VA ----------- ---------- ---------- Total assets................................. $36,404,453 $4,641,393 $6,669,554 Securities................................... 9,067,377 783,727 1,607,902 Loans and leases, net of unearned income*.... 24,143,314 3,266,871 4,159,735 Deposits..................................... 25,131,437 3,702,383 4,636,337 Shareholder's equity......................... 2,932,664 429,572 765,964 Net interest income.......................... 1,255,010 201,132 236,198 Provision for loan and lease losses.......... 66,652 13,455 13,915 Noninterest income........................... 570,295 71,945 59,549 Noninterest expense.......................... 1,059,878 119,224 176,466 Net income................................... 489,572 89,653 66,155
-------- * Includes loans held for sale. 56 Table 2 Composition of Loan and Lease Portfolio*
December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Commercial, financial and agricultural....... $ 6,555,578 $ 6,025,337 $ 5,675,978 $ 5,210,203 $ 4,535,907 Lease receivables....... 4,453,598 2,606,002 1,620,326 788,462 576,991 Real estate-- construction and land development............ 4,264,275 4,227,146 3,288,411 3,085,299 2,368,051 Real estate--mortgage... 25,239,698 22,712,509 20,574,669 18,643,701 16,658,480 Consumer................ 5,891,059 5,091,840 4,505,704 4,386,600 4,413,139 ----------- ----------- ----------- ----------- ----------- Loans and leases held for investment....... 46,404,208 40,662,834 35,665,088 32,114,265 28,552,568 Loans held for sale... 906,244 390,338 1,375,135 668,732 342,652 ----------- ----------- ----------- ----------- ----------- Total loans and leases.. $47,310,452 $41,053,172 $37,040,223 $32,782,997 $28,895,220 =========== =========== =========== =========== ===========
-------- * Balances include unearned income. 57 Table 3 Composition of Loan and Lease Portfolio Based on Loan Purpose*
December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Business Loans.......... $21,885,646 $18,884,501 $16,308,568 $16,001,851 $12,756,812 Lease Receivables....... 2,100,965 1,508,396 992,684 616,302 470,456 ----------- ----------- ----------- ----------- ----------- Total commercial loans and leases........... 23,986,611 20,392,897 17,301,252 16,618,153 13,227,268 Sales Finance........... 2,844,970 2,565,439 2,254,190 1,773,089 1,678,637 Revolving Credit........ 863,089 713,585 602,521 571,755 569,395 Direct Retail........... 8,336,368 7,526,163 6,466,926 5,742,350 6,134,684 ----------- ----------- ----------- ----------- ----------- Total consumer loans.. 12,044,427 10,805,187 9,323,637 8,087,194 8,382,716 Mortgage Loans.......... 8,796,037 8,604,959 9,669,303 7,545,730 7,057,922 ----------- ----------- ----------- ----------- ----------- Total loans and leases............... $44,827,075 $39,803,043 $36,294,192 $32,251,077 $28,667,906 =========== =========== =========== =========== ===========
-------- * Loans and leases are net of unearned income and include loans held for sale. 58 Table 4 Selected Loan Maturities and Interest Sensitivity(/1/)
December 31, 2000 ------------------------------------- Commercial, Financial and Real Estate: Agricultural Construction Total ------------ ------------ ----------- (Dollars in thousands) Fixed rate: 1 year or less(2)...................... $ 499,393 $ 708,142 $ 1,207,535 1-5 years.............................. 1,435,620 352,092 1,787,712 After 5 years.......................... 358,060 8,585 366,645 ---------- ---------- ----------- Total................................ 2,293,073 1,068,819 3,361,892 ---------- ---------- ----------- Variable rate: 1 year or less(2)...................... 2,206,314 2,160,064 4,366,378 1-5 years.............................. 1,846,394 1,024,630 2,871,024 After 5 years.......................... 209,797 10,762 220,559 ---------- ---------- ----------- Total................................ 4,262,505 3,195,456 7,457,961 ---------- ---------- ----------- Total loans and leases(3).......... $6,555,578 $4,264,275 $10,819,853 ========== ========== ===========
-------- (1) Balances include unearned income. (2) Includes loans due on demand.
(Dollars in thousands) ------------ (3) The table excludes: (i) consumer loans to individuals for household, family and other personal expenditures....................... $ 5,891,059 (ii) real estate mortgage loans........................ 25,239,698 (iii) loans held for sale.............................. 906,244 (iv) leases............................................ 4,453,598 ------------ $ 36,490,599 ============
Scheduled repayments are reported in the maturity category in which the payment is due. Determinations of maturities are based upon contract terms. BB&T's credit policy does not permit automatic renewals of loans At the scheduled maturity date (including balloon payment date), the customer must request a new loan to replace the matured loan and execute a new note with rate, terms and conditions negotiated at that time. 59 Table 5 Allocation of Allowance for Loan and Lease Losses by Category
December 31, ----------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------- ----------------- ----------------- ----------------- ----------------- % Loans % Loans % Loans % Loans % Loans in each in each in each in each in each Amount category Amount category Amount category Amount category Amount category -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (Dollars in thousands) Business loans and leases................. $295,918 54% $247,005 51% $212,472 48% $191,337 52% $169,256 52% -------- --- -------- --- -------- --- -------- --- -------- --- Direct Retail........... 20,665 19 23,174 19 19,041 18 16,769 18 12,935 18 Sales Finance........... 28,058 6 30,620 6 27,701 5 29,082 5 22,418 6 Revolving Credit........ 25,901 2 26,664 2 25,805 2 20,093 2 13,973 2 -------- --- -------- --- -------- --- -------- --- -------- --- Total Consumer........ 74,624 27 80,458 27 72,547 25 65,944 25 49,326 26 -------- --- -------- --- -------- --- -------- --- -------- --- Mortgage................ 2,700 19 2,420 22 3,533 27 2,757 23 2,647 22 Recently Acquired Subsidiaries*.......... 83,259 -- 63,892 -- 59,816 -- 58,004 -- 52,186 -- Unallocated............. 121,606 -- 135,461 -- 142,251 -- 117,651 -- 113,865 -- -------- --- -------- --- -------- --- -------- --- -------- --- Total................. $578,107 100% $529,236 100% $490,619 100% $435,693 100% $387,280 100% ======== === ======== === ======== === ======== === ======== ===
----- * Acquired companies that had not been converted to BB&T's operating systems at December 31, 2000. 60 Table 6 Analysis of Allowance for Loan and Lease Losses
December 31, ---------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Balance, beginning of period................. $ 529,236 $ 490,619 $ 435,693 $ 387,280 $ 360,878 ----------- ----------- ----------- ----------- ----------- --- Charge-offs: Commercial, financial and agricultural..... (33,214) (34,693) (23,605) (26,531) (19,745) Real estate........... (20,759) (19,239) (16,165) (19,670) (14,564) Consumer.............. (93,040) (79,075) (85,505) (87,212) (63,146) Lease receivables..... (3,502) (993) (1,167) (671) (768) ----------- ----------- ----------- ----------- ----------- Total charge-offs... (150,515) (134,000) (126,442) (134,084) (98,223) ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial, financial and agricultural..... 12,358 13,087 9,649 9,537 10,836 Real estate........... 3,788 4,823 4,787 6,117 7,908 Consumer.............. 21,430 17,344 15,645 12,310 11,656 Lease receivables..... 312 107 425 232 136 ----------- ----------- ----------- ----------- ----------- Total recoveries.... 37,888 35,361 30,506 28,196 30,536 ----------- ----------- ----------- ----------- ----------- Net charge-offs........ (112,627) (98,639) (95,936) (105,888) (67,687) ----------- ----------- ----------- ----------- ----------- Provision charged to expense............... 147,187 126,559 126,269 136,863 83,931 ----------- ----------- ----------- ----------- ----------- Allowance of loans acquired in purchase transactions.......... 14,311 10,697 24,593 17,438 10,158 ----------- ----------- ----------- ----------- ----------- Balance, end of period.. $ 578,107 $ 529,236 $ 490,619 $ 435,693 $ 387,280 =========== =========== =========== =========== =========== Average loans and leases *...................... $41,933,641 $37,819,870 $34,216,258 $30,534,941 $27,595,056 Net charge-offs as a percentage of average loans and leases....... .27% .26% .28% .35% .25% =========== =========== =========== =========== ===========
-------- * Loans and leases are net of unearned income and include loans held for sale. 61 Table 7 Composition of Securities Portfolio
December 31, ----------------------------------- 2000 1999 1998 ----------- ----------- ----------- (Dollars in thousands) Trading Securities (at estimated fair value):.................................. $ 96,719 $ 93,221 $ 60,422 ----------- ----------- ----------- Securities held to maturity (at amortized cost): U.S. Treasury, government and agency obligations............................ 536,863 468,243 459,981 States and political subdivisions....... 80,479 441,772 604,082 Mortgage-backed securities.............. 1,739 7,542 83,455 Other securities........................ 3,021 5,158 12,248 ----------- ----------- ----------- Total securities held to maturity..... 622,102 922,715 1,159,766 ----------- ----------- ----------- Securities available for sale (at estimated fair value): U.S. Treasury, government and agency obligations............................ 9,727,118 6,316,552 5,556,162 States and political subdivisions....... 1,038,555 684,833 284,448 Mortgage-backed securities.............. 2,805,607 4,426,303 4,819,723 Other securities........................ 1,659,843 1,974,566 1,566,080 ----------- ----------- ----------- Total securities available for sale... 15,231,123 13,402,254 12,226,413 ----------- ----------- ----------- Total securities.................... $15,949,944 $14,418,190 $13,446,601 =========== =========== ===========
62 Table 8 Scheduled Maturities of Time Deposits $100,000 and Greater December 31, 2000 (Dollars in thousands) Maturity Schedule Less than three months.................................... $1,718,070 Three through six months.................................. 1,193,255 Seven through twelve months............................... 1,381,691 Over twelve months........................................ 1,443,887 ---------- Total................................................... $5,736,903 ==========
63 Table 9 Short-Term Borrowed Funds The following information summarizes certain pertinent information for the past three years on short-term borrowed funds:
2000 1999 1998 ---------- ---------- ---------- (Dollars in thousands) Maximum outstanding at any month-end during the year.......................... $8,822,265 $8,648,596 $7,338,476 Balance outstanding at end of year........ 7,309,978 8,392,344 5,281,475 Average outstanding during the year....... 6,987,954 6,709,177 5,605,738 Average interest rate during the year..... 5.96% 4.88% 5.18% Average interest rate at end of year...... 6.07 4.31 4.80
64 Table 10 Capital Adequacy for BB&T Corporation and Principal Banking Subsidiaries December 31, 2000
Regulatory Minimums to Regulatory be Well BB&T BB&T BB&T Minimums Capitalized BB&T NC SC VA ---------- ----------- ---- ---- ---- ---- Risk-based capital ratios: Tier 1 capital(1).............. 4.0% 6.0% 9.7% 9.5% 9.0% 10.2% Total risk-based capital(2).... 8.0 10.0 12.2 10.7 10.2 11.4 Tier 1 leverage ratio(3)......... 3.0 5.0 7.3 6.8 7.4 7.4
-------- (1) Shareholders' equity less nonqualifying intangible assets; computed as a ratio of risk-weighted assets, as defined in the risk-based capital guidelines. (2) Tier 1 capital plus qualifying loan loss allowance and subordinated debt; computed as a ratio of risk-weighted assets as defined in the risk-based capital guidelines. (3) Tier 1 capital computed as a percentage of fourth quarter average assets less nonqualifying intangibles. 65 Table 11 Securities
December 31, 2000 ------------------------------- Carrying Value Average Yield(3) -------------- ---------------- (Dollars in thousands) U.S. Treasury, government and agency obligations(1): Within one year............................. $ 459,116 6.45% One to five years........................... 5,831,154 7.21 Five to ten years........................... 4,244,638 7.55 After ten years............................. 2,536,419 7.01 ----------- ---- Total..................................... 13,071,327 7.26 ----------- ---- States and political subdivisions: Within one year............................. 33,446 7.51 One to five years........................... 215,990 7.63 Five to ten years........................... 553,320 7.53 After ten years............................. 316,278 7.52 ----------- ---- Total..................................... 1,119,034 7.55 ----------- ---- Other securities: Within one year............................. 5,393 6.03 One to five years........................... 34,921 6.88 Five to ten years........................... 43,337 6.96 After ten years............................. 195,635 7.87 ----------- ---- Total..................................... 279,286 7.43 ----------- ---- Securities with no stated maturity............ 1,480,297 5.85 ----------- ---- Total securities(2)....................... $15,949,944 7.15% =========== ====
-------- (1) Included in U.S. Treasury, government and agency obligations are mortgage- backed securities totaling $2.8 billion classified as available for sale and disclosed at estimated fair value. These securities are included in each of the categories based upon final stated maturity dates. The original contractual lives of these securities range from five to 30 years; however, a more realistic average maturity would be substantially shorter because of the monthly return of principal on certain securities. (2) Includes securities held to maturity of $622.1 million carried at amortized cost and securities available for sale and trading securities carried at estimated fair values of $15.2 billion and $96.7 million, respectively. (3) Taxable equivalent basis as applied to amortized cost. 66 Table 12 Asset Quality
December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Nonaccrual loans and leases(1)................... $180,638 $144,247 $145,599 Restructured loans............................... 492 1,681 3,744 Foreclosed property.............................. 55,199 47,143 60,030 -------- -------- -------- Nonperforming assets........................... $236,329 $193,071 $209,373 ======== ======== ======== Loans 90 days or more past due and still accruing...................................... $ 81,629 $ 66,241 $ 68,360 ======== ======== ======== Asset Quality Ratios: Nonaccrual and restructured loans and leases as a percentage of loans and leases(2)........... .40% .37% .41% Nonperforming assets as a percentage of: Total assets................................. .36 .33 .39 Loans and leases plus foreclosed property(2)................................. .53 .48 .58 Net charge-offs as a percentage of average loans and leases(2)........................... .27 .26 .28 Allowance for losses as a percentage of loans and leases(2)................................. 1.29 1.33 1.35 Ratio of allowance for losses to: Net charge-offs.............................. 5.13x 5.37x 5.11x Nonaccrual and restructured loans and leases...................................... 3.19 3.63 3.29
-------- (1) Includes $73.4 million, $68.4 million and $77.5 million of impaired loans at December 31, 2000, 1999 and 1998, respectively. See Note D. in the "Notes to Consolidated Financial Statements." (2) Loans and leases are net of unearned income and include loans held for sale. 67 Table 13 FTE Net Interest Income and Rate / Volume Analysis For the Years Ended December 31, 2000, 1999 and 1998
Average Balances Yield/Rate Income/Expense ----------------------------------- ---------------- -------------------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- (Dollars in thousands) Assets Securities (1): U.S. Treasury, government and other (5).......... $14,144,391 $13,737,216 $12,161,781 6.90% 6.45% 6.62% $ 976,057 $ 886,367 $ 804,838 States and political subdivisions....... 1,096,852 1,083,261 774,950 7.49 7.61 7.81 82,143 82,428 60,504 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total securities (5)............... 15,241,243 14,820,477 12,936,731 6.94 6.54 6.69 1,058,200 968,795 865,342 Other earning assets (2)......... 440,804 617,589 695,174 6.71 5.14 5.42 29,585 31,774 37,705 Loans and leases, net of unearned income (1)(3)(4)(5).. 41,933,641 37,819,870 34,216,258 9.36 8.80 9.10 3,924,491 3,329,646 3,112,554 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total earning assets............ 57,615,688 53,257,936 47,848,163 8.70 8.13 8.39 5,012,276 4,330,215 4,015,601 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Non-earning assets............ 4,197,727 3,793,123 3,442,616 ----------- ----------- ----------- Total assets.... $61,813,415 $57,051,059 $51,290,779 =========== =========== =========== Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest- checking........... $ 3,890,137 $ 4,592,046 $ 4,808,095 1.89 2.08 2.28 73,470 95,489 109,391 Money rate savings............ 10,494,588 9,297,377 7,589,489 3.68 3.00 3.16 386,716 278,656 239,848 Other time deposits........... 21,135,213 19,278,553 18,514,636 5.80 5.17 5.49 1,225,143 996,189 1,016,454 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total interest- bearing deposits........ 35,519,938 33,167,976 30,912,220 4.74 4.13 4.42 1,685,329 1,370,334 1,365,693 Short-term borrowed funds.............. 6,987,954 6,709,177 5,605,738 5.96 4.88 5.18 416,303 327,148 290,318 Long-term debt..... 7,627,165 6,207,966 4,694,418 6.06 5.49 5.80 462,280 340,971 272,430 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total interest- bearing liabilities..... 50,135,057 46,085,119 41,212,376 5.11 4.42 4.68 2,563,912 2,038,453 1,928,441 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Noninterest-bearing deposits........... 5,897,181 5,573,264 5,065,206 Other liabilities.. 869,742 760,365 695,111 Shareholders' equity............. 4,911,435 4,632,311 4,318,086 ----------- ----------- ----------- Total liabilities and shareholders' equity.......... $61,813,415 $57,051,059 $51,290,779 =========== =========== =========== Average interest rate spread........ 3.59 3.71 3.71 Net yield on earning assets..... 4.25% 4.30% 4.36% $2,448,364 $2,291,762 $2,087,160 ==== ==== ==== ========== ========== ========== Taxable equivalent adjustment......... $ 133,666 $ 97,053 $ 78,940 ========== ========== ========== 2000 v. 1999 1999 v. 1998 ------------------------------ ------------------------------- Change due to Change due to Increase ------------------- Increase -------------------- (Decrease) Rate Volume (Decrease) Rate Volume ---------- --------- --------- ---------- ---------- --------- Assets Securities (1): U.S. Treasury, government and other (5).......... $ 89,690 $ 62,872 $ 26,818 $ 81,529 $ (20,545) $102,074 States and political subdivisions....... (285) (1,312) 1,027 21,924 (1,573) 23,497 ---------- --------- --------- ---------- ---------- --------- Total securities (5)............... 89,405 61,560 27,845 103,453 (22,118) 125,571 Other earning assets (2)......... (2,189) 8,248 (10,437) (5,931) (1,871) (4,060) Loans and leases, net of unearned income (1)(3)(4)(5).. 594,845 218,218 376,627 217,092 (102,638) 319,730 ---------- --------- --------- ---------- ---------- --------- Total earning assets............ 682,061 288,026 394,035 314,614 (126,627) 441,241 ---------- --------- --------- ---------- ---------- --------- Non-earning assets............ Total assets.... Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest- checking........... (22,019) (8,260) (13,759) (13,902) (9,132) (4,770) Money rate savings............ 108,060 69,218 38,842 38,808 (12,900) 51,708 Other time deposits........... 228,954 127,854 101,100 (20,265) (61,187) 40,922 ---------- --------- --------- ---------- ---------- --------- Total interest- bearing deposits........ 314,995 188,812 126,183 4,641 (83,219) 87,860 Short-term borrowed funds.............. 89,155 75,086 14,069 36,830 (17,740) 54,570 Long-term debt..... 121,309 37,806 83,503 68,541 (15,260) 83,801 ---------- --------- --------- ---------- ---------- --------- Total interest- bearing liabilities..... 525,459 301,704 223,755 110,012 (116,219) 226,231 ---------- --------- --------- ---------- ---------- --------- Noninterest-bearing deposits........... Other liabilities.. Shareholders' equity............. Total liabilities and shareholders' equity.......... Average interest rate spread........ Net yield on earning assets..... $156,602 $(13,678) $170,280 $204,602 $ (10,408) $215,010 ========== ========= ========= ========== ========== ========= Taxable equivalent adjustment.........
---- (1) Yields related to securities, loans and leases exempt from income taxes are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented. (2) Includes Federal funds sold and securities purchased under resale agreements or similar arrangements. (3) Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes. (4) Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income. (5) Includes assets which were held for sale or available for sale at amortized cost and trading securities at estimated fair value. 68 Table 14 Noninterest Income
Years Ended December 31, % Change ----------------------------- --------------- 1999 2000 v. v. 2000 1999 1998 1999 1998 --------- -------- -------- ------- ----- (Dollars in thousands) Service charges on deposits... $ 292,492 $268,620 $242,126 8.9 % 10.9 % Mortgage banking income....... 104,579 167,056 130,860 (37.4) 27.7 Trust income.................. 80,039 73,361 57,653 9.1 27.2 Agency insurance commissions.. 146,684 94,484 65,915 55.2 43.3 Other insurance commissions... 15,370 14,349 13,368 7.1 7.3 Securities (losses) gains, net.......................... (219,366) (1,630) 14,512 NM NM Bankcard fees and merchant discounts.................... 57,851 47,825 41,011 21.0 16.6 Investment banking and brokerage fees and commissions.................. 163,480 129,746 46,448 26.0 NM Other bank service fees and commissions.................. 108,687 89,572 73,490 21.3 21.9 International income.......... 7,337 6,120 4,563 19.9 34.1 Amortization of negative goodwill..................... 6,243 6,243 6,243 -- -- Other noninterest income...... 83,253 61,682 69,523 35.0 (11.3) --------- -------- -------- ----- ----- Total noninterest income.... $ 846,649 $957,428 $765,712 (11.6) % 25.0 % ========= ======== ======== ===== =====
-------- NM--Not Meaningful 69 Table 15 Noninterest Expense
% Change --------------- Years Ended December 31, -------------------------------- 2000 v. 1999 v. 2000 1999 1998 1999 1998 ---------- ---------- ---------- ------- ------- (Dollars in thousands) Salaries and wages........... $ 870,931 $ 798,388 $ 680,660 9.1% 17.3% Pension and other employee benefits.................... 177,379 158,978 131,113 11.6 21.3 Net occupancy expense on bank premises.................... 133,770 122,156 105,884 9.5 15.4 Furniture and equipment expense..................... 168,317 160,231 135,271 5.0 18.5 Federal deposit insurance premiums.................... 12,007 11,798 8,042 1.8 46.7 Foreclosed property expense.. 6,354 5,992 4,064 6.0 47.4 Amortization of intangibles and mortgage servicing rights...................... 83,401 83,956 64,581 (0.7) 30.0 Software..................... 22,147 20,070 12,335 10.3 62.7 Telephone.................... 45,600 37,317 31,379 22.2 18.9 Donations.................... 13,607 15,195 8,428 (10.5) 80.3 Advertising and public relations................... 37,098 36,630 37,380 1.3 (2.0) Travel and transportation.... 22,305 17,538 13,585 27.2 29.1 Professional services........ 71,677 86,090 76,115 (16.7) 13.1 Supplies..................... 34,634 31,846 30,064 8.8 5.9 Loan and lease expense....... 43,183 43,324 32,962 (0.3) 31.4 Deposit related expense...... 20,945 20,749 17,067 0.9 21.6 Other noninterest expenses... 237,799 219,410 193,915 8.4 13.1 ---------- ---------- ---------- ----- ---- Total noninterest expense.. $2,001,154 $1,869,668 $1,582,845 7.0% 18.1% ========== ========== ========== ===== ====
70 Table 16 Interest Rate Sensitivity Gap Analysis December 31, 2000
Expected Repricing or Maturity Date --------------------------------------------------------------- Within One One to Three to After Five Year Three Years Five Years Years Total ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Assets Securities and other interest-earning assets(1)............. $ 1,595,564 $ 3,281,868 $ 5,635,657 $ 5,498,561 $16,011,650 Federal funds sold and securities purchased under resale agreements or similar arrangements.......... 329,637 -- -- -- 329,637 Loans and leases(2).... 27,899,195 7,331,972 4,521,625 5,074,283 44,827,075 ----------- ----------- ----------- ----------- ----------- Total interest-earning assets................. 29,824,396 10,613,840 10,157,282 10,572,844 61,168,362 ----------- ----------- ----------- ----------- ----------- Liabilities Savings and interest checking(3)........... -- 2,038,784 679,595 679,594 3,397,973 Money rate savings(3).. 5,926,807 5,926,807 -- -- 11,853,614 Other time deposits.... 15,793,658 6,154,854 468,024 30,963 22,447,499 Federal funds purchased and securities sold under repurchase agreements or similar arrangements.......... 4,211,593 -- -- -- 4,211,593 Long-term debt and other borrowings...... 4,896,504 285,313 727,002 5,835,584 11,744,403 ----------- ----------- ----------- ----------- ----------- Total interest-bearing liabilities............ 30,828,562 14,405,758 1,874,621 6,546,141 $53,655,082 ----------- ----------- ----------- ----------- =========== ----------- ----------- ----------- ----------- Asset-liability gap..... (1,004,166) (3,791,918) 8,282,661 4,026,703 ----------- ----------- ----------- ----------- Derivatives affecting interest rate sensitivity: Pay fixed interest rate swaps................. 226,828 (185,000) (18,943) (22,885) Receive fixed interest rate swaps............ (123,000) 20,000 10,000 93,000 Caps, floors and collars............... (76,050) 47,250 28,800 -- ----------- ----------- ----------- ----------- 27,778 (117,750) 19,857 70,115 ----------- ----------- ----------- ----------- Interest rate sensitivity gap........ $ (976,388) $(3,909,668) $ 8,302,518 $ 4,096,818 =========== =========== =========== =========== Cumulative interest rate sensitivity gap........ $ (976,388) $(4,886,056) $ 3,416,462 $ 7,513,280 =========== =========== =========== ===========
-------- (1) Securities based on amortized cost. (2) Loans and leases include loans held for sale and are net of unearned income. (3) Projected runoff of deposits that do not have a contractual maturity date was computed based upon decay rate assumptions developed by bank regulators to assist banks in addressing FDICIA rule 305. 71 Table 17 Capital--Components and Ratios
December 31, ---------------------- 2000 1999 ---------- ---------- (Dollars in thousands) Tier 1 capital.................................... $4,591,023 $4,277,531 Tier 2 capital.................................... 1,209,645 1,277,514 ---------- ---------- Total regulatory capital.......................... $5,800,668 $5,555,045 ========== ========== Risk-based capital ratios: Tier 1 capital.................................. 9.7% 10.3% Total regulatory capital........................ 12.2 13.4 Tier 1 leverage ratio............................. 7.3 7.3
72 Table 18 Quarterly Financial Summary--Unaudited
2000 1999 ------------------------------------------------- -------------------------------------------------- Fourth Third Second First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) Consolidated Summary of Operations: Net interest income FTE.................. $ 628,589 $ 615,274 $ 606,755 $ 597,746 $ 593,826 $ 584,253 $ 570,691 $ 542,992 FTE adjustment........ 53,971 29,177 25,464 25,054 24,720 25,754 24,954 21,625 Provision for loan and lease losses......... 47,958 40,714 30,232 28,283 42,958 29,165 28,428 26,008 Securities (losses) gains, net........... 2,544 (180,778) (41,109) (23) (1,845) (1,690) (2,424) 4,329 Other noninterest income............... 274,934 271,550 267,066 252,465 245,311 245,036 248,449 220,262 Noninterest expense... 474,223 536,084 499,189 491,658 494,814 490,222 455,965 428,667 Provision for income taxes................ 98,193 27,597 90,596 98,132 91,916 91,129 99,532 94,608 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income............ $ 231,722 $ 72,474 $ 187,231 $ 207,061 $ 182,884 $ 191,329 $ 207,837 $ 196,675 =========== =========== =========== =========== =========== =========== =========== =========== Diluted net income per share................ $ .51 $ .16 $ .41 $ .45 $ .40 $ .42 $ .51 $ .43 =========== =========== =========== =========== =========== =========== =========== =========== Selected Average Balances: Assets................ $63,917,592 $62,558,010 $61,050,669 $59,696,087 $58,963,340 $57,890,661 $56,818,889 $54,490,003 Securities, at amortized cost....... 15,482,384 15,341,496 15,126,092 15,011,249 15,093,784 15,451,540 15,033,771 13,677,644 Loans and leases *.... 43,472,712 42,428,208 41,473,500 40,337,792 39,353,196 38,085,724 37,307,713 36,503,790 Total earning assets.. 59,349,356 58,183,365 57,040,202 55,866,969 55,007,797 54,194,849 53,045,846 50,777,243 Deposits.............. 42,225,800 42,001,836 41,153,215 40,272,313 39,248,327 38,883,289 38,369,770 37,843,796 Short-term borrowed funds................ 7,050,743 6,105,917 7,279,774 7,524,386 7,431,940 7,148,757 6,784,001 5,558,701 Long-term debt........ 8,595,844 8,546,973 6,969,890 6,375,200 6,648,252 6,382,901 6,117,506 5,569,286 Total interest-bearing liabilities.......... 52,017,185 50,690,975 49,371,788 48,433,486 47,723,381 46,930,023 45,876,747 43,766,492 Shareholders' equity.. 5,081,679 5,031,614 4,821,823 4,707,434 4,681,204 4,552,916 4,652,447 4,642,850
------ * Loans and leases are net of unearned income and include loans held for sale. 73