-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BOx7Z8jXv/+UQLThQSuXLLt4BqZJ/xg7DVAV9VsyJY7kXTSgE9ILuq0LxniYUERM WU6re8Zq5bxr5WVbOBMHWQ== 0000916641-01-000337.txt : 20010319 0000916641-01-000337.hdr.sgml : 20010319 ACCESSION NUMBER: 0000916641-01-000337 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010316 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: 10-K SEC ACT: SEC FILE NUMBER: 001-10853 FILM NUMBER: 1569959 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 10-K 1 0001.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ---------------- Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2000 Commission File Number: 1-10853 BB&T CORPORATION (Exact name of Registrant as specified in its Charter) North Carolina 56-0939887 (State of Incorporation) (I.R.S. Employer Identification No.) 200 West Second Street Winston-Salem, North Carolina 27101 (Address of principal executive offices) (Zip Code)
(336) 733-2000 (Registrant's telephone number, including area code) ---------------- Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Name of each exchange Title of each class on which registered ------------------- --------------------- Common Stock, $5 par value New York Stock Exchange Share Purchase Rights New York Stock Exchange
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K. [_] Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] The aggregate market value of the voting stock held by non-affiliates of the Registrant at January 31, 2001, was approximately $14.8 billion. The number of shares of the Registrant's Common Stock outstanding on January 31, 2001, was 409,584,752. No shares of preferred stock were outstanding at January 31, 2001. Portions of the Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on April 24, 2001, are incorporated by reference in Part III of this report. ---------------- The Exhibit Index begins on page 107. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS REFERENCE INDEX
Page ------ PART I Item 1 Description of Business........................................ 5 Item 2 Properties..................................................... 18, 72 Item 3 Legal Proceedings.............................................. 87 Item 4 Submission of Matters to a Vote of Shareholders None PART II Item 5 Market for the Registrant's Common Stock and Related Shareholder Matters............................................ 49 Item 6 Selected Financial Data........................................ 52 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 25 Item 7A Quantitative and Qualitative Disclosures About Market Risk..... 41, 94 Item 8 Financial Statements and Supplementary Data Consolidated Balance Sheets at December 31, 2000 and 1999...... 55 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2000...................... 56 Consolidated Statements of Changes in Shareholders' Equity for each of the years in the three-year period ended December 31, 2000........................................................... 57 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000.................. 58 Notes to Consolidated Financial Statements..................... 59 Report of Independent Public Accountants....................... 54 Quarterly Financial Summary for 2000 and 1999.................. 51 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None PART III Item 10 Directors and Executive Officers of the Registrant............. *, 19 Item 11 Executive Compensation......................................... * Security Ownership of Certain Beneficial Owners and Item 12 Management..................................................... *
2
Page ---- Item 13 Certain Relationships and Related Transactions......... * PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)(1) Financial Statements (See Item 8 for reference) (2) Financial Statement Schedules normally required on Form 10-K are omitted since they are not applicable, except as referred to in Item 8. (3) Exhibits have been filed separately with the Commission and are available upon written request. (b) Current Reports on Form 8-K filed during the fourth quarter of 2000
Type Date Filed Reporting Purpose ---- ---------- ----------------- Item 5. October 12, 2000 To report the financial results for BB&T Corporation ("BB&T") for the third quarter of 2000. Item 5. October 26, 2000 To report that BB&T's board of directors had authorized a program to repurchase up to 20 million shares of BB&T common stock to be reissued in purchase accounting transactions. Item 5. October 27, 2000 To restate BB&T's Annual Report on Form 10- K for December 31, 1999 for the accounts of One Valley Bancorp, Inc., Hardwick Holding Company and First Banking Company of Southeast Georgia. Item 5. October 30, 2000 To issue supplemental financial information, restated to include the accounts of One Valley Bancorp, Inc., Hardwick Holding Company and First Banking Company of Southeast Georgia. Item 5. December 5, 2000 To report plans to acquire Century South Banks, Inc., of Alpharetta, Georgia.
(c) Exhibits -- See Item 14(a)(3) (d) Financial Statement Schedules -- See Item 14(a)(2)
- -------- * The information required by Item 10 is incorporated herein by reference to the information that appears under the headings "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. The information required by Item 11 is incorporated herein by reference to the information that appears under the headings "Compensation of Executive Officers", "Retirement Plans" and "Compensation Committee Report on Executive Compensation" in the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. 3 The information required by Item 12 is incorporated herein by reference to the information that appears under the headings "Security Ownership" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. The information required by Item 13 is incorporated herein by reference to the information that appears under the headings "Compensation Committee Interlocks and Insider Participation" and "Transactions with Executive Officers and Directors" in the Registrant's Proxy Statement for the 2001 Annual Meeting of Shareholders. 4 DESCRIPTION OF BUSINESS General BB&T Corporation ("BB&T" or "the Corporation") is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations through its subsidiaries primarily in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky and the metropolitan Washington, D.C. area. Forward-Looking Statements This report contains forward-looking statements with respect to the financial condition, results of operations and business of BB&T. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of BB&T, and on the information available to management at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins; (3) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit; (4) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which BB&T is engaged; (5) costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected; (6) expected cost savings associated with pending mergers may not be fully realized or realized within the expected time frame; (7) deposit attrition, customer loss or revenue loss following pending mergers may be greater than expected; (8) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than BB&T; and (9) adverse changes may occur in the securities markets. Significant Subsidiaries At December 31, 2000, the principal assets of BB&T included all of the outstanding shares of common stock of: . Branch Banking and Trust Company, Winston-Salem, North Carolina; . Branch Banking and Trust Company of South Carolina, Greenville, South Carolina; . Branch Banking and Trust Company of Virginia, Richmond, Virginia; . Hardwick Bank and Trust Company, Dalton, Georgia; . First National Bank of Northwest Georgia, Calhoun, Georgia; . First Bulloch Bank & Trust Company, Statesboro, Georgia; . First National Bank of Effingham, Springfield, Georgia; . Metter Banking Company, Metter, Georgia; . Wayne National Bank, Jesup, Georgia; . BankFirst, Knoxville, Tennessee; . First National Bank and Trust Company of Athens, Athens, Tennessee; . Regional Acceptance Corporation, Greenville, North Carolina; . Scott & Stringfellow, Inc., Richmond, Virginia; . Edgar M. Norris & Co., Inc., Greenville, South Carolina; . Sheffield Financial Corporation, Clemmons, North Carolina; and . BB&T Factors Corporation, High Point, North Carolina. 5 Branch Banking and Trust Company ("BB&T-NC"), BB&T's largest subsidiary, was chartered in 1872 and is the oldest bank headquartered in North Carolina. At December 31, 2000, BB&T-NC operated 335 banking offices in North Carolina, 53 in Maryland, six in Washington, D.C., 102 in Georgia, 85 in West Virginia, 32 in Tennessee, and ten banking offices in Kentucky. At December 31, 2000, BB&T- NC held the largest share of deposits, excluding home office deposits, in North Carolina, and the largest share of deposits in West Virginia. BB&T-NC's principal subsidiaries include BB&T Leasing Corp., based in Charlotte, North Carolina, which specializes in lease financing to commercial businesses; BB&T Investment Services, Inc., located in Charlotte, North Carolina, which offers nondeposit investment alternatives, including fixed-rate and variable-rate annuities, mutual funds and discount brokerage services; BB&T Insurance Services, Inc., headquartered in Raleigh, North Carolina, which is the 11th largest independent insurance agency network in the country; and W.E. Stanley, Inc., an actuarial and employee benefits consulting firm headquartered in Greensboro, North Carolina. BB&T-NC has a number of additional subsidiaries including but not limited to the following: Prime Rate Premium Finance Corporation, Inc. ("Prime Rate"), located in Florence, South Carolina, which provides insurance premium financing primarily to clients in BB&T's principal market area; and Laureate Capital Corp. ("Laureate"), located in Charlotte, North Carolina. Laureate principally specializes in arranging financing of commercial and multi-family real estate. Branch Banking and Trust Company of South Carolina ("BB&T-SC") operated 90 banking offices at December 31, 2000. BB&T-SC is the third largest bank in South Carolina in terms of deposit market share. Branch Banking and Trust Company of Virginia ("BB&T-VA") operated 141 banking offices in Virginia at December 31, 2000. BB&T-VA is the sixth largest bank in Virginia in terms of deposit market share. Scott & Stringfellow Financial, Inc. ("Scott & Stringfellow") is an investment banking and full-service brokerage firm headquartered in Richmond, Virginia. On November 15, 2000, BB&T consummated the acquisition of Edgar M. Norris & Co., a full-service brokerage firm based in Greenville, South Carolina. Edgar M. Norris will be merged into Scott & Stringfellow in 2001. Scott & Stringfellow and Edgar M. Norris together operated 23 full-service brokerage offices in Virginia, one in West Virginia, eleven in North Carolina, seven in South Carolina, one in Maryland, and one in Tennessee at December 31, 2000. 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, financial advisory and debt underwriting services to a variety of regional tax-exempt issuers. The primary services offered by BB&T's subsidiaries include: . small business lending . commercial middle market lending . retail lending . home equity lending . sales finance . mortgage lending . leasing . asset management . trust services 6 . agency insurance . treasury services . investment and mutual fund sales . capital markets . factoring . asset-based lending . international banking services . cash management . electronic payment services . credit and debit card services 7 The following table discloses selected financial information related to BB&T's significant banking subsidiaries. Additionally, please see Note S. in the "Notes to Consolidated Financial Statements" for further discussion relating to BB&T's reportable business segments. Table 1 Selected Financial Data of Significant Banking Subsidiaries As of / For the Year Ended December 31, 2000
BB&T-NC BB&T-SC BB&T-VA ----------- ---------- ---------- (Dollars in thousands) Total assets $46,991,799 $5,249,100 $6,254,434 Securities 12,557,947 389,331 564,472 Loans and leases, net of unearned income* 30,452,881 4,008,789 4,028,827 Deposits 28,540,937 3,952,819 4,877,131 Shareholder's equity 3,690,959 378,740 595,603 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. 8 Merger Strategy BB&T's profitability and market share have been enhanced through both internal growth and acquisitions in recent years. BB&T's acquisition strategy is focused on three primary objectives: . to pursue in-market acquisitions of high-quality banks and thrifts with assets in the $250 million to $10 billion range, . to acquire companies in niche markets that provide products or services that can be offered through the existing distribution system to BB&T's current customer base, and . to consider strategic acquisitions in new markets that are economically feasible and provide positive long-term benefits. BB&T has consummated the acquisitions of 48 community banks and thrifts, 47 insurance agencies and 14 nonbank financial services providers over the last ten years. BB&T expects to continue to take advantage of the consolidation of the financial services industry and expand and enhance its franchise through mergers and acquisitions. The consideration paid for these acquisitions may be in the form of cash, debt or BB&T stock. The amount of consideration paid to complete these transactions may be in excess of the book value of the underlying net assets acquired, which could have a dilutive effect on BB&T's earnings per share or book value. In addition, acquisitions sometimes result in significant front-end charges against earnings. However, cost savings, especially incident to in-market acquisitions, are also anticipated. Competition The financial services industry is highly competitive and dramatic change continues to occur. BB&T's subsidiaries compete actively with national and state banks, savings and loan associations, securities dealers, mortgage bankers, finance companies and insurance companies. Competition for financial products and services continues to grow as clients select from a variety of traditional and nontraditional alternatives. The industry continues to rapidly consolidate which affects competition by eliminating some regional and local institutions, while strengthening the franchise of acquirers. For additional information concerning markets, BB&T's competitive position and business strategies, see "Market Area" and "Lending Activities" below. Market Area BB&T's market area consists of North and South Carolina, Virginia, Maryland, Georgia, eastern Tennessee, West Virginia, eastern Kentucky and Washington, D.C. The area's employment base is diverse and primarily consists of manufacturing, general services, agricultural, wholesale/retail trade, technology and financial services. BB&T believes its current market area is economically strong and will support consistent growth in assets and deposits in the future. Even so, management intends to continue expanding the BB&T franchise. Management strongly believes that BB&T's community bank approach to providing client service is a competitive advantage which strengthens the Corporation's ability to enter new markets and effectively provide products and services to businesses and individuals in these markets. Lending Activities The primary goal of the BB&T lending function is to help clients achieve their financial goals and secure their financial futures on terms that are fair to the clients and profitable to the Corporation. This purpose can best be accomplished by building strong, profitable client relationships over time, with BB&T becoming an important contributor to the prosperity and well being of their clients. BB&T's philosophy of lending is to attempt to meet all legitimate business and consumer credit needs within defined market segments where standards of profitability, growth and quality can be met. Based on internal analyses, this philosophy has resulted in BB&T's loan portfolio consistently outperforming the average of our national peers in terms of asset quality, yield and rate of growth. 9 BB&T focuses lending efforts on small to intermediate commercial and industrial loans, one-to-four family residential mortgage loans and consumer loans. Typically, fixed-rate residential mortgage loans are sold in the secondary mortgage market and adjustable-rate residential mortgages are generally retained in the portfolio. Servicing rights on mortgage loans sold are typically retained by BB&T. As of December 31, 2000, BB&T's total mortgage servicing portfolio exceeded $23.6 billion. BB&T conducts the majority of its lending activities in the context of the Corporation's community bank focus, with lending decisions made as close to the client as practicable. The following table summarizes BB&T's loan portfolio based on the source of the underlying collateral, rather than the primary purpose of the loan. Table 2 Composition of Loan and Lease Portfolio*
December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Loans and leases: Commercial, financial and agricultural $ 5,893,808 $ 5,382,373 $ 5,055,051 $ 4,602,571 $ 4,013,399 Lease receivables 4,453,589 2,606,002 1,620,326 788,462 576,991 Real estate-- construction and land development 3,789,309 3,818,396 2,932,284 2,790,483 2,125,963 Real estate--mortgage 22,428,312 20,237,959 18,272,695 16,424,868 14,616,876 Consumer 5,368,810 4,589,510 4,035,015 3,952,321 3,997,544 ----------- ----------- ----------- ----------- ----------- Loans and leases held for investment 41,933,828 36,634,240 31,915,371 28,558,705 25,330,773 Loans held for sale 846,323 367,243 1,340,420 627,900 303,632 ----------- ----------- ----------- ----------- ----------- Total loans and leases $42,780,151 $37,001,483 $33,255,791 $29,186,605 $25,634,405 =========== =========== =========== =========== ===========
- -------- * Balances include unearned income. Mortgage Banking BB&T is the largest originator of residential mortgage loans in the Carolinas. Originations in 2000 were $4.7 billion. BB&T offers various types of fixed- and adjustable-rate loans for the purpose of constructing, purchasing or refinancing owner-occupied properties. Risks associated with the residential lending function include interest rate risk, which is mitigated through the sale of substantially all fixed-rate loans, and default risk by the borrower, which is lessened through underwriting procedures and mortgage insurance. BB&T also purchases mortgage loans from more than 100 correspondent originators. The loans purchased from third-party originators are subject to the same underwriting and risk management criteria as loans originated internally. Commercial Lending BB&T's commercial lending program is generally targeted to serve small-to- middle market businesses with sales of $200 million or less, although in-house limits do allow lending to larger customers, including national customers who have business connections with the Corporation's geographically-served markets. Commercial lending includes commercial, financial, agricultural, industrial and real estate loans. Pricing on commercial loans, driven largely by competition, is usually tied to market indexes, such as the prime rate, the London Interbank Offer Rate ("LIBOR") or rates on U.S. Treasury securities. For the second time in three years, BB&T received recognition from the U.S. Small Business Administration as the #1 "small business friendly" bank in the United States. Management believes that commercial lending to small and mid-sized businesses is BB&T's strongest market, as BB&T has the largest market share in all types of small business lending in the Carolinas. 10 Construction Lending Real estate construction loans include twelve-month contract home construction loans, which are intended to convert to permanent one-to-four family residential mortgage loans upon completion of the construction. BB&T is also in the commercial construction lending business. These loans are usually to in-market developers, businesses, individuals or real estate investors for the construction of commercial structures in BB&T's market area. They are made for purposes including, but not limited to, the construction of industrial facilities, apartments, shopping centers, office buildings, hotels and warehouses. The properties may be constructed for sale, lease or owner- occupancy. Consumer Lending BB&T offers a wide variety of consumer loan products. Various types of secured and unsecured loans are marketed to qualifying, existing clients and to other creditworthy candidates in BB&T's market area. Home equity loans and lines are underwritten with note amounts and credit limits that ensure consistency with the Corporation's policies. Numerous forms of unsecured loans, including revolving credits (e.g. credit cards, checking account overdraft protection and personal lines of credit) are provided and various installment loan products, such as vehicle loans, are offered. As a home equity lender, BB&T ranks third in portfolio size in the Southeast, and 12th nationwide. Leasing BB&T provides commercial leasing products and services through BB&T Leasing Corp. ("Leasing"), a subsidiary of BB&T-NC. Leasing provides three primary products: finance or capital leases, true leases (as defined under the Internal Revenue Code) and other operating leases for vehicles, rolling stock and tangible personal property. Leasing also provides lease-related services for small to medium-sized commercial customers. In addition, various other BB&T subsidiaries provide leases to municipalities and invest in leveraged lease transactions. The following table presents BB&T's total loan portfolio based on the primary purpose of the loan, rather than the underlying collateral: Table 3 Composition of Loan and Lease Portfolio Based on Loan Purpose
December 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Business loans $19,395,921 $16,668,979 $14,256,857 $14,055,066 $10,995,072 Lease receivables 2,100,956 1,508,396 992,684 616,302 470,456 ----------- ----------- ----------- ----------- ----------- Total commercial loans and leases 21,496,877 18,177,375 15,249,541 14,671,368 11,465,528 ----------- ----------- ----------- ----------- ----------- Sales Finance 2,700,858 2,433,717 2,131,190 1,657,487 1,575,049 Revolving Credit 840,613 693,133 583,083 553,179 552,425 Direct Retail 7,407,112 6,701,607 5,705,966 5,020,877 5,482,505 ----------- ----------- ----------- ----------- ----------- Total consumer loans 10,948,583 9,828,457 8,420,239 7,231,543 7,609,979 ----------- ----------- ----------- ----------- ----------- Mortgage loans 7,855,174 7,749,397 8,860,821 6,773,779 6,353,609 ----------- ----------- ----------- ----------- ----------- Total loans and leases $40,300,634 $35,755,229 $32,530,601 $28,676,690 $25,429,116 =========== =========== =========== =========== ===========
- -------- * Loans and leases are net of unearned income and include loans held for sale. 11 The following table reflects the scheduled maturities of commercial, financial and agricultural loans, as well as construction loans: 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) $ 456,120 $ 566,502 $1,022,622 1-5 years 1,094,008 305,039 1,399,047 After 5 years 257,500 -- 257,500 ---------- ---------- ---------- Total 1,807,628 871,541 2,679,169 ========== ========== ========== Variable rate: 1 year or less (2) 2,050,324 1,984,082 4,034,406 1-5 years 1,701,641 933,686 2,635,327 After 5 years 334,215 -- 334,215 ---------- ---------- ---------- Total 4,086,180 2,917,768 7,003,948 ---------- ---------- ---------- Total loans and leases (3) $5,893,808 $3,789,309 $9,683,117 ========== ========== ==========
- -------- (1) Balances include unearned income (2) Includes loans due on demand.
(Dollars in thousands) ----------- (3) This table excludes: (i) consumer loans to individuals for household, family and other personal expenditures $ 5,368,810 (ii)real estate mortgage loans 22,428,312 (iii)loans held for sale 846,323 (iv)lease receivables 4,453,589 ----------- $33,097,034 ===========
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. Allowance for Loan and Lease Losses The allowance for loan and lease losses is established through a provision for loan and lease losses charged against earnings. The level of the allowance for loan and lease losses reflects management's estimate of losses incurred in the portfolio as of the balance sheet date and is based on management's evaluation of the risks inherent in the loan portfolio and changes in the nature and volume of loan activity. Management's evaluation, which includes a review of loans for which full collectibility may not be reasonably assured, considers the loans' "risk grades," the estimated fair value of the underlying collateral, current economic conditions, historical loan loss experience and other current factors that warrant consideration in determining an adequate allowance. BB&T's 12 objective is to maintain a loan portfolio that is diverse in terms of loan type, industry concentration, geographic distribution and borrower concentration in order to reduce overall credit risk by minimizing the adverse impact of any single event or combination of related events. Reserve Policy and Methodology The allowance for loan and lease losses is composed of general reserves, specific reserves and an unallocated reserve. General reserves are established for the commercial loan portfolio using loss percentages that are determined based on management's evaluation of the losses inherent in the various risk grades of commercial loans. Commercial loans are categorized as one of ten risk grades based on management's assessment of the overall credit quality of the loan, including the payment history, the financial position of the borrower, underlying collateral, internal credit reviews and the results of external regulatory examinations. The general reserve percentages described above are then applied to each risk grade to calculate the necessary allowance to cover inherent losses in each risk category. The following table presents the risk grades and reserve percentages applicable to each grade at December 31, 2000 and 1999: Table 5 General Reserves for Commercial Loans December 31, 2000 and 1999
Percentage of General Commercial Loans Reserve Risk Grade by Risk Grade Percentage - ---------- ------------------ ------------ 2000 1999 2000 1999 -------- -------- ----- ----- Risk 0 (Loans from recently acquired institutions*) 1.22% 0.03% 1.30% 1.30% Risk 1 (Superior Quality) 3.17 4.25 0.10 0.10 Risk 2 (High Quality) 14.41 16.13 0.20 0.20 Risk 3 (Very Good Quality--Normal Risk) 28.43 30.49 0.60 0.60 Risk 4 (Good Quality--Normal Risk) 33.76 32.27 1.30 1.30 Risk 5 (Acceptable Quality) 13.50 11.75 2.25 2.25 Risk 6 (Management Attention) 3.02 2.85 3.25 3.25 Risk 7 (Special Mention) 0.55 0.73 5.00 5.00 Risk 8 (Substandard) 1.91 1.48 15.00 15.00 Risk 9 (Doubtful) 0.03 0.02 50.00 50.00
- -------- * Acquired companies that had not been converted to BB&T's operating systems at the dates indicated. The general reserve percentages used have been determined by management to be appropriate based primarily on historical loan losses and the level of risk assumed for the various risk grades. The reserve percentages for Special Mention, Substandard and Doubtful are based on the preferred rates used by banking regulators, and the other risk grades are "stepped down" from these percentages as loan quality improves. The process of classifying commercial loans into the appropriate risk grades is performed initially as a component of the approval of the loan by the appropriate credit officer. Based on the size of the loan, senior credit officers and/or the loan committee may review the classification to ensure accuracy and consistency of classification. Loan classifications are frequently reviewed by internal credit examiners to determine if any changes in the circumstances of the loan require a different risk grade. To determine the most appropriate risk grade classification for each loan, the credit officers examine the borrower's liquidity level, the quality of any collateral, the amount of the borrower's other indebtedness, cash flow, earnings, sources of financing and existing lending relationships. Specific reserves are provided on certain commercial loans that are classified in the Special Mention, Substandard or Doubtful risk grades. The specific reserves are determined on a loan-by- 13 loan basis based on management's evaluation of BB&T's loss exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. Loans for which specific reserves are provided are excluded from the general allowance calculations described above to prevent redundant reserves. The calculations of specific reserves on commercial loans also incorporate specific reserves based on the results of measuring impaired loans pursuant to the requirements of Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114, as amended, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. A loan is impaired when, based on current information and events, it is probable that BB&T will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the measure of the impaired loan is less than the recorded investment in the loan, the amount of the impairment is recorded through a specific reserve. 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 scope of SFAS No. 114 as they are comprised of large groups of smaller balance homogeneous loans (e.g. residential mortgage and consumer installment) that are collectively evaluated for impairment. General reserves are provided for noncommercial loans based on a four-year weighted average of actual loss experience of each major loan category, which is then applied to the total outstanding loan balance of each loan category. The weighted average loss experience for each category is determined as follows: assigning a 40% weight to the most recent year's loss experience for each category, a 30% weight to the loss ratio from two years ago, a 20% weight to the loss ratio from three years ago, and the remaining 10% weight applied to the loss ratio from four years ago. This methodology places greater emphasis on more recent loss trends and, therefore, provides a self-correcting mechanism for the differences between estimated and actual losses. There are two primary components considered in determining an appropriate level for the unallocated reserve. A portion of the unallocated reserve is established to cover the elements of imprecision and estimation risk inherent in the calculations of the general and specific reserves described above. The remaining portion of the unallocated allowance is determined based on management's evaluation of various conditions that are not directly measured by any other component of the allowance, including current 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 examinations 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 or to the reserving methodology may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information 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. The following table discloses an allocation of the allowance for loan and lease losses at the end of each of the past five years. The allowance has been allocated applying the methodologies described above to the loan portfolios based on the underlying purpose of the loans. Amounts applicable to years prior to 2000 have been restated for acquisitions accounted for as poolings of interests. The allowances for acquired companies that have been converted to BB&T's operating systems have been allocated to the various loan categories based on historic percentages applicable to BB&T's loan categories. This allocation of the allowance for loan and lease losses is calculated on an approximate basis and is not necessarily indicative of future losses. The entire amount of the allowance is available to absorb losses occurring in any category of loans and leases. 14 Table 6 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 53% $247,005 51% $212,472 47% $191,337 50% $169,256 45% --------- --- -------- --- -------- --- -------- --- -------- --- Direct Retail 20,665 19 23,174 19 19,041 18 16,769 18 12,935 22 Sales Finance 28,058 7 30,620 7 27,701 7 29,082 6 22,418 6 Revolving Credit 25,901 2 26,664 2 25,805 2 20,093 2 13,973 2 --------- --- -------- --- -------- --- -------- --- -------- --- Total Consumer 74,624 28 80,458 28 72,547 27 65,944 26 49,326 30 --------- --- -------- --- -------- --- -------- --- -------- --- Mortgage 2,700 19 2,420 21 3,533 26 2,757 24 2,647 25 Recently Acquired Subsidiaries* 27,112 -- 11,952 -- 11,538 -- 11,178 -- 11,017 -- Unallocated 121,606 -- 135,461 -- 142,251 -- 117,651 -- 113,865 -- --------- --- -------- --- -------- --- -------- --- -------- --- Total $ 521,960 100% $477,296 100% $442,341 100% $388,867 100% $346,111 100% ========= === ======== === ======== === ======== === ======== ===
- -------- * Acquired companies that had not been converted to BB&T's operating systems at the dates indicated. Table 7 Analysis of Allowance for Loan and Lease Losses
December 31, --------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands) Balance, beginning of period $ 477,296 $ 442,341 $ 388,867 $ 346,111 $ 320,599 ----------- ----------- ----------- ----------- ----------- Charge-offs: Commercial, financial and agricultural (23,943) (29,147) (18,765) (24,094) (16,793) Real estate (15,775) (17,192) (13,831) (16,226) (13,306) Consumer (86,892) (75,146) (80,989) (82,495) (59,862) Lease receivables (3,502) (993) (1,167) (671) (768) ----------- ----------- ----------- ----------- ----------- Total charge-offs (130,112) (122,478) (114,752) (123,486) (90,729) ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial, financial and agricultural 11,066 11,994 9,269 8,138 10,454 Real estate 3,136 4,146 4,153 5,882 7,171 Consumer 19,897 16,056 14,499 11,455 10,868 Lease receivables 312 107 425 232 136 ----------- ----------- ----------- ----------- ----------- Total recoveries 34,411 32,303 28,346 25,707 28,629 ----------- ----------- ----------- ----------- ----------- Net charge-offs (95,701) (90,175) (86,406) (97,779) (62,100) ----------- ----------- ----------- ----------- ----------- Provision charged to expense 127,431 114,433 114,729 123,096 77,919 ----------- ----------- ----------- ----------- ----------- Allowance of loans acquired in purchase transactions 12,934 10,697 25,151 17,439 9,693 ----------- ----------- ----------- ----------- ----------- Balance, end of period $ 521,960 $ 477,296 $ 442,341 $ 388,867 $ 346,111 =========== =========== =========== =========== =========== Average loans and leases* $37,569,941 $33,904,694 $30,543,475 $27,100,788 $24,438,883 Net charge-offs as a percentage of average loans and leases .25% .27% .28% .36% .25% =========== =========== =========== =========== ===========
- -------- * Loans and leases are net of unearned income and include loans held for sale. 15 Nonperforming Assets Nonperforming assets include nonaccrual loans and leases, foreclosed real estate and other repossessed collateral. It is BB&T's policy to place commercial loans and leases on nonaccrual status when full collection of principal and interest becomes doubtful, or when any portion of principal or interest becomes 90 days past due, whichever occurs first. When loans are placed on nonaccrual status, interest receivable is reversed against interest income in the current period and any prior year interest is charged off against the allowance for loan and lease losses. Interest payments received thereafter are applied as a reduction of the remaining principal balance so long as doubt 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 the collectibility of principal or interest is no longer doubtful. Mortgage loans and other consumer loans are also placed on nonaccrual status when full collection of principal and interest becomes doubtful, or they become delinquent for a specified period of time. Investment Activities BB&T maintains a portion of its assets as investment securities. BB&T's subsidiary banks are allowed to invest and deal in securities as prescribed by bank regulations. These securities include all obligations of the U.S. Treasury, agencies of the U.S. government, obligations of any state or political subdivision, various types of corporate debt, mutual funds, limited types of equity securities and certain derivative securities. Scott & Stringfellow, BB&T's full-service brokerage and investment banking subsidiary, is permitted to engage in the underwriting, trading and sales of equity and debt securities subject only to the risk management policies of the Corporation. BB&T's investment activities are governed internally by a written, board- approved policy. Investment policy is carried out by the Corporation's Asset/Liability Committee ("ALCO") which meets regularly to review the economic environment, assess current activities for appropriateness and establish investment strategies. The ALCO also has much broader responsibilities, which are discussed in "Market Risk Management", and in "Management's Discussion and Analysis of Financial Condition and Results of Operations." Investment strategies are established by the ALCO in consideration of the interest rate cycle, balance sheet mix, actual and anticipated loan demand, funding opportunities and the overall interest rate sensitivity of the Corporation. In general, the investment portfolio is managed in a manner appropriate to the attainment of the following goals: (i) to provide a sufficient margin of liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (ii) to provide eligible securities to secure public funds and trust deposits as prescribed by law; and (iii) to earn the maximum return on funds invested that is commensurate with meeting the requirements of (i) and (ii). 16 The following table provides information regarding the composition of BB&T's securities portfolio at the end of each of the past three years. Note that BB&T's trading securities, reflected in the accompanying table, represent positions held primarily by Scott & Stringfellow. Table 8 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 33,739 23,184 59,823 States and political subdivisions 35,535 379,822 533,371 Mortgage-backed securities -- -- 71,663 Other securities -- 1,891 8,786 ----------- ----------- ----------- Total securities held to maturity 69,274 404,897 673,643 ----------- ----------- ----------- Securities available for sale (at estimated fair value): U.S. Treasury, government and agency obligations 8,815,848 5,588,786 4,924,593 States and political subdivisions 953,379 615,878 229,343 Mortgage-backed securities 2,562,917 4,257,004 4,605,457 Other securities 1,449,719 1,796,154 1,414,361 ----------- ----------- ----------- Total securities available for sale 13,781,863 12,257,822 11,173,754 ----------- ----------- ----------- Total securities $13,947,856 $12,755,940 $11,907,819 =========== =========== ===========
Sources of Funds Deposits are the primary source of funds for lending and investing activities. Scheduled loan payments and maturities and prepayments from portfolios of loans and investment securities also provide a stable source of funds. Federal Home Loan Bank ("FHLB") advances, Federal funds purchased and other short-term borrowed funds, as well as longer-term debt issued through the capital markets, all provide supplemental liquidity sources. Deposits Deposits are attracted principally from clients within BB&T's market area through the offering of a broad selection of deposit instruments including noninterest-bearing checking accounts, interest-bearing checking accounts, savings accounts, money rate savings, certificates of deposit and individual retirement accounts. Deposit account terms vary with respect to the minimum balance required, the time period the funds must remain on deposit and service charge schedules. Interest rates paid on specific deposit types are set by the ALCO and are determined based on (i) the interest rates offered by competitors, (ii) anticipated amount and timing of funding needs, (iii) availability of and cost of alternative sources of funding and (iv) anticipated future economic conditions and interest rates. Client deposits are attractive sources of liquidity because of their stability, relative cost and the ability to generate fee income through service charges and the cross-sale of other services. 17 Table 9 Scheduled Maturities of Time Deposits $100,000 and Greater December 31, 2000 (Dollars in thousands) Maturity Schedule Less than three months $1,546,922 Three through six months 1,013,942 Seven through twelve months 1,124,876 Over twelve months 1,308,131 ---------- Total $4,993,871 ==========
Other Borrowed Funds BB&T's ability to borrow funds through nondeposit sources provides additional flexibility in meeting the liquidity needs of customers. Components of short- term borrowed funds at year end were master notes, securities sold under repurchase agreements, short-term FHLB advances, Federal funds purchased and U.S. Treasury tax and loan depository note accounts. See Note H. in the "Notes to Consolidated Financial Statements" for additional disclosures related to short-term borrowed funds. The following table summarizes certain pertinent information for the past three years with respect to BB&T's short-term borrowed funds: Table 10 Short-Term Borrowings
As of / For the Year Ended December 31, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (Dollars in thousands) Maximum outstanding at any month-end during the year $8,111,010 $8,101,034 $6,851,348 Balance outstanding at end of year 6,956,696 7,971,873 4,815,734 Average outstanding during the year 6,684,688 6,270,755 5,255,111 Average interest rate during the year 6.01% 4.89% 5.20% Average interest rate at end of year 6.12 4.28 4.82
BB&T also utilizes longer-term borrowings when management determines that the pricing and maturity options available through these sources create more cost- effective options for funding asset growth and satisfying capital needs. BB&T's long-term borrowings include capitalized leases, medium term bank notes, long- term FHLB advances, subordinated debt issued by BB&T Corporation and trust preferred securities. See Note I. in the "Notes to Consolidated Financial Statements" for additional disclosures related to long-term borrowings. Employees At December 31, 2000, BB&T had approximately 17,500 full-time equivalent employees compared to approximately 13,700 full-time equivalent employees at December 31, 1999, on an originally-reported basis. Properties BB&T and its significant subsidiaries occupy headquarters offices that are either owned or operated under long-term leases, and also own free-standing operations centers, with its primary operations and information technology center located in Wilson, North Carolina. BB&T also owns or 18 leases significant office space used as the Corporation's headquarters in Winston-Salem, North Carolina. At December 31, 2000, BB&T's subsidiary banks operated 854 branch offices in the Carolinas, Virginia, Maryland, Georgia, West Virginia, Tennessee, eastern Kentucky and Washington, D.C. Branch office locations are variously owned or leased. Management believes that the premises occupied by BB&T and its subsidiaries are well-located and suitably equipped to serve as financial services facilities. See Note F. "Premises and Equipment" of the "Notes to Consolidated Financial Statements" in this report for additional disclosures related to BB&T's properties and other fixed assets. Executive Officers of BB&T BB&T's Chairman and Chief Executive Officer is John A. Allison, IV. Mr. Allison is 52 and has 30 years of service with the Corporation. Henry G. Williamson, Jr. is the Chief Operating Officer for the Corporate Group. Mr. Williamson is 53 and has 29 years of service with the Corporation. Kelly S. King is the President of BB&T Corporation and is the Senior Executive Vice President for the Branch Network. Mr. King is 52 and has 29 years of service with the Corporation. W. Kendall Chalk is the Senior Executive Vice President for the Lending Group. Mr. Chalk is 55 and has served the Corporation for 26 years. Scott E. Reed is a Senior Executive Vice President and the Corporation's Chief Financial Officer. Mr. Reed is 52 and has 29 years of service with the Corporation. Robert E. Greene is the President of Branch Banking and Trust Company and is the Senior Executive Vice President for Administrative Services for the Corporation. Mr. Greene is 52 and has served the Corporation for 28 years. Sherry A. Kellett is a Senior Executive Vice President and the Corporation's Controller. Ms. Kellett is 56 and has 16 years of service with the Corporation. C. Leon Wilson is a Senior Executive Vice President and is the Corporation's Operations Division Manager. Mr. Wilson is 45 and has served BB&T for 24 years. 19 REGULATORY CONSIDERATIONS General As a bank holding company and, effective June 14, 2000, a financial holding company under the Gramm-Leach-Bliley Act of 1999, BB&T is subject to regulation under the Bank Holding Company Act of 1956, as amended, (the "BHCA") and the examination and reporting requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). As state-chartered commercial banks, BB&T-NC, BB&T-SC and BB&T-VA (collectively, the "State-Chartered Banks") are subject to regulation, supervision and examination by state bank regulatory authorities in their respective home states. These authorities include the North Carolina Commissioner of Banks, in the case of BB&T-NC, the South Carolina Commissioner of Banking, in the case of BB&T-SC, and the Virginia State Corporation Commission's Bureau of Financial Institutions, in the case of BB&T-VA. Each of the State-Chartered Banks is also subject to regulation, supervision and examination by the Federal Deposit Insurance Corporation (the "FDIC"). At December 31, 2000, BB&T also operated eight financial institutions that were subsidiaries of bank holding companies acquired by BB&T during 2000 (the "Acquired Banks") that will be merged into either BB&T-NC, BB&T-SC or BB&T-VA, as appropriate, during 2001. These banks include Hardwick Bank and Trust Company, First National Bank of Northwest Georgia, First Bulloch Bank & Trust Company, First National Bank of Effingham, Metter Banking Company, Wayne National Bank, BankFirst, and First National Bank and Trust Company. Hardwick Bank and Trust Company, First Bulloch Bank & Trust Company, and Metter Banking Company are state-chartered banks subject to supervision by the Georgia Department of Banking and Finance; BankFirst is a state-chartered bank subject to supervision by the State of Tennessee Department of Financial Institutions; First National Bank of Northwest Georgia, First National Bank of Effingham, Wayne National Bank, and First National Bank and Trust Company are Federally- chartered banks subject to regulation, supervision and examination by the U.S. Office of the Comptroller of the Currency (the "OCC"). In addition to the state regulators discussed herein, each of the Acquired Banks that is state-chartered is also subject to regulation, supervision, and examination by the FDIC. (References herein to the "Banks" include these Acquired Banks and the State- Chartered Banks). State and Federal law also govern the activities in which the Banks engage, the investments they make and the aggregate amount of loans that may be granted to one borrower. Various consumer and compliance laws and regulations also affect the Banks' operations. In addition to banking laws, regulations and regulatory agencies, BB&T and certain of its subsidiaries and affiliates are subject to various other laws and regulations and supervision and examination by other state and federal regulatory agencies. These include the regulation, examination and supervision of BB&T's subsidiaries and affiliates engaged in securities underwriting, dealing, brokerage, investment advisory activities and insurance activities. The earnings of BB&T's subsidiaries, and therefore the earnings of BB&T, are affected by general economic conditions, management policies, changes in state and Federal legislation and actions of various regulatory authorities, including those referred to above. The following description summarizes the significant state and Federal laws to which BB&T and the Banks are subject. To the extent statutory or regulatory provisions or proposals are described, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions or proposals. The Gramm-Leach-Bliley Act of 1999 The Gramm-Leach-Bliley Act of 1999 (the "GLB Act" or the "Act"), signed into law on November 12, 1999, amended a number of Federal banking laws that affect BB&T and its subsidiary banks, and the provisions of the Act that are believed to be of most significance to BB&T are discussed below. In particular, the GLB Act permits a bank holding company to elect to become a 20 financial holding company. In order to become and maintain its status as a financial holding company, the bank holding company and all of its affiliated depository institutions must be well-capitalized, well-managed, and have at least a satisfactory Community Reinvestment Act rating. BB&T filed an election and on June 14, 2000, became a financial holding company. Under the BHCA, a bank holding company, including a financial holding company, may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve Board. The BHCA, as amended by the GLB Act, now generally limits the activities of a bank holding company that is a financial holding company to that of banking, managing or controlling banks; performing certain servicing activities for subsidiaries; and engaging in any activity, or acquiring and retaining the shares of any company engaged in any activity, that is either (1) financial in nature or incidental to such financial activity, as determined by the Federal Reserve Board in consultation with the Secretary of the Treasury; or (2) complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally, as determined by the Federal Reserve Board. Activities that are "financial in nature" include those activities that the Federal Reserve Board had determined, by order or regulation in effect prior to enactment of the GLB Act, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The GLB Act covers a broad range of issues, including a repeal of most of the restrictions on affiliations among depository institutions, securities firms and insurance companies. In particular, the GLB Act repeals sections 20 and 32 of the Glass-Stegall Act, thus permitting unrestricted affiliations between banks and securities firms. The Act also provides that, while the states continue to have the authority to regulate insurance activities, in most instances they are prohibited from preventing or significantly interfering with the ability of a bank, directly or through an affiliate, to engage in insurance sales, solicitations or cross-marketing activities. A financial holding company, therefore, may engage in or acquire companies that engage in a broad range of financial services, including securities activities such as underwriting, dealing, brokerage, investment and merchant banking; and insurance underwriting, sales and brokerage activities. Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain areas identified in the Act. The Act directs the Federal bank regulatory agencies to adopt insurance consumer protection regulations that apply to sales practices, solicitations, advertising and disclosures, and such regulations have been adopted and will become effective April 1, 2001. The GLB Act includes a system of functional regulation under which the Federal Reserve Board is confirmed as the umbrella regulator for bank holding companies, but bank holding company affiliates are to be principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the Securities and Exchange Commission for securities affiliates and state insurance regulators for insurance affiliates. The Act repealed the broad exemption of banks from the definitions of "broker" and "dealer" for purposes of the Securities Exchange Act of 1934, but identifies a set of specific activities, including traditional bank trust and fiduciary activities, in which a bank may engage without being deemed a "broker", and a set of activities in which a bank may engage without being deemed a "dealer". The Act also makes conforming changes in the definitions of "broker" and "dealer" for purposes of the Investment Company Act of 1940 and the Investment Advisers Act of 1940. The GLB Act contains extensive customer privacy protection provisions. Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution's policies and procedures regarding the handling of customers' nonpublic personal financial information. The Act provides that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third 21 parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. An institution may not disclose to a non-affiliated third party, other than to a consumer reporting agency, customer account numbers or other similar account identifiers for marketing purposes. The Act also provides that the states may adopt customer privacy protections that are more strict than those contained in the Act. The Act also makes a criminal offense, except in limited circumstances, obtaining or attempting to obtain customer information of a financial nature by fraudulent or deceptive means. The Act also contains requirements for the posting of notices by operators of automated teller machines regarding fees charged for the use of such machines. Many of the GLB Act's provisions, including the customer privacy protection provisions, require the Federal bank regulatory agencies and other regulatory bodies to adopt regulations to implement those respective provisions. Most of the required implementing regulations have been proposed and/or adopted by the bank regulatory agencies as of December 31, 2000. Neither the provisions of the GLB Act nor the Act's implementing regulations as proposed or adopted have had a material impact on BB&T's or the Banks' regulatory capital ratios or well capitalized status (as discussed below) or ability to continue to operate in a safe and sound manner. Payment of Dividends BB&T is a legal entity separate and distinct from its subsidiaries. The majority of BB&T's revenue is from dividends paid to BB&T by its banking subsidiaries. BB&T's banking subsidiaries are subject to laws and regulations that limit the amount of dividends they can pay. In addition, both BB&T and its banking subsidiaries are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums. Banking regulators have indicated that banking organizations should generally pay dividends only if (1) the organization's net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (2) the prospective rate of earnings retention appears consistent with the organization's capital needs, asset quality and overall financial condition. BB&T does not expect that any of these laws, regulations or policies will materially affect the ability of the Banks to pay dividends. During the year ended December 31, 2000, the Banks declared $578.0 million in dividends payable to BB&T. Capital The Federal Reserve Board, the FDIC and the OCC have issued substantially similar risk-based and leverage capital guidelines applicable to banking organizations they supervise. Additionally as noted above, under the Gramm- Leach-Bliley Act of 1999, a bank holding company that elects to become a financial holding company must be well-managed, have at least a satisfactory Community Reinvestment Act rating, and be well-capitalized. Under the risk- based capital requirements, BB&T and the Banks are each generally required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of 8%. At least half of the total capital must be composed of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangibles ("Tier 1 capital"). The remainder may consist of certain subordinated debt, certain hybrid capital instruments, qualifying preferred stock and a limited amount of the loan loss allowance ("Tier 2 capital" which, together with Tier 1 capital, composes "total capital"). The ratios of Tier 1 capital and total capital to risk-adjusted assets for BB&T and the subsidiary banks as of December 31, 2000, are shown in the following table. In addition, each of the Federal bank regulatory agencies has established minimum leverage capital requirements for banking organizations. Pursuant to these requirements, banking organizations must maintain a minimum ratio of Tier 1 capital to adjusted average quarterly assets equal to 3% to 5% subject to federal bank regulatory evaluation of an organization's overall safety 22 and soundness. The leverage ratios of BB&T and the subsidiary banks as of December 31, 2000, also are reflected in the following table. Table 11 Capital Adequacy Ratios of 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% 9.3% 9.6% 9.0% 10.2% Total risk-based capital (2) 8.0 10.0 12.0 10.7 10.2 11.4 Tier 1 leverage ratio (3) 3.0 5.0 7.1 6.9 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. The Federal Deposit Insurance Corporation Act of 1991 ("FDICIA"), among other things, identifies five capital categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2000, BB&T and each of the Banks are classified as "well capitalized". FDICIA also requires the bank regulatory agencies to implement systems for "prompt corrective action" for institutions that fail to meet minimum capital requirements within these five categories, with progressively more severe restrictions on operations, management and capital distributions according to the category in which an institution is placed. Failure to meet capital requirements can also cause an institution to be directed to raise additional capital. FDICIA also mandates that the agencies adopt safety and soundness standards relating generally to operations and management, asset quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards. In addition, the Federal Reserve Board, the FDIC and the OCC each by regulation has adopted risk-based capital standards that explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution's ability to manage these risks, as important factors to be taken into account by each agency in assessing an institution's overall capital adequacy. The capital guidelines also provide that an institution's exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organization's capital adequacy. In addition to the "prompt corrective action" directives, failure to meet capital guidelines can subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC, and under certain conditions the appointment of a conservator or receiver. Deposit Insurance Assessments The deposits of the Banks are insured by the FDIC up to the limits set forth under applicable law. A majority of the deposits of the Banks are subject to the deposit insurance assessments of the Bank Insurance Fund ("BIF") of the FDIC. However, a portion of the Banks' deposits (relating to 23 the acquisitions of various savings associations) are subject to assessments imposed by the Savings Association Insurance Fund ("SAIF") of the FDIC. The FDIC equalized the assessment rates for BIF-insured and SAIF-insured deposits effective January 1, 1998. The assessments imposed on all FDIC deposits for deposit insurance have an effective rate ranging from 0 to 27 basis points per $100 of insured deposits, depending on the institution's capital position and other supervisory factors. Legislation was enacted in 1997 requiring both SAIF-insured and BIF-insured deposits to pay a pro rata portion of the interest due on the obligations issued by the Financing Corporation ("FICO"). The FDIC currently assesses BIF-insured and SAIF-insured deposits an additional 1.96 basis points per $100 of deposits to cover those obligations. Other Safety and Soundness Regulations There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by Federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event the depository institution is insolvent or is in danger of becoming insolvent. For example, under requirements of the Federal Reserve Board with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit resources to support such institutions in circumstances where it might not do so otherwise. In addition, the "cross- guarantee" provisions of Federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by either the SAIF or the BIF as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure. The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the SAIF or the BIF or both. The FDIC's claim for reimbursement under the cross guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institutions. State banking regulators and the OCC also have broad enforcement powers over the Banks, including the power to impose fines and other civil and criminal penalties, and to appoint a conservator (with the approval of the Governor in the case of North Carolina) in order to conserve the assets of any such institution for the benefit of depositors and other creditors. The North Carolina Commissioner also has the authority to take possession of a state bank in certain circumstances, including, among other things, when it appears that such bank has violated its charter or any applicable laws, is conducting its business in an unauthorized or unsafe manner, is in an unsafe or unsound condition to transact its business or has an impairment of its capital stock. Interstate Banking and Branching Current Federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Effective June 1, 1998, a bank headquartered in one state was authorized to merge with a bank headquartered in another state, as long as neither of the states had opted out of such interstate merger authority prior to such date, and subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years; and certain deposit market- share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable Federal or state law. 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following discussion and analysis of the consolidated financial condition and consolidated results of operations of BB&T Corporation and subsidiaries ("BB&T" or the "Corporation") for each of the three years in the period ended December 31, 2000, and related financial information, are presented in conjunction with the consolidated financial statements and related notes to assist in the evaluation of BB&T's 2000 performance. Stock Split On June 23, 1998, BB&T's Board of Directors approved a 2-for-1 split in the Corporation's common stock effected in the form of a 100% stock dividend paid August 3, 1998. All references to the number of common shares and all per share amounts contained herein have been adjusted, as appropriate, to retroactively reflect the stock split. Reclassifications In certain circumstances, reclassifications have been made to prior period information to conform to the 2000 presentation. Mergers and Acquisitions Completed during 2000 On January 13, 2000, BB&T completed its merger with Premier Bancshares, Inc. ("Premier"), based in Atlanta, Georgia. The transaction was accounted for as a pooling of interests. BB&T issued 16.8 million shares of common stock in exchange for all of the outstanding common and preferred shares of Premier. On June 13, 2000, BB&T completed its merger with Hardwick Holding Company ("Hardwick"), based in Dalton, Georgia. The transaction was accounted for as a pooling of interests. BB&T issued 3.9 million shares of common stock in exchange for all of the outstanding common shares of Hardwick. On June 15, 2000, BB&T completed its merger with First Banking Company of Southeast Georgia ("First Banking"), of Statesboro, Georgia. The transaction was accounted for as a pooling of interests. BB&T issued 4.1 million shares of common stock in exchange for all of the outstanding common shares of First Banking. On July 6, 2000, BB&T completed its merger with One Valley Bancorp, Inc. ("One Valley") of Charleston, West Virginia. The transaction was accounted for as a pooling of interests. In conjunction with the merger, BB&T issued 43.1 million shares of common stock in exchange for all of the outstanding common shares of One Valley. On September 29, 2000, BB&T completed its acquisition of Laureate Capital Corp. ("Laureate"), a commercial mortgage banking firm based in Charlotte, North Carolina. The transaction was accounted for as a purchase. On November 15, 2000, BB&T completed its acquisition of Edgar M. Norris & Co. ("Edgar Norris"), a brokerage firm based in Greenville, South Carolina. The transaction was accounted for as a purchase. 25 On December 27, 2000, BB&T completed its acquisition of BankFirst Corporation ("BankFirst") of Knoxville, Tennessee. To consummate the transaction, which was accounted for as a purchase, BB&T issued 5.3 million shares of common stock in exchange for all of the outstanding common and preferred shares of BankFirst. BB&T recorded goodwill totaling $71.0 million in connection with this acquisition, which is being amortized using the straight-line method over 15 years. Mergers and Acquisitions Pending at December 31, 2000 On July 27, 2000, BB&T announced plans to acquire FCNB Corp. ("FCNB") of Frederick, Maryland. FCNB has $1.6 billion in assets and operates 34 banking offices primarily in Frederick and Montgomery counties in central Maryland. The transaction, which was accounted for as a pooling of interests, was consummated on January 7, 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 not been restated to reflect the accounts of FCNB. On September 6, 2000, BB&T announced plans to acquire FirstSpartan Financial Corp. ("FirstSpartan") of Spartanburg, South Carolina. FirstSpartan has $591 million in assets and operates 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 $46.0 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. Shareholders of Century South will receive .93 shares of BB&T common stock in exchange for each share of Century South common stock held. The transaction, which is expected to be accounted for as a pooling of interests, is planned for completion in the second quarter of 2001. On January 24, 2001, BB&T announced plans to acquire Virginia Capital Bancshares Inc. ("VCAP") of Fredericksburg, Virginia. VCAP has $532.7 million in assets and operates four banking offices in the Washington-Baltimore combined metropolitan statistical area. Shareholders of VCAP will receive between .4958 and .6060 shares of BB&T common stock depending on a pricing period prior to the VCAP shareholders' meeting to vote on the proposed merger. The transaction, which is expected to be accounted for as a purchase, is planned for completion in the second quarter of 2001. 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. Shareholders of F&M will receive 1.09 shares of BB&T common stock in exchange for each share of F&M common stock held. The transaction, which is expected to be accounted for as a pooling of interests, is planned for completion in the third quarter of 2001. Analysis of Financial Condition BB&T's average assets totaled $55.0 billion for the year ended December 31, 2000, an increase of $4.1 billion, or 8.1%, compared to the 1999 average of $50.9 billion. The major balance sheet categories with increases in average balances were: loans and leases, up $3.7 billion, or 10.8%, and securities, which increased $173.6 million, or 1.3%. Total other earning assets decreased $122.7 million, or 28.2%, compared to 1999. Total earning assets averaged $51.3 billion in 2000, an increase of 26 $3.7 billion, or 7.8%, compared to 1999. The primary components of growth in average total earning assets were commercial loans and leases, which increased $2.6 billion, or 15.2%, and consumer loans, which increased $1.1 billion, or 13.0%. These increases were partially offset by a $129.5 million, or 1.7% decrease in average mortgage loans compared to 1999. BB&T's average deposits totaled $35.9 billion, reflecting growth of $2.2 billion, or 6.4%, compared to 1999. The categories of deposits with the highest growth rates were money rate savings, which increased $994.0 million, or 11.3%, noninterest-bearing deposits, which increased $210.7 million, or 4.5%, and domestic time deposits, which increased $688.9 million, or 4.3%. The growth realized in these areas was offset by declines in savings and interest checking of $558.5 million, or 17.4%. BB&T has increasingly utilized nondeposit funding sources in recent years to support balance sheet growth. Short-term borrowed funds include federal funds purchased, securities sold under repurchase agreements, master notes and Federal Home Loan Bank ("FHLB") advances. Average short-term borrowed funds totaled $6.7 billion for the year ended December 31, 2000, an increase of $414.0 million, or 6.6%, over the 1999 average. BB&T has also utilized long- term debt based on the flexibility and cost-effectiveness of the alternatives available. Long-term funding sources also include FHLB advances, subordinated debt issued by the Corporation and subordinated notes issued by the subsidiary banks. Average long-term debt totaled $7.3 billion for 2000, up $1.2 billion, or 18.9%, compared to 1999, with the majority of the increase comprised of FHLB advances. The compound annual rate of growth in average total assets for the five-year period ended December 31, 2000, was 9.8%. Over the same five-year period, average loans and leases increased at a compound annual rate of 10.6%, securities increased at a compound annual rate of 7.5%, and deposits grew at a compound annual rate of 6.9%. All growth rates have been enhanced by acquisitions accounted for as purchases, as well as by internal growth. Securities The securities portfolios provide earnings and liquidity, as well as providing an effective tool in managing interest rate risk. Management has historically emphasized investments with a duration of five years or less to provide greater flexibility in balance sheet management in changing interest rate environments. U.S. Treasury securities and U.S. government agency obligations, excluding mortgage-backed securities, comprised 63.4% of the portfolio at December 31, 2000, and provided improved yields compared to 1999. These securities had an average duration of 2.5 years at December 31, 2000. Mortgage-backed securities, which composed 18.4% of the total investment portfolio at year-end 2000, also provided improved yields compared to 1999, and generally have longer durations than BB&T's other investments. Total securities increased 9.3% in 2000, to a total of $13.9 billion at the end of the year. BB&T holds trading securities as a normal part of its operations. At December 31, 2000, BB&T had trading securities totaling $96.7 million that are reflected on BB&T's consolidated balance sheet. Market valuation gains and losses in BB&T's trading portfolio are reflected in current earnings. Securities held to maturity, which are composed of investments in obligations of states and municipalities, as well as investments in U.S. Treasuries, made up less than 1% of the total portfolio at December 31, 2000. Securities held to maturity are carried at amortized cost and totaled $69.3 million at December 31, 2000, compared to $404.9 million outstanding at the end of 1999. Market valuation gains and losses in the Corporation's held-to-maturity category affect neither earnings nor capital. The held-to-maturity portfolio had a net unrealized gain of $.5 million at December 31, 2000. Securities available for sale totaled $13.8 billion at year-end 2000 and are carried at estimated fair value. The available-for-sale portfolio is primarily composed of investments in U.S. Treasuries, government agency obligations and mortgage-backed securities. The available-for-sale portfolio also 27 contains investments in obligations of states and municipalities, which composed 6.9% of the available-for-sale portfolio, and equity and other securities, which comprised 10.5% of the available-for-sale portfolio. During the second and third quarters of 2000, BB&T restructured the available-for-sale securities portfolio. This restructuring was undertaken to improve the overall yield of the portfolio, improve the liquidity, and reduce the average duration of the portfolio. BB&T sold $5.9 billion of U.S. Treasuries, obligations of U.S. government agencies, and mortgage-backed securities. BB&T incurred approximately $222 million in pretax losses as a result of these sales. The proceeds from these sales were reinvested in higher yielding securities, primarily obligations of U.S. government agencies. The restructuring improved the yield on the restructured portion of the portfolio by 133 basis points, from 6.31% to 7.64%. Management expects to recover the losses incurred over a three-year period through increased interest income generated as a result of the restructuring. As of December 31, 2000, the securities purchased as part of the restructuring had unrealized pretax gains of $203.0 million. The following table presents BB&T's securities portfolio by category disclosing maturities and average yields. Table 12 Securities
December 31, 2000 --------------------- Carrying Average Value Yield (3) ----------- --------- (Dollars in thousands) U.S. Treasury, government and agency obligations (1): Within one year $ 322,915 6.63% One to five years 4,962,833 7.35 Five to ten years 3,830,162 7.63 After ten years 2,296,594 6.99 ----------- ---- Total 11,412,504 7.35 ----------- ---- States and political subdivisions: Within one year 26,773 7.48 One to five years 163,319 7.63 Five to ten years 500,284 7.55 After ten years 298,538 7.52 ----------- ---- Total 988,914 7.55 ----------- ---- Other securities: Within one year 5,393 6.35 One to five years 20,928 7.00 Five to ten years 10,280 6.75 After ten years 88,711 6.75 ----------- ---- Total 125,312 6.77 ----------- ---- Securities with no stated maturity 1,421,126 5.80 ----------- ---- Total securities (2) $13,947,856 7.20% =========== ====
- -------- (1) Included in U.S. Treasury, government and agency obligations are mortgage- backed securities totaling $2.6 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 $69.3 million carried at amortized cost, and securities available for sale and trading securities carried at estimated fair values of $13.8 billion and $96.7 million, respectively. (3) Taxable equivalent basis as applied to amortized cost. 28 The available-for-sale portfolio composed 98.8% of total securities at December 31, 2000. Management believes that the high concentration of securities in the available-for-sale portfolio allows greater flexibility in the day-to-day management of the overall portfolio than the held-to-maturity classification. The market value of the available-for-sale portfolio at year-end 2000 was $175.0 million greater than the amortized cost of these securities. At December 31, 2000, BB&T's available-for-sale portfolio had net unrealized appreciation, net of deferred income taxes, of $103.5 million, which is reported as a separate component of shareholders' equity. At December 31, 1999, the available-for-sale portfolio had net unrealized depreciation of $309.4 million, net of deferred taxes. The net unrealized gains recorded in the available-for- sale portfolio at year-end 2000 reflect the results of the portfolio restructuring undertaken during the year. The fully taxable equivalent ("FTE") yield on the total securities portfolio was 7.00% for the year ended December 31, 2000, compared to 6.57% for the prior year. The increase in the FTE yield reflects higher yields earned on U.S. Treasuries, agency obligations and mortgage-backed securities due to the successful restructuring of the portfolio. The yield on U.S. Treasury and government agency obligations increased from 6.51% in 1999 to 7.02% in 2000, while the yield on mortgage-backed securities increased from 6.49% to 6.90% and the FTE yield on state and municipal securities decreased from 7.65% last year to 7.49% in the current year. As previously mentioned, the restructuring improved the yield on the restructured portion of the portfolio by 133 basis points, which contributed significantly to the overall securities yield. Loans and Leases BB&T continued to enjoy strong loan growth during 2000, with end of period loans, excluding loans held for sale, increasing $4.1 billion, or 11.5%, as compared to 1999. Average total loans and leases for 2000 increased $3.7 billion, or 10.8%, as compared to 1999. Commercial and consumer loan portfolios grew at a much faster rate than mortgage loans during 2000, which reflected a slow-down in the mortgage market due to rising interest rates as well as the securitization of a part of the existing mortgage portfolio. BB&T acquired a number of community banks and thrift institutions in recent years, which resulted in a significant percentage of the consolidated loan portfolio being composed of mortgages. Also, BB&T is the largest originator of mortgage loans in the Carolinas. Through the use of securitization programs and sales of fixed-rate mortgage loan originations, combined with BB&T's commercial and consumer lending focus, the mix of the loan portfolio has changed in recent periods compared to prior years. The change in the weighting of the portfolio to a higher percentage of commercial and consumer loans and a lower percentage of mortgage loans has had a positive effect on the overall yield of the portfolio. Average mortgage loans decreased $129.5, million or 1.7%, in 2000 as compared to 1999, and represented 20.2% of average total loans, compared to 22.7% a year ago. Average commercial loans, including lease receivables, increased 15.2% in 2000 as compared to 1999, and now compose 52.2% of the loan portfolio, compared to 50.2% in 1999. Average consumer loans, which includes sales finance, revolving credit and direct retail, increased $1.2 billion, or 13.2%, for the year ended December 31, 2000 as compared to the same period in 1999 and compose the remaining 27.6% of average loans. The growth rates of average loans in the current year were affected by loan portfolios held by companies that were acquired during 2000 and accounted for as purchases. Also, the securitization of $304.8 million of mortgage loans during 1999 and $984.5 million in 2000 affected the reported growth in average mortgage loans. During 2000, loans totaling $612.7 million were acquired through the purchase of BankFirst Corporation ("BankFirst"). Excluding the effect of these purchase accounting transactions and the loan securitizations, average "internal" loan growth for the year ended 29 December 31, 2000, was 11.9% compared to 1999. Excluding the effects of purchase accounting transactions and loan securitizations, average mortgage loans, including loans held for sale, increased 7.1%, commercial loans grew 14.7%, and consumer loans increased 10.5% in 2000 as compared to 1999. The combination of the change in loan mix to a higher percentage of commercial and consumer loans, the growth of the overall loan portfolio and the increase in the yield of the portfolio, from 8.79% for the twelve months of 1999 to 9.34% in 2000, resulted in a 17.2% increase in interest income from loans and leases in the current year. The average annualized fully taxable equivalent ("FTE") yields on commercial, consumer and mortgage loans for 2000 were 9.56%, 10.14%, and 7.73%, respectively. The 55 basis point increase in the average yield on loans resulted from the aforementioned more profitable mix of loan portfolio and generally higher interest rates prevalent during 2000, including a higher average prime rate, compared to 1999. For the year ended 2000, the prime rate, which is the basis for pricing many commercial and consumer loans, averaged 9.24%, compared to 8.00% for 1999. Asset Quality BB&T's asset quality remained excellent at December 31, 2000. Nonperforming assets totaled $193.5 million at year-end, as compared to $152.6 million in 1999, an increase of 26.8%. Nonaccrual and restructured loans and leases at year-end 2000 increased to $150.5 million, or 24.7%, over 1999, while assets acquired through foreclosure and repossession increased to $43.0 million, an increase of 34.9% over 1999. As a percentage of total assets, nonperforming assets were .33% at December 31, 2000, compared to .29% at the end of 1999. As a percentage of loans plus foreclosed properties, nonperforming assets totaled .48% at December 31, 2000, compared to .43% at the end of 1999. The allowance for loan and lease losses, as a percentage of loans and leases, was 1.30% at December 31, 2000, compared to 1.33% at year-end 1999. Loans 90 days or more past due and still accruing interest increased to $72.3 million at year-end 2000 compared to $60.0 million at December 31, 1999. Net charge- offs as a percentage of average loans and leases also improved during 2000, decreasing to .25% from .27% in 1999. 30 The following table reflects relevant asset quality information for BB&T for the past three years. Table 13 Asset Quality
December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in thousands) Nonaccrual loans and leases* $149,945 $118,975 $119,138 Restructured loans 492 1,681 3,744 Foreclosed property 43,033 31,894 37,231 -------- -------- -------- Nonperforming assets $193,470 $152,550 $160,113 ======== ======== ======== Loans 90 days or more past due and still accruing $ 72,256 $ 59,974 $ 63,316 ======== ======== ======== Asset Quality Ratios: Nonaccrual and restructured loans and leases as a percentage of loans and leases .37% .34% .38% Nonperforming assets as a percentage of: Total assets .33 .29 .33 Loans and leases plus foreclosed property .48 .43 .49 Net charge-offs as a percentage of average loans and leases .25 .27 .28 Allowance for losses as a percentage of loans and leases 1.30 1.33 1.37 Ratio of allowance for losses to: Net charge-offs 5.45x 5.29x 5.12x Nonaccrual and restructured loans and leases 3.47 3.96 3.60
- -------- NOTE: Items referring to loans and leases are net of unearned income and include loans held for sale. * Includes $42.7 million, $39.1 million and $50.7 million of impaired loans at December 31, 2000, 1999 and 1998, respectively. See Note D in the "Notes to Consolidated Financial Statements." Allowance for Loan and Lease Losses BB&T's allowance for loan and lease losses totaled $522.0 million at December 31, 2000, compared to $477.3 million at the end of 1999, an increase of 9.4%. As a percentage of loans and leases outstanding, the allowance decreased from 1.33% at December 31, 1999, to 1.30% at the end of 2000, as a result of continued strong asset quality. The ratio of the allowance to net charge-offs increased from 5.29 times for 1999 to 5.45 times in 2000. BB&T provides specific allowances for certain business loans and lease receivables and provides general allowances for all types of loans to provide for losses inherent in the loan portfolios. As disclosed in Table 5 in "Description of Business," the general reserve percentages applied to the various risk grades of commercial loans did not change from 1999 to 2000, reflecting management's determination that the overall risk associated with each risk grade did not change substantially during 2000. As is also visible in the table, the percentages of commercial loans in each risk grade did not significantly change from 1999 to 2000. Specific reserves are typically provided on all loans classified as Special Mention, Substandard or Doubtful. The general reserve percentages disclosed in Table 5 are applied to the commercial loan balances in each risk grade to determine the total general reserves on commercial loans and lease receivables. Please refer to the discussion preceding and following Table 5 for BB&T's reserve policy and methodology. General reserves established to cover losses inherent in noncommercial loan categories are derived based on a weighted average of actual loan losses over the last four years. Thus, these rates 31 change each year based on trends in actual observed loan losses. To calculate the reserve rate applied to each category, a weight of 40% is given to the most current year's loan loss percentage. A weight of 30% is applied to the loan loss ratio from two years ago, a 20% weight to the loss ratio from three years ago, and the remaining 10% weight is applied to the loan loss percentage from four years ago. The resulting reserves are applied to the outstanding loan balances at period end to determine the total general reserves on noncommercial loans. Specific reserves may be established for noncommercial loans as considered necessary. Recently acquired subsidiaries are considered separately for purposes of calculating the allowance for loan losses. At December 31, 2000, these subsidiaries included Hardwick Holding Company and First Banking Company of Southeast Georgia, which were acquired in June, 2000 and accounted for as poolings of interests, and BankFirst Corporation, which was acquired in December, 2000 and accounted for as a purchase. These recently acquired subsidiaries, which have not yet been converted to BB&T's operating systems, are considered separately because the related loans have not yet been subjected to BB&T's credit monitoring policies and procedures, nor have they been assigned a BB&T risk grade. Management considers historical loan loss experience in determining reserves for these subsidiaries. Also, evidence gathered during due diligence performed in connection with the mergers is considered in calculating the reserve. At December 31, 2000 and 1999, these subsidiaries had $1.3 billion and $637.7 million in total loans outstanding, respectively, and related reserves totaling $27.1 million and $12.0 million, respectively. The unallocated allowance totaled $121.6 million at December 31, 2000, down from $135.5 million, or 10.2%, from the unallocated balance at December 31, 1999, as restated for business combinations accounted for as poolings of interests. The unallocated allowance was 23.3% of the total allowance at 2000, compared to 28.4% in 1999. Due to the effects of mergers and acquisitions, which in many cases had higher relative allowance levels than BB&T in the period preceding completion of the transaction, together with BB&T's continued strong credit quality, the overall allowance as a percentage of outstanding loans and leases decreased slightly, from 1.33% of total loans and leases at December 31, 1999, to 1.30% of total loans at year-end 2000. As a result of the methodology utilized by BB&T in restating prior year allowance allocations for merged companies, the portion of these companies' allowance considered unallocated for periods prior to 2000 is typically higher in relation to their total allowance than that of BB&T. This contributed to the decline in this element of the allowance at year-end 2000 compared to 1999. Please refer to Table 6 in the "Description of Business" section, which reflects BB&T's allowance allocations for the last five years. Management does not believe that the level of risk inherent in the categories of the portfolio at year-end 2000 changed substantially compared to year-end 1999. Because of this, there were no changes in the estimation methods or fundamental assumptions used in the calculations. The higher outstanding balance of commercial loans and lower balance of mortgage loans at December 31, 2000, compared to year-end 1999, resulted in the fluctuations in specific and general reserves applicable to those loan types. There were no reallocations of the allowance from 1999, nor were there any significant changes in asset quality trends other than as discussed in "Asset Quality." Deposits and Other Borrowings Client deposits generated through the BB&T branch network are the largest source of funds to support loan and other asset growth. Core deposits compose BB&T's primary source of funding; however, as depositors have sought greater returns on their investment growth rates of core deposits have not kept pace with asset growth. Therefore, nondeposit funding sources have increasingly been used to fund balance sheet growth. Total deposits at December 31, 2000, were $38.0 billion, an increase of $3.9 billion, or 11.3%, compared to year-end 1999. The increase in deposits was driven by a 15.9% increase in money rate savings accounts, a 17.9% increase in certificates of deposit and other time deposits, and a 4.5% increase in noninterest-bearing deposits. For the year ended December 31, 2000, total deposits 32 averaged $35.9 billion, an increase of $2.2 billion, or 6.4%, compared to 1999. This increase was led by a 4.5% increase in average noninterest-bearing deposits and an 11.3% increase in money rate savings accounts. These increases were offset by a 17.4% decrease in average savings and interest-checking accounts. Other time deposits, including individual retirement accounts and certificates of deposit, increased 8.9% on average in 2000 and remain BB&T's largest category of average deposits, comprising 51.7% of average total deposits. The average rates paid on interest-bearing deposits increased during 2000 to 4.77% from 4.14% in 1999. The increase resulted from higher average rates paid on most major categories of interest-bearing deposits. The average rate paid on certificates of deposit and other time deposits increased from 5.16% in 1999 to 5.82% in the current year and the average cost of money rate savings increased from 2.97% to 3.63% in 2000. These increases were offset somewhat by decreases in the average cost of interest-checking from 1.93% to 1.77% and savings deposits from 1.88% to 1.61%. BB&T also uses various types of short-term borrowed funds to supplement deposits in order to fulfill funding needs. The types of short-term borrowings utilized by the Corporation include Federal funds purchased, which composed 20.0% of total short-term borrowed funds and securities sold under repurchase agreements, which comprised 37.3% of short-term borrowed funds at year-end 2000. Master notes, U.S. Treasury tax and loan deposit notes, short-term bank notes and short-term Federal Home Loan Bank ("FHLB") advances are also utilized to meet short-term funding needs. Average short-term borrowed funds totaled $6.7 billion during 2000, an increase of $413.9 million, or 6.6%, from 1999, while short-term borrowed funds at year-end 2000 were $7.0 billion, an decrease of $1.0 billion, or 12.7%, compared to year-end 1999. The rates paid on average short-term borrowed funds increased from 4.89% in 1999 to 6.01% during 2000. The increase in the cost of short-term borrowed funds resulted from the higher interest rate environment during 2000, resulting in a 127 basis point increase in the average Federal funds rate for 2000. BB&T also utilizes long-term debt to provide both funding and, to a lesser extent, regulatory capital. Total outstanding long-term debt at December 31, 2000, totaled $8.4 billion, an increase of $2.3 billion, or 37.6%, from year- end 1999. After long-term rates peaked in May, BB&T systematically added longer term debt in order to take advantage of declining rates. For the year ended December 31, 2000, average long-term debt increased $1.2 billion, or 18.9%, compared to the average for 1999. BB&T's long-term debt consists primarily of FHLB advances, which composed 73.9% of total outstanding long-term debt at December 31, 2000, and medium-term bank notes, which composed 14.4% of the year-end balance. FHLB advances are cost-effective long-term funding sources that provide BB&T the flexibility to structure the debt in a manner that aids in the management of interest rate risk and liquidity. The average rate paid on long-term debt increased from 5.47% during 1999 to 6.05% during 2000. Liquidity needs are a primary consideration in evaluating funding sources. BB&T's strategy is to maintain funding flexibility, in order that the Corporation may react rapidly to opportunities that may become available in the marketplace. BB&T will continue to focus on traditional core funding strategies, including targeting growth in noninterest-bearing deposits and money rate savings accounts. Also, if rates and terms are deemed attractive, additional long-term funding may be pursued. Analysis of Results of Operations Consolidated net income for 2000 totaled $626.4 million, which generated basic earnings per share of $1.57 and diluted earnings per share of $1.55. Net income for 1999 was $705.6 million and net income for 1998 totaled $651.7 million. Basic earnings per share were $1.78 in 1999 and $1.67 in 1998, while diluted earnings per share were $1.75 and $1.64, respectively. 33 BB&T incurred significant expenses related principally to the consummation of mergers and acquisitions during 2000, 1999 and 1998, which are reflected in reported earnings. During 2000, BB&T recorded $248.6 million in after-tax nonrecurring charges primarily associated with the mergers of Premier, Hardwick, First Banking and One Valley, and with the restructuring of the securities portfolio as discussed in "Securities" above. Merger-related charges include the consolidation of branch offices and bank operating functions, merger-related personnel costs and other expenses. Excluding the effects of these items, BB&T's net income for 2000 would have been $875.1 million, or $2.17 per diluted share. In 1999, BB&T incurred $61.7 million in net after-tax charges primarily incurred in conjunction with mergers and acquisitions. These expenses included personnel-related expenses, such as staff relocation, early retirement packages and contract settlements; occupancy, furniture and equipment expenses including branch consolidation; and other costs, such as operational charge-offs, professional fees, etc. Excluding the effects of these charges, BB&T's net income for 1999 would have totaled $767.3 million, or $1.91 per diluted share. In 1998, BB&T incurred $17.9 million in net after-tax charges primarily incurred in conjunction with mergers and acquisitions. These expenses included costs similar in type to those described in the preceding paragraph. Excluding the effects of these charges, BB&T's net income for 1998 would have totaled $669.7 million, or $1.68 per diluted share. Excluding the effect of the above nonrecurring items from the three years presented, BB&T's net income for 2000 increased $107.8 million, or 14.0%, compared to 1999, while diluted earnings per share increased $.26, or 13.6%. Net income for 1999, excluding nonrecurring items, increased $97.6 million, or 14.6%, while diluted earnings per share increased $.23, or 13.7%, compared to 1998. Two important and commonly used measures of profitability are return on assets (net income as a percentage of average total assets) and return on shareholders' equity (net income as a percentage of average common shareholders' equity). BB&T's returns on average assets were 1.14%, 1.39% and 1.43% for the years ended December 31, 2000, 1999 and 1998, respectively. The returns on average common shareholders' equity were 14.55%, 17.45% and 17.41% for the last three years. The returns on average assets produced by BB&T's earnings, excluding the nonrecurring charges discussed above, were 1.59% for 2000, 1.51% for 1999 and 1.47% for 1998. BB&T's returns on average shareholders' equity, excluding the nonrecurring charges, were 20.33%, 18.97% and 17.89%, for the years ended December 31, 2000, 1999 and 1998, respectively. Net Interest Income Net interest income is BB&T's primary source of revenue. Net interest income is influenced by a number of factors, including the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned on earning assets and the interest rates paid to obtain funding to support the assets. The difference between rates earned on interest-earning assets (with an adjustment made to tax-exempt income to provide comparability with taxable income, i.e. the "FTE" adjustment) and the cost of the supporting funds is measured by the net interest margin. The accompanying table presents the dollar amount of changes in interest income and interest expense, and distinguishes between the changes related to increases or decreases in average outstanding balances of interest-earning assets and interest-bearing liabilities (volume), and the changes related to increases or decreases in average interest rates on such assets and liabilities (rate). Changes attributable to both volume and rate have been allocated proportionately. 34 Table 14 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 $12,420,661 $12,261,714 $10,899,209 6.96% 6.49% 6.65% $864,961 $ 795,483 $ 725,280 States and political subdivisions 970,622 955,994 649,383 7.49 7.65 7.99 72,740 73,100 51,888 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total securities (5) 13,391,283 13,217,708 11,548,592 7.00 6.57 6.73 937,701 868,583 777,168 Other earning assets (2) 311,774 434,495 438,079 6.82 5.06 5.56 21,266 21,997 24,345 Loans and leases, net of unearned income (1)(3)(4)(5) 37,569,941 33,904,694 30,543,475 9.34 8.79 9.07 3,510,735 2,981,635 2,769,855 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total earning assets 51,272,998 47,556,897 42,530,146 8.72 8.14 8.40 4,469,702 3,872,215 3,571,368 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Non-earning assets 3,689,318 3,307,595 2,951,782 ----------- ----------- ----------- Total assets $54,962,316 $50,864,492 $45,481,928 =========== =========== =========== Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest- checking $ 2,646,809 $ 3,205,315 $ 3,519,414 1.68 1.90 2.13 44,363 60,897 75,056 Money rate savings 9,789,555 8,795,744 7,123,108 3.63 2.97 3.13 355,005 261,375 222,767 Other time deposits 18,568,252 17,044,678 16,302,152 5.82 5.16 5.48 1,080,908 879,195 892,836 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total interest- bearing deposits 31,004,616 29,045,737 26,944,674 4.77 4.14 4.42 1,480,276 1,201,467 1,190,659 Short-term borrowed funds 6,684,688 6,270,755 5,255,111 6.01 4.89 5.20 401,713 306,545 273,223 Long-term debt 7,271,632 6,116,548 4,647,116 6.05 5.47 5.79 440,057 334,593 269,226 ----------- ----------- ----------- ---- ---- ---- ---------- ---------- ---------- Total interest- bearing liabilities 44,960,936 41,433,040 36,846,901 5.16 4.45 4.70 2,322,046 1,842,605 1,733,108 Noninterest- bearing deposits 4,893,035 4,682,417 4,248,653 Other liabilities 803,514 705,051 643,028 Shareholders' equity 4,304,831 4,043,984 3,743,346 ----------- ----------- ----------- Total liabilities and shareholders' equity $54,962,316 $50,864,492 $45,481,928 =========== =========== =========== Average interest rate spread 3.56 3.69 3.70 Net yield on earning assets 4.19% 4.27% 4.32% $2,147,656 $2,029,610 $1,838,260 ==== ==== ==== ========== ========== ========== Taxable equivalent adjustment $ 130,028 $ 96,662 $ 78,555 ========== ========== ========== 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 $ 69,478 $ 59,053 $ 10,425 $ 70,203 $(18,570) $ 88,773 States and political subdivisions (360) (1,469) 1,109 21,212 (2,321) 23,533 ---------- --------- --------- ---------- --------- --------- Total securities (5) 69,118 57,584 11,534 91,415 (20,891) 112,306 Other earning assets (2) (731) 6,450 (7,181) (2,348) (2,150) (198) Loans and leases, net of unearned income (1)(3)(4)(5) 529,100 193,996 335,104 211,780 (85,800) 297,580 ---------- --------- --------- ---------- --------- --------- Total earning assets 597,487 258,030 339,457 300,847 (108,841) 409,688 ---------- --------- --------- ---------- --------- --------- Non-earning assets Total assets Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest- checking (16,534) (6,669) (9,865) (14,159) (7,789) (6,370) Money rate savings 93,630 61,892 31,738 38,608 (11,552) 50,160 Other time deposits 201,713 118,981 82,732 (13,641) (53,269) 39,628 ---------- --------- --------- ---------- --------- --------- Total interest- bearing deposits 278,809 174,204 104,605 10,808 (72,610) 83,418 Short-term borrowed funds 95,168 73,896 21,272 33,322 (17,073) 50,395 Long-term debt 105,464 37,980 67,484 65,367 (15,727) 81,094 ---------- --------- --------- ---------- --------- --------- Total interest- bearing liabilities 479,441 286,080 193,361 109,497 (105,410) 214,907 Noninterest- bearing deposits Other liabilities Shareholders' equity Total liabilities and shareholders' equity Average interest rate spread Net yield on earning assets $118,046 $(28,051) $146,096 $191,350 $ (3,431) $194,781 ========== ========= ========= ========== ========= ========= 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. 35 For 2000, net interest income on an FTE adjusted basis totaled $2.1 billion, compared with $2.0 billion in 1999 and $1.8 billion in 1998. The increase in net interest income during 2000 resulted from increased interest income from loans, up $529.1 million and from investment securities, up $69.1 million. During the same period, average balances of deposits and short-term and long- term borrowing, as well as higher average costs for these funds, resulted in an increase of $479.4 million in total interest expense. The FTE-adjusted net interest margin is the primary measure used in evaluating the effectiveness of the management of earning assets and the liabilities funding those assets. The FTE adjusted net interest margin was 4.19% in 2000, 4.27% in 1999 and 4.32% in 1998. The eight basis point decrease in margin during 2000 primarily resulted from three principal factors. First, the most substantial component of the decline was the increased costs of interest-bearing deposits and borrowed funds. Second, BB&T increased the level of its investments in bank owned life insurance products, which add to the cost of funds included in interest expense, but produce revenue that is classified as noninterest income. Third, BB&T has had an active common stock repurchase program in recent years. For acquisitions accounted for under the purchase method of accounting, it is BB&T's policy to acquire the shares of its common stock that will be issued to consummate those transactions, as allowed under generally accepted accounting standards. The cost of funds related to share repurchases resulted in an approximate two basis point decline in 2000 margin. In order to partially offset the decrease in margin discussed above, BB&T restructured the available-for-sale securities portfolio early in the third quarter of 2000, as referred to in "Securities" above. The restructuring was undertaken to improve the overall yield of the portfolio, reduce the duration and improve the liquidity of the portfolio. BB&T reinvested the proceeds from these sales in higher yielding securities resulting in an improvement of approximately five basis points in the 2000 net interest margin. Provision for Loan and Lease Losses A provision for loan and lease losses is charged against earnings in order to maintain the allowance for loan and lease losses at a level that reflects management's evaluation of the risk inherent in the portfolio as discussed above. The amount of the provision is based on continuing assessments of nonperforming and "watch list" loans, analytical reviews of loan loss experience in relation to outstanding loans, and management's judgment with respect to current and expected economic conditions and their impact on the existing loan portfolio. The provision for loan and lease losses recorded by BB&T in 2000 was $127.4 million, compared with $114.4 million in 1999 and $114.7 million in 1998. The increase in the current year provision for loan and lease losses resulted from increased dollars of net charge-offs during the year, as well as adjustment for acquired companies in order to comply with BB&T's reserve policy. Net charge-offs were .25% of average loans and leases for 2000 compared to .27% of average loans during 1999. The allowance for loan and lease losses was 1.30% of loans and leases outstanding and was at 3.47 times total nonaccrual and restructured loans and leases at year-end 2000, compared to 1.33% and 3.96 times, respectively, at December 31, 1999. Noninterest Income Noninterest income includes service charges on deposit accounts, trust revenues, mortgage banking income, investment banking and brokerage fees, insurance commissions, gains and losses on securities transactions and other commissions and fees derived from bank-related activities. Noninterest income for 2000 totaled $777.0 million, compared with $875.1 million in 1999 and $690.4 million in 1998. The 2000 noninterest income reflects a decrease of $98.1 million, or 11.2%, 36 compared to 1999. Noninterest income for 1999 was $184.7 million, or 26.7%, higher than 1998. The 2000 results includes the effect of the restructuring of the securities portfolio during the second and third quarters of the year (as further discussed in the "Securities" section), which reduced total noninterest income by $222 million. Excluding the effect of the securities portfolio restructuring, noninterest income would have increased $123.9 million, or 14.2%, compared to 1999. The major categories of noninterest income for 2000 are discussed in the following paragraphs. Service charges on deposit accounts represent BB&T's largest single source of noninterest revenue. Such revenues totaled $264.1 million in 2000, an increase of $24.9 million, or 10.4%, compared to 1999. Service charges during 1999 totaled $239.1 million, which represented a 11.2% increase compared with 1998. The primary factors contributing to these increases were changes in the fee structure for deposit-related services and higher fees earned from commercial account analysis and overdrafts, as well as personal account service charges. Income from mortgage banking activities (which includes revenues from originating, marketing and servicing mortgage loans) totaled $103.1 million in 2000, $163.6 million in 1999 and $127.1 million in 1998. In 2000, mortgage banking income decreased $60.5 million, or 37.0%, compared to 1999. This decline resulted from losses on sales of mortgage loans, lower origination fees as compared to 1999, and the recapture in 1999 of valuation allowances related to capitalized mortgage servicing rights established in 1998. BB&T has an extensive insurance agency network which is the 11th largest in the nation. Commission income from the agency network totaled $129.7 million in 2000, an increase of $50.2 million, or 63.2%, compared to 1999. Commission income for 1999 totaled $79.5, an increase of $27.3 million, or 52.3% compared to 1998. During 1999 and 2000, BB&T continued to acquire quality insurance agencies in current markets. These acquisitions, accounted for as purchases, resulted in an increase of $23.2 million in agency insurance commissions during 2000. In addition to acquisition activity, commissions have increased due to strong growth in group health coverage, property and casualty insurance, life insurance, as well as internal growth in the existing agency network and products. Revenue from corporate and personal trust services totaled $76.0 million in 2000, $70.1 million in 1999 and $54.9 million in 1998. The 2000 revenue reflects an increase of $5.9 million, or 8.5% over 1999, which was $15.2 million, or 27.8%, more than 1998. Managed assets totaled $15.3 billion at the end of 2000 compared to $14.3 billion at December 31, 1999. The revenue increases in 2000 and 1999 are primarily the result of internal growth, driven by increased general trust services income and higher revenues from estate management and higher mutual fund fees. BB&T manages its own family of mutual funds, which are marketed through its broker/dealer subsidiaries. Fees from the management of these funds increased $3.1 million during 2000. Investment banking and brokerage fees and commissions totaled $162.0 million in 2000, $128.6 million in 1999 and $45.7 million in 1998. The 2000 revenue reflects an increase of $33.4 million, or 25.9% over 1999, which was $82.9 million, or 181.3% greater than 1998. As previously reported, the large increase in 1999 over 1998 revenue was primarily the result of the acquisition of Scott & Stringfellow Financial, Inc., on March 26, 1999. The Scott & Stringfellow acquisition was accounted for as a purchase; therefore, its operating results were only included in BB&T's accounts in periods following the acquisition. Other nondeposit fees and commissions, including bankcard fees and merchant discounts and international income, totaled $148.0 million in 2000, an increase of $25.8 million, or 21.2%, compared with $122.2 million earned in 1999, which represented an increase of $17.1 million, or 16.3%, over the $105.1 million in 1998 revenue. Major sources of nondeposit fees and commissions generating the increase in 2000 revenue include merchant discount and other bankcard fees, which increased $9.6 million, or 22.4%, and ATM and Point of Sale fees, which increased $2.7 million, or 8.3%, due primarily to an increase in the number of ATMs in service. BB&T's international banking unit also enjoyed a strong year, with revenues up $1.2 million, or 19.9%, compared to 1999. The increase in this 37 category of revenue in 1999 compared to 1998 was primarily the result of higher bankcard fees and merchant discount and increased ATM and Point of Sale fees. Other noninterest income totaled $90.9 million for the twelve months ended December 31, 2000, up $32.9 million, or 56.7%, compared to 1999. This was primarily the result of income from increased investments in bank-owned life insurance, which represented 81% of the increase. The remaining increase reflects income from investments in venture capital, which totaled $4.2 million. Other noninterest income totaled $58.0 million for 1999, up $3.0 million, or 4.9%, compared to 1998. The ability to generate significant amounts of noninterest revenues in the future will be very important to the ultimate success of BB&T. Through its subsidiaries, BB&T will continue to focus on asset management, mortgage banking, trust, insurance, investment and brokerage services, as well as other fee-producing products and services. BB&T plans to continue to pursue acquisitions of additional insurance agencies and explore strategic acquisitions of other nonbank entities as a means of continuing to expand fee- based revenues. Also, among BB&T's principal strategies following the acquisition of a financial institution is the cross-sell of noninterest-income generating products and services to the acquired institution's client base. BB&T will continue to focus on this strategy in the future. The following table provides a breakdown of BB&T's noninterest income: Table 15 Noninterest Income
% Change ---------------- Years Ended December 31, ---------------------------- 2000 v. 1999 v. 2000 1999 1998 1999 1998 -------- -------- -------- ------- ------- (Dollars in thousands) Service charges on deposits $264,084 $239,144 $215,021 10.4% 11.2% Mortgage banking income 103,086 163,562 127,122 (37.0) 28.7 Trust income 76,016 70,079 54,851 8.5 27.8 Agency insurance commissions 129,727 79,499 52,186 63.2 52.3 Other insurance commissions 15,580 13,991 13,099 11.4 6.8 Securities (losses) gains, net (218,531) (6,149) 10,155 NM NM Bankcard fees and merchant discounts 52,484 42,883 36,657 22.4 17.0 Investment banking and brokerage fees and commissions 161,964 128,609 45,723 25.9 181.3 Other bank service fees and commissions 88,173 73,153 63,855 20.5 14.6 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 90,859 57,987 60,952 56.7 (4.9) -------- -------- -------- ----- ----- Total noninterest income $777,022 $875,121 $690,427 (11.2)% 26.8% ======== ======== ======== ===== =====
- -------- NM--not meaningful Noninterest Expense Noninterest expense totaled $1.8 billion in 2000, $1.6 billion in 1999 and $1.4 billion in 1998. Certain material, nonrecurring items stemming from mergers and acquisitions were recorded as charges to noninterest expenses during 2000, 1999 and 1998. In 2000, $140.0 million in pretax merger-related expenses were recorded as charges to noninterest expenses, while 1999 included $71.5 million 38 in these types of costs and $19.9 million in nonrecurring charges were recognized in 1998. Excluding the impact of these nonrecurring charges from all years, noninterest expense increased $45.9 million, or 2.9%, from 1999 to 2000 and $218.6 million, or 16.1%, from 1998 to 1999. These growth rates include the effects of acquisitions accounted for as purchases, including BankFirst, Scott & Stringfellow, Matewan and numerous insurance agencies. Excluding the merger- related charges and the growth in expenses from purchase transactions, BB&T's noninterest expense would have decreased 1.8% from 1999 to 2000, reflecting effective expense control. The control of noninterest expenses is a management priority. The primary measure of the effectiveness of noninterest expense control is the efficiency ratio, which is calculated by dividing total noninterest expenses by tax equivalent net interest income plus noninterest income. The efficiency ratio measures the percentage of revenues that are absorbed by costs of production. For 2000, BB&T's efficiency ratio, excluding the effects of merger-related charges, foreclosed property expense and restructuring of the securities portfolio, was 51.5%. Comparable ratios for 1999 and 1998 were 54.0% and 53.8%, respectively. The relatively flat trend in efficiency ratios during recent years and current year improvement is a positive reflection on expense control because, during this time period, BB&T has substantially increased its noninterest revenue-producing lines of business, which typically have higher efficiency ratios than traditional banking operations. Additionally, acquisitions of traditional financial institutions generally cause the efficiency ratio to increase until merger synergies are realized, which typically does not fully occur in the first year of the combination. Total personnel expense, the largest component of noninterest expense, totaled $922.9 million in 2000, $834.9 million in 1999 and $700.3 million in 1998. Total personnel expense includes salaries and wages, as well as pension and other employee benefits costs. Personnel expenses for 2000, 1999 and 1998 include nonrecurring merger-related costs in the form of severance pay, contract termination payments, costs of funding early retirement packages and other related benefits. Total personnel expense, excluding nonrecurring charges, increased $70.5 million, or 8.6% in 2000. A significant portion of this increase is the result of acquisitions accounted for as purchases in both 2000 and 1999. Excluding the effect of these transactions, personnel expense increased $28.0 million, or 3.4%, which reflects normal annual adjustments to compensation and increased incentive-related compensation. Net occupancy and equipment expense totaled $265.0 million in 2000, $245.9 million in 1999 and $208.3 million in 1998. These amounts include nonrecurring charges of $19.3 million in 2000, $6.1 million in 1999 and $1.1 million in 1998 related to branch closings and consolidations of backroom operations and information systems associated with mergers. Excluding nonrecurring charges, net occupancy and equipment expense for 2000 increased $5.8 million, or 2.4% compared to 1999, which was an increase of $32.6 million, or 15.7% over 1998. Increased expenses associated with telecommunications and information technology initiatives were primarily responsible for the remainder of the increases in this cost category incurred during the past two years. Amortization expense associated with intangible assets, primarily goodwill, and the amortization of capitalized mortgage servicing rights, totaled $80.4 million in 2000, $81.7 million in 1999 and $61.5 million in 1998. The significant increase from 1998 to 1999 reflects substantially higher levels of goodwill resulting from purchase accounting transactions completed during 1999 and 1998. At December 31, 2000, BB&T's unamortized goodwill totaled $747.4 million, up $66.5 million, or 9.8%, compared to 1999. This increase resulted from the 2000 purchases of Edgar M. Norris & Co., BankFirst Corporation, Laureate Capital Corp., and five insurance agencies. Capitalized mortgage servicing rights also increased during 2000, totaling $237.9 million, up 25.3%, or $48.1 million over 1999. Other noninterest expense totaled $493.3 million for 2000, $484.7 million in 1999 and $406.8 million in 1998. These amounts include nonrecurring charges principally related to mergers and acquisitions totaling $89.5 million in 2000, $51.8 million in 1999 and $9.6 million in 1998. The 39 nonrecurring items include losses on disposals of fixed assets, operational charge-offs, branch and departmental supplies, donations, legal fees, accounting fees, printing costs, regulatory filing fees and other professional services. Excluding these costs, other noninterest expense decreased $28.7 million, or 6.6% from 1999 to 2000. The decrease from 1999 to 2000 is primarily related to additional costs incurred in 1999 associated with upgrading BB&T's systems to make them Year 2000 compliant. The following table presents a breakdown of BB&T's noninterest expenses for the past three years: Table 16 Noninterest Expense
% Change --------------- Years Ended December 31, -------------------------------- 2000 v. 1999 v. 2000 1999 1998 1999 1998 ---------- ---------- ---------- ------- ------- (Dollars in thousands) Salaries and wages $ 758,736 $ 683,624 $ 578,696 11.0% 18.1% Pension and other employee benefits 164,153 151,264 121,563 8.5 24.4 Net occupancy expense on bank premises 115,395 103,896 89,018 11.1 16.7 Furniture and equipment expense 149,560 141,955 119,297 5.4 19.0 Federal deposit insurance premiums 10,879 10,531 6,537 3.3 61.1 Foreclosed property expense 3,963 4,816 2,880 (17.7) 67.2 Amortization of intangibles and mortgage servicing rights 80,432 81,699 61,523 (1.6) 32.8 Software 21,247 19,299 11,610 10.1 66.2 Telephone 40,583 32,487 27,162 24.9 19.6 Donations 12,827 14,526 7,828 (11.7) 85.6 Advertising and public relations 33,760 32,057 34,751 5.3 (7.8) Travel and transportation 21,351 16,526 12,640 29.2 30.7 Professional services 67,750 78,937 69,928 (14.2) 12.9 Supplies 29,611 26,563 25,111 11.5 5.8 Loan and lease expense 38,094 38,137 28,657 (0.1) 33.1 Deposit related expense 19,214 19,721 16,109 (2.6) 22.4 Other noninterest expenses 193,984 191,141 163,605 1.5 16.8 ---------- ---------- ---------- ----- ---- Total noninterest expense $1,761,539 $1,647,179 $1,376,915 6.9% 19.6% ========== ========== ========== ===== ====
Provision for Income Taxes BB&T's provision for income taxes totaled $279.2 million for 2000, a decrease of $61.6 million, or 18.1%, compared to 1999. The provision for income taxes totaled $340.9 million in 1999 and $306.7 million in 1998. Excluding the income tax effect related to the nonrecurring items discussed previously, BB&T's tax provision would have been $411.5 million in 2000, $370.3 million in 1999 and $313.7 million in 1998. Excluding the effect of the nonrecurring items on pretax income and the income tax provision, BB&T's effective tax rates for the years ended December 31, 1999, 1998 and 1997 were 32.0%, 32.6% and 31.9%, respectively. 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 recalcuation 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 40 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. Market Risk Management The effective management of market risk is essential to achieving BB&T's strategic financial objectives. As a financial institution, BB&T's most significant market risk exposure is interest rate risk. The primary objective of interest rate risk management is to minimize the effect that changes in interest rates have on net interest income. This is accomplished through active management of asset and liability portfolios with a focus on the strategic pricing of asset and liability accounts and management of appropriate maturity mixes of assets and liabilities. The goal of these activities is the development of appropriate maturity and repricing opportunities in BB&T's portfolios of assets and liabilities that will produce consistent net interest income during periods of changing interest rates. BB&T's Asset / Liability Management Committee ("ALCO") monitors loan, investment and liability portfolios to ensure comprehensive management of interest rate risk. These portfolios are analyzed for proper fixed-rate and variable-rate mixes under various interest rate scenarios. The asset/liability management process is designed to achieve relatively stable net interest margins and assure liquidity by coordinating the volumes, maturities or repricing opportunities of earning assets, deposits and borrowed funds. It is the responsibility of the ALCO to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The ALCO also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The ALCO meets regularly to review BB&T's interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impact on earnings and liquidity as a result of fluctuations in interest rates is within acceptable standards. BB&T also uses off-balance sheet financial instruments to manage interest rate sensitivity and net interest income. These instruments, commonly referred to as derivatives, primarily consist of interest rate swaps, caps, floors, financial forward and futures contracts and options written and purchased. Management accounts for these financial instruments as hedges when the following conditions are met: (1) the specific assets, liabilities, firm commitments or anticipated transactions (or an identifiable group of essentially similar items) to be hedged expose BB&T to interest rate risk or price risk; (2) the financial instrument reduces that exposure; (3) the financial instrument is designated as a hedge at inception; and (4) at the inception of the hedge and throughout the hedge period, there is a high correlation of changes in the fair value or the net interest income associated with the financial instrument and the hedged items. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or reference rate. Credit risk arises when amounts receivable from a counterparty exceed amounts payable. The risk of loss with any counterparty is limited to a small fraction of the notional amount. BB&T deals only with national market makers with strong credit ratings in its derivatives activities. BB&T further controls the risk of loss by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. All of the derivatives contracts to which BB&T is a party settle monthly, quarterly or semiannually. Further, BB&T has netting agreements with the dealers with which it does business. Because of these factors, BB&T's off- balance sheet credit risk exposure at December 31, 2000 was immaterial. 41 Derivative contracts are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between parties and are not a measure of financial risks. On December 31, 2000, BB&T had interest rate swaps, caps, floors and collars outstanding with notional amounts totaling $725.9 million. The estimated fair value of open contracts used for risk management purposes at December 31, 2000 had net unrealized gains of $.3 million. BB&T uses these derivatives as synthetic instruments to hedge specified assets or groups of assets, liabilities or groups of liabilities, forward commitments and anticipated transactions. BB&T's derivatives are primarily used to hedge variable rate commercial loans, adjustable rate mortgage loans, retail certificates of deposit and floating rate notes. These hedges resulted in an increase in net interest expense of $8.1 million in 2000 and $2.9 million in 1999, compared with an increase in net interest income of $.9 million in 1998. 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. BB&T also utilizes over-the-counter purchased put options and written call options in its mortgage banking activities. Purchased put options are used to hedge fixed rate mortgage loan originations against increasing interest rates. Written call options are used to reduce the premiums paid for purchased put options thereby reducing the cost of the hedge. SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair Value of Financial Instruments" requires, among other things, certain quantitative and qualitative disclosures with regard to the amounts, nature and terms of derivative financial instruments. See Note Q. "Derivatives and Off- Balance Sheet Financial Instruments" for the required quantitative disclosures. Effective January 1, 2001, the accounting for these instruments will change to comply with the provisions of SFAS No. 133, as explained in Note A. Liquidity, Inflation and Changing Interest Rates The majority of assets and liabilities of financial institutions are monetary in nature and, therefore, differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Fluctuations in interest rates and actions of the Board of Governors of the Federal Reserve System ("FRB") to regulate the availability and cost of credit have a greater effect on a financial institution's profitability than do the effects of higher costs for goods and services. Through its balance sheet management function, BB&T is positioned to respond to changing interest rates and inflationary trends. BB&T's interest rate sensitivity is illustrated in the following table. The table reflects rate-sensitive positions at December 31, 2000, and is not necessarily indicative of positions on other dates. The carrying amounts of interest-rate-sensitive assets and liabilities and the notional amounts of swaps and other derivative financial instruments are presented in the periods in which they next reprice to market rates or mature and are aggregated to show the interest rate sensitivity gap. To reflect anticipated prepayments, certain asset and liability categories are shown in the table using estimated cash flows rather than contractual cash flows. 42 Table 17 Interest Rate Sensitivity Gap Analysis December 31, 2000
Expected Repricing or Maturity Date ------------------------------------------------------------- Within One to Three to After One Year Three Years Five Years Five Years Total ----------- ----------- ---------- ---------- ----------- (Dollars in thousands) Assets Securities and other interest-earning assets* $ 1,064,027 $ 2,866,665 $5,235,174 $4,645,787 $13,811,653 Federal funds sold and securities purchased under resale agreements or similar arrangements 243,011 -- -- -- 243,011 Loans and leases** 25,266,455 6,567,265 3,964,285 4,502,629 40,300,634 ----------- ----------- ---------- ---------- ----------- Total interest-earning assets 26,573,493 9,433,930 9,199,459 9,148,416 54,355,298 ----------- ----------- ---------- ---------- ----------- Liabilities Savings and interest checking*** -- 1,263,827 421,276 421,276 2,106,379 Money rate savings*** 5,557,021 5,557,020 -- -- 11,114,041 Other time deposits 13,807,064 5,480,750 414,985 27,373 19,730,172 Federal funds purchased and securities sold under repurchase agreements or similar arrangements 3,990,015 -- -- -- 3,990,015 Long-term debt and other borrowings 4,535,843 278,998 721,103 5,785,409 11,321,353 ----------- ----------- ---------- ---------- ----------- Total interest-bearing liabilities 27,889,943 12,580,595 1,557,364 6,234,058 $48,261,960 ----------- ----------- ---------- ---------- ----------- Asset-liability gap (1,316,450) (3,146,665) 7,642,095 2,914,358 ----------- ----------- ---------- ---------- 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 $(1,288,672) $(3,264,415) $7,661,952 $2,984,473 =========== =========== ========== ========== Cumulative interest rate sensitivity gap $(1,288,672) $(4,553,087) $3,108,865 $6,093,338 =========== =========== ========== ==========
- -------- * Securities based on amortized cost. ** Loans and leases include loans held for sale and are net of unearned income. *** Projected runoff of deposits that do not have a contractual maturity date was computed based upon decay rate assumptions developed by bank regulators to assist banks in addressing FDICIA rule 305. 43 Management uses Interest Sensitivity Simulation Analysis ("Simulation") to measure the sensitivity of projected earnings to changes in interest rates. Simulation takes into account the current contractual agreements that BB&T has made with its customers on deposits, borrowings, loans, investments and any commitments to enter into those transactions. Management monitors BB&T's interest sensitivity by means of a computer model that incorporates current volumes, average rates earned and paid, and scheduled maturities, payments of asset and liability portfolios, together with multiple scenarios of projected prepayments, repricing opportunities and anticipated volume growth. Using this information, the model projects earnings based on projected portfolio balances under multiple interest rate scenarios. This level of detail is needed to simulate the effect that changes in interest rates and portfolio balances may have on the earnings of BB&T. This method is subject to the accuracy of the assumptions that underlie the process, but it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap. The asset/liability management process requires a number of key assumptions. Management determines the most likely outlook for the economy and interest rates by analyzing external factors, including published economic projections and data, the effects of likely monetary and fiscal policies as well as any enacted or prospective regulatory changes. BB&T's current and prospective liquidity position, current balance sheet volumes and projected growth, accessibility of funds for short-term needs and capital maintenance are also considered. This data is combined with various interest rate scenarios to provide management with information necessary to analyze interest sensitivity and to aid in the development of strategies to reach performance goals. The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next twelve months under the "most likely" interest rate scenario incorporated into the Interest Sensitivity Simulation computer model. Key assumptions in the preparation of the table include prepayment speeds on mortgage-related assets; cash flows and maturities of derivative financial instruments, changes in market condition, loan volumes and pricing, deposit sensitivity, customer preferences, and capital plans. The resulting change in net interest income reflects the level of sensitivity that net interest income has in relation to changing interest rates. Table 18 Interest Sensitivity Simulation Analysis
Annualized Hypothetical Percentage Interest Rate Scenario Change in ------------------------------------------- Net Interest Linear Prime Rate Income ------ ---------- ------------ 3.00% 12.50% -1.50% 1.50 11.00 -.93 No Change 9.50 -.22 (1.50) 8.00 -.26 (3.00) 6.50 -.63
Management has established parameters for asset/liability management which prescribe a maximum impact on projected net interest income of 3% for a 150 basis point parallel change in interest rates over six months from the most likely interest rate scenario, and a maximum of 6% for a 300 basis point change over 12 months. It is management's ongoing objective to effectively manage the impact of changes in interest rates and minimize the resulting effect on earnings as evidenced by the preceding table. 44 Liquidity represents the continuing ability to meet its funding needs, primarily deposit withdrawals, timely repayment of borrowings and other liabilities and funding of loan commitments. In addition to the level of liquid assets, many other factors affect the ability to meet liquidity needs, including access to a variety of funding sources, capital position and general market conditions. Traditional sources of liquidity include proceeds from maturity of securities, repayment of loans and growth in core deposits. Federal funds purchased, repurchase agreements, FHLB advances and other short-term borrowed funds, as well as the issuance of long-term debt, supplement these traditional sources. Management believes liquidity obtainable from these sources is adequate to meet current requirements. Capital Adequacy and Resources The maintenance of appropriate levels of capital is a management priority and is monitored on an ongoing basis. BB&T's principal goals related to capital are to provide an adequate return to shareholders while retaining a sufficient base from which to support future growth and to comply with all regulatory standards. Shareholders' equity totaled $4.8 billion at December 31, 2000, an increase of 17.8% from year-end 1999. Factors which significantly affected growth in shareholders' equity during 2000 were: earnings retained after dividends to shareholders, which totaled $267.0 million; the market value of common shares issued in connection with acquisitions accounted for as purchases, which amounted to $194.0 million; exercises of stock options and other incentive plan transactions totaling $41.1 million; repurchase of 7.0 million shares of common stock at a cost of $203.6 million, that were reissued in connection with mergers and acquisitions, and unrealized holding gains on securities available for sale, which totaled $412.9 million, net of deferred income tax benefits during 2000. Bank holding companies and their subsidiaries are subject to regulatory requirements with respect to risk-based capital adequacy. Risk-based capital ratios measure capital as a percentage of a combination of risk-weighted balance sheet and off-balance sheet risk. The risk-weighted values of both balance sheet and off-balance sheet items are determined in accordance with risk factors specified by Federal bank regulatory pronouncements. Tier 1 capital (common shareholders' equity, excluding unrealized gains (losses) on debt securities available for sale, net of tax effect, plus certain mandatorily redeemable capital securities, less nonqualifying intangible assets) is required to be at least 4% of risk-weighted assets, and total capital (the sum of Tier 1 capital, a qualifying portion of the allowance for loan and lease losses and qualifying subordinated debt) must be at least 8% of risk-weighted assets, with one half of the minimum consisting of Tier 1 capital. The Tier 1 capital ratio for BB&T at the end of 2000 was 9.3%, and the total capital ratio was 12.0%. At the end of 1999, these ratios were 9.9% and 13.2%, respectively. In addition to the risk-based capital measures described above, regulators have also established minimum leverage capital requirements for banking organizations. This is the primary measure of capital adequacy used by management and is calculated by dividing period-end Tier 1 capital by average tangible assets for the most recent quarter. BB&T's Tier 1 leverage ratio at year-end 2000 and 1999 was 7.1%. The minimum required Tier 1 leverage ratio ranges from 3% to 5% depending upon Federal bank regulatory agency evaluation of an organization's overall safety and soundness. BB&T's regulatory capital and ratios are set forth in the following table. 45 Table 19 Capital--Components and Ratios
December 31, ---------------------- 2000 1999 ---------- ---------- (Dollars in thousands) Tier 1 capital $3,965,892 $3,679,736 Tier 2 capital 1,156,753 1,221,886 ---------- ---------- Total regulatory capital $5,122,645 $4,901,622 ========== ========== Risk-based capital ratios: Tier 1 capital 9.3% 9.9% Total regulatory capital 12.0 13.2 Tier 1 leverage ratio 7.1 7.1
Segment Results BB&T's operations are divided into six reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Agency Insurance, Investment Banking and Brokerage and Treasury. These operating segments have been identified based primarily on BB&T's existing organizational structure. See Note S. "Operating Segments", in the "Notes to Consolidated Financial Statements" herein for a full discussion of the segments, the internal accounting and reporting practices utilized by BB&T to manage these segments and financial disclosures by segment. Fluctuations in noninterest income and expense earned and incurred related to external customers are more fully discussed in the "Noninterest Income" and "Noninterest Expense" sections of this discussion and analysis. This analysis excludes balances that are considered nonrecurring merger-related expenses, as such expenses are typically not allocated at the segment level, but are retained at the corporate level. Banking Network The Banking Network grew internally during 2000 as well as through five mergers of banking companies, four of which were accounted for as poolings of interests. Prior period balances have been restated to reflect the impact of these transactions, except for internal management accounting practices, for which it is not practicable to restate balances. The total Banking Network is composed of 854 banking offices, up from 831 banking offices at December 31, 1999. Net interest income for the Banking Network totaled $1.6 billion, an increase of $38.5 million, or 2.4%, from 1999. The 1999 balance reflected an increase of $131.9 million, or 9.0%, compared to 1998. The slight increase in 2000 is composed of a 9.5% decrease in net interest income from external customers and a 48.8% increase in the net credit generated by the internal funds transfer pricing ("FTP") system. The increase in net intersegment interest income reflects the addition of FTP adjustments associated with the loan and deposit balances of the institutions acquired during 2000. Also, as interest rates increased during 2000, the FTP credits and charges also increased because they are based primarily on the London Interbank Offer Rate ("LIBOR"). Deposits, which receive an FTP credit, reprice faster than loans, which receive an FTP charge, adding to the increase in the net FTP credit. The provision for loan and lease losses was basically unchanged compared to 1999, decreasing less than 1% to $129.2 million. This slight decrease reflects continued strong credit quality. The 1999 provision for loan and lease losses was $12.5 million, or 10.8% greater than the 1998 balance. Noninterest income produced from external customers through the Banking Network decreased $49.2 million, or 11.4% during 2000, while noninterest income allocated from other segments decreased $3.1 million, or 2.5%. Comparing 1999 to 1998, noninterest income from external customers increased $50.1 million, or 13.1%, and intersegment noninterest income decreased $27.1 million, or 46 18.0%. Noninterest expenses incurred within the Banking Network decreased $218.6 million, or 23.7%, while noninterest expenses allocated from the other operating segments increased $63.8 million, or 24.4%. The increases in intersegment noninterest expense reflects a significant increase in the amount of expenses allocated to the Banking Network during 2000 because of the additional allocations for financial institutions acquired during 2000. Comparing 1999 to 1998, noninterest expense increased $113.0 million, or 14.0%, and noninterest expenses allocated to the Banking Network from intercompany sources increased $51.6 million, or 24.6%. The provision for income taxes allocated to the Banking Network increased $37.8 million, or 13.5%, because of higher pretax income. The 1999 provision for income taxes decreased $37.3 million, or 11.8%, compared to 1998. Total identifiable assets for the Banking Network decreased 9.1% to a total of $30.3 billion, compared to 1999, due in part to lower securities balances held at the banking network. Total identifiable assets for the Banking Network increased 9.1%, or $2.8 billion, compared to 1998. Mortgage Banking BB&T's Mortgage Banking segment experienced a slower 2000 compared to 1999 because of less favorable mortgage rates. By the end of 2000, the rate environment had improved leading to a strong finish to the year. While BB&T's mortgage originations slowed for the full year, BB&T remains the largest originator of mortgage loans in North and South Carolina, with 2000 originations totaling $4.7 billion, up from $4.6 billion originated during 1999, and down from a record $5.6 billion in 1998. BB&T's mortgage servicing portfolio totaled $23.6 billion at year-end 2000. Net interest income for the Mortgage Banking segment totaled $115.2 million, down less than 1% compared to 1999. The 1999 balance reflected a decrease of $25.4 million, or 18.0%, compared with 1998, due to the slowdown in originations discussed above. The provision for loan and lease losses decreased $.6 million, or 16.3%, to a balance of $3.2 million. This reduction was because of continued strong credit quality and flat originations during 2000. The 1999 provision reflected a $.4 million, or 8.9% decrease compared to 1998. Noninterest income produced from external customers decreased $29.5 million, or 25.7% during 2000. Noninterest income from external sources increased $10.9 million, or 10.5%, from 1998 to 1999. Noninterest expenses incurred within the Mortgage Banking segment decreased $2.4 million, or 4.0%, while noninterest expenses allocated from the other operating segments increased $4.1 million, or 21.5%. The increase in expenses allocated to the Mortgage Banking segment during 2000 reflects the results of acquired institutions, including Premier Lending, the mortgage operations of One Valley and Laureate Capital. Comparing 1999 and 1998, noninterest expenses from external sources decreased $15.2 million, or 19.9%, and intersegment noninterest expenses increased $2.7 million, or 16.7%. The provision for income taxes allocated to the Mortgage Banking segment decreased $13.0 million, or 28.8% due to lower pretax income. For 1999, the provision for income taxes had decreased $11.0 million, or 19.6%, compared to 1998. Total identifiable assets for the Mortgage Banking segment increased $2.6 billion, or 46.2%, due to the acquisitions during 2000. For 1999, the identifiable segment assets had decreased $654.2 million, or 10.3%, compared to 1998. Trust Services Net interest income for the Trust Services segment totaled $13.8 million, an increase of $5.3 million, or 61.6%, compared to 1999. This increase in composed of an 18.2% increase in net interest expense paid to external customers and a 26.9% increase in the net credit for funds as calculated by BB&T's internal FTP system. This increase is due to an increase in total deposits held in trust and the resulting higher funds credit allocated due to the higher interest rate environment during 2000. The net interest income in 1999, which totaled $8.5 million, was $4.3 million, or 99.7% greater than the balance for 1998. Noninterest income produced from external customers increased $22.9 million, or 40.0% during 2000, while noninterest income for 1999 reflected an increase of $13.7 million, or 47 31.3%, compared to 1998. Noninterest expenses incurred within the Trust Services segment increased $13.9 million, or 36.7%, while noninterest expenses allocated from the other operating segments increased $1.2 million, or 47.3%. This increase reflects additional expenses allocated due to the trust operations acquired from One Valley. For 1999, noninterest expense increased $9.4 million, or 32.6%, while expenses allocated to the Trust Services segment increased $.6 million, or 30.1%. The provision for income taxes allocated to Trust Services increased $2.5 million, or 31.4%, due to higher pretax income. Comparing 1999 and 1998, the provision for income taxes increased $1.5 million, or 23.2%. Total identifiable assets for Trust Services increased 25.6% to a total of $39.5 million compared to 1999, and increased 18.0% from 1998 to 1999. The increase during 2000 resulted from greater securities holdings. Agency Insurance Noninterest income produced from external sources increased $44.1 million, or 56.5% during 2000, due to the acquisitions of six insurance agencies during the year, as well as internal growth. For 1999, noninterest income increased $27.9 million, or 55.5%, compared to 1998. Noninterest expenses incurred within the Agency Insurance segment increased $27.6 million, or 46.2%, while noninterest expenses allocated from the other operating segments increased $1.4 million, or 49.5%. The increase in expenses allocated to Agency Insurance results from the purchased agencies discussed above. For 1999, noninterest expenses increased $20.3 million, or 51.4%, and intersegment noninterest expenses increased 13.8%. The provision for income taxes allocated to Agency Insurance increased $6.0 million consistent with the growth in pretax income. For the prior year, the provision for income taxes increased $2.9 million. Total identifiable assets for Agency Insurance increased 57.9% to a total of $100.9 million, primarily due to the acquired insurance agencies. For 1999, total identifiable assets increased 58.6%. Investment Banking and Brokerage Net interest income for the Investment Banking and Brokerage segment totaled $11.7 million, an increase of $4.1 million compared to 1999. This increase reflects the purchase of Edgar M. Norris & Co., an independent broker/dealer based in Greenville, South Carolina, and other internal growth. For the prior year, net interest income increased $6.4 million from 1998 to 1999. Noninterest income produced from external customers increased $31.5 million, or 23.8% during 2000. For 1999, noninterest income increased $83.9 million compared to 1998. Noninterest expenses incurred within the Investment Banking and Brokerage segment increased $41.7 million, while noninterest expenses allocated from the other operating segments decreased 16.5%. The decrease in allocated expenses resulted from decreased administrative fees charged by the Banking Network. Comparing 1999 and 1998, noninterest expenses increased $80.8 million, and intersegment noninterest expenses increased $.8 million. The provision for income taxes allocated to Investment Banking and Brokerage decreased $4.5 million, consistent with the decrease in pretax income. For 1999, the provision for income taxes increased $3.2 million compared to 1998. Total identifiable assets for the Investment Banking and Brokerage segment increased 7.5% to a total of $751.7 million principally due to the acquisition of Edgar M. Norris & Co., and internal growth. For 1999, total identifiable segment assets increased $460.5 million. Treasury Net interest income for the Treasury segment totaled $239.2 million, an increase of $98.9 million, or 70.5%, compared to 1999. This increase is comprised of a 1.5% decrease in net interest income from external customers, offset by a $101.3 million increase in the net credit for funds as calculated by BB&T's internal FTP system. This increase is principally due to changes in the mix of securities held by the Treasury segment. For 1999, net interest income increased $13.7 million compared to 1998. Noninterest income produced from external customers decreased $189.9 million during 2000, principally because of a restructuring of the securities portfolio, which resulted in pretax securities losses of approximately $222 million. For 1999, noninterest income decreased $10.6 million. 48 Noninterest expenses incurred within the Treasury segment increased $1.4 million, or 28.7%, while noninterest expenses allocated from the other operating segments decreased $7.7 million, or 93.3%. This decrease reflects lower administrative fees charged by the Banking Network. For 1999, noninterest expenses increased 10.6% and intersegment noninterest expenses increased 53.4%. The provision for income taxes allocated to the Treasury segment decreased $31.7 million due to the lower levels of pretax income that resulted from the significant securities losses during 2000. In 1999, the provision for income taxes decreased 30.2%, consistent with a decline in pretax income. Total identifiable assets for the Treasury segment increased 48.4% during 2000 to a total of $17.1 billion. For 1999, total identifiable segment assets for the Treasury segment increased $2.1 billion. Common Stock and Dividends BB&T's ability to pay dividends is primarily dependent on earnings from operations, the adequacy of capital and the availability of liquid assets for distribution. BB&T's ability to generate liquid assets for distribution is primarily dependent on the ability of the banking subsidiaries to pay dividends to BB&T. BB&T's payment of cash dividends is an integral part of management's goals to retain sufficient capital to support future growth and to meet regulatory requirements while providing a competitive return on investment to shareholders. BB&T's common dividend payout ratio, computed by dividing dividends paid per common share by basic earnings per common share, was 54.78% in 2000 as compared to 42.13% in 1999. Excluding the impact of the nonrecurring charges discussed in "Analysis of Results of Operations," the dividend payout ratio would have been 39.27% in 2000 as compared to 38.66% in 1999. BB&T's cash dividends per common share increased 14.7% during 2000 to $.86 per common share for the year, as compared to $.75 per common share in 1999. This increase marked the 28th consecutive year that BB&T's annual cash dividend has been increased. A discussion of dividend restrictions is included in Note N.-- "Regulatory Requirements and Other Restrictions," and "Regulatory Considerations." BB&T's common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "BBT". BB&T's common stock was held by 83,993 shareholders of record at December 31, 2000. The accompanying table, "Quarterly Common Stock Summary," sets forth the quarterly high, low and last sales prices for the common stock based on the daily closing price and the dividends paid per share of common stock for each of the last eight quarters. Table 20 Quarterly Common Stock Summary
2000 1999 ------------------------------ ------------------------------ Closing Sales Prices Closing Sales Prices -------------------- Dividends -------------------- Dividends High Low Last Paid High Low Last Paid ------ ------ ------ --------- ------ ------ ------ --------- Quarter Ended: March 31 $29.19 $22.00 $28.06 $.20 $40.44 $34.94 $36.19 $.175 June 30 31.75 23.88 23.88 .20 40.25 33.81 36.69 .175 September 30 30.44 24.06 30.13 .23 36.63 30.50 32.38 .20 December 31 38.25 27.38 37.31 .23 36.94 27.31 27.38 .20 ---- ----- Year $38.25 $22.00 $37.31 $.86 $40.44 $27.31 $27.38 $ .75 ==== =====
Fourth Quarter Results Net income for the fourth quarter of 2000 was $225.5 million, compared to earnings of $166.8 million for the comparable period of 1999. On a per share basis, diluted net income for the fourth quarter of 2000 was $.56 compared to $.41 for the same period a year ago. Annualized returns on average assets and average shareholders' equity were 1.58% and 20.14%, respectively, for the fourth quarter of 2000. The fourth quarter of 2000 and 1999 included $7.1 million and $30.4 million, respectively, after tax benefits, of nonrecurring charges primarily associated with the completion of 49 mergers and acquisitions. Excluding these items, net income for the fourth quarter of 2000 would have been $232.6 million, an increase of $34.1 million, or 17.2%, compared to the recurring fourth quarter 1999 results. Diluted earnings per share, excluding the merger-related charges, would have been $.58, an increase of 18.4% compared to the fourth quarter of 1999. Net interest income on an FTE basis amounted to $550.4 million for the fourth quarter of 2000, an increase of 4.4% compared to $527.3 million for the same period of 1999. Noninterest income totaled $263.9 million for the fourth quarter of 2000, up 18.0% from $223.6 million earned during the fourth quarter of 1999. BB&T's noninterest expense for the fourth quarter of 2000 totaled $404.8 million, down 7.0% from the $435.3 million recorded in the fourth quarter of 1999. Excluding the merger-related charges from both years, noninterest expense for the fourth quarter of 2000 would have decreased 3.2% from the fourth quarter of 1999. The fourth quarter 2000 provision for loan and lease losses totaled $35.0 million compared to $40.0 million for the fourth quarter of 1999, a decrease of 12.6%. 50 The accompanying table, "Quarterly Financial Summary--Unaudited," presents condensed information relating to four quarters in the periods ended December 31, 2000 and 1999. Table 21 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 $ 550,398 $ 538,651 $ 532,297 $ 526,310 $ 527,314 $ 517,565 $ 505,242 $ 479,489 FTE adjustment 53,057 28,286 24,564 24,121 24,729 25,620 24,817 21,496 Provision for loan and lease losses 35,000 38,200 27,914 26,317 40,032 24,352 26,078 23,971 Securities gains (losses), net 4,380 (181,361) (41,279) (271) (1,969) (1,882) (2,895) 597 Other noninterest income 259,556 253,241 247,214 235,542 225,565 224,407 228,540 202,758 Noninterest expense 404,826 478,925 440,801 436,987 435,275 433,496 401,703 376,705 Provision for income taxes 95,995 15,856 79,534 87,853 84,083 82,843 89,759 84,198 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net income $ 225,456 $ 49,264 $ 165,419 $ 186,303 $ 166,791 $ 173,779 $ 188,530 $ 176,474 =========== =========== =========== =========== =========== =========== =========== =========== Diluted net income per share $ .56 $ .12 $ .41 $ .46 $ .41 $ .43 $ .47 $ .44 =========== =========== =========== =========== =========== =========== =========== =========== Selected Average Balances: Total assets $56,752,304 $55,579,535 $54,317,488 $53,173,484 $52,637,446 $51,667,452 $50,660,806 $48,437,194 Securities, at amortized cost 13,483,213 13,479,872 13,335,345 13,264,718 13,447,769 13,814,500 13,450,238 12,137,366 Loans and leases* 38,971,153 37,970,855 37,138,517 36,179,435 35,347,238 34,134,406 33,416,040 32,689,363 Total earning assets 52,728,060 51,720,222 50,799,599 49,823,206 49,181,874 48,448,160 47,344,073 45,199,843 Deposits 36,468,268 36,426,142 35,713,025 34,971,091 34,276,963 33,994,031 33,525,563 33,100,204 Short-term borrowed funds 6,693,489 5,756,069 7,001,270 7,298,032 6,940,113 6,676,203 6,337,899 5,104,085 Long-term debt 8,247,480 8,173,862 6,610,451 6,034,097 6,582,262 6,316,154 6,048,556 5,505,189 Total interest-bearing liabilities 46,587,239 45,407,383 44,297,727 43,528,617 42,951,801 42,256,418 41,264,928 39,208,742 Shareholders' equity 4,452,562 4,418,578 4,226,740 4,118,571 4,101,967 3,967,306 4,057,292 4,049,638
- ---- * Loans and leases are net of unearned income and include loans held for sale. 51 SIX YEAR FINANCIAL SUMMARY AND SELECTED RATIOS (Dollars in thousands, except per share data)
As of / For the Years Ended December 31, Five Year ---------------------------------------------------------------------------- Compound 2000 1999 1998 1997 1996 1995 Growth Rate ----------- ----------- ----------- ----------- ----------- ----------- ----------- Summary of Operations Interest income $ 4,339,674 $ 3,775,553 $ 3,492,813 $ 3,163,890 $ 2,858,370 $ 2,681,366 10.1% Interest expense 2,322,046 1,842,605 1,733,108 1,540,561 1,371,882 1,325,225 11.9 ----------- ----------- ----------- ----------- ----------- ----------- ---- Net interest income 2,017,628 1,932,948 1,759,705 1,623,329 1,486,488 1,356,141 8.3 Provision for loan and lease losses 127,431 114,433 114,729 123,096 77,919 54,694 18.4 ----------- ----------- ----------- ----------- ----------- ----------- ---- Net interest income after provision for loan and lease losses 1,890,197 1,818,515 1,644,976 1,500,233 1,408,569 1,301,447 7.7 Noninterest income 777,022 875,121 690,427 588,347 445,134 346,430 17.5 Noninterest expense 1,761,539 1,647,179 1,376,915 1,326,657 1,159,092 1,119,710 9.5 ----------- ----------- ----------- ----------- ----------- ----------- ---- Income before income taxes 905,680 1,046,457 958,488 761,923 694,611 528,167 11.4 Provision for income taxes 279,238 340,883 306,744 260,197 227,302 173,453 10.0 ----------- ----------- ----------- ----------- ----------- ----------- ---- Net income $ 626,442 $ 705,574 $ 651,744 $ 501,726 $ 467,309 $ 354,714 12.0% =========== =========== =========== =========== =========== =========== ==== Per Common Share Average shares outstanding (000's): Basic 398,916 395,871 390,777 387,667 387,598 386,109 .7% Diluted 404,005 402,553 398,608 394,996 396,127 400,369 .2 Basic earnings per share $ 1.57 $ 1.78 $ 1.67 $ 1.29 $ 1.20 $ 0.90 11.8% =========== =========== =========== =========== =========== =========== ==== Diluted earnings per share $ 1.55 $ 1.75 $ 1.64 $ 1.27 $ 1.18 $ 0.89 11.7% =========== =========== =========== =========== =========== =========== ==== Cash dividends paid $ .86 $ .75 $ .66 $ .58 $ .50 $ .43 15.1% Shareholders' equity 11.91 10.19 10.17 9.12 8.62 8.34 7.4 Average Balances Securities, at amortized cost $13,391,283 $13,217,708 $11,548,592 $10,567,862 $ 9,731,073 $ 9,311,950 7.5% Loans and leases* 37,569,941 33,904,694 30,543,475 27,100,788 24,438,883 22,659,115 10.6 Other assets 4,001,092 3,742,090 3,389,861 2,715,990 2,522,365 2,417,805 10.6 ----------- ----------- ----------- ----------- ----------- ----------- ---- Total assets $54,962,316 $50,864,492 $45,481,928 $40,384,640 $36,692,321 $34,388,870 9.8% =========== =========== =========== =========== =========== =========== ==== Deposits $35,897,651 $33,728,154 $31,193,327 $29,243,442 $27,728,536 $25,665,570 6.9% Other liabilities 7,488,202 6,975,806 5,898,139 4,469,812 3,583,192 4,375,395 11.3 Long-term debt 7,271,632 6,116,548 4,647,116 3,303,968 2,232,005 1,398,506 39.1 Common shareholders' equity 4,304,831 4,043,984 3,743,346 3,363,646 3,125,865 2,869,490 8.5 Preferred shareholders' equity -- -- -- 3,772 22,723 79,909 NM ----------- ----------- ----------- ----------- ----------- ----------- ---- Total liabilities and shareholders' equity $54,962,316 $50,864,492 $45,481,928 $40,384,640 $36,692,321 $34,388,870 9.8% =========== =========== =========== =========== =========== =========== ==== Period End Balances Total assets $59,340,228 $52,999,759 $48,190,494 $43,606,211 $38,612,527 $35,810,281 10.6% Deposits 38,014,501 34,147,643 33,214,094 30,601,384 28,731,109 26,966,326 7.1 Long-term debt 8,354,672 6,073,428 5,499,873 4,183,462 2,611,973 1,701,433 37.5 Shareholders' equity 4,785,925 4,063,619 4,030,929 3,546,832 3,278,515 3,155,310 8.7 Selected Ratios Rate of return on: Average total assets 1.14% 1.39% 1.43% 1.24% 1.27% 1.03% Average common shareholders' equity 14.55 17.45 17.41 14.91 14.92 12.15 Dividend payout 54.78 42.13 39.52 44.96 41.67 47.78 Average equity to average assets 7.83 7.95 8.23 8.34 8.58 8.58
- ----- NM--Not meaningful 52 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 Annual Report on Form 10-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 Annual Report on Form 10-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 53 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, January 26, 2001. 54 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 $ 1,471,035 $ 1,466,071 Interest-bearing deposits with banks 38,783 81,927 Federal funds sold and securities purchased under resale agreements or similar arrangements 243,011 432,877 Trading securities at market value 96,719 93,221 Securities available for sale at market value 13,781,863 12,257,822 Securities held to maturity at amortized cost (market value: $69,727 at December 31, 2000 and $398,527 at December 31, 1999) 69,274 404,897 Loans held for sale 846,323 367,243 Loans and leases, net of unearned income 39,454,311 35,387,986 Allowance for loan and lease losses (521,960) (477,296) ----------- ----------- Loans and leases, net 38,932,351 34,910,690 ----------- ----------- Premises and equipment, net 777,760 713,089 Other assets 3,083,109 2,271,922 ----------- ----------- Total assets $59,340,228 $52,999,759 =========== =========== Liabilities and Shareholders' Equity Deposits: Noninterest-bearing deposits $ 5,063,909 $ 4,847,976 Savings and interest checking 2,106,379 2,978,811 Money rate savings 11,114,041 9,592,326 Time and other deposits 19,730,172 16,728,530 ----------- ----------- Total deposits 38,014,501 34,147,643 ----------- ----------- Short-term borrowed funds 6,956,696 7,971,873 Long-term debt 8,354,672 6,073,428 Accounts payable and other liabilities 1,228,434 743,196 ----------- ----------- Total liabilities 54,554,303 48,936,140 ----------- ----------- Shareholders' equity: Preferred stock, $5 par, 5,000,000 shares authorized, none issued or outstanding -- -- Common stock, $5 par, 500,000,000 shares authorized; issued and outstanding, 401,678,881 at December 31, 2000 and 398,742,188 at December 31, 1999 2,008,394 1,993,711 Additional paid-in capital 402,442 379,363 Retained earnings 2,278,641 2,011,627 Loan to employee stock ownership plan and unvested restricted stock (7,071) (11,676) Accumulated other nonshareholder changes in equity, net of deferred income taxes of $71,467 at December 31, 2000 and ($185,516) at December 31, 1999 103,519 (309,406) ----------- ----------- Total shareholders' equity 4,785,925 4,063,619 ----------- ----------- Total liabilities and shareholders' equity $59,340,228 $52,999,759 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 55 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ---------- ---------- ---------- (Dollars in thousands, except per share data) Interest Income Interest and fees on loans and leases $3,463,281 $2,954,252 $2,737,983 Interest and dividends on securities 855,127 799,304 730,527 Interest on short-term investments 21,266 21,997 24,303 ---------- ---------- ---------- Total interest income 4,339,674 3,775,553 3,492,813 ---------- ---------- ---------- Interest Expense Interest on deposits 1,480,276 1,201,467 1,190,659 Interest on short-term borrowed funds 401,713 306,545 273,223 Interest on long-term debt 440,057 334,593 269,226 ---------- ---------- ---------- Total interest expense 2,322,046 1,842,605 1,733,108 ---------- ---------- ---------- Net Interest Income 2,017,628 1,932,948 1,759,705 Provision for loan and lease losses 127,431 114,433 114,729 ---------- ---------- ---------- Net Interest Income After Provision for Loan and Lease Losses 1,890,197 1,818,515 1,644,976 ---------- ---------- ---------- Noninterest Income Service charges on deposits 264,084 239,144 215,021 Mortgage banking income 103,086 163,562 127,122 Trust income 76,016 70,079 54,851 Investment banking and brokerage fees and commissions 161,964 128,609 45,723 Agency insurance commissions 129,727 79,499 52,186 Other insurance commissions 15,580 13,991 13,099 Bankcard fees and merchant discounts 52,484 42,883 36,657 Other nondeposit fees and commissions 95,510 79,273 68,418 Securities (losses) gains, net (218,531) (6,149) 10,155 Other income 97,102 64,230 67,195 ---------- ---------- ---------- Total noninterest income 777,022 875,121 690,427 ---------- ---------- ---------- Noninterest Expense Personnel expense 922,889 834,888 700,259 Occupancy and equipment expense 264,955 245,851 208,315 Amortization of intangibles and mortgage servicing rights 80,432 81,699 61,523 Advertising and public relations expense 33,760 32,057 34,751 Professional services 67,750 78,937 69,928 Other expense 391,753 373,747 302,139 ---------- ---------- ---------- Total noninterest expense 1,761,539 1,647,179 1,376,915 ---------- ---------- ---------- Earnings Income before income taxes 905,680 1,046,457 958,488 Provision for income taxes 279,238 340,883 306,744 ---------- ---------- ---------- Net income $ 626,442 $ 705,574 $ 651,744 ========== ========== ========== Per Common Share Net income: Basic $ 1.57 $ 1.78 $ 1.67 ========== ========== ========== Diluted $ 1.55 $ 1.75 $ 1.64 ========== ========== ========== Cash dividends paid by BB&T Corporation $ .86 $ .75 $ .66 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 56 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2000, 1999 and 1998
Accumulated Other Shares of Additional Retained Nonshareholder Total Common Common Paid-In Earnings Changes Shareholders' Stock Stock Capital and Other* in Equity Equity ----------- ---------- ---------- ---------- -------------- ------------- (Dollars in thousands) Balance, December 31, 1997 194,466,237 $ 972,331 $ 579,808 $1,931,597 $ 63,096 $3,546,832 Add (Deduct): Nonshareholder changes in equity:** Net income -- -- -- 651,744 -- 651,744 Unrealized holding gains arising during the period -- -- -- -- 16,374 16,374 Less: reclassification adjustment, net of tax of $3,936 -- -- -- -- (6,351) (6,351) ----------- ---------- --------- ---------- -------- ---------- Total nonshareholder changes in equity -- -- -- 651,744 10,023 661,767 ----------- ---------- --------- ---------- -------- ---------- Common stock issued 13,665,967 68,331 324,217 (1,345) -- 391,203 Redemption of common stock (6,795,376) (33,977) (311,053) -- -- (345,030) 2-for-1 stock split effective August 3, 1998 194,897,159 974,486 (218,928) (721,913) -- 33,645 Reconciliation of fiscal year of First Citizens to calendar year (32,732) (165) (211) (1,209) (16) (1,601) Cash dividends declared on common stock -- -- -- (257,291) -- (257,291) Other, net -- -- 2,837 (1,433) -- 1,404 ----------- ---------- --------- ---------- -------- ---------- Balance, December 31, 1998 396,201,255 1,981,006 376,670 1,600,150 73,103 4,030,929 Add (Deduct): Nonshareholder changes in equity:** Net income -- -- -- 705,574 -- 705,574 Unrealized holding losses arising during the period -- -- -- -- (387,063) (387,063) Less: reclassification adjustment, net of tax benefit of $22,451 -- -- -- -- 5,473 5,473 ----------- ---------- --------- ---------- -------- ---------- Total nonshareholder changes in equity -- -- -- 705,574 (381,590) 323,984 ----------- ---------- --------- ---------- -------- ---------- Common stock issued 13,186,347 65,933 335,118 10,033 -- 411,084 Redemption of common stock (10,649,502) (53,248) (332,425) -- -- (385,673) Reconciliation of fiscal year of First Liberty to calendar year 4,088 20 -- 1,622 (919) 723 Cash dividends declared on common stock -- -- -- (308,226) -- (308,226) Other, net -- -- -- (9,202) -- (9,202) ----------- ---------- --------- ---------- -------- ---------- Balance, December 31, 1999 398,742,188 1,993,711 379,363 1,999,951 (309,406) 4,063,619 Add (Deduct): Nonshareholder changes in equity:** Net income -- -- -- 626,442 -- 626,442 Unrealized holding gains arising during the period -- -- -- -- 281,806 281,806 Less: reclassification adjustment, net of tax of $87,412 -- -- -- -- 131,119 131,119 ----------- ---------- --------- ---------- -------- ---------- Total nonshareholder changes in equity -- -- -- 626,442 412,925 1,039,367 ----------- ---------- --------- ---------- -------- ---------- Common stock issued 9,921,593 49,608 185,579 -- 235,187 Redemption of common stock (6,984,900) (34,925) (168,670) -- (203,595) Cash dividends declared on common stock -- -- -- (359,430) -- (359,430) Other, net -- -- 6,170 4,607 -- 10,777 ----------- ---------- --------- ---------- -------- ---------- Balance, December 31, 2000 401,678,881 $2,008,394 $ 402,442 $2,271,570 $103,519 $4,785,925 =========== ========== ========= ========== ======== ==========
- -------- * Other includes a loan to employee stock ownership plan and unvested restricted stock. ** Comprehensive income as defined by SFAS No. 130. The accompanying notes are an integral part of these consolidated financial statements. 57 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED 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 $ 626,442 $ 705,574 $ 651,744 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses 127,431 114,433 114,729 Depreciation of premises and equipment 101,579 101,462 89,066 Amortization of intangibles and mortgage servicing rights 80,432 81,699 61,523 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 (5,094) 1,708 5,355 Net decrease (increase) in trading account securities (1,200) (20,774) 7,456 Loss (gain) on sales of securities, net 218,531 6,149 (10,155) Loss (gain) on sales of loans and mortgage loan servicing rights, net (14,356) (26,213) (36,227) Loss (gain) on disposals of premises and equipment, net 5,858 (5,756) (15,723) Proceeds from sales of loans held for sale 2,417,736 4,057,061 5,350,770 Purchases of loans held for sale (1,014,372) (961,404) (1,811,810) Origination of loans held for sale, net of principal collected (1,868,088) (2,097,356) (4,148,521) 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 (603,345) (209,092) (82,503) Increase (decrease) in: Accrued interest payable 38,826 43,973 15,154 Accounts payable and other liabilities 273,274 110,235 76,755 Other, net (600) 16,227 (5,383) ---------- ---------- ---------- Net cash provided by operating activities 246,485 1,871,823 240,861 ---------- ---------- ---------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale 5,053,981 874,774 1,637,182 Proceeds from maturities, calls and paydowns of securities available for sale 1,383,899 3,503,261 3,348,678 Purchases of securities available for sale (6,054,601) (5,278,597) (5,097,268) Proceeds from maturities, calls and paydowns of securities held to maturity 38,565 61,764 220,287 Purchases of securities held to maturity (10,823) (35,756) (162,215) 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 (4,162,906) (3,711,076) (1,790,445) Purchases of loans (381,219) (364,663) (341,812) Net cash (paid) acquired in transactions accounted for under the purchase method (16,902) 302,032 191,740 Purchases and originations of mortgage servicing rights (55,855) (79,437) (86,954) Proceeds from disposals of premises and equipment 9,605 37,596 25,693 Purchases of premises and equipment (150,945) (137,237) (140,893) Proceeds from sales of foreclosed property 32,113 28,221 28,911 Proceeds from sales of other real estate held for development or sale 4,502 12,439 4,341 Other, net -- 764 (38,472) ---------- ---------- ---------- Net cash used in investing activities (4,337,812) (4,837,667) (2,230,656) ---------- ---------- ---------- Cash Flows From Financing Activities: Net increase in deposits 3,194,161 163,413 1,320,680 Net increase (decrease) in short-term borrowed funds (1,097,096) 3,029,260 (207,276) Proceeds from long-term debt 6,576,633 3,188,096 3,436,289 Repayments of long-term debt (4,312,416) (2,602,804) (2,053,611) Net proceeds from common stock issued 40,273 48,740 71,397 Redemption of common stock (203,595) (385,673) (345,030) Cash dividends paid on common stock (334,679) (289,467) (246,361) Other, net -- (697) (355) ---------- ---------- ---------- Net cash provided by financing activities 3,863,281 3,150,868 1,975,733 ---------- ---------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents (228,046) 185,024 (14,062) Cash and Cash Equivalents at Beginning of Year 1,980,875 1,795,851 1,809,913 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year $1,752,829 $1,980,875 $1,795,851 ========== ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest $2,238,119 $1,532,010 $1,509,736 Income taxes 52,055 115,005 168,371 Noncash financing and investing activities: Transfer of securities from held to maturity to available for sale 307,775 231,529 114,401 Transfer of loans to foreclosed property 37,470 26,306 26,954 Transfer of fixed assets to other real estate owned 3,887 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. 58 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"), BB&T Factors and Scott & Stringfellow Financial, Inc., ("Scott & Stringfellow") comprise BB&T's principal direct subsidiaries. BB&T is also the parent company for eight subsidiary banks acquired through the mergers with Hardwick Holding Company, First Banking Company of Southeast Georgia and BankFirst Corporation. These banks are expected to be merged with and into BB&T-NC during 2001. 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 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 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, 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. 59 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 generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 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 $307.8 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. 60 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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. 61 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The unallocated reserve consists of an amount deemed appropriate to cover the elements of imprecision and estimation risk inherent in the general and specific reserves and an amount determined based on management's evaluation of various conditions that are not directly measured by any other component of the allowance. This evaluation includes general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of 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. 62 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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. 63 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) BB&T also utilizes over-the-counter purchased put options and net purchased put options (combination of purchased put option and written call option) in its mortgage banking activities. These options are used to hedge the mortgage loan inventory and applications and mortgage loans in process against increasing interest rates. Written call options are used in tandem with purchased put options to create a net purchased put option that reduces the cost of the hedge. Net unrealized gains and losses on purchased put options and net purchased put options are included with loans held for sale at the lower of cost or market on an aggregate basis. Realized gains and losses on purchased put options and net purchased put options are included in mortgage banking income. Per Share Data 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 $747.4 million in unamortized goodwill and $14.0 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 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 allocated cost of 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 $237.9 million reflected in other assets. Income from mortgage servicing fees is reflected as mortgage banking income on the "Consolidated Statements of Income." 64 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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 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 $1.8 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 65 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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 $ 92,542 $ 101,722 $ 116,701 Purchase Price (168,678) (288,984) (310,618) --------- --------- --------- Excess of Purchase Price over Net Assets acquired $ (76,136) $(187,262) $(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. 66 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 Goodwill Shares Issued Date of Acquired Accounting Goodwill Amortization to Complete Acquisition Institution Headquarters Total Assets Method Recorded Period Transaction ----------- ---------------- -------------------- -------------- ---------- ------------- ------------ ------------- December 27, BankFirst Knoxville, Tenn. $929.5 million Purchase $71.0 million 15 Years 5.3 million 2000 Corporation November 15, Edgar M. Norris Greenville, S.C. 3.7 million Purchase N/A N/A N/A 2000 & Co. September 29, Laureate Capital Charlotte, N.C. 13.8 million Purchase N/A N/A N/A 2000 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 Statesboro, Ga. 420.0 million Pooling N/A N/A 4.1 million Company of Southeast Georgia 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, First Liberty Macon, Ga. 1.7 billion Pooling N/A N/A 12.4 million 1999 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, Maryland Federal Hyattsville, Md. 1.3 billion Purchase 158.8 million 15 Years 8.7 million 1998 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 of the acquired companies prior to their acquisition by BB&T. 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. In conjunction with the 1998 transactions, BB&T issued approximately 475,000 shares of common stock and recorded $17.5 million of goodwill, which is being amortized using the straight-line method over 15 years. For acquisitions accounted for 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 67 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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 ========== ==========
Mergers and Acquisitions Pending at December 31, 2000 On July 27, 2000, BB&T announced plans to acquire FCNB Corp. ("FCNB") of Frederick, Maryland. FCNB has $1.6 billion in assets and operates 34 banking offices primarily in Frederick and Montgomery counties in central Maryland. The transaction, which was accounted for as a pooling of interests, was consummated on January 7, 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 not been restated to reflect the accounts of FCNB. On September 6, 2000, BB&T announced plans to acquire FirstSpartan Financial Corp. ("FirstSpartan") of Spartanburg, South Carolina. FirstSpartan has $591 million in assets and operates 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 $46.0 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. Shareholders of Century South will receive .93 shares of BB&T common stock in exchange for each share of Century South common stock held. The transaction, which is expected to be accounted for as a pooling of interests, is planned for completion in the second quarter of 2001. On January 24, 2001, BB&T announced plans to acquire Virginia Capital Bancshares Inc. ("VCAP") of Fredericksburg, Virginia. VCAP has $532.7 million in assets and operates four banking offices in the Washington-Baltimore combined metropolitan statistical area. Shareholders of VCAP will receive between .4958 and .6060 shares of BB&T common stock depending on a pricing period prior to the VCAP shareholders' meeting to vote on the proposed merger. The transaction, which is expected to be accounted for as a purchase, is planned for completion in the second quarter of 2001. 68 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. Shareholders of F&M will receive 1.09 shares of BB&T common stock in exchange for each share of F&M common stock held. The transaction, which is expected to be accounted for as a pooling of interests, is planned for completion in the third quarter of 2001. 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 Estimated Gross Unrealized Amortized ----------------- Fair Amortized ---------------- Estimated Cost Gains Losses Cost Gains Value Losses Fair Value ----------- -------- -------- ----------- ----------- ------- -------- ----------- (Dollars in thousands) Securities held to maturity: U.S. Treasury, government and agency obligations $ 33,739 $ -- $ 35 $ 33,704 $ 23,184 $ 4 $ 6 $ 23,182 Mortgage-backed securities -- -- -- -- -- -- -- -- States and political subdivisions 35,535 488 -- 36,023 379,822 2,580 8,948 373,454 Other securities -- -- -- -- 1,891 -- -- 1,891 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Total securities held to maturity 69,274 488 35 69,727 404,897 2,584 8,954 398,527 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Securities available for sale: U.S. Treasury, government and agency obligations 8,568,020 254,645 6,817 8,815,848 5,762,670 1,716 175,600 5,588,786 Mortgage-backed securities 2,538,584 26,535 2,202 2,562,917 4,376,959 5,129 125,084 4,257,004 States and political subdivisions 949,439 11,148 7,208 953,379 639,225 8,692 32,039 615,878 Equity and other securities 1,550,834 105 101,220 1,449,719 1,973,599 516 177,961 1,796,154 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Total securities available for sale 13,606,877 292,433 117,447 13,781,863 12,752,453 16,053 510,684 12,257,822 ----------- -------- -------- ----------- ----------- ------- -------- ----------- Total securities $13,676,151 $292,921 $117,482 $13,851,590 $13,157,350 $18,637 $519,638 $12,656,349 =========== ======== ======== =========== =========== ======= ======== ===========
Securities with a book value of approximately $7.1 billion and $6.6 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, the carrying amount of securities pledged to secure repurchase agreements was $2.8 billion and $2.7 billion, respectively. 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 $5.1 billion, $874.8 million and $1.6 billion, respectively. Gross gains of $5.0 million, $4.0 million and $16.1 million and gross losses of $223.6 million, $10.1 million and $6.0 million were realized on those sales in 2000, 1999 and 1998, respectively. 69 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The amortized cost and estimated fair value of debt securities 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 ------------------- ----------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value --------- --------- ----------- ----------- (Dollars in thousands) Debt Securities: Due in one year or less $27,652 $27,637 $ 326,745 $ 327,429 Due after one year through five years 37,592 37,904 4,952,139 5,109,488 Due after five years through ten years 3,667 3,811 4,228,114 4,337,059 Due after ten years 363 375 2,681,340 2,683,480 ------- ------- ----------- ----------- Total debt securities $69,274 $69,727 $12,188,338 $12,457,456 ======= ======= =========== ===========
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 $ 5,893,808 $ 5,382,373 Leases receivables 4,453,589 2,606,002 Real estate--construction and land development 3,789,309 3,818,396 Real estate--mortgage 22,428,312 20,237,959 Consumer 5,368,810 4,589,510 ----------- ----------- Loans and leases held for investment 41,933,828 36,634,240 Less: unearned income (2,479,517) (1,246,254) ----------- ----------- Loans and leases, net of unearned income $39,454,311 $35,387,986 =========== ===========
The net investment in 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 $846.3 million and $367.2 million, respectively. BB&T had $27.1 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. 70 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth certain information regarding BB&T's impaired loans:
December 31, ------------------------- 2000 1999 1998 ------- ------- ------- (Dollars in thousands) Total recorded investment--impaired loans $42,730 $39,107 $50,749 ------- ------- ------- Total recorded investment with related valuation allowance 42,730 39,107 49,368 Valuation allowance assigned to impaired loans (6,409) (8,335) (9,791) ------- ------- ------- Net carrying value--impaired loans $36,321 $30,772 $39,577 ======= ======= ======= Average balance of impaired loans $27,572 $36,558 $57,996 ======= ======= ======= Cash basis interest income recognized on impaired loans $ -- $ 822 $ 440 ======= ======= =======
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 $336,836 Additions 74,938 Reductions 224,869 -------- Balance, December 31, 2000 $186,905 ========
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 $ 477,296 $ 442,341 $ 388,867 Allowances of purchased companies 12,934 10,697 25,151 Provision for losses charged to expense 127,431 114,433 114,729 Loans and leases charged-off (130,112) (122,478) (114,752) Recoveries of previous charge-offs 34,411 32,303 28,346 ---------- ---------- ---------- Net loans and leases charged-off (95,701) (90,175) (86,406) ---------- ---------- ---------- Ending Balance $ 521,960 $ 477,296 $ 442,341 ========== ========== ==========
At December 31, 2000, 1999 and 1998, loans not currently accruing interest totaled $150.0 million, $119.0 million and $119.1 million, respectively. Loans 90 days or more past due and still accruing interest totaled $72.3 million, $60.0 million and $63.3 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 $13.1 million. Foreclosed property totaled $43.0 million, $31.9 million and $37.2 million at December 31, 2000, 1999 and 1998, respectively. 71 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 $ 150,404 $ 139,545 Buildings and building improvements 622,900 555,608 Furniture and equipment 573,163 564,877 Capitalized leases on premises and equipment 3,943 3,945 ---------- ---------- 1,350,410 1,263,975 Less--accumulated depreciation and amortization 572,650 550,886 ---------- ---------- Net premises and equipment $ 777,760 $ 713,089 ========== ==========
Depreciation expense, which is included in occupancy and equipment expense, was $101.6 million, $101.5 and $89.1 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 $58.0 million, $64.0 million and $43.7 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 $ 43,879 $ 381 2002 38,107 381 2003 33,792 347 2004 31,011 289 2005 27,188 278 2006 and years later 113,831 2,355 -------- ------ Total minimum lease payments $287,808 4,031 ======== Less--amount representing interest 1,797 ------ Present value of net minimum payments on capitalized leases (See Note I.) $2,234 ======
72 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 Servicing rights capitalized 55,855 79,437 86,954 Acquired in purchase transactions 12,153 -- -- Servicing rights sold -- -- (1,118) Amortization expense (18,733) (28,730) (28,042) Change in valuation allowance (1,194) 19,489 (17,431) -------- -------- -------- Balance, December 31, $237,890 $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 $15.2 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. 73 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* $8,887,720 $8,444,829 Less: Loans Securitized and Transferred to Securities Available for Sale 1,032,546 695,432 Less: Loans Held for Sale 846,323 367,243 ---------- ---------- Mortgage Loans Held for Investment $7,008,851 $7,382,154 ========== ========== 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. 74 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 $1,394,755 $ 304,793 Securities sold under agreements to repurchase 2,595,260 2,639,879 Master notes 709,747 698,704 U.S. Treasury tax and loan deposit notes payable 214,858 1,252,469 Short-term Federal Home Loan Bank advances 44,331 461,657 Short-term bank notes 1,890,000 1,645,000 Other short-term borrowed funds 107,745 969,371 ---------- ---------- Total short-term borrowed funds $6,956,696 $7,971,873 ========== ==========
Federal funds purchased represent unsecured borrowings from other banks and generally mature daily. Securities sold under agreements to repurchase are borrowings collateralized by securities of the U.S. Government or its agencies and generally have maturities ranging from overnight to one year. U.S. Treasury tax and loan deposit notes payable are payable upon demand to the U.S. Treasury. Master notes are unsecured, non-negotiable obligations of BB&T (variable rate commercial paper with maturities of 270 days). 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. A summary of selected data related to short-term borrowed funds follows:
As of / For the Year Ended December 31, ---------------------------------- 2000 1999 1998 ---------- ---------- ---------- (Dollars in thousands) Maximum outstanding at any month-end during the year $8,111,010 $8,101,034 $6,851,348 Balance outstanding at end of year 6,956,696 7,971,873 4,815,734 Average outstanding during the year 6,684,688 6,270,755 5,255,111 Average interest rate during the year 6.01% 4.89% 5.20% Average interest rate at end of year 6.12 4.28 4.82
75 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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%. 6,170,520 4,115,086 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 December 1, 2027, with interest at 8.90%; November 13, 1997, maturing December 31, 2027, with interest at 9.00%; and April 22, 1998, maturing June 30, 2028, with interest at 8.40%.(3) 114,750 117,987 Other mortgage indebtedness 3,397 2,475 ---------- ---------- Total long-term debt $8,354,672 $6,073,428 ========== ==========
- -------- Excluding the capitalized leases set forth in Note F, future debt maturities are $479.1 million, $795.0 million, $356.9 million, $240.4 million and $373.6 million for the next five years. The maturities for 2006 and later years total $6.1 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 76 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 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 77 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 provision. As a result of the mergers with MainStreet Financial Corporation, Mason-Dixon Bancshares, Inc. and Premier Bancshares, Inc., 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 500,000,000 shares of common stock, $5 par value, and 5,000,000 shares of preferred stock, $5 par value. At December 31, 2000, 401,678,881 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' 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 $626,442 $705,574 $651,744 Pro Forma 607,514 687,295 638,991 Basic EPS: As reported 1.57 1.78 1.67 Pro Forma 1.52 1.74 1.64 Diluted EPS: As reported 1.55 1.75 1.64 Pro Forma 1.51 1.71 1.60
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. 78 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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, 12,409,086 qualified stock options at prices ranging from $5.49 to $51.41 and 4,041,485 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 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, 79 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 15,460,519 $19.43 15,508,850 $11.21 16,308,031 $11.21 Issued in purchase transactions 572,940 14.48 233,000 11.05 591,955 11.22 Granted 4,433,655 23.79 2,913,317 34.01 2,800,577 28.03 Exercised (2,503,135) 12.59 (2,907,228) 10.89 (4,046,474) 9.49 Forfeited or Expired (509,900) 34.87 (287,420) 36.28 (145,239) 22.21 ---------- ------ ---------- ------ ---------- ------ Outstanding at end of year 17,454,079 $20.87 15,460,519 $19.43 15,508,850 $11.21 ========== ====== ========== ====== ========== ====== Options exercisable at year-end 13,074,437 $18.83 12,983,505 $16.49 12,110,860 $12.08 ========== ====== ========== ====== ========== ======
The weighted average fair value of options granted was $7.47, $8.56 and $7.44 per option at December 31, 2000, 1999 and 1998, respectively. 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 $ 7.25 378,939 1.6 6.47 378,939 6.47 $ 7.26 to $10.75 2,790,710 3.1 9.05 2,790,710 9.05 $10.76 to $16.00 3,575,582 4.7 12.84 3,575,582 4.65 $16.01 to $24.00 6,143,443 8.3 22.68 3,042,414 21.39 $24.01 to $36.00 2,489,830 7.5 30.27 2,078,618 30.24 $36.01 to $56.98 2,034,207 8.1 37.24 1,166,806 37.99 ---------- --- ------ ---------- ------ 17,454,079 6.4 $20.87 13,074,437 $18.83 ========== === ====== ========== ======
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 80 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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 $ 93,319 $151,492 $244,547 State 13,296 10,958 15,651 -------- -------- -------- Total current expense 106,615 162,450 260,198 Deferred expense 172,623 178,433 46,546 -------- -------- -------- Provision for income taxes $279,238 $340,883 $306,744 ======== ======== ========
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% $316,998 $366,048 $335,251 Tax-exempt income from securities, loans and leases less related non-deductible interest expense (54,511) (36,909) (25,779) Amortization of goodwill 16,429 13,221 6,700 State income taxes, net of Federal tax benefit 10,268 9,821 12,112 Other, net (9,946) (11,298) (21,540) -------- -------- -------- Provision for income taxes $279,238 $340,883 $306,744 ======== ======== ======== Effective income tax rate 30.8% 32.6% 32.0% ======== ======== ========
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 81 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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 $ 195,199 $ 174,411 Net unrealized depreciation on securities available for sale -- 185,516 Deferred compensation 45,168 38,498 Other 83,126 84,536 ----------- ----------- Total tax deferred assets 323,493 482,961 ----------- ----------- Deferred tax liabilities: Net unrealized appreciation on securities available for sale (71,467) -- Lease financing (430,999) (254,197) Mortgage servicing rights (65,280) (41,359) Other (64,941) (53,265) ----------- ----------- Total tax deferred liabilities (632,687) (348,821) ----------- ----------- Net deferred tax asset (liability) $ (309,194) $ 134,140 =========== ===========
Securities transactions resulted in income tax (benefits) expense of ($76.6 million), ($2.3 million) and $3.9 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 21,480 16,968 21,582 ------- ------- ------- Total expense related to benefit plans $36,594 $36,018 $34,573 ======= ======= =======
82 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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. Financial data relative to the defined benefit 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 assets exceed Plans for which accumulated accumulated benefits benefits exceed 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 $ -- $ -- ======== ======== ========== ==========
83 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Plans for which Plans for which assets exceed accumulated benefits accumulated benefits exceed 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. 84 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 ====== ====== ======
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) ======== ========
85 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 1 yr 3 yrs 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. 86 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 2000 and 1999, the following financial instruments were outstanding whose contract amounts represent credit risk:
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 $16,355,262 $13,398,955 Standby letters of credit and financial guarantees written 707,778 504,350 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 funding 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, is based on management's evaluation of the creditworthiness of the counterparty. Standby letters of credit and financial guarantees written are conditional commitments issued by BB&T to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers, and letters of credit are collateralized when deemed necessary. Forward commitments to sell mortgage loans and mortgage-backed securities are contracts in which BB&T agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities' values and interest rates. Legal Proceedings The nature of the business of BB&T's banking subsidiaries ordinarily results in a certain amount of litigation. The subsidiaries of BB&T are involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities, if any, arising from these proceedings will not have a materially adverse effect on the consolidated financial position or consolidated results of operations of BB&T. 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 87 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Bank based on specified percentages of certain deposit types, subject to various adjustments. At December 31, 2000, the net reserve requirement amounted to $220.9 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 $2.0 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. 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 9.3% $3,965,892 $1,704,175 9.9% $3,679,736 $1,485,032 BB&T--NC 9.6 3,091,106 1,286,772 10.0 2,641,650 1,053,039 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 12.0% $5,122,645 $3,408,350 13.2% $4,901,622 $2,970,064 BB&T--NC 10.7 3,448,379 2,573,544 11.2 2,949,749 2,106,077 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 7.1% $3,965,892 $1,679,114 7.1% $3,679,736 $1,565,338 BB&T--NC 6.9 3,091,106 1,353,694 6.9 2,641,650 1,141,587 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
88 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 $ 8,924 $ 9,001 Interest-bearing bank balances 638,112 582,032 Securities 15,996 64,560 Investment in banking subsidiaries 4,926,773 4,005,374 Investment in other subsidiaries 462,614 563,357 ---------- ---------- Total investments in subsidiaries 5,389,387 4,568,731 ---------- ---------- Advances to subsidiaries 302,750 348,000 Premises and equipment 5,036 7,312 Receivables from subsidiaries and other assets 244,397 290,454 ---------- ---------- Total assets $6,604,602 $5,870,090 ========== ========== Liabilities and Shareholders' Equity Short-term borrowed funds $ 709,747 $ 707,163 Dividends payable 94,347 69,785 Accounts payable and accrued liabilities 36,087 49,684 Long-term debt 978,496 979,839 ---------- ---------- Total liabilities 1,818,677 1,806,471 ---------- ---------- Total shareholders' equity 4,785,925 4,063,619 ---------- ---------- Total liabilities and shareholders' equity $6,604,602 $5,870,090 ========== ==========
89 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 $577,955 $660,478 $513,962 Interest and other income from subsidiaries 105,802 92,109 96,159 Other income 8,271 10,060 28,885 -------- -------- -------- Total income 692,028 762,647 639,006 -------- -------- -------- Expenses Interest expense 90,390 85,583 93,213 Other expenses 56,931 61,228 67,216 -------- -------- -------- Total expenses 147,321 146,811 160,429 -------- -------- -------- Income before income taxes and equity in undistributed earnings of subsidiaries 544,707 615,836 478,577 Income tax benefit 7,842 11,192 11,781 -------- -------- -------- Income before equity in undistributed earnings of subsidiaries 552,549 627,028 490,358 Equity in undistributed earnings of subsidiaries 73,893 78,546 161,386 -------- -------- -------- Net income $626,442 $705,574 $651,744 ======== ======== ========
90 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 $ 626,442 $ 705,574 $ 651,744 Adjustments to reconcile net income to net cash provided by operating activities: Net income of subsidiaries less than (in excess of) dividends from subsidiaries (73,893) (78,546) (161,386) Depreciation of premises and equipment 568 492 783 Amortization of unearned compensation 4,605 3,906 1,325 Discount accretion and premium amortization -- -- 142 Loss (gain) on sales of securities 1,434 954 (15) Loss on disposals of other real estate owned -- 1 191 Decrease (increase) in other assets 50,030 (93,875) (120,543) Increase (decrease) in accounts payable and accrued liabilities (13,793) 183 5,928 --------- --------- --------- Net cash provided by operating activities 595,393 538,689 378,169 --------- --------- --------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale 33,517 64,143 68,801 Proceeds from maturities, calls and paydowns of securities available for sale -- -- 3,779 Purchases of securities available for sale (30,204) (18,050) (137,709) Investment in subsidiaries (99,859) (86,371) (95,345) Advances to subsidiaries (393,061) (728,586) (677,728) Proceeds from repayment of advances to subsidiaries 438,311 740,186 530,967 Net cash (paid) received in purchase accounting transactions 6,396 588 (6,051) Other, net 150 645 17,373 --------- --------- --------- Net cash used in investing activities (44,750) (27,445) (295,913) --------- --------- --------- Cash Flows From Financing Activities: Net increase in long-term debt (200) 19,806 393,178 Net increase in short-term borrowed funds 2,584 19,054 32,613 Advances from subsidiaries -- -- 4,191 Repayment of advances from subsidiaires -- -- (3,260) Net proceeds from common stock issued 40,273 48,740 71,397 Redemption of common stock (203,595) (385,673) (345,030) Cash dividends paid (334,679) (289,467) (246,361) Other, net 977 558 (1,375) --------- --------- --------- Net cash used in financing activities (494,640) (586,982) (94,647) --------- --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents 56,003 (75,738) (12,391) Cash and Cash Equivalents at Beginning of Year 591,033 666,771 679,162 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 647,036 $ 591,033 $ 666,771 ========= ========= =========
91 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 92 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Commitments to extend credit, standby letters of credit and financial guarantees written: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on fees currently charged for similar agreements. 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:
December 31, ------------------------------------------------- 2000 1999 ------------------------ ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value ----------- ----------- ----------- ----------- (Dollars in thousands) Financial assets: Cash and cash equivalents $ 1,752,829 $ 1,752,829 $ 1,980,875 $ 1,980,875 Trading securities 96,719 96,719 93,221 93,221 Securities available for sale 13,781,863 13,781,863 12,257,822 12,257,822 Securities held to maturity 69,274 69,727 404,897 398,527 Loans and leases: Loans 38,199,678 37,756,286 34,246,833 33,713,742 Leases 2,100,956 N/A 1,508,396 N/A Allowance for losses (521,960) N/A (477,296) N/A ----------- ----------- Net loans and leases $39,778,674 $35,277,933 ----------- ----------- Financial liabilities: Deposits $38,014,501 $38,136,685 $34,147,643 $34,130,120 Short-term borrowed funds 6,956,696 6,956,696 7,971,873 7,971,873 Long-term debt 8,352,438 8,183,138 6,070,893 6,048,780 Capitalized leases 2,234 N/A 2,535 N/A
- -------- NA - not applicable. 93 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:
December 31, -------------------------------------------- 2000 1999 -------------------- ---------------------- Notional/ Notional/ Contract Fair Contract Amount Value Amount Fair Value ----------- -------- ----------- ---------- (Dollars in thousands) Off balance sheet financial intruments: Interest rate swaps, caps, floors and collars $ 725,878 $ 267 $ 1,701,611 $ 2,007 Commitments to extend, originate or purchase credit 16,355,262 (31,741) 13,398,955 1,264,116 Standby and commercial letters of credit and financial guarantees written 752,946 (11,294) 544,767 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 $725.9 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 will change to comply with the provisions of SFAS No. 133, as explained in Note A. 94 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following tables set forth certain information concerning BB&T's interest rate swaps at December 31, 2000: Interest Rate Swaps, Caps, Floors and Collars December 31, 2000 (Dollars in thousands)
Notional Receive Pay Fair Type Amount Rate Rate Value - ---- ----------- ----------- ------------ ----------- Receive fixed swaps $ 423,000 6.26% 6.70% $ (87) Pay fixed swaps 226,828 6.76 5.60 354 Caps, Floors & Collars 76,050 -- -- -- ----------- --------- -------- ----------- Total $ 725,878 6.43% 6.32% $ 267 =========== ========= ======== =========== Receive Pay Fixed Caps, Floors Year-to-date Activity Fixed Swaps Swaps & Collars Total - --------------------- ----------- ----------- ------------ ----------- Balance, December 31, 1999 $ 945,000 $ 644,361 $112,250 $ 1,701,611 Additions 728,000 14,100 -- 742,100 Maturities/amortizations -- (55,978) -- (55,978) Terminations (1,250,000) (375,655) (36,200) (1,661,855) ----------- --------- -------- ----------- Balance, December 31, 2000 $ 423,000 $ 226,828 $ 76,050 $ 725,878 =========== ========= ======== =========== One Year One to Five After Five Maturity Schedule or Less Years Years Total - ----------------- ----------- ----------- ------------ ----------- Receive fixed swaps $ 300,000 $ 30,000 $ 93,000 $ 423,000 Pay fixed swaps -- 203,943 22,885 226,828 Caps, Floors & Collars -- 76,050 -- 76,050 ----------- --------- -------- ----------- Total $ 300,000 $ 309,993 $115,885 $ 725,878 =========== ========= ======== ===========
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. 95 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The $725.9 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 $267,000. 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. 96 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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 $ 626,442 $ 705,574 $ 651,744 =========== =========== =========== Weighted average number of common shares 398,915,645 395,871,173 390,777,294 ----------- ----------- ----------- Basic earnings per share $ 1.57 $ 1.78 $ 1.67 =========== =========== =========== Diluted Earnings Per Share: Net income $ 626,442 $ 705,574 $ 651,744 =========== =========== =========== Weighted average number of common shares 398,915,645 395,871,173 390,777,294 Add: Shares issuable assuming conversion of convertible preferred stock -- -- 90,202 Dilutive effect of outstanding options (as determined by application of treasury stock method) 5,089,614 6,682,111 7,740,358 ----------- ----------- ----------- Weighted average number of common shares, as adjusted 404,005,259 402,553,284 398,607,854 =========== =========== =========== Add: After tax interest expense and amortization of issue costs applicable to convertible debentures -- -- -- ----------- ----------- ----------- Net income, as adjusted $ 626,442 $ 705,574 $ 651,744 =========== =========== =========== Diluted earnings per share $ 1.55 $ 1.75 $ 1.64 =========== =========== ===========
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 97 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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. 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. 98 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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" 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 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 99 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 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" for additional information about the responsibilities of the Treasury segment. 100 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following tables disclose selected financial information for BB&T's reportable business segments:
For the Years Ended December 31, 2000, 1999 and 1998 ----------------------------------------------------------------------------------------------------- Banking Network Mortgage Banking Trust Services ----------------------------------- ---------------------------------- ---------------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 ----------- ----------- ----------- ---------- ---------- ---------- -------- -------- -------- (Dollars in thousands) Net interest income (expense) from external customers $1,149,635 $ 1,270,691 $ 1,179,084 $ 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 1,636,226 1,597,763 1,465,904 115,197 115,674 141,054 13,781 8,529 4,272 ----------- ----------- ----------- ---------- ---------- ---------- -------- -------- -------- Provision for loan and lease losses 129,157 129,284 116,735 3,183 3,802 4,171 -- -- -- Noninterest income from external customers 382,213 431,381 381,306 85,310 114,811 103,937 80,232 57,290 43,635 Intersegment noninterest income 120,410 123,549 150,672 -- -- -- -- -- -- Noninterest expense 704,314 922,946 809,930 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 980,193 839,043 861,397 115,599 146,604 148,248 38,323 25,265 17,294 Provision for income taxes 317,380 279,535 316,858 32,124 45,128 56,125 10,559 8,039 6,528 ----------- ----------- ----------- ---------- ---------- ---------- -------- -------- -------- Net income $ 662,813 $ 559,508 $ 544,539 $ 83,475 $ 101,476 $ 92,123 $ 27,764 $ 17,226 $ 10,766 =========== =========== =========== ========== ========== ========== ======== ======== ======== Identifiable segment assets $30,332,401 $33,363,342 $30,584,031 $8,318,744 $5,689,889 $6,344,073 $ 39,508 $ 31,469 $ 26,664 =========== =========== =========== ========== ========== ========== ======== ======== ======== 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 ========= ======= =======
101 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Years Ended December 31, 2000, 1999 and 1998 ------------------------------------------------------------------------------------------------- Investment Banking and Brokerage Treasury All Other Segments (1) -------------------------- ------------------------------------ -------------------------------- 2000 1999 1998 2000 1999 1998 2000 1999 1998 -------- -------- -------- ----------- ----------- ---------- ---------- ---------- ---------- (Dollars in thousands) 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 ======== ======== ======== =========== =========== ========== ========== ========== ========== Total Segments ----------------------------------- 2000 1999 1998 ----------- ----------- ----------- Net interest income (expense) from external customers $ 2,022,739 $ 2,052,598 $ 1,887,980 Net intersegment interest income (expense) 250,481 39,674 54,501 ----------- ----------- ----------- Net interest income 2,273,220 2,092,272 1,942,481 ----------- ----------- ----------- Provision for loan and lease losses 179,118 149,807 141,566 Noninterest income from external customers 762,190 844,007 664,013 Intersegment noninterest income 120,410 123,549 150,672 Noninterest expense 1,156,186 1,257,951 1,044,990 Intersegment noninterest expense 366,974 300,578 243,999 ----------- ----------- ----------- Income before income taxes 1,453,542 1,351,492 1,326,611 Provision for income taxes 435,336 426,360 443,807 ----------- ----------- ----------- Net income $ 1,018,206 $ 925,132 $ 882,804 =========== =========== =========== Identifiable segment assets $60,617,991 $52,414,558 $49,025,373 =========== =========== ===========
- ---- (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. 102
For the Years Ended December 31, ------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Net Interest Income Net interest income from segments $ 2,273,220 $ 2,092,272 $ 1,942,481 Other net interest income (1) 153,649 77,973 47,564 Elimination of net intersegment interest income (2) (409,241) (237,297) (230,340) ----------- ----------- ----------- Consolidated net interest income $ 2,017,628 $ 1,932,948 $ 1,759,705 =========== =========== =========== Net income Net income from segments $ 1,018,206 $ 925,132 $ 882,804 Other net income (loss) (1) 2,721 (93,778) (123,535) Elimination of intersegment net income (2) (394,485) (125,780) (107,525) ----------- ----------- ----------- Consolidated net income $ 626,442 $ 705,574 $ 651,744 =========== =========== =========== December 31, ------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Total Assets Total assets from segments $60,617,991 $52,414,558 $49,025,373 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 $59,340,228 $52,999,759 $48,190,494 =========== =========== ===========
- -------- (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. 103 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of March 16, 2001: BB&T CORPORATION (Registrant) /s/ John A. Allison, IV By: _________________________________ John A. Allison, IV Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of March 16, 2001. /s/ John A. Allison, IV _____________________________________ John A. Allison, IV Chairman of the Board and Chief Executive Officer /s/ Scott E. Reed _____________________________________ Scott E. Reed Senior Executive Vice President and Chief Financial Officer /s/ Sherry A. Kellett _____________________________________ Sherry A. Kellett Senior Executive Vice President and Controller A Majority of the Directors of the Registrant are included. /s/ Nelle Ratrie Chilton _____________________________________ Nelle Ratrie Chilton Director /s/ Alfred E. Cleveland _____________________________________ Alfred E. Cleveland Director /s/ Ronald E. Deal _____________________________________ Ronald E. Deal Director 104 /s/ Tom D. Efird _____________________________________ Tom D. Efird Director /s/ Paul S. Goldsmith _____________________________________ Paul S. Goldsmith Director /s/ Lloyd Vincent Hackley _____________________________________ Lloyd Vincent Hackley Director /s/ Jane P. Helm _____________________________________ Jane P. Helm Director /s/ Richard Janeway, M.D. _____________________________________ Richard Janeway, M.D. Director /s/ J. Ernest Lathem, M.D. _____________________________________ J. Ernest Lathem, M.D. Director /s/ James H. Maynard _____________________________________ James H. Maynard Director /s/ Joseph A. McAleer, Jr. _____________________________________ Joseph A. McAleer, Jr. Director 105 /s/ Albert O. McCauley _____________________________________ Albert O. McCauley Director /s/ J. Holmes Morrison _____________________________________ J. Holmes Morrison Director /s/ Richard L. Player, Jr. _____________________________________ Richard L. Player, Jr. Director /s/ C. Edward Pleasants, Jr. _____________________________________ C. Edward Pleasants, Jr. Director /s/ Nido R. Qubein _____________________________________ Nido R. Qubein Director /s/ E. Rhone Sasser _____________________________________ E. Rhone Sasser Director /s/ Jack E. Shaw _____________________________________ Jack E. Shaw Director /s/ Harold B. Wells _____________________________________ Harold B. Wells Director 106 EXHIBIT INDEX
Exhibit No. Description Location ------- ----------- -------- 2(a) Agreement and Plan of Reorganization dated as of Incorporated herein by reference July 29, 1994 and amended and restated as of to Registration No. 33-56437. October 22, 1994 between the Registrant and BB&T Financial Corporation. 2(b) Plan of Merger as of July 29, 1994 as amended Incorporated herein by reference and restated on October 22, 1994 between the to Registration No. 33-56437. Registrant and BB&T Financial Corporation. 2(c) Agreement and Plan of Reorganization dated as of Incorporated herein by reference November 1, 1996 between the Registrant and to Exhibit 3(a) filed in the United Carolina Bancshares Corporation, as Annual Report on Form 10-K, amended. filed March 17, 1997. 2(d) Agreement of Plan of Reorganization dated as of Incorporated herein by reference October 29, 1997 between the Registrant and Life to Registration No. 33-44183. Bancorp, Inc. 2(e) Agreement and Plan of Reorganization dated as of Incorporated herein by reference February 6, 2000 between the Registrant and One to Exhibit 99.1 filed in the Valley Bancorp, Inc. Current Report on Form 8-K, dated February 9, 2000. 3(a)(i) Amended and Restated Articles of Incorporation Incorporated herein by reference of the Registrant, as amended. to Exhibit 3(a) filed in the Annual Report on Form 10-K, filed March 17, 1997. 3(a)(ii) Articles of Amendment of Articles of Incorporated herein by reference Incorporation. to Exhibit 3(a)(ii) filed in the Annual Report on Form 10-K, filed March 18, 1998. 3(b) Bylaws of the Registrant, as amended. Incorporated herein by reference to Exhibit 3(b) filed in the Annual Report on Form 10-K, filed March 18, 1998. 4(a) Articles of Amendment to Amended and Restated Incorporated herein by reference Articles of Incorporation of the Registrant to Exhibit 3(a) filed in the related to Junior Participating Preferred Stock. Annual Report on Form 10-K, filed March 17, 1997. 4(b) Rights Agreement dated as of December 17, 1996 Incorporated herein by reference between the Registrant and Branch Banking and to Exhibit 1 filed under Form 8- Trust Company, Rights Agent. A, filed January 10, 1997. 4(c) Subordinated Indenture (including Form of Incorporated herein by reference Subordinated Debt Security) between the to Exhibit 4(d) of Registration Registrant and State Street Bank and Trust No. 333-02899. Company, Trustee, dated as of May 24, 1996.
107
Exhibit No. Description Location - ------- ----------- -------- 4(d) Senior Indenture (including Form of Senior Debt Incorporated herein by reference Security) between the Registrant and State to Exhibit 4(c) of Registration Street Bank and Trust company, Trustee, dated as No. 333-02899. of May 24, 1996. 10(a)* Death Benefit Only Plan, Dated April 23, 1990, Incorporated herein by reference by and between Branch Banking and Trust Company to Registration No. 33-33984. (as successor to Southern National Bank of North Carolina) and L. Glenn Orr, Jr. 10(b)* BB&T Corporation Non-Employee Directors' Incorporated herein by reference Deferred Compensation and Stock Option Plan. to Exhibit 10(b) of the Annual Report on Form 10-K, filed March 17, 1997. 10 (c)* BB&T Corporation 1994 Omnibus Stock Incentive Incorporated herein by reference Plan. to Registration No. 33-57865. 10 (d)* Settlement and Non-Compete Agreement, dated Incorporated herein by reference February 28, 1995, by and between the Registrant to Registration No. 33-56437. and L. Glenn Orr, Jr. 10 (e)* Settlement Agreement, Waiver and General Release Incorporated herein by reference dated September 19, 1994, by and between the to Registration No. 33-56437. Registrant, Branch Banking and Trust Company (as successor to Southern National Bank of North Carolina) and Gary E. Carlton. 10 (f) BB&T Corporation 401(k) Savings Plan (amended Filed herewith. effective January 1, 2000). 10 (g)* BB&T Corporation 1995 Omnibus Stock Incentive Incorporated herein by reference Plan. to Exhibit 10(g) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10 (h)* Form of Branch Banking and Trust Company Long- Incorporated by reference to the Term Incentive Plan. identified exhibit under the Quarterly Report on Form 10-Q, filed May 14, 1991. 10 (i)* Form of Branch Banking and Trust Company Incorporated by reference to the Executive Incentive Compensation Plan. identified exhibit under the Annual Report on Form 10-K, filed February 22, 1985. 10 (j)* Southern National Deferred Compensation Plan for Incorporated herein by reference Key Employees. to Exhibit 10(j) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10 (k)* BB&T Corporation Target Pension Plan. Incorporated herein by reference to Exhibit 10(k) filed in the Annual Report on Form 10-K, filed March 17, 1997.
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Exhibit No. Description Location - ------- ----------- -------- 10 (l)* BB&T Corporation Supplemental Executive Incorporated herein by reference Retirement Plan. to Exhibit 10(l) filed in the Annual Report on Form 10-K, filed March 17, 1997. 10 (m)* Settlement and Noncompetition Agreement, dated Incorporated herein by reference July 1, 1997, by and between the Registrant and to Exhibit 10(m) filed in the E. Rhone Sasser. Annual Report on Form 10-K, filed March 18, 1998. 10 (n)* BB&T Corporation Supplemental Defined Incorporated herein by reference Contribution Plan for Highly Compensated to Registration No. 333-69823. Employees. 10 (o)* Scott & Stringfellow, Inc. Executive and Incorporated herein by reference Employee Retention Plan. to Registration No. 333-81471. 10 (p)* BB&T Corporation Non-Qualified Defined Incorporated herein by reference Contribution Plan. to Registration No. 333-50035. 10 (q)* 1996 Amended and Restated Southern National Filed herewith. Corporation Short-term Incentive Plan. 10 (r)* Amendment to 1995 Omnibus Stock Incentive Plan. Incorporated herein by reference to Registration No. 333-36540. 10 (s)* Employment Agreement dated February 6, 2000, by Filed herewith. and between the Registrant and J. Holmes Morrison. 10 (t) BB&T Corporation Pension Plan (amended effective Filed herewith. January 1, 2000). 10 (u)* Amendment to BB&T Corporation Nonqualified Filed herewith. Defined Contribution Plan. 10 (v)* Amendment to BB&T Corporation Non-Employee Filed herewith. Directors' Deferred Compensation and Stock Option Plan. 10 (w)* Amendment to the BB&T Corporation Supplemental Filed herewith. Defined Contribution Plan for Highly Compensated Employees. 11 Statement re Computation of Earnings Per Share. Filed herewith as Note R. of the "Notes to Consolidated Financial Statements." 21 Subsidiaries of the Registrant. Filed herewith. 22 Proxy Statement for the 2001 Annual Meeting of Future filing incorporated by Shareholders. reference pursuant to the General Instruction G(3). 23(a) Consent of Independent Public Accountants. Filed herewith. 23(b) Opinion of Independent Public Accountants. Filed herewith on Page 54.
- -------- * Management compensatory plan or arrangement. 109 C0001125008 EX-10.6 2 0002.txt BB&T CORPORATION 401(K) SAVINGS PLAN Exhibit 10(f) BB&T CORPORATION 401(K) SAVINGS PLAN EFFECTIVE DATE: JANUARY 1, 2000 TABLE OF CONTENTS BB&T CORPORATION 401(K) SAVINGS PLAN
Page ---- Section 1. Definitions................................................................................... 1 1.1 Account....................................................................................... 1 1.2 Accrued Benefit............................................................................... 2 1.3 Actual deferral percentage or ADP............................................................. 2 1.4 Adjustment date............................................................................... 3 1.5 Affiliated employer........................................................................... 3 1.6 Board......................................................................................... 3 1.7 A break in service............................................................................ 4 1.8 Code.......................................................................................... 4 1.9 Committee..................................................................................... 4 1.10 Company....................................................................................... 4 1.11 Company stock................................................................................. 4 1.12 Compensation.................................................................................. 4 1.13 Computation period............................................................................ 5 1.14 Contribution percentage....................................................................... 5 1.15 Disability.................................................................................... 6 1.16 Effective date................................................................................ 6 1.17 Elective deferral or elective deferrals....................................................... 7 1.18 Eligible employee............................................................................. 7 1.19 Employee...................................................................................... 8 1.20 Entry date.................................................................................... 8 1.21 ERISA......................................................................................... 8 1.22 Excess aggregate contributions................................................................ 9 1.23 Excess contributions.......................................................................... 9 1.24 Excess elective deferral...................................................................... 9 1.25 Highly compensated participant................................................................ 9 1.26 Hour of service............................................................................... 10 1.27 Leased employee............................................................................... 12 1.28 Matching contributions........................................................................ 12 1.29 Nonhighly compensated participant............................................................. 13 1.30 Normal retirement age......................................................................... 13 1.31 Participant................................................................................... 13 1.32 Participating Employer........................................................................ 14 1.33 Plan.......................................................................................... 14 1.34 Plan year..................................................................................... 14 1.35 Predecessor plan.............................................................................. 14 1.36 Qualified nonelective contributions........................................................... 14 1.37 Retire or retirement.......................................................................... 14 1.38 Salary reduction contributions................................................................ 14 1.39 Service....................................................................................... 14 1.40 Spouse or surviving spouse.................................................................... 15 1.41 Statutory compensation........................................................................ 15 1.42 Testing compensation.......................................................................... 15
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1.43 Trust or trust fund.......................................................................... 16 1.44 Trustee...................................................................................... 16 1.45 Trust agreement.............................................................................. 16 1.46 Year of service.............................................................................. 16 Section 2. Contributions to the Trust and Allocation Thereof............................................ 16 2.1 Salary Reduction Contributions............................................................... 16 2.2 Matching Contributions....................................................................... 23 2.3 Discretionary Supplemental Employer Contributions............................................ 28 2.4 General Limitations.......................................................................... 28 Section 3. Vesting...................................................................................... 29 3.1 General...................................................................................... 29 3.2 Forfeitures.................................................................................. 29 3.3 Change in Vesting Schedule................................................................... 29 3.4 Predecessor Plan............................................................................. 30 Section 4. Pretermination Distributions; Loans.......................................................... 30 4.1 Hardship .................................................................................... 30 4.2 Distributions After Age 59 1/2............................................................... 32 4.3 Distributions Prior to Age 59 1/2............................................................ 33 4.4 Loans........................................................................................ 34 4.5 Termination of Service Prior To Distribution................................................. 35 Section 5. Termination Distributions.................................................................... 35 5.1 Distributions on Account of Retirement or Disability......................................... 35 5.2 Distributions on Account of Death............................................................ 38 5.3 Special Provisions and Definitions........................................................... 38 5.4 Distributions on Account of Other Termination of Service..................................... 41 5.5 Directions................................................................................... 42 5.6 Distributions to Alternate Payees............................................................ 43 5.7 Valuation.................................................................................... 43 5.8 Distributions from Salary Reduction Contribution (before-tax) Accounts, Employer Basic Matching Contribution Accounts and QNEC Accounts.............................. 43 Section 6. Adjustment of Accounts....................................................................... 44 6.1 Adjustment of Accounts....................................................................... 45 6.2 Loan Account................................................................................. 45 6.3 General...................................................................................... 46 Section 7. Participant Direction of Investments......................................................... 46 7.1 Participant Directed Investments............................................................. 46 7.2 General...................................................................................... 47 Section 8. Administration by Committee.................................................................. 48 8.1 Membership of Committee...................................................................... 48 8.2 Committee Officers; Subcommittee............................................................. 48 8.3 Committee Meetings........................................................................... 48 8.4 Transaction of Business...................................................................... 48
ii
8.5 Committee Records............................................................................ 49 8.6 Establishment of Rules; Interactive Voice and Other Systems.................................. 49 8.7 Conflicts of Interest........................................................................ 49 8.8 Correction of Errors......................................................................... 49 8.9 Authority to Interpret Plan.................................................................. 50 8.10 Third Party Advisor.......................................................................... 50 8.11 Compensation of Members...................................................................... 51 8.12 Committee Expenses........................................................................... 51 8.13 Indemnification of Committee................................................................. 51 Section 9. Management of Funds and Amendment of Plan.................................................... 51 9.1 Fiduciary Duties............................................................................. 51 9.2 Trust Agreement.............................................................................. 53 9.3 Authority to Amend........................................................................... 53 9.4 Requirements of Writing...................................................................... 54 Section 10. Allocation of Responsibilities Among Named Fiduciaries....................................... 54 10.1 Duties of Named Fiduciaries.................................................................. 54 10.2 Co-fiduciary Liability....................................................................... 55 Section 11. Benefits Not Assignable; Facility of Payments................................................ 55 11.1 Benefits Not Assignable...................................................................... 55 11.2 Payments to Minors and Others................................................................ 56 Section 12. Termination of Plan and Trust; Merger or Consolidation of Plan............................... 5 12.1 Complete Termination......................................................................... 56 12.2 Partial Termination.......................................................................... 57 12.3 Merger or Consolidation...................................................................... 57 12.4 Protection of Benefits....................................................................... 58 Section 13. Communication to Employees................................................................... 58 Section 14. Claims Procedure............................................................................. 58 14.1 Filing of a Claim for Benefits............................................................... 58 14.2 Notification to Claimant of Decision......................................................... 58 14.3 Procedure for Review......................................................................... 59 14.4 Decision on Review........................................................................... 59 14.5 Action by Authorized Representative of Claimant.............................................. 60 Section 15. Portability of Participant Accounts.......................................................... 60 15.1 Definitions.................................................................................. 60 15.2 Construction................................................................................. 61 Section 16. Rollovers.................................................................................... 61 16.1 Timing....................................................................................... 61 16.2 Eligibility.................................................................................. 62 16.3 Maximum Amount............................................................................... 62 16.4 Accounting................................................................................... 62 16.5 Transfers Prior to Becoming a Participant.................................................... 62
iii Section 17. Special Provisions Relating to Transfers From Qualified Plans................................ 62 17.1 Accounting................................................................................... 62 17.2 Liability of Trustee......................................................................... 63 17.3 Protected Benefits Under Section 411(d)(6) of the Code....................................... 63 17.4 Authority of Committee....................................................................... 63 17.5 Impermissible Transfers...................................................................... 63 Section 18. Special Top-Heavy Provisions................................................................. 63 18.1 Definitions.................................................................................. 64 18.2 Top-Heavy Requirements....................................................................... 66 Section 19. Limitations on Allocations................................................................... 67 19.1 Limitations.................................................................................. 67 19.2 Adjustments.................................................................................. 67 19.3 Participation in this Plan and a Defined Benefit Plan........................................ 69 19.4 Definitions.................................................................................. 70 Section 20. Parties to the Plan; Transfers of Employees.................................................. 72 20.1 Application of Plan and Trust Agreement...................................................... 72 20.2 Service with a Participating Employer........................................................ 72 20.3 Contributions by each Participating Employer................................................. 72 20.4 Authority of Board........................................................................... 73 Section 21. Compliance with the Uniformed Services Employment and Reemployment Rights Act of 1994............................................................. 73 21.1 Treatment of USERRA Contributions........................................................... 73 21.2 Rights With Respect to Salary Reduction Contributions....................................... 74 21.3 Special Service Crediting Rules............................................................. 74 21.4 Loans....................................................................................... 75 21.5 Definitions................................................................................. 75 21.6 Construction................................................................................ 75 Section 22. Special Provisions Applicable to ESOP....................................................... 75 22.1 Investment.................................................................................. 75 22.2 Distributions............................................................................... 75 22.3 Restrictions on Company stock............................................................... 75 22.4 Proxy Voting................................................................................ 76 22.5 Valuations.................................................................................. 76 22.6 Diversification............................................................................. 76 22.7 Dividends................................................................................... 77 Section 23. Miscellaneous Provisions.................................................................... 77 23.1 Notices..................................................................................... 77 23.2 Lost Distributees........................................................................... 77 23.3 Reliance on Data............................................................................ 77 23.4 Bonding..................................................................................... 78 23.5 Receipt and Release for Payments............................................................ 78 23.6 No Guarantee................................................................................ 78
iv
23.7 Headings.................................................................................... 78 23.8 Continuation of Employment.................................................................. 78 23.9 Construction................................................................................ 79
v EXHIBIT A Testing Compensation EXHIBIT B Participating Employers EXHIBIT C Plan Loan Rules for Participant Loans vi BB&T CORPORATION 401(K) SAVINGS PLAN INTRODUCTION ------------ Effective as of July 1, 1982, Branch Banking & Trust Company ("BB&T") established a savings and thrift plan (the "prior plan") for the benefit of its employees and the employees of its participating affiliates. The prior plan was entitled the "Savings and Thrift Plan for the Employees of Branch Banking & Trust Company." The prior plan was last restated effective as of January 1, 1994. On February 28, 1995, BB&T Corporation (the "Company") (formerly, the Southern National Corporation) and BB&T Financial Corporation, the former parent corporation of BB&T, were merged. As a result of the corporate merger, the Company became the parent corporation of BB&T and the sponsor of the prior plan. Effective as of January 1, 1996, the name of the prior plan was changed to the "Southern National Corporation 401(k) Savings Plan." As a result of the change in the Company's corporate name to BB&T Corporation, the name of the prior plan was ultimately changed to the "BB&T Corporation 401(k) Savings Plan." This plan amends and restates the prior plan effective as of January 1, 2000. BB&T CORPORATION 401(K) SAVINGS PLAN* Section 1 Definitions: --------- ----------- As used in the plan, including this Section 1, and in the trust agreement which is a part of the plan, references to one gender shall include the other and, unless otherwise indicated by the context: 1.1 "Account" means the aggregate of the separate accounts maintained by the Committee with respect to each participant. The separate accounts so maintained shall include one or more of the following: 1.1.1 "Salary reduction contribution (before-tax) account" means the subaccount of the participant that is credited with salary reduction contributions made by the participant to the plan or the predecessor plan (as defined in Section 1.35). 1.1.2 "Voluntary contribution (after-tax) account" means the subaccount of the participant that is credited with after-tax contributions made by the participant to the predecessor plan. 1.1.3 "Employer basic matching contribution account" means the subaccount of the participant that is credited with basic matching contributions made on behalf of the participant to the plan pursuant to Section 2.2.1(i). 1.1.4 "Employer supplemental matching contribution account" means the subaccount of the participant that is credited with supplemental matching contributions made on behalf of the participant to the plan pursuant to Section 2.2.1(ii) and matching contributions made to the predecessor plan prior to January 1, 2000. 1.1.5 "Employer profit sharing contribution account" means the subaccount of the participant that is credited with supplemental or profit sharing contributions made on behalf of the participant to the plan or the predecessor plan. 1.1.6 "ESOP account" means the subaccount of the participant that is credited with ESOP contributions made on behalf of the participant to the predecessor plan. If a participant was a participant in more than one ESOP previously established under the predecessor plan, a separate ESOP account shall be maintained for the participant under each such ESOP. _____________________ *Note: Except as otherwise provided in Section 1.16, this plan amends and supersedes as of January 1, 2000, the BB&T Corporation 401(k) Savings Plan, which was first adopted July 1, 1982 and last amended and restated effective as of January 1, 1994. Reference is made to the BB&T Corporation 401(k) Savings Plan Trust Agreement, of even date herewith, which is a part of the plan. 1.1.7 "Prior plan account" means the subaccount of the participant that is credited with contributions made on behalf of the participant to the Thrift Plan for the Employees of Branch Banking & Trust Company and the Profit Sharing Plan for the Employees of Branch Banking & Trust Company prior to their merger into the predecessor plan on January 1, 1986. 1.1.8 "PAYSOP account" means the subaccount of the participant that is credited with employer contributions made on behalf of the participant to the Southern National Employee Stock Ownership Plan prior to its merger into the predecessor plan on May 13, 1996 or to the United Carolina Bancshares Corporation Dollar Plus Savings Plan prior to its merger into the predecessor plan on December 12, 1997. 1.1.9 "QNEC account" means the subaccount of the participant that is credited with qualified nonelective contributions made on behalf of the participant to the plan or the predecessor plan. 1.1.10 "Loan account" means the subaccount of the participant that is credited with payments of principal and interest as provided in Section 6.2. 1.1.11 "Rollover account" means the subaccount of the participant that is credited with rollover contributions made by the participant to the plan or the predecessor plan. 1.2 "Accrued Benefit" means with respect to each participant the balance in his account as of the applicable adjustment date following adjustment thereof as provided in Section 6. 1.3 "Actual deferral percentage" or "ADP" with respect to a participant for a plan year means the ratio (expressed as a percentage and calculated to the nearest one-hundredth of a percentage point) of: (i) the salary reduction contributions, if any, made to the trust under the plan by a Participating Employer on behalf of the participant for the plan year other than salary reduction contributions distributed to the participant pursuant to the provisions of Section 19.2(i) (relating to the return of contributions in excess of the limitations of Section 415 of the Code); to (ii) his testing compensation (as defined in Section 1.42) for that portion of the plan year during which he was a participant. Pursuant to regulations issued by the Secretary of the Treasury, the Committee may elect to take into account matching contributions made on behalf of any participant to any qualified plan maintained by the Participating Employer or an affiliated employer for purposes of determining the ADP 2 of such participant. In no event will matching contributions which are taken into account for purposes of determining the ADP of a participant, be taken into account in determining the contribution percentage of such participant. Notwithstanding the foregoing, the ADP of a nonhighly compensated participant shall be determined without regard to any excess elective deferrals made under the plan or any other plan maintained by an affiliated employer with respect to him. The ADP for a specified group of participants for a plan year shall be the average (expressed as a percentage and calculated to the nearest one-hundredth of a percentage point) of the ADPs calculated separately for each participant in such group. The ADP of a participant who is eligible to make a salary reduction contribution under the plan but does not do so, or who is not eligible to make a salary reduction contribution because allocations to his account would exceed the dollar limitation or the statutory compensation limitation in Section 19.1, shall be zero. The determination and treatment of the ADP of any participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 1.4 "Adjustment date" means each day on which the New York Stock Exchange is open for business. The last adjustment date in each plan year is sometimes referred to herein as the "year-end adjustment date." 1.5 "Affiliated employer" means: (i) any corporation that is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Section 414(c) of the Code) with the Company; (iii) any organization (whether or not incorporated) that is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company; and (iv) any other entity required to be aggregated with the Company pursuant to Section 414(o) of the Code. 1.6 "Board" means the Board of Directors of the Company. 3 1.7 A "break in service" means a computation period in which an employee does not complete more than 500 hours of service and shall occur at the beginning of such computation period. 1.8 "Code" means the Internal Revenue Code of 1986, as amended, and rules and Treasury Regulations issued thereunder. 1.9 "Committee" means the administrative Committee provided for in Section 8. 1.10 "Company" means BB&T Corporation, a North Carolina corporation with its principal office at Winston-Salem, North Carolina. 1.11 "Company stock" means shares of common stock issued by the Company which are readily tradable on an established securities market. As of the effective date, the Company stock is listed on the New York Stock Exchange under the Symbol "BBT." 1.12 "Compensation" means wages within the meaning of Section 3401(a) of the Code and all other payments of compensation to an employee by the Participating Employer (in the course of the Participating Employer's trade or business) for which the Participating Employer is required to furnish the employee a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed, plus any amounts contributed by the Participating Employer pursuant to a salary reduction agreement which are not includible in the gross income of the employee under Section 125, 402(e)(3), 402(h) or 403(b) of the Code, if any, and less reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, and welfare benefits. For plan years beginning on or after January 1, 1989, but prior to January 1, 1994, the annual compensation of each employee taken into account shall not exceed $200,000. This limitation shall be adjusted by the Secretary of the Treasury at the same time and in the same manner as under Section 415(d) of the Code, except that the dollar increase in effect on January 4 of any calendar year is effective for plan years beginning in such calendar year and the first adjustment to the $200,000 limitation is effective on January 1, 1990. For plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the plan shall not exceed $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (the "determination period") beginning in such calendar year. The $200,000 limitation and the $150,000 limitation, whichever shall be applicable, shall be hereinafter referred to as the "annual compensation limitation." If a determination period consists of fewer than 12 months, the annual compensation limitation will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. 1.13 "Computation period" means a 12 consecutive month period, as follows: 1.13.1 For purposes of plan participation, the computation period initially shall be the 12 consecutive month period beginning on the date an employee first completes an hour of service. Thereafter, the computation period shall be the plan year, beginning with the plan year containing the first anniversary of the date the employee first completed an hour of service. 1.13.2 For all other purposes under the plan, the computation period shall be the plan year. 1.14 "Contribution percentage" with respect to a participant for a plan year means the ratio (expressed as a percentage and calculated to the nearest one-hundredth of a percentage point) of: (i) the matching contributions made to the trust under the plan on the participant's behalf for the plan year; to (ii) his testing compensation (as defined in Section 1.42) for that portion of the plan year during which he was a participant. The contribution percentage for a specified group of participants for a plan year shall be the average (expressed as a percentage and calculated to the nearest one-hundredth of a percentage point) of the contribution percentages calculated separately for each participant in such 5 group. Pursuant to regulations issued by the Secretary of the Treasury, the Committee may elect to take into account elective deferrals made on behalf of any participant to any qualified plan maintained by the Participating Employer or an affiliated employer for purposes of determining the contribution percentage of such participant. Notwithstanding the foregoing, salary reduction contributions distributed to a participant pursuant to the provisions of Section 19.2(i) (relating to the return of contributions in excess of the limitations of Section 415 of the Code) and matching contributions forfeited by a participant pursuant to the provisions of Section 2.2.4 (relating to the forfeiture of matching contributions attributable to excess contributions, excess elective deferrals and excess aggregate contributions) may not be taken into account for purposes of determining the contribution percentage of such participant. The determination and treatment of the contribution percentage of any participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 1.15 "Disability" means a condition for which a participant is entitled to disability benefits under the BB&T Corporation Disability Plan. 1.16 "Effective date" of the plan means January 1, 2000. However, in order to comply with the Retirement Protection Act of 1994, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and Reform Act of 1998, which are first effective as of an earlier date, the following Sections of the plan are effective as indicated below: Section Effective Date ------- -------------- Section 1.3 January 1, 1997 Section 1.12 January 1, 1997 Section 1.14 January 1, 1997 Section 1.25 January 1, 1997 Section 1.27 January 1, 1997 Section 1.39 January 1, 1998 Section 1.41 January 1, 1998 Section 2.1.4 January 1, 1997 Section 2.2.3 January 1, 1997 6 Section 5.1.2(h) January 1, 1997 Section 5.3.1 January 1, 1997 Section 5.3.3(f) January 1, 1997 Section 15.1.1 January 1, 1999 Section 19.1 January 1, 1995 Section 21 October 13, 1996 1.17 "Elective deferral" or "elective deferrals" means, with respect to any taxable year of a participant, the sum of: (a) Any employer contribution under a qualified cash or deferred arrangement (as defined in Section 401(k) of the Code) to the extent not includible in the participant's gross income for the taxable year under Section 402(e)(3) of the Code, including a salary reduction contribution made on behalf of the participant under Section 2.1 of the plan; (b) Any employer contribution under a simplified employee pension plan (as defined in Section 408(k) of the Code) to the extent not includible in the participant's gross income for the taxable year under Section 402(h)(1)(B) of the Code; (c) Any employer contribution made on behalf of the participant to purchase an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement (within the meaning of Section 3121(a)(5)(D) of the Code); and (d) Any elective employer contribution made on behalf of a participant under Section 408(p)(2)(A)(i) of the Code. Notwithstanding any provisions of the plan to the contrary, the elective deferrals of any participant for any taxable year of the participant made under this plan, and any other qualified plan maintained by the Company or an affiliated employer, shall not in the aggregate exceed $10,500 (or such greater amount as may be permitted under Section 402(g)(4), (5) or (8) of the Code). See Section 2.1.1 of the plan permitting distribution of excess elective deferrals. 1.18 "Eligible employee" means each employee of a Participating Employer except the following: (a) An employee included in a unit of employees covered by a bona fide collective bargaining agreement with a Participating Employer that does not specifically provide for coverage of the employee under the plan; provided, that retirement benefits were the subject of good faith bargaining between the Participating Employer and employee representatives. 7 (b) An employee who is a nonresident alien and receives no earned income (within the meaning of Section 911(d)(2) of the Code) from the Participating Employer constituting income from sources within the United States (within the meaning of Section 861(a)(3) of the Code). (c) An individual who is deemed to be an employee solely because he is a leased employee. (d) An individual who is an employee of an affiliated employer that has not adopted the plan and is on a temporary assignment to a Participating Employer. See Section 1.31 for provisions governing participation in the plan by an eligible employee. 1.19 "Employee" means, except as otherwise provided herein, an individual in the service of a Participating Employer if the relationship between him and the employer is the legal relationship of employer and employee. In determining who is an employee for purposes of the plan, the following provisions shall apply: 1.19.1 All leased employees shall be treated as employees. 1.19.2 An individual who is identified on the books and records of a Participating Employer as other than a common law employee shall not be treated as an employee for purposes of the plan regardless of a later agency or judicial determination to the effect that such individual is a common law employee of a Participating Employer. See Sections 1.18 and 1.31 for provisions governing eligibility of an employee to become a participant in the plan. 1.20 "Entry date" means the first day of each calendar month. 1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended (including amendments of the Code affected thereby), and rules and regulations issued thereunder. 1.22 "Excess aggregate contributions" means, with respect to any plan year, the excess of: 8 (a) The aggregate amount of matching contributions (and any elective deferrals taken into account in computing the contribution percentage) actually made to the trust on behalf of highly compensated participants for such plan year; over (b) The maximum amount of such contributions permitted under the limitations described in Section 2.2.2. 1.23 "Excess contributions" means, with respect to any plan year, the excess of: (a) The aggregate amount of salary reduction contributions (and any matching contributions taken into account in computing the ADP) actually made to the trust on behalf of highly compensated participants for such plan year; over (b) The maximum amount of such contributions permitted under the limitations of Section 2.1.4. 1.24 "Excess elective deferral" for any taxable year of a participant means the amount of the elective deferral on behalf of a participant for any taxable year of such participant in excess of $10,500 (or such greater amount as may be permitted pursuant to the provisions of Sections 402(g)(4), (5) and (8) of the Code). Excess elective deferral also shall refer to the specific amount of elective deferrals for the taxable year of the participant which the participant allocates to this plan pursuant to the provisions of Section 2.1.1. 1.25 "Highly compensated participant" means any participant who is a highly compensated employee. "Highly compensated employee" means any employee who: (a) during the plan year or preceding plan year was at any time a 5 percent owner (as defined in Section 416(i)(1)(B) of the Code); or (b) during the preceding plan year received statutory compensation (as defined in Section 1.41) from the Company and affiliated employers in excess of $80,000 (as adjusted pursuant to Section 414(q)(1) of the Code) and was in the top-paid group of employees for such preceding plan year. For purposes of this Section 1.25, the following provisions shall apply: 1.25.1 An employee who performs service for the Company or any affiliated employer at any time during a plan year shall be in the top-paid group of employees for such year if such employee is in the top 20 percent of the employees of the Company and its affiliated employers ranked on the basis of statutory compensation paid during such year. 9 1.25.2 A former employee shall be treated as a highly compensated employee if he was a highly compensated employee when he separated from service, or was a highly compensated employee at any time after attaining age 55. The determination of who is a highly compensated employee, including the determination of the number and identity of employees in the top-paid group, shall be made in accordance with Section 414(q) of the Code. 1.26 "Hour of service" means the following: 1.26.1 Each hour for which an employee is paid, or entitled to payment, by the Company or an affiliated employer for the performance of duties. Each such hour shall be credited to the computation period in which the duties are performed. 1.26.2 Each hour for which an employee is paid, or entitled to payment, by the Company or an affiliated employer for a period of time during which no duties are performed, irrespective of whether the employment relationship has terminated, by reason of vacation, holiday, illness, incapacity (including disability), lay-off, jury duty, military duty or leave of absence. Each such hour shall be credited to the computation period in which no duties are performed. In applying this Section 1.26.2, the following provisions shall apply: (i) The number of hours to be credited to any single continuous period (whether or not such period occurs in a single computation period) for which hours are credited shall be the lesser of: (a) 501 hours, or (b) the number of hours for which the employee is paid with respect to such single continuous period; (ii) No hours shall be credited with respect to payments made to the employee for the purpose of complying with applicable workers' compensation, unemployment compensation or disability insurance laws, or payments made solely to reimburse an employee for medical or medically related expenses incurred by the employee; and (iii) An amount paid to an employee by the Company or an affiliated employer indirectly, such as by a trust, fund or insurer to which the Company or affiliated employer makes contributions or pays premiums, shall be deemed to be paid by the Company or affiliated employer. 1.26.3 Each hour (to the extent not included in Section 1.26.1 or 1.26.2) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Company or an affiliated employer. Each such hour shall be credited to the computation period or periods to which the award or agreement pertains rather than to the computation period in which the award, agreement or payment is made. 10 1.26.4 Each hour for which an employee is not actually in service but is required to be given credit for service under any law of the United States, including, but not limited to, the Family and Medical Leave Act of 1993. Each such hour shall be credited to the computation period or periods for which the employee is required to be given credit for service. 1.26.5 Solely for the purpose of determining whether an employee has incurred a break in service, each hour with respect to a period during which he is absent from work for maternity or paternity reasons which otherwise would be credited to such employee but for such absence, or if such hours cannot be determined, 8 hours of service per day of such absence. For purposes of this Section 1.26.5, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the employee; (b) by reason of the birth of a child of the employee; (c) by reason of the placement of a child with the employee in connection with the adoption of such child by such employee; or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. The hours of service credited under this Section 1.26.5 shall be credited with respect to the computation period in which the absence begins, if necessary to prevent a break in service in such computation period. In all other cases, such hours of service shall be credited to the subsequent computation period. No more than 501 hours of service shall be required to be credited for maternity or paternity reasons. No credit shall be given under this Section 1.26.5, unless the employee furnishes to the Committee such timely information as the Committee reasonably may require to establish that the absence is for a reason described in this Section 1.26.5 and the number of days for which there was such an absence. 1.26.6 Solely for the purpose of determining whether an employee has incurred a break in service, an employee who is absent from work due to a leave of absence approved by the Participating Employer for which he is not paid (other than a leave of absence for maternity or paternity reasons) shall be credited with each hour of service such employee would otherwise be credited with but for such leave of absence. The hours of service credited pursuant to this Section 1.26.6 shall be credited with respect to the computation period in which the absence begins, if necessary to prevent a break in service in such computation period. In all other cases, such hours of service shall be credited to the subsequent computation period. No more than 501 hours of service shall be required to be credited due to such leave of absence. The hours of service granted pursuant to the provisions of this Section 1.26.6 shall be disregarded if the participant does not return to service upon the expiration of such leave of absence; provided that this sentence shall not apply if the employee dies or becomes disabled during such leave of absence. An employee for whom the Company or an affiliated employer maintains records of hours for which payment for the performance of duties is made shall be credited with hours of service on the basis of such records. Any other employee shall be credited with 45 hours of service for each week if under this 11 Section 1.26 he would be credited with at least one hour of service for such week. The provisions of this Section 1.26 shall be applied in accordance with the provisions of Department of Labor Regulations Sections 2530.200b-2(b) and (c), which are incorporated herein by reference. 1.27 "Leased employee" means any individual, other than an employee of the Company or an affiliated employer (the "recipient employer"), who, pursuant to an agreement between the recipient employer and any other person (the "leasing organization") has performed services for the recipient employer, or the recipient employer and related persons determined in accordance with Section 414(n) of the Code, on a substantially full-time basis for a period of at least one year, and such services are performed under the primary direction or control of the recipient employer. Contributions or benefits provided a leased employee by the leasing organization that are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A leased employee shall not be considered an employee of the recipient employer if: (a) such individual is covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least 10 percent of statutory compensation, (ii) immediate participation, and (iii) full and immediate vesting; and (b) leased employees do not constitute more than 20 percent of the recipient employer's nonhighly compensated work force as defined in Section 414(n)(5)(C)(ii) of the Code. 1.28 "Matching contributions" means the amounts contributed to the plan by a Participating Employer pursuant to the provisions of Section 2.2. The amounts contributed to the plan by a Participating Employer pursuant to Section 2.2.1(i) are sometimes referred to herein as "basic matching contributions." The amounts contributed to the plan by a Participating Employer pursuant to Section 2.2.1(ii) are sometimes referred to herein as "supplemental matching contributions." 1.29 "Nonhighly compensated participant" means a participant who is not a highly compensated participant. 12 1.30 "Normal retirement age" of a participant means age 65. The "normal retirement date" of a participant means the date the participant attains his normal retirement age. 1.31 "Participant" means with respect to any plan year an eligible employee who has entered the plan and any former employee who has an accrued benefit under the plan. An eligible employee or former employee on the effective date who was a participant in the predecessor plan immediately preceding the effective date, or who was eligible to enter the predecessor plan as a participant on the effective date, shall be a participant in this plan as of the effective date. For purposes of Section 2.1.1 (making salary reduction contributions), an eligible employee who has not otherwise entered the plan shall become a participant as of the entry date next following the completion of 90 days of service. For purposes of Section 2.2.1 (receiving matching contributions), an eligible employee shall become a participant as of the entry date next following the later of (i) the close of the first computation period in which he completes 1,000 or more hours of service; or (ii) attainment of age 21. For the purpose of applying the foregoing provisions of this Section 1.31, the following provisions shall apply: (i) an eligible employee who is not in service on the date he is eligible to enter the plan shall not enter the plan until he reenters service as an eligible employee, whereupon he immediately shall enter the plan; and (ii) a participant who terminates service and later reenters service shall reenter the plan as of the date he reenters service as an eligible employee. 1.32 "Participating Employer" means the Company and each employer that has adopted the plan and is listed on Exhibit B attached hereto. See Section 20 for special provisions concerning Participating Employers. 1.33 "Plan" means the BB&T Corporation 401(k) Savings Plan as herein set out or as duly amended. That portion of the plan consisting of the ESOP accounts shall constitute a stock bonus plan and an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code 13 (the "ESOP"). See Section 22 for special rules that apply to the ESOP. The remainder of the plan shall constitute a profit sharing plan. 1.34 "Plan year" means the 12-month period ending on December 31 of each year. 1.35 "Predecessor plan" means the BB&T Corporation 401(k) Savings Plan in effect prior to January 1, 2000, and any other plan which was merged into such plan or whose assets and liabilities were transferred to such plan prior to such date. The term "predecessor plan" shall also include any plan which is merged into this plan or whose assets and liabilities are transferred to this plan after the effective date. 1.36 "Qualified nonelective contributions" means a contribution made by the Company pursuant to Section 2.1.4(iv) of the plan. 1.37 "Retire" or "retirement" means the participant's termination of service on or after his normal retirement date. 1.38 "Salary reduction contributions" means the contributions described in Section 2.1 which are made to the plan by a Participating Employer on behalf of a participant who has elected to defer a specified percentage of his compensation. 1.39 "Service" means employment by a Participating Employer or an affiliated employer as an employee. An employee's service shall also include his service with an employer that is acquired by a Participating Employer or one of its affiliated employers, whether by merger, acquisition of assets or stock, or otherwise; provided that, the employee becomes an employee of a Participating Employer or one of its affiliated employers as a result of such acquisition. 1.40 "Spouse" or "surviving spouse" means the legally married spouse or surviving spouse of a participant; provided, that a former spouse shall be treated as the spouse or surviving spouse to the extent provided under a qualified domestic relations order described in Section 414(p) of the Code. 14 1.41 "Statutory compensation" means wages within the meaning of Section 3401(a) of the Code and all other payments of compensation to an employee by a Participating Employer (in the course of the Participating Employer's trade or business) for which the Participating Employer is required to furnish the employee a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code, other than amounts paid or reimbursed by the Company for moving expenses incurred by the employee to the extent that at the time of the payment it is reasonable to believe that these amounts are deductible by the employee under Section 217 of the Code. Compensation must be determined for this purpose without regard to any rules under Section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the employment or the services performed. The statutory compensation of an employee shall include any elective deferral (as defined in Section 402(g)(3) of the Code) and any other amount which is contributed or deferred by the Participating Employer at the election of the employee and which is not includible in the gross income of the employee by reason of Sections 125 or 457 of the Code. For purposes of Section 18, the statutory compensation of a participant shall be limited to the annual compensation limitation set forth in Section 1.12. 1.42 "Testing compensation" means any of the definitions of compensation which are set forth on Exhibit A attached hereto, as designated by the Committee. Notwithstanding the foregoing, a participant's testing compensation shall be subject to the annual compensation limitation set forth in Section 1.12. The definition of compensation designated by the Committee for a particular plan year shall be used for purposes of determining the testing compensation of all participants for such year. 1.43 "Trust" or "trust fund" means the trust fund held by the Trustee under the plan. 15 1.44 "Trustee" means the entity appointed by the Company to administer the trust. 1.45 "Trust agreement" means the trust agreement between the Company and the Trustee which shall be a part of the plan. 1.46 "Year of service" means the following: 1.46.1 With respect to service prior to the effective date, years of continuous service as determined pursuant to the terms of the predecessor plan. 1.46.2 With respect to service on or after the effective date, 1,000 or more hours of service during a computation period; provided, that no year of service following 5 consecutive breaks in service shall be taken into account in determining the vested percentage of an employee's accrued benefit that accrued before such breaks in service. 1.46.3 Years of service shall include any period during which an employee would have been a leased employee but for the requirement that a leased employee perform service for the Company, or the Company and related persons determined in accordance with Section 414(n)(6) of the Code, on a substantially full-time basis for a period of at least one year. Section 2. Contributions to the Trust and Allocation Thereof: --------- ------------------------------------------------- 2.1 Salary Reduction Contributions: 16 2.1.1 Amount of salary reduction contributions; Excess elective deferrals: Each eligible employee who becomes a participant and is in service may elect in the manner provided by the Committee to reduce his compensation by a whole number percentage not less than 1 percent and not more than 16 percent. The amount of the participant's salary reduction shall be contributed by the Participating Employer to the trust for each plan year as a salary reduction contribution in accordance with the provisions of Section 2.1.2. In no event shall the salary reduction contribution made to this plan with respect to a participant for any taxable year of the participant exceed $10,500 (or such greater amount as may be permitted pursuant to the provisions of Sections 402(g)(4), (5) and (8) of the Code) (the "maximum dollar limit"). In the event of an excess elective deferral (determined by taking into account only the plan and any other plans maintained by an affiliated employer), the Participating Employer shall notify the Committee in writing on behalf of the participant of such excess elective deferral and the amount thereof shall be adjusted for income and losses allocable thereto and distributed to the participant (a "corrective distribution") no later than the April 15 following the end of the taxable year during which such excess elective deferral was made. The income or loss allocable to an excess elective deferral under the plan for the participant's taxable year of the excess elective deferral shall be determined by multiplying the income or loss allocable to the participant's salary reduction contribution (before-tax) account for such taxable year by a fraction the numerator of which is the excess elective deferral made to the plan for such taxable year and the denominator of which is equal to the sum of: (i) the balance in the participant's salary reduction contribution (before- tax) account as of the beginning of such taxable year; and (ii) the participant's salary reduction contributions for such taxable year. Income or loss allocable to an excess elective deferral for the taxable year shall not include income or loss for the period between the end of the taxable year and the date of the corrective distribution. The excess elective deferral which otherwise would be distributed to the participant shall be reduced in accordance with Treasury regulations by the amount of any excess contributions distributed previously to the participant. If the participant is also a participant in another plan or arrangement under which elective deferrals were made and the elective deferrals made under such other plan or arrangement and this plan in the aggregate exceed the maximum dollar limit for such participant's taxable year, then not later than March 1 following the close of the taxable year during which the excess elective deferral was made, the participant may notify the Committee in writing that all or part of the salary reduction contribution made on his behalf under the plan represents an excess elective deferral for his preceding taxable year and request that his salary reduction contribution under the plan be reduced by a specified amount. The specified amount shall be adjusted for income and loss allocable thereto in the same manner as heretofore provided in this Section 2.1.1. In no event may the participant receive from the plan as a corrective distribution with respect to a plan year an amount in excess of such participant's salary reduction contributions under the plan for the plan year, as adjusted for income and losses allocable thereto. Distributions of excess elective deferrals to participants may be made notwithstanding any other provision of the plan or Code. The amount of any excess elective deferral distributed to the participant pursuant to this Section 2.1.1 shall not be treated as an annual addition for purposes of Section 19. 17 2.1.2 Time for making salary reduction contributions: A participant's salary reduction contributions shall be accumulated through payroll deductions and paid by the Participating Employer to the Trustee as of the earliest date on which such contributions can reasonably be segregated from the general assets of the Participating Employer, but in no event later than the 15th business day of the month following the month in which such amounts would otherwise have been payable to the participant in cash. 2.1.3 Administrative rules governing salary reduction contributions: (i) An election pursuant to Section 2.1.1 (a "deferral election") shall be made by the participant in accordance with such rules and procedures as are adopted by the Committee from time to time. The participant's deferral election shall become effective as of the beginning of the first full payroll period commencing on or after the date of receipt by the Committee of such deferral election, unless otherwise provided by the Committee. Unless modified or revoked by the participant, the deferral election shall continue in effect until such time as he terminates service. A new deferral election with respect to a participant who terminates service and later reenters service and becomes a participant shall become effective at the beginning of the first full payroll period commencing on or after the date such participant reenters the plan. (ii) Subject to the provisions of Section 2.1.3(v), a participant unilaterally may modify his deferral election as of any date to increase or decrease the portion of his compensation subject to salary reduction within the percentage limits set forth in Section 2.1.1. Any such modification shall be made in the manner provided by the Committee and shall become effective at the beginning of the first full payroll period commencing on or after the date of receipt of the modified election by the Committee unless otherwise provided by the Committee. (iii) Subject to the provisions of Section 2.1.3(v), a participant unilaterally may revoke his deferral election at any time by providing notice to the Committee in the manner provided by the Committee. The revocation shall become effective at the beginning of the first full payroll period commencing on or after the date such notification is received by the Committee. A participant may resume salary reduction contributions at any time by making a new deferral election in accordance with the provisions of Section 2.1.3(i). (iv) The Committee may amend or revoke a deferral election with a participant at any time if the Committee determines that such amendment or revocation is necessary to ensure that the annual additions (as defined in Section 19) to the accounts of a participant do not exceed the annual addition limitations (described in Section 19) for such participant or that the requirements of Section 2.1.4 are met for such plan year. (v) Notwithstanding the provisions of this Section 2.1.3 to the contrary, a participant who is also a participant in the BB&T Corporation Non-Qualified Defined Contribution Plan or the BB&T Corporation Supplemental Defined Contribution Plan for Highly Compensated Employees may only amend or revoke a deferral election effective as of the first day of each plan year. 18 (vi) The Company shall establish a payroll deduction system to assist it in making salary reduction contributions. The Committee from time to time may adopt policies or rules governing the manner in which such contributions may be made so that the plan may be administered conveniently. 2.1.4 Limitations on salary reduction contributions: (i) Subject to the provisions of Section 2.1.4(vi), all deferral elections made by highly compensated participants with respect to any plan year shall be valid only if one of the tests set forth in Section 2.1.4(ii) is satisfied for such plan year. (ii) For each plan year, the ADP for the group of highly compensated participants for such plan year shall bear to the ADP for the group of nonhighly compensated participants for such plan year a relationship that satisfies either of the following tests: (a) The ADP for the group of highly compensated participants is not more than the ADP for the group of nonhighly compensated participants multiplied by 1.25; or (b) The ADP for the group of highly compensated participants is not more than the ADP for the group of nonhighly compensated participants multiplied by 2, and the excess of the ADP for the group of highly compensated participants over the ADP for the group of nonhighly compensated participants is not more than 2 percentage points (or such lesser amount as the Secretary of the Treasury shall prescribe by regulation to prevent the multiple use of this alternative limitation with respect to any highly compensated participant). For purposes of applying the provisions of this paragraph (ii), the following provisions shall apply: (1) A participant is a highly compensated participant for a particular plan year if he meets the definition of a highly compensated participant in effect for that plan year. A participant is a nonhighly compensated participant for a particular plan year if he does not meet the definition of a highly compensated participant in effect for that plan year. (2) Pursuant to regulations issued by the Secretary of the Treasury, the Committee may elect to include all or part of the matching contributions under the plan or any other qualified plan that it sponsors for purposes of calculating the ADP with respect to each participant. Notwithstanding the foregoing, matching contributions shall be treated as salary reduction contributions for purposes of calculating the ADP of 19 each participant only if the conditions described in Section 1.401(k)-1(b)(5) of the Treasury Regulations are satisfied. Matching contributions which are treated as salary reduction contributions pursuant to the provisions of this subparagraph (1) shall not be distributable other than upon one of the events described in Section 5.8(a) through (f). (3) If 2 or more plans of the Participating Employer or an affiliated employer that include cash or deferred arrangements described in Section 401(k) of the Code are aggregated for purposes of Section 410(b) of the Code (other than for purposes of the average benefit percentage test), the cash or deferred arrangements included in such plans shall be treated as one arrangement. Notwithstanding the foregoing, plans may be aggregated in order to satisfy the tests set forth in Section 2.1.4(ii) only if they have the same plan year and use the same ADP testing method. (4) If a highly compensated participant is a participant under 2 or more cash or deferred arrangements (described in Section 401(k) of the Code) of the Participating Employer or an affiliated employer, all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the ADP with respect to such highly compensated participant. Notwithstanding the foregoing, the provisions of this subparagraph (4) shall not apply if the plans of which such cash or deferred arrangements are a part may not be aggregated for purposes of Section 410(b) of the Code (other than the average benefit percentage test). (5) The group of highly compensated participants and the group of nonhighly compensated participants shall include any participant defined as such, regardless of whether he elects to make a salary reduction contribution under the plan. (6) The Company shall maintain records sufficient to demonstrate satisfaction of the ADP test. (7) Notwithstanding anything to the contrary in the plan, the determination and treatment of salary reduction contributions and the ADP of any participant shall satisfy Section 1.401(k)-1(b) of the Treasury Regulations and such other requirements as may be prescribed by the Secretary of the Treasury. (iii) If at the end of any plan year neither of the tests set forth in Section 2.1.4(ii) is satisfied, then within 2 1/2 calendar months following the end of each plan year, but in no event later than the year-end adjustment date following the close of such 2 1/2 month period (the "distribution date"), the salary reduction contribution for such plan year of each highly compensated participant shall be reduced by his share of the 20 excess contribution for such plan year. Reductions shall be made pursuant to the steps in the following order: (1) Step one: The actual deferral percentage of the highly compensated participant with the highest actual deferral percentage shall be reduced by the amount required to cause the highly compensated participant's actual deferral percentage to equal the actual deferral percentage of the highly compensated participant with the next highest actual deferral percentage. This process shall be repeated until the plan satisfies one of the tests set forth in Section 2.1.4(ii). The dollar amount of each reduction made pursuant to this step one shall be determined for each highly compensated participant. Such amount shall not be distributed to the affected highly compensated participant, but instead shall be used in steps two and three below. (2) Step two: The dollar amount of the reduction determined for each highly compensated participant in accordance with step one above shall be aggregated. Such amount shall be allocated in accordance with step three below. (3) Step three: The salary reduction contributions of the highly compensated participant with the highest dollar amount of salary reduction contributions shall be reduced by the amount required to cause that highly compensated participant's salary reduction contributions to equal the dollar amount of the salary reduction contributions of the highly compensated participant with the next highest dollar amount of salary reduction contributions. This process shall be repeated until the total amount of salary reduction contributions so reduced equals the aggregate dollar amount determined in step two above. All salary reduction contributions so reduced, adjusted for income and losses allocable thereto, shall be designated by the Company as excess contributions and distributed to the participant no later than the distribution date. The income or loss allocable to the participant's share of the excess contribution for the plan year of such excess contribution shall be determined by multiplying the amount of the income or loss allocable to the participant's salary reduction contributions (and any matching contributions treated as salary reduction contributions) for such plan year by a fraction the numerator of which is the excess contribution on behalf of the participant for such plan year, and the denominator of which is equal to the sum of: (i) the balance in his account attributable to salary reduction contributions (and any matching contributions treated as salary reduction contributions) as of the beginning of such plan year; and (ii) the participant's salary reduction contributions for such plan year (and any matching contributions treated as salary reduction contributions). Income or loss allocable to the participant's share of the excess contribution shall not include income or loss for the period between the end of the plan year and the date of distribution. The excess contribution that otherwise would be distributed to the participant shall be reduced in accordance with Treasury Regulations by the amount of any excess elective deferrals 21 previously distributed to the participant. The amount of any excess contribution shall be treated as an annual addition for purposes of Section 19 for the plan year in which such excess contribution was made. Distributions of excess contributions to participants may be made notwithstanding any other provision of the plan or Code. In no event may the amount of the excess contributions distributed for a plan year with respect to any highly compensated participant exceed the amount of salary reduction contributions made in behalf of the highly compensated participant for such plan year, as adjusted for income and losses allocable thereto. (iv) In lieu of applying the three-step process described in Section 2.1.4(iii), the Company may, within 30 days after the end of the plan year, make a qualified nonelective contribution with respect to such plan year on behalf of nonhighly compensated participants in an amount determined by the Company to be sufficient to satisfy one of the tests set forth in Section 2.1.4(ii). Such qualified nonelective contribution shall be allocated to the QNEC accounts of those participants entitled to share in such contribution pursuant to the provisions of Section 2.1.5(ii). On such allocation, the qualified nonelective contribution shall be considered a salary reduction contribution subject to all provisions of the plan regarding salary reduction contributions other than Section 4.1. The Company shall pay such qualified nonelective contribution with respect to a plan year to the Trustee within 30 days after the end of such plan year. Notwithstanding anything contrary contained in the plan, qualified nonelective contributions shall be treated as salary reduction contributions for purposes of the tests set forth in Section 2.1.4(ii) only if the conditions described in Section 1.401(k)-1(b)(5) of the Treasury Regulations are satisfied. (v) If at any time during a plan year the Company in its discretion determines that neither of the tests set forth in Section 2.1.4(ii) will be met for such plan year, then the Company in its discretion shall have the unilateral right during the plan year to require prospective reduction of the percentage of the compensation of highly compensated participants that may be subject to deferral elections for part or all of the balance of such year. (vi) Notwithstanding anything to the contrary in the plan, for purposes of applying the tests set forth in Section 2.1.4, the plan shall be treated as comprising two plans, one which benefits the eligible employees who have not yet attained age 21 and completed a year of service ("testing plan A") and one which benefits all other eligible employees in accordance with Section 1.410(b)-6 (b)(3) ("testing plan B"). Testing plan B is intended to satisfy the nondiscrimination requirements set forth in Section 2.1.4 by compliance with the safe harbor methods described in Section 401(k)(12) of the Code (the "401(k) safe harbor"). Notwithstanding the foregoing, if for any plan year testing plan B does not comply with the 401(k) safe harbor, the salary reduction contributions made on behalf of the participants in testing plan B shall satisfy the requirements of Section 2.1.4. Testing plan A is not intended to satisfy the 401(k) safe harbor. Consequently, with respect to each plan year, the salary reduction contributions made on behalf of the participants in testing plan A shall satisfy the requirements of Section 2.1.4. 22 2.1.5 Allocation to salary reduction contribution (before- tax) accounts: (i) Salary reduction contributions made by the Participating Employer shall be allocated to the salary reduction contribution (before-tax) account of a participant as of the last day of the payroll period for which such contribution is made. The salary reduction contribution (before-tax) account of each participant shall be accounted for separately from the participant's other accounts under the plan. (ii) If the Company elects to make a qualified nonelective contribution with respect to any plan year, such contribution shall be allocated to the QNEC account of each nonhighly compensated participant with respect to whom a salary reduction contribution was made to the trust for such plan year. Such allocation shall be in the proportion that each such participant's compensation bears to the total compensation of all such participants. Qualified nonelective contributions made for a plan year shall be allocated to a participant's QNEC account as of the adjustment date the contribution is received in the trust by the Trustee. 2.2 Matching Contributions: 2.2.1 Amount and allocation of matching contributions: For each payroll period during a plan year, the Participating Employer shall make a contribution to the plan on behalf of each participant. The matching contribution for each payroll period shall equal the sum of: (i) 100 percent of the amount of the salary reduction contribution made on behalf of such participant during such payroll period up to 4 percent of his compensation with respect to such payroll period (the "basic matching contribution"). The amount of the salary reduction contribution made on behalf of the participant during such payroll period in excess of 4 percent shall be disregarded in determining the amount of the participant's basic matching contribution. (ii) 100 percent of the amount of the salary reduction contribution made on behalf of such participant during such payroll period in excess of 4 percent but not in excess of 6 percent of his compensation with respect to such payroll period (the "supplemental matching contribution"). The amount of the salary reduction contribution made on behalf of the participant during such payroll period in excess of 6 percent shall be disregarded in determining the amount of the participant's supplemental matching contribution. The basic matching contribution made with respect to each participant shall be allocated to his Employer basic matching contribution account. The supplemental matching contribution made with respect to each participant shall be allocated to his Employer supplemental matching contribution account. Matching contributions shall be paid by the Participating Employer to the Trustee as soon as administratively feasible following 23 the end of the payroll period for which such contributions are being made, but in no event later than the last day of the next following calendar quarter. 2.2.2 Limitations on matching contributions: Subject to the provisions of Section 2.2.6, the following provisions shall apply with respect to matching contributions under the plan: (A) Contribution percentage limitation: For each plan year the contribution percentage for the group of highly compensated participants for such plan year shall bear to the contribution percentage for the group of nonhighly compensated participants for such plan year a relationship that satisfies either of the following tests: (i) The contribution percentage for the group of highly compensated participants is not more than the contribution percentage for the group of nonhighly compensated participants multiplied by 1.25; or (ii) The contribution percentage for the group of highly compensated participants is not more than the contribution percentage for the group of nonhighly compensated participants multiplied by 2, and the excess of the contribution percentage for the group of highly compensated participants over the contribution percentage for the group of nonhighly compensated participants is not more than 2 percentage points (or such lesser amount as the Secretary of the Treasury shall prescribe by regulations to prevent the multiple use of this alternative limitation with respect to any highly compensated participant). (B) For purposes of applying the provisions of this Section 2.2.2, the following provisions shall apply: (i) A participant is a highly compensated participant for a particular plan year if he meets the definition of a highly compensated participant in effect for that plan year. A participant is a nonhighly compensated participant for a particular plan year if he does not meet the definition of a highly compensated participant in effect for that plan year. (ii) Pursuant to regulations issued by the Secretary of the Treasury, the Committee may elect to take into account elective deferrals under the plan or 24 any other qualified plan of the Participating Employer for purposes of computing the contribution percentages. (iii) If 2 or more plans of the Participating Employer or an affiliated employer are aggregated for purposes of Sections 401(a)(4) or 410(b) of the Code (other than for purposes of the average benefit percentage test), the contribution percentage of each participant under the plan shall be determined as if all such plans were a single plan. Notwithstanding the foregoing, plans may be aggregated in order to satisfy the tests set forth in Section 2.2.2(A) only if they have the same plan year and use the same contribution percentage testing method. (iv) If a highly compensated participant is a participant in 2 or more plans described in Section 401(a) of the Code or cash or deferred arrangements described in Section 401(k) of the Code maintained by the Participating Employer or an affiliated employer to which matching contributions, nondeductible voluntary contributions or elective deferrals are made on behalf of such highly compensated participant, all such plans and arrangements shall be treated as a single plan for the purpose of determining the contribution percentage of such highly compensated participant. Notwithstanding the foregoing, the provisions of this subparagraph (iv) shall not apply if the plans may not be aggregated for purposes of Section 410(b) of the Code. (v) The determination of who is a highly compensated participant or a nonhighly compensated participant shall include any employee who is eligible to receive matching contributions or, if the Committee takes elective deferrals into account, make elective deferrals. (vi) The Company shall maintain records sufficient to demonstrate satisfaction of the tests set forth in Section 2.2.2(A) and the amount of elective deferrals, if any, used in such tests. (vii) Notwithstanding anything to the contrary in the plan, the determination and treatment of matching contributions and the contribution percentage of any participant shall satisfy Section 1.401(m)-1(b) of 25 the Treasury Regulations and such other requirements as may be prescribed by the Secretary of the Treasury. 2.2.3 Correction of excess matching contributions: If at the end of any plan year, neither of the tests set forth in Section 2.2.2(A) is satisfied, the Committee shall adjust the matching contributions of the highly compensated participants within 2 1/2 calendar months following the end of each plan year, but in no event later than the year-end adjustment date following the close of such 2 1/2 month period (the "distribution date"). The matching contribution of each highly compensated participant shall be reduced by his share of the excess aggregate contributions for such plan year. Reductions shall be made pursuant to the following procedure: (1) Step one: The contribution percentage of the highly compensated participant with the highest contribution percentage shall be reduced by the amount required to cause the highly compensated participant's contribution percentage to equal the contribution percentage of the highly compensated participant with the next highest contribution percentage. This process shall be repeated until the plan satisfies one of the tests set forth in Section 2.2.2(A). The dollar amount of each reduction made pursuant to this step one shall be determined for each highly compensated participant. Such amount shall not be distributed to the affected highly compensated participant, but instead shall be used in steps two and three below. (2) Step two: The dollar amount of the reduction determined for each highly compensated participant in accordance with step one above shall be aggregated. Such amount shall be allocated in accordance with step three below. (3) Step three: The matching contributions of the highly compensated participant with the highest dollar amount of matching contributions shall be reduced by the amount required to cause that highly compensated participant's matching contributions to equal the dollar amount of the matching contributions of the highly compensated participant with the next highest dollar amount of matching contributions. This process shall be repeated until the total amount of matching contributions so reduced equals the aggregate dollar amount determined in step two above. All matching contributions so reduced, adjusted for income and losses allocable thereto, shall be designated by the Participating Employer as excess aggregate contributions and distributed to the participant no later than the distribution date. The income or loss allocable to the participant's share of the excess aggregate contributions for the plan year of such excess aggregate contributions shall be determined by multiplying the amount of the income or loss allocable to the participant's matching contributions and any elective deferrals treated as matching contributions for such plan year by a fraction the numerator of which is the excess aggregate contributions of the participant for such 26 plan year, and the denominator of which is equal to the sum of: (i) the balance in the participant's account attributable to matching contributions and any elective deferrals treated as matching contributions as of the beginning of such plan year; and (ii) the matching contributions and any elective deferrals treated as matching contributions which were made on behalf of the participant for such plan year. The income or loss allocable to the participant's share of the excess aggregate contributions for the plan year shall not include income or loss for the period between the end of the plan year and the date of distribution. Distributions to participants of excess aggregate contributions may be made notwithstanding any other provision of the plan or Code. The amount of any excess aggregate contribution shall be treated as an annual addition for purposes of Section 19 for the plan year in which such excess aggregate contribution was made. 2.2.4 Forfeiture of matching contributions: Notwithstanding anything to the contrary in the plan, if all or part of a participant's salary reduction contribution is treated as an excess contribution, an excess elective deferral or an excess aggregate contribution, the matching contribution made with respect to such salary reduction contribution, adjusted for income and losses allocable thereto, and which is not distributed in order to enable the plan to comply with one of the tests set forth in Section 2.2.2(A) shall be forfeited by the participant within 2 1/2 calendar months following the end of the plan year for which the matching contribution was made (the "forfeiture date"). The income or loss allocable to the forfeited matching contribution for the plan year of such matching contribution shall be determined by multiplying the amount of the income or loss allocable to the participant's matching contributions for such plan year by a fraction, the numerator of which is the forfeited matching contribution for such plan year, and the denominator of which is equal to the sum of: (i) the balance in the participant's account attributable to matching contributions as of the beginning of such plan year; and (ii) the matching contributions made on behalf of the participant for such plan year. Income or loss allocable to the forfeited matching contribution shall not include income or loss for the period between the end of the plan year and the forfeiture date. Forfeitures of matching contributions (including income or losses allocable thereto) shall reduce the amount of matching contributions which the Participating Employer otherwise is obligated to make pursuant to Section 2.2, if any. 2.2.5 Multiple use: If multiple use of the alternative limitation (as defined in Treasury Regulation Section 1.401(m)-2) exists with respect to any plan year, the Committee shall reduce the contribution percentage of each highly compensated participant by applying the three-step process described in Section 2.2.3 of the plan. 2.2.6 Nondiscrimination testing: Notwithstanding anything to the contrary in the plan, for purposes of applying the tests set forth in Section 2.2.2, the plan shall be comprised of testing plan A (as defined in Section 2.1.4(vi)) and testing plan B (as defined in Section 2.1.4(vi)). Testing plan B is intended to satisfy the nondiscrimination requirements set forth in Section 2.2.2 by compliance with the safe harbor methods described in Section 401(m)(11) of the Code (the "401(m) safe harbor"). Notwithstanding the foregoing, if for any plan year the plan does not comply with the 401(m) safe harbor, the matching contributions made on behalf of the participants in testing plan B shall satisfy the requirements of Section 2.2.2. Testing plan A is deemed 27 to satisfy the requirements of Section 2.2.2 since participants in testing plan A are not eligible to receive matching contributions. 2.3 Discretionary Supplemental Employer Contributions: In addition to the contributions provided for in Section 2.1 and 2.2, the Participating Employer may from time to time make a supplemental contribution (the "supplemental employer contribution") on behalf of each participant who becomes an eligible employee as a result of a corporate transaction (as defined in this Section 2.3) involving the Participating Employer and is designated by the Committee to receive a supplemental employer contribution. The purpose of the supplemental employer contribution is to make up for all or any portion of the contribution the participant would have received under his former employer's tax-qualified defined contribution plan had the corporate transaction not occurred during the applicable plan year. The Committee shall determine whether a supplemental employer contribution shall be made by the Participating Employer pursuant to the provisions of this Section 2.3 and the amount thereof, and shall designate the participants eligible to receive such contribution. The supplemental employer contribution for a plan year, if any, shall be allocated among the eligible participants in the same proportion that the compensation of each such participant bears to the compensation of all eligible participants for such plan year. For purposes of this Section 2.3, a corporate transaction means any corporate transaction resulting in an individual's transfer of employment from an unrelated entity to the Participating Employer, including without limitation, a corporate merger or consolidation and a sale of the assets of a trade or business. Supplemental employer contributions shall be credited to the eligible participants' Employer profit sharing contribution accounts. 2.4 General Limitations: In no event shall a Participating Employer contribute an amount (including salary reduction contributions, matching contributions, supplemental employer contributions and qualified nonelective contributions) for any limitation year (as defined in Section 19.4) which would cause the annual addition limitations in Section 19 to be exceeded. Each contribution to 28 the plan by a Participating Employer shall be conditioned on being deductible under Section 404 of the Code for the plan year for which such contribution is made. The initial contribution to the plan shall be conditioned on the plan being qualified under Section 401(a) of the Code. Section 3 Vesting: --------- ------- 3.1 General: Except as otherwise provided in this Section 3.1, the interest of a participant in his account shall be fully vested at all times. Notwithstanding the foregoing, a participant who engages in misconduct including, but not limit ed to, embezzlement, larceny, theft, and other dishonest acts, or who engages in direct competition with a Participating Employer or any other affiliated employer while a participant shall forfeit his interest in his Employer supplemental matching contribution account and his ESOP account, if any, if he terminates service prior to the earlier of attainment of his normal retirement age or completion of 5 or more years of service. For purposes of this Section 3.1, all years of service of an employee shall be taken into account. 3.2 Forfeitures: The amounts forfeited pursuant to Section 3.1 shall be combined with the amounts forfeited by all other participants during such plan year. The aggregate of such forfeitures shall be applied as follows: (i) First, to restore amounts previously forfeited from accounts in accordance with Section 5.4.1; and (ii) Second, to reduce the amount of matching contributions which the Participating Employer is otherwise obligated to make pursuant to Section 2.2. 3.3 Change in Vesting Schedule: If an amendment to the plan directly or indirectly affects the determination of a participant's vested percentage, or the plan is deemed amended by an automatic change to or from the top-heavy vesting schedule in Section 18.2.2, each participant in service with at least 3 years of service may irrevocably elect to have his vested percentage determined without regard to such amendment. The participant may make such election during the period beginning on the date such amendment is adopted and ending on the date that is 60 days after the latest of the date 29 (a) such amendment is adopted; (b) such amendment is effective; or (c) the Committee advises the participant in writing of such amendment. 3.4 Predecessor Plan: In no event shall the vested percentage of the accrued benefit of a participant on the effective date who was a participant in the predecessor plan immediately preceding such effective date be less than the vested percentage of his accrued benefit under the predecessor plan had such plan continued in effect through the date such vested percentage is determined. Section 4. Pretermination Distributions; Loans: --------- ----------------------------------- 30 4.1 Hardship Distributions: A participant in service may file a written request with the Committee for a distribution from his salary reduction contribution (before-tax) account and his Employer basic matching contribution account due to hardship. A distribution will be on account of hardship only if the distribution is on account of an immediate and heavy financial need of the participant and is necessary to satisfy such financial need. The request must specify the nature of the hardship, the total amount requested, and the total amount of the actual expense incurred or to be incurred on account of the hardship. The Committee, in its discretion, shall determine whether a hardship constitutes an immediate and heavy financial need, and the decision of the Committee to grant or deny a hardship distribution shall be final; provided, that all participants who request such distributions and are similarly situated shall be treated alike and in a nondiscriminatory manner. If the Committee determines that a hardship exists, the Committee shall direct the Trustee to make a distribution to the participant of the amount approved by the Committee. The distribution shall be made in cash from the participant's separate accounts which are available for a hardship distribution as provided in this Section 4.1. The amount available for such distribution shall be determined as of the adjustment date the hardship distribution request is actually processed by the Trustee. In no event shall the amount available for a hardship distribution exceed the amount in the participant's separate accounts available for a hardship distribution as of such adjustment date (reduced by any previous hardship distribution not reflected as of such adjustment date), excluding income credited to such accounts after December 31, 1988. Notwithstanding the foregoing, with respect to a participant who was a participant in the United Carolina Bancshares Corporation Dollar Plus Savings Plan on June 30, 1997, in no event shall the amount available for a hardship distribution exceed the amount in such participant's separate accounts available for a hardship distribution as of such adjustment date (reduced by any previous hardship distribution not reflected as of such adjustment date), excluding all income credited to such accounts. The circumstances giving rise to hardship shall be limited to: 31 (i) Expenses for medical care described in Section 213(d) of the Code previously incurred by the participant, the participant's spouse, or any dependent of the participant (as defined in Section 152 of the Code), or expenses necessary for such persons to obtain such medical care; (ii) Costs directly related to the purchase (excluding mortgage payments) of a principal residence of the participant; (iii) Payment of tuition, related educational fees and room and board expenses, for the next 12 months of post-secondary education for the participant, the participant's spouse or any dependent of the participant; or (iv) The need to prevent eviction of the participant from his principal residence, or foreclosure on the mortgage of the participant's principal residence. A hardship distribution shall not be made in excess of the amount of the immediate and heavy financial need of the participant. The amount of the immediate and heavy financial need of the participant may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the receipt of the hardship distribution. The following special provisions shall apply to all hardship distributions: (a) No hardship distribution shall be made until the participant has obtained all distributions and all nontaxable loans currently available under all tax-qualified retirement plans of the Participating Employer and its affiliated employers, including, without limitation, distributions pursuant to Sections 4.2 and 4.3 and loans pursuant to Section 4.4; (b) Except as otherwise provided in Regulation Section 1.401(k)-1(d)(2)(iv)(B)(4), the participant's elective deferrals under all of the qualified and nonqualified plans of deferred compensation maintained by the Participating Employer and its affiliated employers, shall be suspended for a period of 12 months following receipt of the hardship distribution; and (c) The participant may not make elective deferrals to any tax-qualified plans of deferred compensation maintained by the Participating Employer and its affiliated employers for his taxable year immediately following the taxable year of the hardship distribution in excess of the applicable limit under Section 402(g) of the Code for such next taxable year, reduced by the amount of his elective deferrals for the taxable year of the hardship distribution. Any distribution made pursuant to this Section 4.1 shall be withdrawn from the participant's separate accounts described below in the following order of priority: 32 (i) salary reduction contribution (before-tax) account; and (ii) Employer basic matching contribution account. With respect to each such account, the amount of the withdrawal shall be withdrawn by the Trustee from the participant's fund accounts (as defined in Section 7.1.1) with respect to such account on a pro rata basis. The Committee from time to time may adopt additional policies or rules governing the manner in which hardship distributions are made so that the plan may conveniently be administered. 4.2 Distributions After Age 59 1/2: In accordance with procedures adopted by the Committee, a participant who has attained age 59 1/2 may withdraw all or any portion of his account. The balance in the participant's account available for withdrawal pursuant to the provisions of this Section 4.2 shall be determined as of the date the withdrawal request is actually processed by the Trustee. Any withdrawal made pursuant to this Section 4.2 shall be withdrawn by the Trustee from the participant's fund accounts (as defined in Section 7.1.1) with respect to such account on a pro rata basis. 4.3 Distributions Prior to Age 59 1/2: In accordance with procedures adopted by the Committee, a participant who has not yet attained age 59 1/2 may withdraw all or any portion of his voluntary contribution (after-tax) account, if any, his Employer supplemental matching contribution account, his Employer profit sharing contribution account, if any, his ESOP account, if any, his prior plan account, if any, and his rollover account, if any. Only two withdrawals may be made by a participant pursuant to the provisions of this Section 4.3 during each plan year. Notwithstanding the foregoing, no amount shall be withdrawn from the Employer supplemental matching contribution account, the prior plan account (excluding for this purpose any amount attributable to after-tax employee contributions), his Employer profit sharing contribution account or the ESOP account unless the participant has been a participant in the plan (including for this purpose his participation in the predecessor plan) for at least 60 months or unless the amounts being withdrawn have been in the participant's account (including for this purpose his account under the predecessor plan) for at least 24 33 months. The balance in the participant's account available for withdrawal pursuant to the provisions of this Section 4.3 shall be determined as of the date the withdrawal request is actually processed by the Trustee. Any withdrawal made pursuant to this Section 4.3 shall be withdrawn by the Trustee from the participant's separate accounts described below in the following order of priority: (i) voluntary contribution (after-tax) account; (ii) the portion of the participant's prior plan account attributable to after-tax employee contributions and earnings thereon; (iii) the remaining portion of the participant's prior plan account; (iv) Employer profit sharing contribution account; (v) Employer supplemental matching contribution account; (vi) rollover account; and (vii) ESOP account. With respect to each such account, the amount of the withdrawal shall be withdrawn by the Trustee from the participant's fund accounts (as defined in Section 7.1.1) with respect to such account on a pro rata basis. 4.4 Loans: The Committee, in accordance with its uniform, nondiscriminatory policy, shall direct the Trustee to permit any participant in service or a participant or beneficiary who is a party-in-interest as defined in Section 3(14) of ERISA (the "borrower"), to borrow from his vested account (excluding for this purpose his ESOP account, if any, and his PAYSOP account, if any), subject to the following requirements: 4.4.1 Loans shall be withdrawn from the participant's fund accounts (as defined in Section 7.1.1) on a pro rata basis. Loans shall be available to all borrowers on a reasonably equivalent basis. Loans shall not be available to highly compensated participants in an amount greater than to nonhighly compensated participants. In no event shall the principal amount of the loan be less than $1,000. A participant may have only one loan outstanding at any time and only one loan request may be submitted in a plan year. In no event shall a participant be entitled to borrow from his ESOP account, if any, or his PAYSOP account, if any. Notwithstanding the foregoing, if a participant 34 who was a participant in a predecessor plan that is merged into this plan has more than one loan outstanding under the predecessor plan as of the date of such plan merger, such loans shall remain outstanding and be payable in accordance with their terms. 4.4.2 The Trustee shall provide to each borrower who is approved for a loan a statement of the charges involved in the loan transaction, including the amount financed and the annual interest rate. The borrower shall execute any documents as the Committee deems necessary or advisable to consummate the loan and provide reasonable safeguards. 4.4.3 The principal amount of any loan made to a borrower, when added to the outstanding balance of all loans from the plan, shall not exceed the lesser of: (i) $50,000, reduced by the excess of: (a) the highest outstanding balance of loans from the plan during the one-year period ending on the day before the date such loan is made, over (b) the outstanding balance of loans from the plan on the date such loan is made; or (ii) One-half of the vested accrued benefit of the borrower. The vested accrued benefit shall be determined as of the adjustment date the loan is actually processed by the Trustee. For the purpose of this limitation, the principal amounts of all loans from all plans of the Participating Employer and affiliated employers shall be aggregated. 4.4.4 Each loan shall require that payment of principal and interest shall be amortized in level payments over a period of not less than 12 months nor more than 60 months from the date of the loan. Each Participating Employer shall establish a procedure for withholding from the regular payroll checks of a participant the amounts necessary to satisfy the repayment obligation under the note. All amounts so withheld shall be transferred immediately to the Trustee. 4.4.5 Each loan shall be secured by a pledge of up to 50 percent of the vested accrued benefit of the borrower, as determined on the date of such loan. 4.4.6 A loan shall bear a reasonable rate of interest determined as of the date of origination of the loan in the manner established by the Committee. The principal amount of the loan shall be an investment allocated solely to the account of the borrower, and the interest paid thereon shall be allocated solely to the account of the borrower. 4.4.7 In addition to the provisions of this Section 4.4, each loan shall be subject to and made in accordance with the Plan Loan Rules attached hereto as Exhibit C. 35 4.5 Termination of Service Prior To Distribution: If a participant's termination of service occurs after a request for a hardship distribution or loan is approved in accordance with the provisions of this Section 4 but prior to distribution, such approval shall be void, and the vested accrued benefit of such participant shall be payable hereunder as if such approval had not been made. Section 5 Termination Distributions: --------- ------------------------- 5.1 Distributions on Account of Retirement or Disability: 5.1.1 Distributions to participants: As of the adjustment date coincident with or next following the date a participant retires or terminates service on account of disability, his vested accrued benefit, determined as of such adjustment date, shall be paid to him or applied for his benefit under one of the following options, as elected by the participant: (a) Term certain: Payment to him of his vested accrued benefit in approximately equal monthly installments over a whole number of years, as elected by the participant (the "term"), not exceeding the life expectancy of the participant or the joint life expectancy of the participant and his beneficiary; provided that in no event shall monthly installments be less than $100 per month. If the participant dies before expiration of the term, payments shall continue to his beneficiary for the remainder of the term. (b) Lump sum: Payment to him of his vested accrued benefit in a single lump sum payment. (c) Combination of term certain and lump sum: Payment to him of his vested accrued benefit in any combination of the forms of payment described in (a) and (b) above. (d) Direct rollover: Payment to an eligible retirement plan as provided in Section 15. Such election must be made in writing and filed with the Committee on or before the adjustment date as of which payment is to commence and shall be irrevocable on or after such adjustment date. If a participant fails to elect one of the foregoing options, his vested accrued benefit shall be paid to him under Section 5.1.1(b). 5.1.2 Applicable provisions: The following provisions shall apply for purposes of this Section 5.1: (a) Deferral: Subject to the provisions of Section 5.1.2(b), a participant's benefit shall remain in the plan until the participant elects 36 to receive a distribution of his benefit in accordance with the provisions of this Section 5 and procedures adopted by the Committee. (b) Required distribution: A participant's benefit must be distributed or begin to be distributed no later than the participant's required beginning date (as defined in Section 5.3.3(f)). (c) Required minimum distribution: If all or any portion of a participant's benefit is to be distributed in installments, the total amount of the distributions for each calendar year must be equal to or greater than the amount obtained by dividing the participant's benefit (as defined in Section 5.3.3(e)) by the lesser of (i) the applicable life expectancy (as defined in Section 5.3.3(a)), or (ii) if the participant's spouse is not the designated beneficiary (as defined in Section 5.3.3(b)), the applicable divisor determined from the table set forth in Section 1.401(a)(9)-2 Q&A 4 of the Treasury Regulations (the "minimum distribution"). Distributions after the death of the participant shall be made using the applicable life expectancy without regard to Section 1.401(a)(9)-2 of the Treasury Regulations. The minimum distribution required for the participant's first distribution calendar year (as defined in Section 5.3.3(c)) must be made on or before the participant's required beginning date. The minimum distributions for other calendar years, including the minimum distribution for the distribution calendar year in which the participant's required beginning date occurs, must be made on or before December 31 of each such distribution calendar year. (d) Form of distribution: Distributions from the plan shall be made in cash. Notwithstanding the foregoing, if a portion of a participant's vested accrued benefit is invested in Company stock, such participant may direct the Committee to distribute such portion of his accrued benefit in shares of Company stock. (e) Distributions following return to service: Notwithstanding the foregoing provisions of this Section 5.1, if a participant receiving benefit payments from the plan reenters service prior to his normal retirement date, such payments shall cease during the period he is in service. When he subsequently retires, dies or otherwise terminates service, his then vested accrued benefit shall be payable to or with respect to him pursuant to the applicable provisions of the plan. (f) Direction of investment: If all or any portion of the accrued benefit of a participant is payable to him in installments, such participant shall continue to be eligible to direct the Trustee as to the investment and reinvestment of his accrued benefit pursuant to the provisions of Section 7. His accrued benefit shall continue to be adjusted as of each adjustment date pursuant to Section 6 and the amount of the installment payments to him shall be adjusted as of each 37 year-end adjustment date to reflect the adjusted amount of his accrued benefit as of such adjustment date. (g) Predecessor plan: Notwithstanding any other provision hereof, if a participant in the predecessor plan is receiving benefits under the predecessor plan as of the effective date, the amount of the benefit payable to such participant and the manner and time for payment thereof shall be determined in accordance with the provisions of the predecessor plan. If a participant in a predecessor plan separated from service prior to the effective date of this plan and is entitled to a deferred benefit commencing after the effective date, the amount of such benefit shall be determined in accordance with the provisions of the predecessor plan, and the manner and time of payment shall be determined under the plan. (h) Required consent: Subject to the provisions of Section 12.1, any distribution to a participant who has a vested accrued benefit which exceeds the cash-out limit (as defined in this Section 5.1.2(h)) shall require the participant's consent if such distribution is to commence prior to the participant's attainment of normal retirement age. The consent requirements of this Section 5.1.2(h) shall be deemed satisfied if the participant's vested accrued benefit does not exceed the cash-out limit. If a participant has begun to receive benefit payments in installments and at least one installment payment has not yet been made, the vested accrued benefit of the participant is deemed to exceed the cash-out limit if his vested accrued benefit exceeded the cash- out limit in effect as of the date payment of his benefit first commenced. The cash-out limit in effect for dates in plan years beginning before January 1, 2000 is $3,500. The cash-out limit in effect for dates in plan years beginning on or after January 1, 2000 is $5,000. Thereafter, the cash-out limit in effect on a particular date is the amount described in Section 411(a)(11)(A) for the plan year which includes such date. 5.2 Distributions on Account of Death: On the death of the participant, the following provisions shall apply: 5.2.1 Death after distributions begin: If the participant dies after distribution of his vested accrued benefit has begun, payments shall continue following his death only if his benefit was payable under an option providing for such payments, and any remaining portion of his vested accrued benefit shall continue to be distributed to his beneficiary at least as rapidly as under the method of distribution in effect at his death. 5.2.2 Death before distributions begin: If the participant dies before distribution of his vested accrued benefit begins, payment of his vested accrued benefit to his beneficiary shall commence as of any adjustment date following the date of the participant's death, as elected by the beneficiary. The participant's vested accrued 38 benefit shall be payable under a method of payment described in Section 5.1.1, as elected by the beneficiary. Distribution of the participant's entire vested accrued benefit must be completed no later than December 31 of the calendar year containing the 5th anniversary of the participant's death; provided, however, that if payment is to be made to a designated beneficiary (as defined in Section 5.3.3(b)), distribution of the participant's entire vested accrued benefit may be made in substantially equal installments over a period not exceeding the life expectancy of the designated beneficiary. 5.3 Special Provisions and Definitions: The following provisions apply for purposes of this Section 5: 5.3.1 Small amount: Notwithstanding any other provision of the plan, if the vested accrued benefit of a participant does not exceed the cash-out limit as of the adjustment date coincident with his termination of service for any reason, including death, then such benefit shall be paid in a lump sum as soon as practicable following such termination of service to the person entitled thereto without regard to any election made by the participant or beneficiary. 5.3.2 Designation of beneficiary: The beneficiary or beneficiaries of a participant shall be determined in accordance with the following provisions: (a) Surviving spouse: If the participant dies leaving a surviving spouse, the participant's beneficiary shall be such spouse unless the participant designates another beneficiary (which may include more than one person, natural or otherwise, and one or more contingent beneficiaries) by filing a qualified election with the Committee. A "qualified election" means a beneficiary designation by the participant on a form provided the Committee, which contains a consent and acknowledgment of the effect of such consent executed by the surviving spouse and witnessed by a representative of the Committee or a notary public. Consent of the spouse shall not be required if the spouse cannot be located or if other circumstances exist which excuse obtaining the consent under applicable law or regulations. The qualified election of a participant may be revoked at any time by action of the participant alone, in which case the surviving spouse shall be the beneficiary. Any other change in beneficiary shall be made only by the filing of a revised qualified election. If a beneficiary named in a qualified election dies before receiving any payment due him from the trust fund, the payment shall be made to the contingent beneficiary, if any, named in the qualified election. If there is no such contingent beneficiary, the payment shall be made to the surviving spouse. If the surviving spouse dies before receiving all payments due under the plan, the remaining payments shall be made to the estate of the surviving spouse. 39 (b) Other beneficiary: If a participant dies without leaving a surviving spouse, the participant's beneficiary (which may include more than one person, natural or otherwise, and one or more contingent beneficiaries) shall be the beneficiary designated by the participant on the beneficiary designation form filed with the Committee. Designation of a beneficiary under this subparagraph (b) shall be revocable by the participant at any time prior to death. If the participant fails to designate a beneficiary, the benefit of the participant shall be payable to his estate. If a beneficiary is entitled to receive payments from the trust fund and dies before receiving all payments due him, remaining payments shall be made to the contingent beneficiary, if any. If there is no contingent beneficiary, such payments shall be made to the estate of the beneficiary. (c) Disclaimer: Any beneficiary may disclaim all or any part of the benefit to which such beneficiary is entitled hereunder by filing a disclaimer with the Committee at least 10 days before payment of such benefit is to commence. Such disclaimer shall be made in form satisfactory to the Committee and shall be irrevocable when filed. The benefit disclaimed shall be payable from the trust fund in the same manner as if the beneficiary who filed the disclaimer dies on the date of such filing. 5.3.3 Definitions: The following definitions apply for purposes of this Section 5: (a) "Applicable life expectancy" means the life expectancy (or joint and last survivor expectancy) calculated using the attained age of the participant (or designated beneficiary) as of the participant's (or designated beneficiary's) birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date the life expectancy was calculated. If life expectancy is being recalculated, the applicable life expectancy is the life expectancy as so calculated. The applicable calendar year is the first distribution calendar year, and, if life expectancy is being recalculated, each succeeding calendar year. (b) "Designated beneficiary" of a participant means any beneficiary who is a natural person. (c) "Distribution calendar year" means a calendar year for which a distribution is required to satisfy the requirements of Section 5.1.2(c). For distributions beginning before the participant's death, the first distribution calendar year shall be the calendar year immediately preceding the calendar year containing the participant's required beginning date. For distributions beginning after the participant's death, the first distribution calendar year shall be the 40 calendar year in which distributions are required to begin pursuant to Section 5.2. (d) "Life expectancy" means life expectancy and joint and last survivor life expectancy computed by use of the expected return multiples in Tables V and VI of Section 1.72-9 of the Treasury Regulations. Unless otherwise elected by the participant, or spouse, in the case of distributions described in Section 5.2.2, by the time distributions are required to begin, life expectancy shall be recalculated annually. Such election shall be irrevocable as to the participant or spouse. The life expectancy of a nonspouse beneficiary may not be recalculated. (e) "Participant's benefit" means his accrued benefit as of the year-end adjustment date in the calendar year immediately preceding the distribution calendar year (the "valuation calendar year") increased by any contribution or forfeiture allocated to the participant's account as of any date in the valuation calendar year after such year-end adjustment date and decreased by any distribution made in the valuation calendar year after such year-end adjustment date. Notwithstanding the foregoing, if any portion of the minimum distribution for the first distribution calendar year is made in the second distribution calendar year on or before the required beginning date, the amount of the minimum distribution made in the second distribution calendar year shall be treated as if it had been made in the immediately preceding distribution calendar year. (f) "Required beginning date" means April 1 of the calendar year following the later of (A) the calendar year in which the participant attains age 70 1/2, or (B) the calendar year in which the participant retires. Notwithstanding the foregoing, the required beginning date of a participant who is a 5 percent owner (as defined in Section 416 of the Code) shall be April 1 of the calendar year following the calendar year in which the participant attains age 70 1/2. Notwithstanding anything to the contrary contained in the plan, all distributions under this Section 5 shall be determined and made in accordance with Section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the Treasury Regulations, which are incorporated herein by reference. 5.4 Distributions on Account of Other Termination of Service: The following provisions shall apply if a participant terminates service for reasons other than retirement, disability or death: 41 5.4.1 Election to receive benefit following termination: The participant may elect to receive his vested accrued benefit as of any adjustment date following the date of his termination of service for any reason other than retirement, disability or death. The adjustment date as of which payment is to commence shall be referred to herein as his "distribution adjustment date." The manner of distribution shall be determined under the applicable provisions of Section 5.1. The participant's election shall be made on or before the distribution adjustment date in accordance with procedures adopted by the Committee. Such election shall be disregarded if the participant is in service on the distribution adjustment date. The following provisions shall apply if the participant is not fully vested in his accrued benefit as of his distribution adjustment date: (a) The amount in his account which is not vested shall be forfeited pursuant to Section 3.2. (b) If he reenters service and repays to the trust the full amount of the distribution received from the trust on or before the earlier of the year-end adjustment date of the plan year in which he incurs his 5th consecutive break in service following termination or the 5th anniversary of the date he reenters service, such repaid amount shall be credited as of the adjustment date coincident with or next following such repayment to the subaccount or subaccounts of the participant from which the distribution was previously made to the participant. Following such repayment, the Trustee shall credit to his subaccount or subaccounts from forfeitures taken as of the adjustment date on or next following the date of repayment, the amount previously forfeited from each such subaccount, if any. If forfeitures are not sufficient to credit this amount to the participant, such amount shall be contributed by the Participating Employer to the Trustee on or before such adjustment date. 5.4.2 Future distribution: If any part of a the participant's vested accrued benefit is not distributed pursuant to Section 5.4.1, it shall be held under the plan until the earlier of his normal retirement date or the date of his death, whereupon it shall be paid to him or his beneficiary in the same manner as if the participant were then in service. If the vested accrued benefit of a participant is held in the plan for future payment, the participant shall continue to be eligible to direct the investment and reinvestment of his accrued benefit pursuant to the provisions of Section 7. 5.4.3 Waiver of election period: If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than 30 days after the date the notice required under Section 1.411(a)-11(c) of the Treasury Regulations is given, provided that: (a) the Committee clearly informs the participant that the participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and 42 (b) the participant, after receiving the notice, affirmatively elects a distribution. If a distribution is made pursuant to this Section 5.4 to a participant before he attains age 55, the Committee shall advise him that an additional income tax may be imposed in an amount equal to 10 percent of the portion of the amount that is includible in his gross income for such taxable year. 5.5 Directions: In accordance with procedures adopted by the Committee, the Trustee shall be notified of a participant's request for a withdrawal or a loan, retirement, disability, death or termination of service. The Trustee shall be directed to make a distribution to the person or persons entitled thereto from the trust at such time and in such manner as required by the provisions of this Section 5. 5.6 Distributions to Alternate Payees: All rights and benefits, including elections, provided to a participant in the plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected participant has not separated from service and has not reached the "earliest retirement age" under the plan. For purposes of this Section 5.6, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Section 414(p) of the Code. 5.7 Valuation: Notwithstanding any provision in this Section 5 to the contrary, the value of a participant's vested accrued benefit for purposes of any distribution made pursuant to this Section 5 shall be determined as of the adjustment date such distribution is actually processed by the Trustee. No additional earnings, losses or expenses shall be credited or debited to the participant's account following the adjustment date such distribution is actually processed by the Trustee. 5.8 Distributions from Salary Reduction Contribution (before-tax) Accounts, Employer Basic Matching Contribution Accounts and QNEC Accounts: Notwithstanding anything 43 to the contrary contained elsewhere in the plan, a participant's salary reduction contribution (before-tax) account, Employer basic matching contribution account, if any, and QNEC account, if any, shall not be distributable other than upon: (a) The participant's separation from service, death, or disability; (b) Termination of the plan without establishment or maintenance of another defined contribution plan other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code, a simplified employee pension plan as defined in Section 408(k) of the Code, or a SIMPLE IRA plan as defined in Section 408(p) of the Code; (c) The date of the sale or other disposition by the Participating Employer to an unrelated entity of substantially all of the assets (within the meaning of Section 409(d)(2) of the Code) used by the Participating Employer in a trade or business of the Participating Employer, where (i) the participant is employed by such trade or business and continues employment with the entity acquiring such assets, and (ii) the Participating Employer continues to maintain the plan after the sale or other disposition. The sale of 85 percent of the assets used in the trade or business shall be deemed a sale of "substantially all" of the assets used in such trade or business; (d) The date of the sale or other disposition by the Participating Employer of the Participating Employer's interest in a subsidiary (within the meaning of Section 409(d)(3) of the Code) to an unrelated entity, where (i) the participant is employed by such subsidiary and continues employment with such subsidiary following such sale or other disposition, and (ii) the Participating Employer continues to maintain the plan after the sale or other disposition; (e) The participant's attainment of age 59 1/2; or (f) The participant's hardship (as defined in Section 4.1). Notwithstanding anything to the contrary contained herein, an event shall not be treated as described in clause (b), (c) or (d) above with respect to any participant unless the participant receives a lump sum distribution (as defined in Section 401(k)(10)(B)(ii) of the Code) by reason of the event. Section 6. Adjustment of Accounts: --------- ---------------------- 44 The Committee shall establish and maintain a salary reduction contribution (before-tax) account, an Employer basic matching contribution account and an Employer supplemental matching contribution account with respect to each participant. The Committee shall also establish and maintain a voluntary contribution (after-tax) account, an Employer profit sharing contribution account, an ESOP account, a PAYSOP account, a prior plan account, a QNEC account, a loan account, and a rollover account with respect to each participant if any one or more of such accounts are required by the plan. The Committee shall also keep an allocation suspense account if such account is required pursuant to Section 19.2. 6.1 Adjustment of Accounts: The account of each participant shall be valued daily as of each adjustment date in accordance with the provisions of this Section 6.1 and procedures adopted by the Trustee. The value of each participant's account (other than that portion of his account attributable to his loan account, if any) shall be converted to units. Thereafter, when the participant's account is credited with an allocation of any salary reduction contributions, matching contributions, supplemental employer contributions, qualified nonelective contributions, direct transfers from another qualified plan or rollover contributions, the value of such allocation shall be used to purchase units and added to such participant's account. When any distributions, withdrawals, transfers between investment funds, and/or administrative fees are charged against the participant's account in accordance with the terms of the plan, the number of units equal in value to the amount paid from the participant's account shall be deducted from the outstanding units. 6.2 Loan Account: Notwithstanding the provisions of this Section 6, the portion of the account of a participant evidenced by a note described in Section 4.4.2 shall be maintained in a special loan account on behalf of the participant. The loan account shall be a part of the account of the participant, and there shall be credited to the loan account any payments of principal or interest made with respect to such note. As of the close of business on each adjustment date, any cash balances in the 45 loan account shall be debited to the loan account and shall be allocated among the investment funds in accordance with the most recent effective future contribution investment direction of the participant. If for any reason a participant does not have a future contribution investment direction in effect, such proceeds shall be invested by the Trustee in the investment fund designated by the Committee. 6.3 General: The Committee shall have and may exercise all powers necessary or advisable in order to implement the provisions of this Section 6 and to ensure that the accounts maintained under the plan are fairly and accurately adjusted as of each adjustment date. Section 7. Participant Direction of Investments: --------- ------------------------------------ 7.1 Participant Directed Investments: Notwithstanding any other provision of the plan but subject to the provisions of Section 6, each participant may direct the Trustee as to the investment or reinvestment of his account, subject to the following provisions: 7.1.1 Investment funds; fund accounts: The Committee shall determine from time to time the investment options ("investment funds") available to participants. Each participant shall be entitled to direct the Trustee as to the investment of contributions made on his behalf and the amount credited to his account among the investment funds. The Committee shall keep accounts subsidiary to each participant's separate accounts described in Section 1.1 (other than the loan account) with respect to the amount to his credit in each investment fund, the "fund accounts." 7.1.2 Investment of contributions: In accordance with procedures adopted by the Committee, a participant may direct investment of any contribution allocable to his account among the investment funds in whole multiples of 5 percent. Such designation shall remain in effect unless and until the participant provides for a different designation. If for any reason a participant fails to direct the investment of the entire contribution allocable to his account, the contribution for which no direction is made shall be invested by the Trustee as directed by the Committee. 7.1.3 Investment of account: Subject to the provisions of Section 22.6, in accordance with procedures adopted by the Committee, a participant shall be entitled to reallocate the amount credited to his account or each of his fund accounts among the investment funds in whole multiples of 5 percent. 7.1.4 Notice requirements: In accordance with procedures adopted by the Committee and the Trustee, the participants shall notify the Trustee of all directions made in accordance with this Section 7.1. 46 7.1.5 Rights in directed investment funds: Notwithstanding the fact that all or a portion of a participant's account may be invested in an investment fund and may be expressed in units in a particular investment fund, such references shall mean the aggregate of the dollar amount which is credited to the participant's account at any point in time. Nothing contained in this Section 7 shall be deemed to give any participant any interest in any specific property in any investment fund or any interest in the plan, other than the right to receive payments or distributions in accordance with the plan or to exercise any other right specifically granted to the participant under the plan. 7.1.6 Proxy voting: (i) Notwithstanding anything to the contrary in the plan, a participant whose account is invested in an investment fund which invests solely in shares of Company stock (his "Company stock fund account") or who has an ESOP account or a PAYSOP account shall be entitled to direct the Trustee as to the manner in which shares of Company stock allocated as of a record date to his Company stock fund account, his ESOP account and his PAYSOP account shall be voted, or shall be tendered in the event of a tender offer for such shares. The Trustee shall vote or tender such shares of Company stock as directed by the participant. If the participant instructions are not timely received with respect to such shares, the Trustee shall vote or tender such shares as directed by the Committee. The Committee shall provide for the solicitation and tabulation of voting or tender instructions from participants in a confidential manner. Prior to the voting or tendering of such shares, the Committee shall distribute to each participant who has a Company stock fund account, an ESOP account or a PAYSOP account the same information as is furnished to the shareholders of the Company in a proxy statement. (ii) Notwithstanding anything to the contrary in the plan, a participant whose account is invested in an investment fund (other than an investment fund described in subparagraph (i)) shall be entitled to direct the Trustee as to the manner in which shares of such investment fund allocated as of a record date to his fund account shall be voted. The Trustee shall vote such shares as directed by the participant. If the participant instructions are not timely received with respect to such shares, the Trustee shall vote such shares as directed by the Committee. The Committee shall provide for the solicitation and tabulation of voting instructions from participants in a confidential manner. Prior to the voting of such shares, the Committee shall distribute to each participant who has shares in an investment fund to which the provisions of this subparagraph (ii) apply, the same information as is furnished to the other shareholders of the investment fund in a proxy statement. 47 7.2 General: To the extent approved by the Trustee, the Committee may establish any rules or resolutions necessary to implement the provisions of this Section 7. The Trustee shall have and may exercise all powers necessary or advisable in order to implement the provisions of this Section 7. If the Trustee cannot transfer funds among the investment funds on an adjustment date as provided in this Section 7, the Trustee shall effect such transfer as soon as possible thereafter. Section 8. Administration by Committee: --------- --------------------------- 8.1 Membership of Committee: The Committee shall consist of not less than 3 individuals appointed by the Board to serve at the pleasure of the Board. Any member of the Committee may resign, and his successor, if any, shall be appointed by the Board. The Committee shall be responsible for the general administration and interpretation of the plan and for carrying out its provisions except to the extent all or any of such obligations specifically are imposed on the Trustee or the Board or delegated to one or more other persons, including the plan administrator. The Chairman of the Committee shall be the plan administrator and agent for service of legal process on the plan. 8.2 Committee Officers; Subcommittee: The members of the Committee shall elect a chairman and may elect an acting chairman. They also shall elect a secretary and may elect an acting secretary, either of whom may but need not be a member of the Committee. The Committee may appoint from its membership such subcommittees with such powers as the Committee determines and may authorize one or more of its members or any agent to execute or deliver any instrument or make any payment on behalf of the Committee. 8.3 Committee Meetings: The Committee shall hold such meetings upon such notice and at such places and intervals as it from time to time determines. Notice of meetings shall not be required if waived in writing by all members of the Committee at the time in office or if all such members are present at the meeting. 48 8.4 Transaction of Business: A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting shall be by vote of a majority of those present and entitled to vote at any such meeting. Resolutions may be adopted or other action taken without a meeting upon written consent thereto signed by all members of the Committee. 8.5 Committee Records: The Committee shall maintain full and complete records of its deliberations and decisions. The minutes of its proceedings shall be conclusive proof of the facts of the operation of the plan. The records of the Committee shall contain all relevant data pertaining to individual participants and their rights under the plan and in the trust fund. 8.6 Establishment of Rules; Interactive Voice and Other Systems: Subject to the limitations of the plan and ERISA, the Committee from time to time may establish rules or bylaws for administration of the plan and transaction of its business. The Committee may authorize the use of various communication channels, including without limitation, an interactive voice system and an interactive Internet site, which will allow participants to review general information about their accounts and to initiate certain transactions and elections under the plan. The Committee from time to time shall adopt policies and rules governing the manner in which any such communication channel will be utilized by participants so that the plan may be conveniently administered. 8.7 Conflicts of Interest: No individual member of the Committee shall have any right to vote or decide on any matter relating solely to himself or his rights or benefits under the plan (except that such member may sign unanimous written consent to resolutions adopted or other action taken without a meeting), except for elections as to payment of benefits. 8.8 Correction of Errors: The Committee may correct errors and, so far as practicable, may adjust any benefit or credit or payment accordingly. The Committee in its discretion may waive any notice requirement in the plan; provided, that a waiver of a requirement to notify the 49 Trustee shall be made only with the consent of the Trustee. A waiver of notice in one case shall not be a waiver of notice in any other case. Any power or authority the Committee has discretion to exercise under the plan shall be exercised in a nondiscriminatory manner. 8.9 Authority to Interpret Plan: Subject to objective plan terms and the claims procedure set forth in Section 14, the Committee and plan administrator shall have the duty and discretionary authority to interpret and construe the provisions of the plan and decide any dispute which may arise regarding the rights of participants hereunder, including the discretionary authority to construe uncertain provisions of the plan and to make determinations as to eligibility for participation and benefits under the plan. Determinations by the Committee and plan administrator shall apply uniformly to all persons similarly situated and shall be binding and conclusive upon all interested persons. Such determinations shall only be set aside if the Committee and the plan administrator are found to have acted arbitrarily and capriciously in interpreting and construing the provisions of the plan. 8.10 Third Party Advisor: The Committee may engage an attorney, accountant or any other technical adviser on matters regarding the operation of the plan and to perform such other duties as may be required in connection therewith. The Committee may employ such clerical and related personnel as it deems requisite or desirable in carrying out the provisions of the plan. The Committee may delegate any one or more of its duties and responsibilities under the plan to any person or persons, including but not limited to, the employees of the Company and the plan administrator. From time to time, but no less frequently than annually, the Committee shall review the financial condition of the plan and determine the financial and liquidity needs of the plan as required by ERISA. The Committee shall communicate such needs to the Company and Trustee so that the funding policy and investment policy may be coordinated appropriately to meet such needs. 50 8.11 Compensation of Members: No member of the Committee, who receives compensation from the Company for services as a full-time employee, shall receive any fee or compensation for his services as such. 8.12 Committee Expenses: The Committee shall be entitled to reimbursement out of the trust fund for its reasonable expenses properly and actually incurred in the performance of its duties in the administration of the plan; provided, that the Company, in the discretion of the Board, may pay such expenses. 8.13 Indemnification of Committee: To the maximum extent permitted by ERISA, no member of the Committee personally shall be liable by reason of any contract or other instrument executed by him or on his behalf as a member of the Committee or for any mistake of judgment made in good faith. The Company shall indemnify and hold harmless, directly from its own assets (including the proceeds of any insurance policy the premiums for which are paid from the Company's own assets), each member of the Committee and each other officer, employee, or director of the Company to whom any duty or power relating to the administration or interpretation of the plan is delegated or allocated against any unreimbursed or uninsured cost or expense (including any sum paid in settlement of a claim with the prior written approval of the Board) arising out of any act or omission to act in connection with the plan, unless arising out of such person's own fraud, bad faith, willful misconduct or gross negligence. Section 9. Management of Funds and Amendment of Plan: --------- ----------------------------------------- 9.1 Fiduciary Duties: All assets of the plan shall be held in the trust for the exclusive benefit of participants and their beneficiaries. Such assets shall be administered as a trust fund to provide for the payment of benefits as provided in the plan to participants or their successors in interest out of the income and principal of the trust. All fiduciaries with respect to the plan (as defined in ERISA) shall discharge their duties as such solely in the interest of the participants and their 51 successors in interest and (i) for the exclusive purposes of providing benefits to participants and their successors in interest and defraying reasonable expenses of administering the plan as provided in Section 8.12 of the plan, (ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims, and (iii) in accordance with the plan and trust agreement, except to the extent such documents may be inconsistent with the then applicable federal laws relating to fiduciary responsibility. The trust fund shall be used for the exclusive benefit of participants and their beneficiaries and to pay administrative expenses of the plan and trust. No portion of the trust fund shall ever revert to or inure to the benefit of the Participating Employer or any affiliated employers (except as otherwise provided in Sections 19 and 9.1). Notwithstanding the foregoing provisions of this Section 9.1, the following provisions shall apply: 9.1.1 Initial qualification: If the plan receives an adverse determination with respect to the initial qualification of the plan under Section 401(a) of the Code, on written request of the Company, the Trustee shall return to the Company the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the plan is denied; provided, that the application for the determination is made by the time prescribed by law for filing the Company's federal income tax return for the taxable year in which the plan is adopted or such later date as the Secretary of the Treasury may prescribe; 9.1.2 Disallowed contribution: On written request of the Company, the Trustee shall return a disallowed contribution to the extent the deduction is disallowed under Section 404 of the Code (reduced by losses attributable thereto, but not increased by earnings attributable thereto) to the Company within one year after the date the deduction is disallowed; and 9.1.3 Mistake of fact: If a contribution or any portion thereof is made by the Participating Employer by mistake of fact, on written request of the Company, the Trustee shall return the contribution or such portion (reduced by losses attributable thereto, but not increased by earnings attributable thereto) to such Participating Employer within one year after the date of payment to the Trustee. 9.2 Trust Agreement: The Company, on behalf of each Participating Employer, and the Trustee shall enter into an appropriate trust agreement for the administration of the trust. 52 The trust agreement shall contain such powers and reservations as to investment, reinvestment, control and disbursement of the funds of the trust, and such other provisions not inconsistent with the provisions of the plan and its nature and purposes, as shall be agreed on and set forth therein. Such agreement shall provide that the Board may remove the Trustee at any time upon reasonable notice, the Trustee may resign at any time upon reasonable notice, and on such removal or resignation the Board shall designate a successor trustee. 9.3 Authority to Amend: The Board, acting on behalf of the Participating Employer, shall have the right at any time and from time to time to amend or terminate the plan and the trust agreement; provided, that (i) except as provided in Section 9.1, no such amendment shall have the effect of diverting the trust fund to purposes other than the exclusive benefit of participants, and (ii) no such amendment that alters the duties, responsibilities or liabilities of the Trustee shall be made unless the Trustee consents thereto in writing. No amendment to the plan shall decrease a participant's accrued benefit as of the date of such amendment. A plan amendment which has the effect of (a) eliminating a retirement-type subsidy or (b) eliminating an optional form of distribution shall be treated as reducing accrued benefits. Notwithstanding the foregoing, and until otherwise decided by the Board, the officer of the Company specifically designated in resolutions adopted by the Board shall have the authority to amend the plan to (i) comply with changes in laws or government rules or regulations applicable to the plan; (ii) maintain the tax-qualified status of the plan; (iii) provide for the merger or consolidation of another plan into this plan, or the transfer of the assets or liabilities of another plan to this plan, and, in connection therewith to comply with the provisions of the Treasury Regulations under Section 411(d)(6) of the Code; and (iv) revise the Exhibits attached hereto. See Section 12 for provisions regarding termination of the plan. 53 9.4 Requirements of Writing: All requests, directions, requisitions and instructions of the Committee to the Trustee shall be in writing, signed by such person or persons as designated by the Committee. Section 10. Allocation of Responsibilities Among Named Fiduciaries: ---------- ------------------------------------------------------ 10.1 Duties of Named Fiduciaries: The named fiduciaries with respect to the plan and the fiduciary duties and other responsibilities allocated to each, which shall be carried out in accordance with the other applicable terms and provisions of the plan, shall be as follows: 10.1.1 Board: (i) To appoint and remove members of the Committee; and (ii) To appoint and remove trustees under the plan. 10.1.2 Committee: (i) To interpret the provisions of the plan and determine the rights of participants under the plan, except to the extent otherwise provided in Section 14 relating to the claims procedure; (ii) To administer the plan in accordance with its terms, except to the extent powers to administer the plan specifically are delegated to another named fiduciary or other person or persons as provided in the plan; (iii) To account for the interests of participants in the plan; and (iv) To direct the Trustee in the distribution of trust assets. 10.1.3 Plan administrator: (i) To file such reports as may be required with the United States Department of Labor, the Internal Revenue Service and any other government agency to which reports may be required to be submitted from time to time; (ii) To comply with requirements of the law for disclosure of plan provisions and other information relating to the plan to participants and other interested parties; and 54 (iii) To administer the claims procedure to the extent provided in Section 14. 10.1.4 Trustee: (i) To invest and reinvest trust assets subject to the provisions of Section 7; (ii) To make distributions to participants as directed by the Committee; (iii) To render annual accountings to the Company as provided in the trust agreement; and (iv) Otherwise to hold, administer and control the assets of the trust as provided in the plan and trust agreement. 10.2 Co-fiduciary Liability: Except as otherwise provided in ERISA, a named fiduciary shall not be responsible or liable for any act or omission of another named fiduciary with respect to fiduciary responsibilities allocated to such other named fiduciaries. A named fiduciary of the plan shall be responsible and liable only for its own acts or omissions with respect to fiduciary duties specifically allocated to it and designated as its responsibility. Section 11. Benefits Not Assignable; Facility of Payments: ---------- --------------------------------------------- 11.1 Benefits Not Assignable: Except as otherwise provided in Section 5.6 and this Section 11.1, no portion of the accrued benefit of any participant shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge. Any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void. No portion of such accrued benefit shall be payable in any manner to any assignee, receiver or trustee, liable for the participant's debts, contracts, liabilities, engagements or torts, or be subject to any legal process to levy upon or attach. Notwithstanding the foregoing, an offset to a participant's accrued benefit against an amount that the participant is ordered or required to pay the plan with respect to a judgment, order, or 55 decree issued, or a settlement entered into, on or after August 5, 1997, shall be permitted in accordance with Code Sections 401(a)(13)(C) and (D). 11.2 Payments to Minors and Others: If any individual entitled to receive a payment under the plan shall be physically, mentally or legally incapable of receiving or acknowledging receipt of such payment, the Committee, upon the receipt of satisfactory evidence of his incapacity and satisfactory evidence that another person or institution is maintaining him and that no guardian or committee has been appointed for him, may cause the payment otherwise payable to him to be made to such person or institution so maintaining him. Payment to such person or institution shall be in full satisfaction of all claims by or through the participant to the extent of the amount thereof. Section 12. Termination of Plan and Trust; Merger or Consolidation of ---------- --------------------------------------------------------- Plan: - ---- 56 12.1 Complete Termination: In the event of a termination of the plan (including a cessation of contributions which results in a termination of the plan), all contributions to the plan shall cease and no additional participants shall enter the plan. The assets under the plan shall remain or become fully vested in the participants, beneficiaries or other successors in interest. Such vested benefit of each such individual shall be held in the plan for distribution in accordance with the provisions of Section 5; provided, that the Committee in its discretion may provide at any time for liquidation of the trust and distribution to the participants of their accrued benefits as provided in Section 5. If, upon termination, the plan does not offer an annuity option (purchased from a commercial provider) and neither the Participating Employer nor any affiliated employer maintains another defined contribution plan (other than an employee stock ownership plan defined in Section 4975(e)(7) of the Code), the participant's accrued benefit may, without the participant's consent, be distributed to the participant. However, if the Participating Employer or any affiliated employer maintains another defined contribution plan (other than an employee stock ownership plan defined in Section 4975(e)(7) of the Code), the participant's accrued benefit may, without the participant's consent, be transferred to such other plan if the participant does not consent to an immediate distribution. Notwithstanding the foregoing, all distributions upon termination of the plan shall be subject to the limitations set forth in Section 5.8 of the plan. For purposes of the plan, a termination of contributions or a suspension or reduction of such contributions amounting in effect to a termination of contributions shall be a termination of the plan. 12.2 Partial Termination: In the event of a partial termination of the plan, the provisions of Section 12.1 regarding a complete termination shall apply in determining interests and rights of the participants and their beneficiaries with respect to whom the partial termination occurs and to the portion of the trust fund allocable to such participants and beneficiaries. 57 12.3 Merger or Consolidation: In the event of any merger or consolidation of the plan with any other plan, or a transfer of assets or liabilities of the plan to any other plan (which merged, consolidated or transferee plan is referred to in this Section 12.3 as the "successor plan"), the amount each participant would receive if the successor plan (and this plan, if he has any interest remaining therein) were terminated immediately after the merger, consolidation or transfer shall equal or be greater than the amount he would have received if this plan (and the successor plan, if he had any interest therein immediately prior to the merger, consolidation or transfer) were terminated immediately preceding the merger, consolidation or transfer. From time to time, the Company or one of its affiliated employers will acquire the assets and employees of other companies by corporate merger or otherwise. In connection therewith, the Company or one of its affiliated employers will become the sponsor of the tax-qualified defined contribution plan or plans maintained by the acquired company (the "acquired plans"). From time to time, pursuant to a Retirement Plan Merger Agreement, one or more acquired plans will be merged into this plan. The Retirement Plan Merger Agreements providing for such plan mergers will be attached hereto as Exhibit D. 12.4 Protection of Benefits: No termination, partial termination, merger or consolidation or transfer of assets of the plan shall reduce a participant's accrued benefit or eliminate an optional form of distribution. For purposes of this Section 12.4, a termination, partial termination, merger or consolidation of the plan that has the effect of decreasing a participant's accrued benefit or eliminating an optional form of benefit with respect to benefits attributable to service before the amendment shall be treated as reducing an accrued benefit. Section 13. Communication to Employees: ---------- -------------------------- The Company shall communicate the principal terms of the plan to the participants and beneficiaries in accordance with the requirements of ERISA. The Company shall make available for inspection by participants and their beneficiaries, during reasonable hours at the principal office of the 58 Company and at such other places as may be required by ERISA, a copy of the plan, trust agreement and such other documents as may be required by ERISA. Section 14. Claims Procedure: ---------- ---------------- The following claims procedure shall apply with respect to the plan: 14.1 Filing of a Claim for Benefits: If a participant or beneficiary (the "claimant") believes he is entitled to benefits under the plan that are not being paid to him or accrued for his benefit, he may file a written claim therefor with the plan administrator. If the plan administrator is the claimant, all actions required to be taken by the plan administrator pursuant to this Section 14 shall be taken instead by another member of the Committee designated by the Committee. 14.2 Notification to Claimant of Decision: Within 90 days after receipt of a claim by the plan administrator, or within 180 days if special circumstances require an extension of time, the plan administrator shall notify the claimant of its decision with regard to the claim. If special circumstances require an extension of time, a written notice of the extension shall be furnished to the claimant prior to commencement of the extension setting forth the special circumstances and the date by which the decision will be furnished. If such claim is wholly or partially denied, notice thereof shall be written in a manner calculated to be understood by the claimant and shall set forth: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the procedure for review of the denial. If the plan administrator fails to notify the claimant of the decision in timely manner, the claim shall be deemed denied as of the close of the initial 90-day period (or the extension period, if applicable). 14.3 Procedure for Review: Within 60 days following receipt by the claimant of notice denying his claim in whole or in part, or, if such notice is not given, within 60 days following the 59 latest date on which such notice timely could have been given, the claimant may appeal denial of the claim by filing a written application for review with the Committee. Following such request for review, the Committee shall fully and fairly review the decision denying the claim. Prior to the decision of the Committee, the claimant shall be given an opportunity to review pertinent documents and submit issues and comments in writing. 14.4 Decision on Review: The decision on review of a claim denied in whole or in part by the plan administrator shall be made in the following manner: 14.4.1 Notification to claimant of decision: Within 60 days following receipt by the Committee of the request for review, or within 120 days if special circumstances require an extension of time, the Committee shall notify the claimant in writing of its decision with regard to the claim. If special circumstances require an extension of time, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. If the decision on review is not furnished in a timely manner, the claim shall be deemed denied as of the close of the initial 60-day period (or the extension period, if applicable). 14.4.2 Format and content of decision: The decision on review of a claim that is denied in whole or in part shall set forth specific reasons for the decision written in a manner calculated to be understood by the claimant and shall cite the pertinent plan provisions on which the decision is based. 14.4.3 Effect of decision: The decision of the Committee shall be final and conclusive. 14.5 Action by Authorized Representative of Claimant: All actions set forth in this Section 14 to be taken by the claimant may be taken by a representative of the claimant duly authorized by him to act on his behalf on such matters. The plan administrator and the Committee may require such evidence as either reasonably deems necessary or advisable of the authority of any such representative to act. Section 15. Portability of Participant Accounts: ---------- ----------------------------------- Notwithstanding any provision of the plan to the contrary that would otherwise limit a distributee's election under this Section 15, a distributee may elect, at the time and in the manner 60 prescribed by the Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 15.1 Definitions: The following definitions shall apply for purposes of this Section 15: 15.1.1. Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; any hardship distribution described in Section 401(k)(2)(B)(i)(iv); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 15.1.2 Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. 15.1.3 Distributee: A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. 15.1.4 Direct rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. 15.2 Construction: Notwithstanding anything contained in this Section 15 to the contrary, the provisions of this Section 15 shall at all times be construed and enforced according to the requirements of Section 401(a)(31) of the Code and the Treasury Regulations thereunder, as the same may be amended from time to time. 61 Section 16. Rollovers: ---------- --------- An eligible employee who receives a distribution of all or part of his interest from another retirement plan (including another plan maintained by the Participating Employer or an affiliated employer) which is qualified under Section 401(a) of the Code on the date of distribution may, with the consent of the Committee in accordance with procedures adopted by the Committee, transfer all or a part of such distribution to the Trustee under this plan. The amount so transferred may only include cash, shares of Company stock or other property approved by the Committee. In applying the provisions of this Section 16, the following provisions shall apply: 16.1 Timing: The transfer to the Trustee must occur on or before 60 days following receipt by the eligible employee of such distribution. If such distribution previously was deposited in an individual retirement account or individual retirement annuity as defined in Section 408 of the Code, the transfer must occur on or before 60 days following receipt by the eligible employee of all or any portion of the balance to his credit under such individual retirement account or individual retirement annuity. 16.2 Eligibility: The distribution made to the eligible employee must be an eligible rollover distribution as defined in Section 15.1.1. 16.3 Maximum Amount: The amount transferred to the Trustee shall be limited to the maximum rollover amount as provided in Section 402(c)(2) of the Code. 16.4 Accounting: The amount transferred to the Trustee shall be credited to the eligible employee's rollover account. The assets in the rollover account shall be administered by the Trustee in the same manner as other trust assets. 16.5 Transfers Prior to Becoming a Participant: If an eligible employee who makes such a transfer has not completed the participation requirements of Section 1.31, his rollover account shall represent his sole interest in the plan until he becomes a participant. 62 Section 17. Special Provisions Relating to Transfers From Qualified ---------- ------------------------------------------------------- Plans: - ----- With the approval of the Committee and in accordance with procedures adopted by the Committee, the Trustee shall receive and hold as a part of the trust fund assets transferred (the "transferred assets") directly from the trustee or custodian of any other retirement plan (the "transferor plan") that is qualified under Section 401(a) of the Code. Such transferred assets may only include cash or shares of Company stock. In applying the provisions of this Section 17, the following provisions shall apply: 17.1 Accounting: The transferred assets of each participant shall be credited to the subaccounts of the participant as described in Section 1.1 as determined by the Committee, taking into account the applicable vesting schedule, the source of the transferred assets, amounts subject to special tax treatment and withdrawal rules. Additional subaccounts shall be established, if required, to accommodate these objectives. 17.2 Liability of Trustee: The Trustee under the plan shall not be liable or responsible for any acts or omissions in the administration of any transferor plan or the trust thereunder of any other person or entity who was trustee, custodian or other fiduciary under such transferor plan. The Trustee under the plan shall be held harmless from such liability or responsibility. 17.3 Protected Benefits Under Section 411(d)(6) of the Code: The protected benefits of the transferor plan, as defined in Section 411(d)(6) of the Code, shall be preserved with respect to the transferred assets. 17.4 Authority of Committee: To the extent not inconsistent with the provisions of this Section 17, the Committee may make rules or bylaws supplementing and implementing the provisions of this Section 17. 17.5 Impermissible Transfers: Notwithstanding any provisions of this Section 17 to the contrary, the Committee shall not permit nor the Trustee accept any direct or indirect transfers (as 63 that term is defined and interpreted under Section 401(a)(11) of the Code and the Treasury Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit-sharing plan which would otherwise have provided for a life annuity form of payment to the employee. Section 18. Special Top-Heavy Provisions: ---------- ---------------------------- The following special provisions shall apply and supersede any conflicting provision in the plan with respect to any plan year in which the plan is determined to be top-heavy (as described in Section 18.1.7): 18.1 Definitions: The following definitions shall apply for purposes of this Section 18: 18.1.1 "Company" means the Participating Employer and its affiliated employers. 18.1.2 "Company contributions" for purposes of Section 18.2.1 may include matching contributions to the extent permitted under Section 416 of the Code and the regulations issued thereunder. 18.1.3 "Determination date" means the last day of the preceding plan year. 18.1.4 "Key employee" means any employee or former employee (and the beneficiaries of such employee) who at any time during the determination period is an officer of the Company if such individual's annual statutory compensation exceeds 50 percent of the dollar limitation under Section 415(b)(1)(A) of the Code, an owner (or considered an owner under Section 318 of the Code) of one of the 10 largest interests in the Company if such individual's statutory compensation exceeds 100 percent of the dollar limitation under Section 415(c)(1)(A) of the Code, a 5 percent owner of the Company, or a 1 percent owner of the Company who has an annual statutory compensation of more than $150,000. Annual statutory compensation means statutory compensation as defined in Section 1.41 of the plan. The determination period shall be the plan year containing the determination date and the preceding 4 plan years. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code. A non-key employee means any employee who is not a key employee. 18.1.5 "Permissive aggregation group" means the required aggregation group and any other plan or plans of the Company which, when considered as a group with the 64 required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. 18.1.6 "Required aggregation group" means (i) each qualified plan of the Company in which at least one key employee participates or participated at any time during the determination period (regardless of whether the plan has terminated), and (ii) any other qualified plan of the Company which enables a plan described in (i) to meet the requirements of Section 401(a)(4) or 410 of the Code. 18.1.7 "Top-heavy plan" means, for any plan year beginning after December 31, 1983, the plan if any of the following conditions exists: (i) The top-heavy ratio for the plan exceeds 60 percent and the plan is not part of any required aggregation group or permissive aggregation group. (ii) This plan is a part of a required aggregation group but not part of a permissive aggregation group and the top-heavy ratio for such group exceeds 60 percent. (iii) This plan is a part of a required aggregation group and part of a permissive aggregation group and the top- heavy ratio for the permissive aggregation group exceeds 60 percent. 18.1.8 "Top-heavy ratio" means the following: (i) If the Company maintains one or more defined contribution plans (including any simplified employee pension plan) and has not maintained any defined benefit plan which during the 5 year period ending on the determination date(s) has or has had accrued benefits, the top-heavy ratio for this plan alone or for the required or permissive aggregation group, as appropriate, shall be a fraction, the numerator of which is the sum of the accrued benefits of all key employees as of the determination date(s) including any part of any accrued benefit distributed in the 5 year period ending on the determination date(s), and the denominator of which is the sum of all accrued benefits including any part of any accrued benefit distributed in the 5 year period ending on the determination date(s), both computed in accordance with Section 416 of the Code. Both the numerator and denominator of the top-heavy ratio are increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Section 416 of the Code. (ii) If the Company maintains one or more defined contribution plans (including any simplified employee pension plan) and the Company maintains or has maintained one or more defined benefit plans which during the 5 year period ending on the determination date(s) 65 has or has had any accrued benefits, the top-heavy ratio for any required or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of accrued benefits under the aggregated defined contribution plan or plans for all key employees, determined in accordance with paragraph (i) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all key employees as of the determination date(s), and the denominator of which is the sum of the accrued benefits under the aggregated defined contribution plan or plans for all participants, determined in accordance with paragraph (i) above, and the present value of accrued benefits under the defined benefit plan or plans for all participants as of the determination date(s), all determined in accordance with Section 416 of the Code. The accrued benefits under a defined benefit plan in both the numerator and denominator of the top-heavy ratio are increased for any distribution of an accrued benefit made in the 5 year period ending on the determination date. (iii) For purposes of paragraphs (i) and (ii) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Section 416 of the Code for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a participant who (a) is not a key employee but who was a key employee in a prior year, or (b) is not credited with at least one hour of service with any employer maintaining the plan at any time during the 5 year period ending on the determination date will be disregarded. Calculation of the top-heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account shall be made in accordance with Section 416 of the Code. Deductible employee contributions will not be taken into account for purposes of computing the top-heavy ratio. When aggregating plans, the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year. The accrued benefit of a participant other than a key employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Company, or (b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code. 18.1.9 "Valuation date" means the year-end adjustment date as defined in Section 1.4. 18.2 Top-Heavy Requirements: Notwithstanding any other provisions of the plan, the plan must satisfy the following requirements for any plan year in which the plan is a top-heavy plan: 66 18.2.1 Minimum allocation requirements: Except as otherwise provided in (a) and (b) below, the Company contributions allocated to his account on behalf of any participant who is not a key employee shall not be less than the lesser of 3 percent of such participant's statutory compensation or, if the Company has no defined benefit plan which designates this plan to satisfy Section 416 of the Code, the largest percentage of Company contributions allocated on behalf of any key employee for that year. The minimum allocation shall be determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other plan provisions, the participant otherwise is not entitled to receive an allocation, or would have received a lesser allocation for the year, because of (i) the participant's failure to complete 1,000 hours of service (or any equivalent provided in the plan), (ii) the participant's failure to make mandatory employee contributions to the plan, or (iii) statutory compensation less than a stated amount. The provisions of this Section 18.2.1 shall not apply: (a) to any participant who was not employed by the Company on the last day of the plan year, or (b) to any participant to the extent the participant is covered under any other plan or plans of the Company that provide that the minimum allocation or benefit requirement applicable to top-heavy plans shall be met in the other plan or plans. The minimum allocation required (to the extent required to be nonforfeitable under Section 416(b) of the Code) shall not be forfeited under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code. If any additional Company contribution is required to be made on behalf of a participant to satisfy the provisions of this Section 18.2.1, such Company contribution shall be allocated to the Employer supplemental matching contribution account of the participant. Notwithstanding the foregoing, if the Company maintains any other defined contribution plan, the Company shall provide a minimum allocation under one such plan equal to 3 percent of statutory compensation for each non-key employee who is entitled to a minimum allocation under each of the plans. 18.2.2 Minimum vesting requirements: For any plan year in which the plan is top-heavy, "3 or more years of service" shall be substituted for "5 or more years of service" in Section 3.1. The provisions of this Section 18.2.2 shall apply to all benefits within the meaning of Section 411(a)(7) of the Code, including benefits accrued before the plan became top-heavy. Further, no reduction in vested benefits shall occur in the event the plan's status as top- heavy changes for any plan year. However, this Section 18.2.2 shall not apply to the account of any employee who does not complete an hour of service after the plan first becomes top-heavy, and such employee's vested interest in such accounts shall be determined without regard to this Section 18. Section 19. Limitations on Allocations: ---------- -------------------------- 19.1 Limitations: Subject to the provisions of Sections 19.3 and 19.4, in no event shall the sum of the annual additions to the account of a participant for any limitation year beginning on or after January 1, 1987, under this plan and any other defined contribution plan (as defined in Section 19.4) of the Company, exceed in the aggregate the lesser of: (a) $30,000, referred to herein as 67 the "dollar limitation," or (b) 25 percent of such participant's statutory compensation received during the limitation year, referred to herein as the "statutory compensation limitation." The amount of the dollar limitation shall be adjusted in accordance with the Code to reflect increases in the cost of living. If the limitations provided in this Section 19.1 would be exceeded for any limitation year with respect to any participant, any required reduction in the annual additions to his account shall be made as provided in Section 19.2. 19.2 Adjustments: If, as a result of a reasonable error in estimating a participant's statutory compensation, a reasonable error in determining the amount of elective deferrals that may be made by a participant under the limitations of this Section 19, or other limited facts and circumstances, the dollar limitation or statutory compensation limitation set forth in Section 19.1 would be exceeded for any limitation year, such excess with respect to a participant for such limitation year shall be disposed of as follows: (i) First, salary reduction contributions, and any gains attributable thereto, to the extent of any excess shall be distributed to the participant. (ii) Thereafter, if further reductions are necessary, then such participant's share of the employer contributions (other than salary reduction contributions) for the limitation year shall be reduced to the extent of any such remaining excess. The amount of the reduction shall be reallocated among the remaining participants in the ratio that each such participant's statutory compensation during the limitation year in question bears to the aggregate statutory compensation of all such participants during such limitation year and before any salary reduction contributions, matching contributions, or supplemental employer contributions for such limitation year are allocated. If all of the amount of such reduction with respect to the participant and the amount of any reduction with respect to any other participant cannot be reallocated without causing the account of each other participant to exceed the dollar limitation or the statutory compensation limitation, then such amount shall be credited to a separate account, designated as the "allocation suspense account." 68 (iii) The allocation suspense account shall contain the excess amounts of employer contributions from all limitation years and earnings thereon. Such excess amounts shall be allocated for each succeeding limitation year among the accounts of participants in the ratio that each such participant's statutory compensation for the limitation year in question bears to the aggregate statutory compensation of all such participants during such limitation year and before any salary reduction contributions, matching contributions, or supplemental employer contributions for such year are allocated. The allocation suspense account shall be invested by the Trustee in the investment fund designated by the Committee. The allocation suspense account shall be adjusted annually for additions thereto and distributions therefrom. If the plan is terminated, any balance in the allocation suspense account shall be returned to the Company. Notwithstanding the foregoing, each suspense account maintained under the ESOP portion of the predecessor plan because of the limitations of Section 415 of the Code shall continue to be allocated among the participants in accordance with the applicable provisions of the predecessor plan. Notwithstanding the foregoing, in no event shall salary reduction contributions be distributed pursuant to paragraph (i) of this Section 19.2 to a participant who is a highly compensated employee. Any excess with respect to such a participant shall be disposed of in the manner described in paragraph (ii) of this Section 19.2. 19.3 Participation in this Plan and a Defined Benefit Plan: This Section 19.3 shall apply with respect to limitation years beginning prior to January 1, 2000. If at any time a participant is a participant in the plan and in a defined benefit plan of the Company, in no event shall the sum of the defined benefit fraction (as defined in this Section 19.3) and the defined contribution fraction (as defined in this Section 19.3) for any limitation year exceed 1.0. For purposes of this Section 19.3, and except as otherwise provided in this Section 19, the "defined benefit fraction" for any limitation year of a defined benefit plan shall be a fraction the numerator of which is the projected annual benefit of the participant under all defined benefit plans (as determined as of the close of such limitation year), and the denominator of which is the lesser of (i) the product of 1.25 and the dollar limitation in effect for defined benefit plans for such limitation year (referred to herein as the "defined benefit dollar limitation"), and (ii) the product of 1.4 and 100 percent of the participant's average annual statutory compensation for the period of 3 consecutive calendar years (or the actual number of consecutive years 69 of employment with the Company if the participant was employed by the Company for less than 3 consecutive years) which will produce the highest average (referred to herein as the "defined benefit statutory compensation limitation"). The "defined contribution fraction" for any limitation year of the plan shall be a fraction the numerator of which is the sum of the annual additions to the participant's accounts under the plan and all other defined contribution plans maintained by the Company through the close of such limitation year, and the denominator of which is the sum of the lesser of (A) or (B) for such limitation year and each prior limitation year during which the participant was an employee of the Company (regardless of whether a plan was in existence during those years), where (A) is the product of 1.25 and the dollar limitation in effect for such limitation year (determined without regard to Section 415(c)(6) of the Code), and (B) is the product of 1.4 and the statutory compensation limitation for the limitation year. If the limitation provided in this Section 19.3 would be exceeded for any limitation year, the reduction in the sum of the defined benefit fraction and the defined contribution fraction necessary to comply with the limitation shall be made in the defined contribution fraction. 19.4 Definitions: For the purpose of applying the rules of this Section 19, the following provisions shall apply: (a) the "limitation year" shall be the plan year; (b) "Social Security retirement age" means the age at which a participant is eligible to retire and receive an unreduced benefit under the Social Security Act; (c) all defined benefit plans of the Company shall be considered as a single plan, and all defined contribution plans of the Company shall be considered as a single plan; (d) "projected annual benefit" means the annual normal retirement benefit payable in the form of a single life annuity (with no ancillary benefits) to which a participant would be entitled under the terms of the defined benefit plan if the following factors are assumed: (i) the participant will continue employment with the Company until he reaches Social Security retirement age (or until his then current age, if he has previously reached Social Security retirement age); (ii) the participant's statutory 70 compensation for the limitation year will remain the same until the date the participant attains Social Security retirement age; and (iii) all other relevant factors used to determine benefits under the defined benefit plan for the limitation year will remain constant for all future limitation years; (e) the "annual addition" with respect to any limitation year of the plan beginning on or after January 1, 1987 means the sum of the following items allocated on behalf of a participant: (i) Company contributions, including, without limitation, excess contributions, excess aggregate contributions; (ii) all forfeitures; (iii) the amount of the participant's nondeductible employee contributions for the limitation year (nondeductible employee contributions shall be considered made with respect to a particular plan year if such contributions actually are made by the participant during such plan year or within 30 days after the close of such plan year); (iv) amounts allocated after March 31, 1984 to an individual medical account, as defined in Section 415(l) of the Code, which is part of a defined benefit plan maintained by the Company; and (v) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post- retirement medical benefits allocated to the separate account of a key employee, as defined in Section 419A(d) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Company; provided, that the following are not "annual additions": (1) transfers of funds from one qualified plan to another; (2) rollover contributions (as defined in Sections 402(c)(4), 403(a)(4), 403(b)(8) and 408(d)(3) of the Code); (3) repayments of loans made to a participant from the plan; (4) repayments of distributions received by an employee pursuant to Section 411(a)(7)(B) of the Code; (5) repayments of distributions received by an employee pursuant to Section 411(a)(3)(D) of the Code (mandatory contributions); (6) employee contributions to a simplified employee pension which are excludible from gross income under Section 408(k)(6) of the Code; (7) deductible employee contributions to a qualified plan; and (8) excess elective deferrals distributed to a participant pursuant to Section 2.1.1 of the plan; (f) "defined contribution plan" means a plan, including this plan, that provides for an individual account for each 71 participant and for benefits based solely on the amount contributed to the participant's account and any income, expenses, gains and losses, and forfeitures of accounts of other participants that may be allocated to such participant's account; and "defined benefit plan" means any plan that is not a defined contribution plan; provided, that only plans which are described in Section 415(k)(1) of the Code shall be included within the definition of a defined contribution plan or a defined benefit plan, as the case may be; (g) any affiliated employer shall be considered to be the Company; provided that for the purposes of this Section 19, determination of the members of a controlled group of employers and employers under common control pursuant to Sections 414(b) and (c) of the Code shall be made by substituting the phrase "more than 50 percent" for the phrase "at least 80 percent" where it appears in such Code sections; and (h) notwithstanding anything in this Section 19 to the contrary, the limitations, adjustments and other requirements prescribed in this Section 19 shall comply with Section 415 of the Code. Section 20. Parties to the Plan; Transfers of Employees: ---------- ------------------------------------------- The employers listed on Exhibit B are employer-parties to the plan. By separate agreement with the Company, one or more additional employers may become parties to the plan. The following provisions shall apply to all parties to the plan except as otherwise expressly provided herein or in such separate agreement: 20.1 Application of Plan and Trust Agreement: The plan shall apply as a single plan with respect to each Participating Employer as if it were only one employer-party. 20.2 Service with a Participating Employer: Service for purposes of the plan shall be interchangeable among each Participating Employer and shall not be deemed interrupted or terminated by the transfer at any time of an employee from the service of one Participating Employer to service of another Participating Employer. In addition, service as an ineligible employee shall be taken into account in determining an employee's eligibility to become a participant and his vested accrued benefit under the plan. 72 20.3 Contributions by each Participating Employer: Notwithstanding any provision of the plan to the contrary, the following special provisions shall apply: 20.3.1 Salary reduction contributions to the plan with respect to each Participating Employer shall be determined and paid separately by each Participating Employer in accordance with the provisions of the plan applicable to such Participating Employer. If a participant is in the service of more than one Participating Employer during a plan year, each such Participating Employer shall be responsible for any salary reduction contribution to be made to the plan pursuant to the participant's deferral election with respect to the compensation paid by such Participating Employer to such participant. If a participant who is eligible to make salary reduction contributions to the plan pursuant to Section 2.1 is transferred to ineligible employee status, he shall not be entitled to make any additional salary reduction contributions to the plan on or after the first payroll date which commences on or after the date he is transferred to ineligible employee status. If an individual who is not eligible to make salary reduction contributions to the plan pursuant to Section 2.1 is transferred to eligible employee status, he shall be entitled to make salary reduction contributions to the plan pursuant to Section 2.1 on and after the date he is transferred to eligible employee status. 20.3.2 Matching contributions to the plan with respect to each Participating Employer shall be determined and paid separately by each Participating Employer in accordance with the provisions of the plan applicable to such Participating Employer. If a participant is in the service of more than one Participating Employer during a plan year, each such Participating Employer shall be responsible for any matching contributions to be made on behalf of such participant with respect to the salary reduction contributions made by such Participating Employer on behalf of such participant and the compensation paid by such Participating Employer to such participant. If a participant who is eligible to receive an allocation of matching contributions pursuant to Section 2.2 is transferred to ineligible employee status, he shall not be entitled to receive an allocation of matching contributions pursuant to Section 2.2 on or after the date he is transferred to ineligible employee status. If an individual who is not eligible to receive an allocation of matching contributions pursuant to Section 2.2 is transferred to eligible employee status, he shall be entitled to receive an allocation of matching contributions pursuant to Section 2.2 on and after the date he is transferred to eligible employee status. 20.4 Authority of Board: Except as otherwise provided in Section 9.3, the Board shall have the power to amend or terminate the plan and trust agreement as applied to each Participating Employer and the proper officers of each Participating Employer shall be authorized to execute all documents and take all other actions as shall be deemed necessary or advisable to effectuate and carry out any such amendment as applied to such party. 73 Section 21. Compliance with the Uniformed Services Employment ---------- ------------------------------------------------- and Reemployment ------------------ Notwithstanding any provision of the plan to the contrary, the following special provisions shall apply with respect to a participant's reemployment rights under the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"): 21.1 Treatment of USERRA Contributions: Any contributions (the "USERRA contributions") made to the plan by the Participating Employer or a participant by reason of such participant's reemployment rights under USERRA, shall not be subject to the maximum dollar limit in Section 2.1.1 or the annual addition limitations in Section 19, and shall not be taken into account in applying such limitations to other contributions under the plan or any other plan, with respect to the plan year in which such USERRA contributions are made. USERRA contributions shall, however, be subject to such limitations with respect to the plan year to which the USERRA contributions relate. The plan shall not be treated as failing to meet the requirements of Sections 401(a)(4), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 410(b) or 416 of the Code by reason of the USERRA contributions. 21.2 Rights With Respect to Salary Reduction Contributions: 21.2.1 A participant who is entitled to reemployment rights under USERRA may elect to make additional salary reduction contributions (the "make-up contributions") to the plan during the period which begins on the date such participant reenters service with the Participating Employer and has the same length as the lesser of (i) the product of 3 and the period of the participant's qualified military service which resulted in such rights, and (ii) 5 years. The maximum amount of the make-up contributions a participant may make to the plan pursuant to this Section 21.2 shall be the maximum amount that the participant could have made to the plan during the period of the participant's qualified military service if the participant had continued in service during such period and continued to receive his compensation from the Participating Employer. Proper adjustment shall be made to the amount determined under the preceding sentence for any salary reduction contributions actually made by the participant during his period of qualified military service. 21.2.2 With respect to each participant who actually makes make-up contributions to the plan, the Participating Employer shall contribute to the trust under the plan the matching contributions with respect to such make-up contributions that 74 would have been required by Section 2.2 had such make-up contributions been made during the period of the participant's qualified military service. 21.2.3 Earnings shall not be credited to any contributions made pursuant to this Section 21 until such contributions are actually received by the plan. 21.3 Special Service Crediting Rules: A participant entitled to reemployment rights under USERRA shall not be treated as having incurred a break in service by reason of such participant's period of qualified military service. Each period of qualified military service shall be treated as service for purposes of determining such participant's vested accrued benefit. 21.4 Loans: If a participant who is entitled to reemployment rights under USERRA has a plan loan outstanding, loan repayments may be suspended during his period of qualified military service. 21.5 Definitions: The following definitions shall apply for purposes of this Section 21: 21.5.1 "Qualified military service" means any service in the uniformed services (as defined in USERRA) by any participant if such participant is entitled to reemployment rights under USERRA with respect to such service. 75 21.5.2 "Compensation" means the compensation the participant would have received during his period of qualified military service if the participant were not in qualified military service, determined based on the rate of pay the participant would have received from the Participating Employer but for his absence during his period of qualified military service. If the compensation the participant would have received during such period is not reasonably certain, compensation shall mean the participant's average compensation from the Participating Employer during the 12-month period immediately preceding his qualified military service (or, if shorter, the period of service immediately preceding his qualified military service). 21.6 Construction: Notwithstanding anything contained in this Section 21 to the contrary, the provisions of this Section 21 shall at all times be construed and enforced according to the requirements of USERRA and Section 414(u) of the Code. Section 22. Special Provisions Applicable to ESOP: ---------- ------------------------------------- Notwithstanding any provision of the plan to the contrary, the following special provisions shall apply to the ESOP: 22.1 Investment: The ESOP is designed to invest primarily in Company stock. 22.2 Distributions: Distributions from the ESOP shall be made in cash. Notwithstanding the foregoing, a participant or beneficiary may direct the Committee to distribute his ESOP account in shares of Company stock. 22.3 Restrictions on Company stock: Notwithstanding repayment of an exempt loan or any amendment or termination of the ESOP that causes it to cease to be a leveraged employee stock ownership plan with the meaning of Section 4975(e)(7) of the Code, no Company stock acquired with the proceeds of an exempt loan shall be subject to a put, call or other option, or buy-sell or similar arrangement while such stock is held by and when distributed from the ESOP, except as may be required by Regulation Section 54.4975-7(b)(10). 22.4 Proxy Voting: The ESOP accounts shall be subject to the pass-through voting requirements set forth in Section 7.1.6. 76 22.5 Valuations: All purchases of Company stock by the ESOP shall be made at a price not in excess of fair market value. All sales of Company stock by the ESOP shall be made at a price not less than fair market value. Any sale of Company stock to a disqualified person (as defined in Section 4975(e)(2) of the Code) or a party-in-interest (as defined in Section 3(14) of ERISA) shall conform to the requirements of Section 408(e) of ERISA. For all purposes of the ESOP, the fair market value of Company stock shall be the price of the Company stock prevailing on a national securities exchange which is registered under Section 6 of the Securities Exchange Act of 1934. Fair market value shall be determined as of the applicable date of the transaction. 22.6 Diversification: Each participant may elect quarterly, in accordance with procedures adopted by the Committee, to have Company stock allocated to his ESOP account transferred from his ESOP account to his Employer supplemental matching contribution account, liquidated and invested in one or more of the investment funds made available to participants pursuant to the provisions of Section 7.1.1 (other than an investment fund that invests solely in shares of Company stock), except that, unless a participant is a "qualified participant" (a) no such transfer shall be allowed if the participant has a Company stock fund account (as defined in Section 7.1.6) and (b) a participant may not transfer Company stock from his ESOP account in any quarter in which the participant has directed all or any portion of his account in an investment fund which invests solely in shares of Company stock. A "qualified participant" is any participant who has attained age 55 and has been a participant in the ESOP for at least 10 plan years. 22.7 Dividends: Cash dividends paid on shares of Company stock allocated to the participant's ESOP account shall be either distributed to the participant or reinvested in shares of Company stock, as determined by the Committee. Section 23. Miscellaneous Provisions: ---------- ------------------------ 77 23.1 Notices: Each participant who is not in service and each beneficiary shall be responsible for furnishing the Committee with his current address for mailing notices, reports, and benefit payments. Any notice required or permitted to be given to such participant or beneficiary shall be deemed given if directed to such address and mailed by first class mail. If any check mailed to such address is returned as undeliverable to the addressee, mailing of checks shall be suspended until the participant or beneficiary furnishes the proper address. This provision shall not require the mailing of any notice or notification otherwise permitted to be given by posting or other publication. 23.2 Lost Distributees: A benefit shall be deemed forfeited if the Committee is unable after a reasonable period of time to locate the participant or beneficiary to whom payment is due; provided, that such benefit shall be reinstated if a claim is made by or on behalf of the participant or beneficiary for the forfeited benefit. 23.3 Reliance on Data: The Company, Committee, Trustee, and plan administrator may rely on any data provided by a participant or beneficiary, including representations as to age, health, and marital status. Such representations shall be binding on any party seeking to claim a benefit through a participant, and the Company, Committee, Trustee and plan administrator shall have no obligation to inquire into the accuracy of any representation made at any time by a participant or beneficiary. 23.4 Bonding: Every fiduciary, except a bank or an insurance company, shall be bonded for each plan year to the extent required by ERISA. The bond shall provide protection to the plan against any loss by reason of acts of fraud or dishonesty by the fiduciary alone or in connivance with others. The cost of the bond shall be an expense of the trust and shall be paid by the Trustee subject to the provisions of the trust agreement and of Section 8.12 of the plan. 23.5 Receipt and Release for Payments: Each participant by participating in the plan conclusively shall be deemed to agree to look solely to the assets held under the trust for payment of any benefit to which such participant may be entitled by reason of such participation. Any payment 78 made from the plan to or with respect to any participant or beneficiary, or pursuant to a disclaimer by a beneficiary, shall be in full satisfaction of all claims hereunder against the plan, the Company and all fiduciaries with respect to the plan to the extent of such payment. As a condition precedent to payment, the recipient of any payment from the plan may be required by the Committee to execute a receipt and release with respect thereto in such form as is acceptable to the Committee. 23.6 No Guarantee: The Trustee, Committee, Company and plan administrator in no way guarantee the trust fund from loss or depreciation, nor do they guarantee the payment of any money or other assets from the trust fund that may be or become due to any person. Nothing herein contained shall give any participant or beneficiary an interest in any specific part of the trust fund or any other interest except the right to receive benefits from the trust fund in accordance with the provisions of the plan and trust. 23.7 Headings: The headings and subheadings of the plan are inserted for convenience of reference and shall be ignored in any construction of the provisions hereof. 23.8 Continuation of Employment: The establishment of the plan shall not confer any legal or other right upon any employee or person for continuation of employment, nor shall it interfere with the right of the Participating Employer to discharge any employee or to deal with him without regard to the effect thereof under the plan. 23.9 Construction: The provisions of the plan shall be construed and enforced according to the laws of the State of North Carolina, except to the extent such laws are superseded by the provisions of ERISA. 79 IN WITNESS WHEREOF, the BB&T Corporation 401(k) Savings Plan is, by authority of the Board of Directors of the Company, executed in behalf of the Company, the 22 day of February, 2000. BB&T CORPORATION By: /s/ Robert E. Greene --------------------------------- Authorized Officer Attest: /s/ Jerone C. Herring - ------------------------ (Assistant) Secretary [Corporate Seal] 80 EXHIBIT A TESTING COMPENSATION 1. "Compensation" means for any participant the wages, salary and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered by the participant in the course of his service with the Participating Employer to the extent that the amounts are includible in gross income (including but not limited to commissions, compensation for services on the basis of a percentage of profits, bonuses, fringe benefits, reimbursements or other expense allowances under a nonaccountable plan as described in Treasury Regulation Section 1.62-2(c)), plus the participant's elective deferrals (as defined in Section 402(g)(3) of the Code) and any other amount which is contributed or deferred by the Participating Employer at the election of the participant and which is not includible in the gross income of the participant by reason of Sections 125 or 457 of the Code; amounts described in Code Section 104(a)(3), 105(a) and 105(h), but only to the extent that such amounts are includible in the gross income of the participant; amounts paid or reimbursed by the Participating Employer for moving expenses incurred by the participant, but only to the extent that at the time of the payment it is reasonable to believe that these amounts are not deductible by the participant under Code Section 217; the value of a non-qualified stock option granted to the participant by the Participating Employer, but only to the extent that the value of the option is includible in the gross income of the participant for the taxable year in which granted; and the amount includible in the gross income of a participant upon making the election described in Code Section 83(b); and excluding contributions made by the Participating Employer to any plan of deferred compensation which are not includible in the participant's gross income for the taxable year in which contributed; contributions made by the Participating Employer under a simplified employee pension plan; any distributions from a plan of deferred compensation; amounts realized from the exercise of a non-qualified stock option or from the sale or other disposition of stock acquired under a qualified stock option; amounts realized when restricted stock (or property) held by the participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; and any other amount paid by the Participating Employer that receives special tax benefits or is excluded under the definition of compensation under Section 415 of the Code and Treasury Regulation Section 1.415-2(d)(3). If elected by the Committee, compensation may be modified to exclude any amounts contributed by the Participating Employer pursuant to a salary reduction agreement which are not includible in the gross income of the participant under Section 125, 402(e)(3), 402(h) or 403(b) of the Code. 2. "Compensation" means for any participant the wages, salary and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered by the participant in the course of his service with the Participating Employer to the extent that the amounts are includible in gross income (including but not limited to commissions, compensation for services on the basis of a percentage of profits, bonuses, fringe benefits, reimbursements or other expense allowances under a nonaccountable plan as described in Treasury Regulation Section 1.62-2(c)), plus the participant's elective deferrals (as defined in Section 402(g)(3) of the Code) and any other amount which is contributed or deferred by the Participating Employer at the election of the participant and which is not includible in the gross income of the participant by reason of Sections 125 or 457 of the Code; and excluding contributions made by the Participating Employer to any plan of deferred compensation which are not includible in the participant's gross income for the taxable year in which contributed; contributions made by the Participating Employer under a simplified employee pension plan; any distributions from a plan of A-1 deferred compensation; amounts realized from the exercise of a non-qualified stock option or from the sale or other disposition of stock acquired under a qualified stock option; amounts realized when restricted stock (or property) held by the participant either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; and any other amount paid by the Participating Employer that receives special tax benefits or is excluded under the definition of compensation under Section 415 of the Code and Treasury Regulation Section 1.415-2(d)(3). If elected by the Committee, compensation may be modified to exclude any amounts contributed by the Participating Employer pursuant to a salary reduction agreement which are not includible in the gross income of the participant under Section 125, 402(e)(3), 402(h) or 403(b) of the Code. 3. "Compensation" means for any participant his wages from the Participating Employer as defined in Section 3401(a) of the Code and all other payments of compensation to the participant by the Participating Employer (in the course of the Participating Employer's trade or business) for which the Participating Employer is required to furnish the participant a written statement under Sections 6041(d) and 6051(a)(3) of the Code, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code), plus the participant's elective deferrals (as defined in Section 402(g)(3) of the Code) and any other amount which is contributed or deferred by the Participating Employer at the election of the participant and which is not includible in the gross income of the participant by reason of Sections 125 or 457 of the Code. If elected by the Committee, compensation may be modified to (i) exclude any amounts contributed by the Participating Employer pursuant to a salary reduction agreement which are not includible in the gross income of the participant under Section 125, 402(e)(3), 402(h) or 403(b) of the Code; and/or (ii) exclude amounts paid or reimbursed by the Participating Employer for moving expenses incurred by the participant, but only to the extent that at the time of payment it is reasonable to believe that these amounts are deductible by the participant under Section 217 of the Code. 4. "Compensation" means for any participant his wages from the Participating Employer as defined in Section 3401(a) of the Code, for federal income tax withholding purposes, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2) of the Code), plus the participant's elective deferrals (as defined in Section 402(g)(3) of the Code) and any other amount which is contributed or deferred by the Participating Employer at the election of the participant and which is not includible in the gross income of the participant by reason of Sections 125 or 457 of the Code. If elected by the Committee, compensation may be modified to exclude any amounts contributed by the Participating Employer pursuant to a salary reduction agreement which are not includible in the gross income of the participant under Section 125, 402(e)(3), 402(h) or 403(b) of the Code. A-2 EXHIBIT B Participating Employers Branch Banking and Trust Company Branch Banking and Trust Company of South Carolina Branch Banking and Trust Company of Virginia BB&T Insurance Services, Inc. BB&T Investment Services, Inc. BB&T Leasing Corporation Agency Technologies, Inc. AutoBase Information Systems, Inc. Regional Acceptance Corporation Car Mart, Inc. FARR Associates, Inc. Prime Rate Premium Finance Corporation BB&T Factors Corporation Scott & Stringfellow, Inc. Scott & Stringfellow Realty, Inc. Scott & Stringfellow Capital Management Freedom Financial Services, Inc. Rose Shannis Financial Services, LLC B-1 EXHIBIT C PLAN LOAN RULES FOR PARTICIPANT LOANS This is an explanation of the rules for taking a personal loan from your vested account under the Plan. All loans are made strictly in accordance with the provisions of the Plan and in accordance with the rules adopted by the Committee. In addition to the items outlined in these rules, it is important to know that if you have not requested all loans available under any defined contribution plan in which you participate, you will be restricted from taking a hardship withdrawal under the Plan. In the case of any item not covered by this explanation, or in the event of any conflict between this explanation and the Plan, the Plan document always will control. 1. AMOUNT YOU CAN BORROW --------------------- The amount of any loan made to you must be at least $1,000. In addition, the amount of your loan from this Plan, when added to the outstanding balance of loans from any other tax-qualified retirement plan of the Company, may not exceed the lesser of: (A) $50,000, reduced by the highest outstanding balance of any plan loans to you during the one year period ending the day before the loan is made; or (B) 50 percent of the current fair market value of your vested account under the Plan. The money you receive from the loan will be taken from the investment funds in which your account is invested on a pro rata basis. 2. REPAYMENTS ---------- Period. The repayment period for a loan may not be less than 12 months ------ nor more than 60 months. Frequency. Generally, repayments will be withheld by the Company from --------- each regular paycheck you receive in sufficient amounts to maintain your loan repayment schedule until all principal and interest due are paid. Investments. Your loan repayments will be credited to your separate ----------- accounts from which the loan proceeds were obtained on a pro rata basis and invested in the investment funds in the same manner as contributions are invested, based on your current investment elections. 3. INTEREST RATE ------------- Your loan must bear a reasonable rate of interest as determined by the Committee at the time your loan is made. The Committee has determined the appropriate interest rate to be "BB&T's Prime Rate plus 1 percent," as quoted on the day the loan request is made. An annual statement of interest paid for each year that the loan is outstanding is available upon request. C-1 4. WHEN LOANS CAN BE TAKEN ----------------------- If you wish to borrow from your vested account under the Plan, call the BB&T Benefits Phone at 1-800-228-8076. You can have only one loan outstanding at any time and only one loan request may be submitted in a plan year. This means that if you already have a loan outstanding that has not been repaid, you must repay that loan. Your loan generally will be disbursed to you within 25 days from the date your loan request is made. Your loan will be processed based on the information you provide over the BB&T Benefits Phone. You will not be required to sign a Loan Origination Form prior to receiving the loan check. However, when you request your loan by telephone, you will receive a Participant Loan Agreement setting forth the terms of the loan and containing certain disclosures required by law. When you receive and endorse, deposit or cash the loan check, you will agree to the terms of the loan as set forth in the Participant Loan Agreement and the assignment of your account as collateral for the loan (see paragraph 5 below) (i.e., your ---- endorsement of the loan check signifies your agreement to repay the loan pursuant to the terms of the Participant Loan Agreement). 5. SECURITY FOR YOUR LOAN ---------------------- Your loan will be secured by a pledge of your vested account under the Plan. In the normal course, your account will not automatically be used to repay the loan or any interest due. However, if you terminate employment with the Company for any reason, the remaining unpaid balance of your loan plus any accrued interest will be recharacterized as a taxable distribution to you from the Plan unless you fully repay the loan immediately following your termination of employment or agree to continue making loan repayments by having your checking or other designated account automatically drafted by the Trustee in accordance with the loan repayment schedule. If your loan is recharacterized as a taxable distribution, the unpaid balance plus any accrued interest will be reported to the Internal Revenue Service ("IRS") by the Trustee as taxable income to you for the year in which you terminate employment. 6. ACCELERATED LOAN REPAYMENTS --------------------------- Loans may be repaid in full ahead of schedule at any time without penalty. Prepayments of less than the full amount outstanding will not be ---- accepted. To repay your loan in full, you must contact BB&T Benefits Phone and obtain a payoff amount. You should then submit a cashiers check or money order in such amount to Institutional Trust Services, Raleigh, North Carolina 17401- 0401. 7. TERMINATION OF EMPLOYMENT ------------------------- If you terminate employment with the Company for any reason and have an outstanding loan balance, you may: (A) fully repay the loan immediately following your termination; (B) continue to make loan repayments by having your checking or other designated account automatically drafted by the Trustee in accordance with the loan repayment schedule; or C-2 (C) have the loan balance recharacterized as a taxable distribution to you. If your loan balance is recharacterized as a distribution as described above and in paragraph 5 above, this distribution will be taxable income to you and may be subject to tax penalties for early distribution if you are under age 59 1/2. 8. LEAVE OF ABSENCE ---------------- If you are granted a leave of absence from the Company for any reason and have an outstanding loan for which payroll deduction repayments are no longer possible, you may: (A) fully repay the loan at the time your leave begins; (B) continue to make loan repayments by having your checking or other designated account automatically drafted by the Trustee in accordance with the loan repayment schedule; (C) have the loan balance recharacterized as a taxable distribution to you; or (D) suspend loan repayments for up to 12 months. Under this option, your loan repayments when you return to work may be doubled until you return to your original loan repayment schedule. If you decide to suspend repayments, your loan must still be repaid within 60 months of the date the loan was originally issued. If your loan repayments are suspended for more than 12 months or if the loan has not been repaid within 60 months of the date the loan was originally issued, the loan will be in default and you will be treated as having received a taxable distribution equal to the outstanding balance of your loan plus any accrued interest. If you choose to continue to make loan repayments, but you fail to do so, the loan will be in default and you will be treated as having received a taxable distribution equal to the outstanding balance on your loan plus any accrued interest. If you are treated as having received a taxable distribution, the tax penalty for early distribution may also apply. C-3 9. DEFAULT AND FORECLOSURE ----------------------- While you are working, loan repayments automatically will be withheld from your paychecks to keep your loan obligation current. However, should your paychecks stop because of an unpaid leave of absence, termination of employment, or other reason, and you fail to make two scheduled loan repayments on the date they are due (or, if you previously missed one scheduled repayment, you fail to make one more scheduled repayment), your loan will be considered in default. Upon default, the outstanding balance of the loan plus any accrued interest will become due and payable immediately. The unpaid balance will be recharacterized as a distribution to you as described in paragraph 5 above and will be reported to you and to the IRS as a taxable distribution. The tax penalty for early distribution may also apply. During the term of your loan you may miss one scheduled repayment before your loan will be considered in default. C-4 EX-10.17 3 0003.txt SOUTHERN NATIONAL CORP SHORT TERM INCENTIVE PLAN EXHIBIT 10(q) 1996 AMENDED AND RESTATED SOUTHERN NATIONAL CORPORATION SHORT-TERM INCENTIVE PLAN 1. The Plan. The purpose of this 1996 Amended and Restated Southern National -------- Corporation Short-Term Incentive Plan (the "Plan") is to provide select "key executives" of Southern National Corporation or an affiliate thereof (the "Company") with cash awards (the "Awards") based upon preestablished, objective performance goals, thereby promoting a closer identification of the participating employees' interests with the interests of the Company and its shareholders, and further stimulating such employees' efforts to enhance the efficiency, profitability, growth and value of the Company. 2. Plan Administration. The Plan shall be administered by the Compensation ------------------- Committee of the Board of Directors of the Company or a subcommittee thereof (the "Committee"). The Committee shall have full authority to interpret and administer the Plan and establish rules and regulations for the administration of the Plan. Any actions of the Committee may be taken by a written instrument signed by all of the members of the Committee and such action so taken by written consent shall be as fully effected as if it had been taken by a majority of the members at a meeting duly held and called. The decisions and determinations of the Committee in all matters regarding the Plan shall be in its sole discretion. Any decision made, or action taken, by the Committee in connection with the administration of the Plan shall be final, binding and conclusive. No member of the Committee shall be liable for any action, determination or decision made in good faith with respect to the Plan or any Award paid under it. Notwithstanding the foregoing, the Committee may delegate the administration of the Plan to one or more of its designees, but only with respect to matters regarding participants who are not in the executive management class. All matters regarding the participants in the executive management class shall be the sole responsibility of the Committee. 3. Eligibility. The participants in the Plan (collectively, the "Participants" ----------- or individually, a "Participant") shall be those key executives of the Company who are designated each year as Participants by the Committee. Such designation shall be made during the first 90 days of each calendar year. Participation in the Plan in any one calendar year does not guarantee that 1 a key executive will be selected to participate in the Plan in any following calendar year. 4. Size of Awards. Each calendar year, the Committee shall establish a target -------------- award for each Participant in the Plan, which shall be expressed as a percentage of his "Base Compensation" (the "Target Award"). For this purpose, "Base Compensation" means the base compensation actually paid to the Participant during the calendar year; provided, however, that the Base Compensation of a Participant who is in the executive management class shall not exceed the limit established by the Committee (the "Base Compensation Limit"). If and to the extent the performance goals established for the Participant by the Committee pursuant to Section 5 are met, the Participant's Award shall range from the amount of his "Threshold Award" to the amount of his "Superior Award." A Participant's "Threshold Award" shall be equal to 25 percent of his Target Award and his Superior Award shall be equal to a maximum percentage (the "Maximum Percentage") established by the Committee of his Target Award. The Target Award of each Participant or class of Participants (e.g., executive management), the ---- Maximum Percentage and the Base Compensation Limit shall be established in writing by the Committee within the first 90 days of each calendar year. 5. Establishment of Performance Goals. Within the first 90 days of each ---------------------------------- calendar year and at a time when the outcome is substantially uncertain, the Committee shall establish performance goals for each Participant. The performance goals established for each Participant or class of Participants (e.g., executive management) shall be in writing and shall be attached ---- hereto as an Exhibit following establishment thereof. The following rules and guidelines shall apply in establishing performance goals: a. Types of performance. The performance goals established by the -------------------- Committee shall be based on one or more performance measures that apply to the Participant alone ("Individual Performance"), the Participant's business unit/function performance ("Business Unit/Function Performance"), the Company as a whole ("Corporate Performance"), or any combination of Individual Performance, Business Unit/Function Performance or Corporate Performance. If a Participant's performance goals are based on a combination of Individual Performance, Business Unit/Function Performance or Corporate Performance, the Committee shall weight the importance of each type of performance that applies to such Participant by assigning a percentage to it (the "Weighted Percentage"). In no event shall the aggregate Weighted Percentages exceed 100 percent. 2 b. Performance measures. The Committee shall establish the performance --------------------- measures that apply to Individual Performance, Business Unit/Function Performance and Corporate Performance. (i) Individual Performance. The performance measures for Individual ---------------------- Performance shall be established separately for each Participant whose performance goals are based in whole or in part on Individual Performance. Such performance measures shall be based on such business criteria as process improvement, sales, loan growth, deposit growth and expense management. (ii) Business Unit/Function Performance. The performance measures for ---------------------------------- Business Unit/Function Performance shall be established separately for each Participant whose performance goals are based in whole or in part on Business Unit/Function Performance. Such performance measures shall be based on such business criteria as achievement of financial or non-financial goals, growth, and market share. (iii) Corporate Performance. The performance measures for Corporate --------------------- Performance shall be established based on such factors as stock price, market share, sales, earnings per share, return on equity, return on average assets or expense management. If more than one business criteria is used as a performance measure for a type of performance (e.g., Corporate Performance), the Committee --- shall weight the importance of each business criteria by assigning a percentage to it. In no event shall the aggregate percentages exceed 100 percent. c. Levels of performance. The Committee shall establish a threshold, --------------------- target and superior level of performance with respect to each measure of performance. A Performance Value shall be assigned to each such level of performance as follows: Level of Performance Performance Value -------------------- ----------------- Threshold 25% Target 100% Superior Maximum Percentage Interpolation shall be used to determine the Performance Value associated with performance between the threshold, target and superior performance levels. Performance below the threshold level shall have a 0 value and performance above the superior level shall have a value equal to the Maximum Percentage. 3 6. Determination and Payment of Awards. The determination of the Award (if any) payable to a Participant shall be made as soon as practicable as of the end of each calendar year by the Committee. The amount of the Award shall be determined in accordance with the following formula: (AxBxC) + (AxDxE) + (AxFxG) = Award where: (A) is the Participant's Target Award; (B) is the Participant's Weighted Percentage (if any) for Individual Performance; (C) is the Performance Value assigned to the level of performance attained by the Participant for Individual Performance; (D) is the Participant's Weighted Percentage (if any) for Business Unit/Function Performance; (E) is the Performance Value assigned to the level of performance attained by the Participant for Business Unit/Function Performance; (F) is the Participant's Weighted Percentage (if any) for Corporate Performance; and (G) is the Performance Value assigned to the level of performance attained by the Participant for Corporate Performance. The Award, if any, earned by a Participant with respect to a calendar year shall be paid to him in cash as soon as practicable following the determination of the Award and the Committee's written certification that the Participant achieved his performance goals. The Committee shall not have any discretion to increase the amount of an Award otherwise earned and payable pursuant to the terms of the Plan to a Participant who is in the executive management class. The Committee shall have the discretion to reduce or eliminate the amount of an Award otherwise earned and payable pursuant to the terms of the Plan to any Participant. No Award shall be paid to a Participant if his performance is below the threshold level of performance established by the Committee. 7. Termination For Reasons Other Than Death, Disability or Retirement. If ------------------------------------------------------------------ a Participant's employment with the Company is terminated for any reason other than death, disability or retirement during a calendar year, he shall forfeit his right to receive any Award under this Plan, except that the Committee may elect, in its sole and absolute discretion, to pay an Award to such Participant based on his performance and Base Compensation for that portion of the calendar year during which he was employed. 4 8. Termination Due to Death, Disability or Retirement. If a Participant's -------------------------------------------------- employment with the Company is terminated during a calendar year by reason of death, disability or retirement, and the Participant has been actively employed by the Company for a minimum of 6 calendar months during such calendar year, he shall be eligible for an Award based on his performance and Base Compensation for that portion of the calendar year in which he was employed. The determination and payment of such Award shall be made by the Committee at the end of such calendar year in the manner described in Section 6. If a Participant shall terminate employment during the calendar year for any reason with less than 6 calendar months of employment, he shall forfeit his right to receive any Award under this Plan, except that the Committee may elect, in its sole and absolute discretion, to pay an Award to such Participant based on his performance and Base Compensation for that portion of the calendar year during which he was employed. 9. No Implied Contract. Nothing contained in this Plan shall be construed ------------------- as conferring upon any Participant the right or imposing upon him the obligation to continue in the employment of the Company, nor shall it be construed as imposing upon the Company the obligation to continue to employ the Participant. 5 10. Amendments. The Board of Directors of the Company may amend or ---------- terminate the Plan in whole or in part at any time; provided, that no such action shall adversely affect any Award earned and payable under the Plan as of the date of such amendment or termination. . 11. Effective Date. The Plan, as amended and restated, shall become -------------- effective on February 27, 1996, subject to the approval of the Board of Directors of the Company. 12. Miscellaneous. a. Taxes. Any tax required to be withheld by any government ----- authority shall be deducted from each Award. b. Non-assignability. Awards under the Plan shall not be subject to ----------------- anticipation, alienation, pledge, transfer or assignment by any person entitled thereto, except by designation of a beneficiary or by will or the laws of descent and distribution. c. No trust. The obligation of the Company to make payments --------- hereunder shall constitute a liability of the Company to the Participants. Such payments shall be made from the general funds of the Company, and the Company shall not be required to establish or maintain any special or separate fund, or otherwise to segregate assets to assure that such payments shall be made, and neither the Participants nor their beneficiaries shall have any interest in any particular assets of the Company by reason of its obligations hereunder. Nothing contained in this Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Company and the Participants or any other person. To the extent that any person acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company. d. Facility of payments. If a Participant or any other person -------------------- entitled to receive an Award under this Plan (the "recipient") shall, at the time payment of any such amount is due, be incapacitated so that such recipient cannot legally receive or acknowledge receipt of the payment, then the Committee, in its sole and absolute discretion, may direct that the payment be made to the legal guardian, attorney-in-fact or person with whom such recipient is residing, and such payment shall be in full satisfaction of the Company's obligation under the Plan with respect to such amount. 6 e. Beneficiary designation. Each Participant may designate a ----------------------- beneficiary hereunder. Such designation shall be in writing, shall be made in the form and manner prescribed by the Committee, and shall be effective only if filed with the Committee prior to the Participant's death. A Participant may, at any time prior to his death, and without the consent of his beneficiary, change his designation of beneficiary by filing a written notice of such change with the Committee in the form and manner prescribed by the Committee. In the absence of a designated beneficiary, or if the designated beneficiary and any designated contingent beneficiary predecease theParticipant, the beneficiary shall be the Participant's surviving spouse, or if the Participant has no surviving spouse, the Participant's estate. f. Governing Law. The Plan shall be construed and its provisions -------------- enforced and administered in accordance with the laws of the State of North Carolina. This 1996 Amended and Restated Southern National Corporation Short-Term Incentive Plan has been executed in behalf of the Company as of the 27th day of February, 1996. SOUTHERN NATIONAL CORPORATION By: /s/ Kelly S. King --------------------------- President Attest: /s/ Jerone C. Herring - ----------------------------- Secretary [Corporate Seal] 7 EX-10.19 4 0004.txt EMPLOYMENT AGREEMENT J. HOLMES MORRISON EXHIBIT 10(s) EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT ("Agreement") is executed as of February 6, 2000, by and between BRANCH BANKING AND TRUST COMPANY ("Employer"), a bank organized under the laws of the State of North Carolina having its principal office at Winston-Salem, North Carolina, and J. HOLMES MORRISON (the "Employee"); WITNESSETH THAT: WHEREAS, Employee has been Chairman and Chief Executive Officer of One Valley Bancorp, Inc. ("One Valley"), and by Agreement and Plan of Reorganization dated February 6, 2000 (the "Merger Agreement"), One Valley has agreed to be merged into BB&T Corporation ("BB&T"), a North Carolina corporation (the "Merger"), and Employer is a wholly owned subsidiary of BB&T; WHEREAS, the parties have agreed to enter into this Employment Agreement to provide for the employment of Employee by Employer following the Merger, and to be effective at the Effective Time of the Merger (the "Effective Time") and to be conditional upon consummation thereof; WHEREAS, Employer considers the availability of Employee's services to be important to the management and conduct of Employer's business and desires to secure the continued availability of Employee's services; and WHEREAS, Employee is willing to make his services available to Employer on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. Employment Conditional upon consummation of the Merger, at the ---------- Effective Time and continuing until the second anniversary thereof (the "Initial Employment Period"), Employee shall be employed as Chairman and Chief Executive Officer of Employer's West Virginia operations and as Executive Vice President of Employer. Employee shall perform such duties as are customarily performed by one holding the foregoing positions, and shall additionally render such other services and duties as may be reasonably assigned to him from time to time by the Chief Executive Officer of BB&T (the "CEO"), consistent with his status and positions. If Employee shall continue such employment through the Initial Employment Period, then commencing on the second anniversary of the Effective Time and continuing until the fifth anniversary of the Effective Time (the "Final Employment Period"), Employee shall be employed as Chairman of the West Virginia Board of Advisors of Employer. As such, Employee shall have such duties and responsibilities as are commensurate with such position, including promoting the products and services of Employer to the customer base of One Valley and its subsidiaries, maintaining relationships and soliciting business with such former customers, general customer and employee relations, public relations, assisting in strategic planning, and such other services and duties consistent with the foregoing as may be reasonably assigned to him from time to time by the CEO. Employee's principal place of business shall be Charleston, West Virginia. Notwithstanding the foregoing, upon at least sixty days' notice to Employer, Employee shall be permitted to elect for the Final Employment Period to begin on a date after the first year of the Term, from which date the Base Salary and Bonus shall be reduced to amounts payable for the Final Employment Period as provided in Section 3(a) and (b). Employee hereby accepts and agrees to the above-described employment, subject to the general supervision and pursuant to the orders, advice and direction of the CEO. In addition to the foregoing, Employee shall be elected to the Board of Directors and Executive Committee of BB&T as provided in Section 5.19 of the Merger Agreement. 2. Term of Employment. The term of this Agreement (the "Term") shall ------------------ commence at the Effective Time and shall terminate on the day next preceding the fifth anniversary of the Effective Time. Any termination of Employee's employment following the expiration of the five-year Term shall be deemed to be a "retirement" for purposes of all benefit and compensation plans (including option plans), except to the extent otherwise provided in any such plan. 3. Compensation. ------------ a. For all services rendered by Employee to Employer under this Agreement, Employer shall pay to Employee an annual base salary ("Base Salary") of (i) during the Initial Employment Period, no less than $510,000, and (ii) during the Final Employment Period, no less than $300,000. Base Salary amounts shall be payable in accordance with the payroll practices of Employer applicable to officers. b. During the Term, Employee shall participate in the BB&T Amended and Restated Short Term Incentive Plan ("BB&T Incentive Plan"). During the Initial Employment Period the amount earned under the BB&T Incentive Plan shall be no less than $300,000 per year, and during the Final Employment Period the amount earned under the BB&T Incentive Plan shall be no less than $100,000 per year (each such payment is referred to herein as a "Bonus"). The amount earned by Employee under the BB&T Incentive Plan for each twelve-month period shall be accrued ratably, and the amount accrued for each calendar year shall be payable by Employer to Employee at the time BB&T would normally make payments to participants under the BB&T Incentive Plan for such calendar year, and in accordance with the terms of the BB&T Incentive Plan. c. Employee shall be granted options under the BB&T Amended and Restated 1995 Omnibus Stock Incentive Plan or any BB&T plan successor thereto (the "BB&T Option Plan") for each calendar year during the Term, which options each year shall have a value (determined by BB&T in the same manner as determined for other executives receiving options under the BB&T Option Plan) of 42% of Employee's Base Salary in effect at the time of the grant. All such stock options shall be granted pursuant to a stock option agreement substantially in the form of Annex A attached hereto, as modified by provisions of this Agreement. d. Except as otherwise specifically provided herein, for as long as Employee is employed by Employer, Employee also shall be entitled to receive, on the same basis as other similarly situated officers of Employer, employee pension and welfare benefits, perquisites and group employee benefits such as sick leave, vacation, group disability and health, life, and accident insurance and similar indirect compensation which Employer may from time to time extend to its similarly situated officers; provided, that Employee's participation in each such plan shall not commence until a date selected with respect to each by Employer not later than January 1 following the effective time of the merger of the last of the One Valley Subsidiaries (as defined in the Merger Agreement) which is a bank into BB&T or one of its subsidiaries. Employee shall also be entitled to receive a supplemental retirement benefit that is at least equal to the benefit provided under the One Valley SERP as in effect immediately prior to the Effective Time ("SERP Benefit") without regard to any termination of the One Valley SERP prior to or after the Effective Time. With respect to any One Valley plan which Employer determines, in its sole discretion, provides benefits of the same type or class as a corresponding BB&T plan, Employer shall continue such One Valley plan in effect for the benefit of Employee until he shall become eligible to become a participant in the corresponding BB&T plan. Employee shall be eligible to elect to defer compensation payable hereunder in accordance with the terms of the BB&T deferred compensation plan. e. All amounts payable hereunder shall be subject to such deductions and withholdings as shall be required by law. f. In addition to the above amounts, Employer shall pay to Employee the following special amounts conditional upon completion of the following tasks: (i) $425,000 conditional upon consummation of the Merger, payable within five business days following the Effective Time; (ii) $575,000, conditional upon substantial completion of the conversion of the M&I Data Services systems of One Valley to the computer systems of Employer, payable no later than the close of the calendar quarter in which such conversion is completed; (iii) $575,000, conditional upon the earlier of (x) substantial completion of integration of One Valley's West Virginia support, administrative and back office functions, including any such functions relocated by BB&T from other areas, with the corresponding BB&T functions, which integration is to be accomplished within six months following the conversion described in (ii) above, payable no later than the close of the calendar quarter in which such integration is completed; and (y) 90 days following the merger of One Valley's banks located in West Virginia with a BB&T entity, payable no later than the close of the calendar quarter in which the 90th day falls; and (iv) $225,000, conditional upon the earlier of (x) substantial completion of a plan to create and enhance BB&T's brand identity within One Valley's market area and commencement of implementation of such plan, including but not limited to implementing programs for BB&T Advisory Boards in West Virginia to increase BB&T's name recognition and to market BB&T's services, which tasks shall be completed within twelve months following the conversion described in (ii) above, payable no later than the close of the calendar quarter in which such tasks are completed, and (y) 180 days following the merger of One Valley's banks located in Virginia with a BB&T entity, payable no later than the close of the calendar quarter in which the 180th day falls. The CEO shall have the sole discretion to determine whether the conditions stated in paragraphs (ii), (iii) and (iv) have been satisfied. Such conditions shall be presumed to have been satisfied within 12 months of the Effective Time in respect of paragraph (ii), within 18 months of the Effective Time in respect of paragraph (iii), and within 24 months in respect of paragraph (iv), unless there shall have been delivered to Employee a statement executed by the CEO declaring that such condition or conditions have not been satisfied and stating the basis for such conclusion. If Employee objects to such declaration, the provisions of Section 9 shall apply. If, prior to the date for payment of any one or more of the above amounts, Employee's employment shall be terminated for any reason except (A) by Employer under circumstances described in Section 6(c), or (B) by Employee for Good Reason as defined in Section 6(e), Employee shall not be entitled to receive the above payments with respect to the uncompleted tasks. Payments pursuant to this Section 3(f) shall be made as provided in this Section 3(f), and the times of such payments shall not be affected by any other provision herein. Payments pursuant to this Section 3(f) shall be deemed to be compensation for income tax purposes, but shall not be deemed to be compensation or otherwise taken into account for purposes of determining benefits or contributions in behalf of Employee under any retirement plan or program of Employer or any other plan, program or arrangement of Employer (including without limitation for purposes of determination the SERP Benefit), and shall not be taken into account in determining Termination Compensation of Employee as defined in Section 6(c) or otherwise in this Agreement. 4. Covenants of Employee. --------------------- a. To the extent and subject to the limitations provided in the following subsections of this Section 4 (whichever may be applicable), upon termination of Employee's employment, Employee will not directly or indirectly, either as a principal, agent, employee, employer, stockholder (other than as a less than 5% stockholder of a public entity), co-partner or in any other individual or representative capacity whatsoever: (i) engage in a Competitive Business anywhere in the States of West Virginia and Virginia; or (ii) solicit, or assist any other person in so soliciting, any depositors or customers of Employer, BB&T or their Affiliates to make deposits in, borrow money from, or become customers of any other financial institution conducting a Competitive Business; or (iii) induce any employees to terminate their employment with Employer, BB&T or their Affiliates. As used in this Agreement, the term "Competitive Business" means the banking and financial services business, which includes consumer savings, commercial banking and the insurance and trust businesses, or the savings and loan or mortgage banking business, or the investment advisory or sales businesses or any other business in which any of Employer, BB&T or their Affiliates is engaged at the time of termination of Employee's employment; the term "Affiliate" means a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person; and the term "Person" means any person, partnership, corporation, company, group or other entity. b. If Employee voluntarily terminates employment with Employer at any time during the Term other than for Good Reason, Employee will be subject to the provisions of Section 4(a) until the second anniversary of Employee's termination. c. If Employee's employment is terminated by Employer for Just Cause (as defined in Section 6(b)) or as a result of a Disability Notice (as defined in Section 5) during the Term, Employee will be subject to the provisions of Section 4(a) until the second anniversary of Employee's termination. d. If Employee's employment is terminated at any time during the Term by Employer for reasons other than Just Cause (as defined in Section 6(b)) or other than as a result of a Disability Notice (as defined in Section 5), or if Employee terminates his employment for Good Reason (as defined in Section 6(e)), Employee will be subject to the provisions of Section 4(a) until the date as of which Employee ceases to receive Termination Compensation as provided in Section 6(c) (excluding, for this purpose, SERP Benefit payments). e. During the Term of Employee's employment hereunder and thereafter, and except as required by any court, supervisory authority or administrative agency or as may be otherwise required by applicable law, Employee shall not, without the written consent of the Board of Directors of Employer or a person authorized thereby, disclose to any person (other than his personal attorney, or an employee of Employer or an Affiliate, or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Employee of his duties as an employee of Employer), any confidential information obtained by him while in the employ of Employer, unless such information has become a matter of public knowledge at the time of such disclosure. f. The covenants contained in this Section 4 shall be construed and interpreted in any judicial proceeding to permit their enforcement to the maximum extent permitted by law. Employee agrees that the restraints imposed herein are necessary for the reasonable and proper protection of Employer and its Affiliates, and that each and every one of the restraints is reasonable in respect to activities restricted, length of time and geographic area. Employee acknowledges that strict enforcement of the terms of Section 4 will cause no hardship to either Employee or his family. This Section 4 is made ancillary to the sale of a business and shall be interpreted accordingly. Employee further acknowledges that damages at law would not be a measurable or adequate remedy for breach of the covenants contained in this Section 4 and, accordingly, Employee agrees to submit to the equitable jurisdiction of any court of competent jurisdiction in connection with any action to enjoin Employee from violating any such covenants. 5. Disability. If, by reason of physical or mental disability ---------- during the period of his employment hereunder, Employee is unable to carry out the essential functions of his employment hereunder for six consecutive months, his services hereunder may be terminated by action of the Board of Directors of Employer upon one month's notice (the "Disability Notice") to be effective at any time after the period of six continuous months of disability and while such disability continues. If, prior to the effective time of the Disability Notice, Employee shall recover from such disability and return to the full-time active discharge of his duties, then the Disability Notice shall be of no further force and effect and Employee's employment shall continue as if the same had been uninterrupted. If Employee shall not so recover from his disability and return to his duties, then his services shall terminate at the effective time of the Disability Notice with the same force and effect as if that date had been the end of the Term originally provided for hereunder. Prior to the effective time of the Disability Notice, Employee shall continue to earn all compensation (including bonuses and incentive compensation, if any) to which Employee would have been entitled as if he had not been disabled, such compensation to be paid at the time, in the amounts, and in the manner provided in Section 3(a), inclusive of any compensation received pursuant to any applicable disability insurance plan of Employer. Following the effective time of the Disability Notice, Employee shall receive any Base Salary or Bonus earned as of the effective date of the Disability Notice and payments of the Termination Compensation (as defined in Section 6(c)) plus the SERP Benefit, which Termination Compensation and SERP Benefit payments shall be offset in a manner deemed equitable by BB&T by compensation that Employee receives under any applicable disability insurance plan. In addition, as of the effective time of the Disability Notice, all options shall vest and become immediately exercisable consistent with the terms of the BB&T Option Plan. In the event a dispute arises between Employee and Employer concerning Employee's physical or mental ability to continue or return to the performance of his duties as aforesaid, Employee shall submit to examination by a competent physician mutually agreeable to the parties, and the physician's opinion as to Employee's capability to so perform will be final and binding. 6. Termination. ----------- a. If Employee shall die during the period of his employment hereunder, this Agreement and the employment relationship hereunder will automatically terminate on the date of death, which date shall be the last day of the Term. In the event of death, Employee's estate shall be entitled to receive an amount equal the amount the Employee would receive on termination for Disability as set forth in Section 5 of this Agreement, plus any other benefits Employee's estate is eligible to receive under any other employee benefit plans, programs, policies or arrangements maintained by Employer. In addition, all options shall vest and become immediately exercisable consistent with the terms of the BB&T Option Plan. b. Employer shall have the right to terminate Employee's employment under this Agreement at any time for Just Cause, which termination shall be effective immediately. Termination for "Just Cause" means (i) the willful and continued failure of Employee to perform substantially his duties with Employer (other than any such failure resulting from Employee's incapacity due to physical or mental illness or any such failure subsequent to Employee being delivered a notice of termination without Just Cause by Employer or delivering a notice of termination for Good Reason to Employer) after a written demand for substantial performance is delivered to Employee by the Board of Directors of BB&T which specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties, (ii) the willful engaging by Employee in illegal conduct or gross misconduct which is demonstrably and materially injurious to Employer or its Affiliates or (iii) Employee's conviction of a felony or misdemeanor involving moral turpitude. For purposes of this paragraph, no act or failure to act by Employee shall be considered "willful" unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of Employer or its Affiliates. The CEO shall determine if Employee is terminated for Just Cause and shall advise Employee of the basis for such determination. If Employee objects to such determination, the provisions of Section 9 shall apply. In the event Employee's employment under this Agreement is terminated for Just Cause, or if Employee shall voluntarily terminate his employment hereunder (other than for Good Reason), Employee shall have no right to render services or to receive compensation or other benefits under this Agreement for any period after such termination. c. Employer may terminate Employee's employment without "Just Cause" at any time upon written notice to Employee, and Employee may terminate for Good Reason at any time upon written notice to Employer, and any such termination shall be effective immediately. In the event of a termination pursuant to this subparagraph (c) prior to the close of the Initial Employment Period, Employee will receive (i) Base Salary and Bonus earned and unpaid as of the date of termination, (ii) annualized cash compensation of $810,000 for the period beginning with the date of termination and ending with the close of the Initial Employment Period and annualized cash compensation of $400,000 for the Final Employment Period, and (iii) the SERP Benefit commencing as provided in the SERP. In the event of a termination pursuant to this subparagraph (c) during the Final Employment Period, Employee will receive (i) Base Salary and Bonus earned and unpaid as of the date of termination, (ii) annual compensation of $400,000 beginning with the date of termination and ending with the close of the Term, and (iii) the SERP Benefit as provided in the SERP. All of the foregoing payments, to the extent applicable, shall be referred to herein as Termination Compensation. Termination Compensation shall be payable at the times the amounts would have been paid if Employee had continued in employment until the end of the Term. In addition to the foregoing payments of Termination Compensation, until the end of the Final Employment Period (i) Employee will receive any payments specified in Section 3(f) having a payment date following the termination of employment, (ii) Employer and BB&T shall use their best efforts to accelerate vesting of any nonvested benefits of Employee under any employee stock-based or other benefit plan or arrangement to the extent permitted by the terms of such plan or arrangement, and (iii) Employee shall continue to participate in the same group hospitalization plan, health care plan, dental care plan, life or other insurance or death benefit plan, retirement plan, and any other present or future similar group employee benefit plan or program for which officers of Employer generally are eligible, on the same terms as were in effect prior to Employee's termination, either under Employer's plans or comparable coverage, for all periods Employee receives Termination Compensation. Notwithstanding anything in this Agreement to the contrary, if Employee breaches Section 4(a) of this Agreement during the period that he is receiving Termination Compensation or prior to receiving all of the payments described in Section 3(f), Employee will not be entitled to receive any further Termination Compensation (other than SERP Benefits) pursuant to this Section 6(c) or such unpaid payments. d. In the event Employee's employment is terminated pursuant to Section 5 or Section 6(c), and Employee has attained age fifty-five with ten years of service with Employer (or any of its affiliates), predecessor or successor of Employer, Employee shall be eligible to receive retiree medical benefits from Employer at the conclusion of any other benefit coverage set forth in this Agreement. The retiree medical benefits (including contributions required from Employee to receive such benefits) to be provided to Employee (and Employee's eligible dependents) by Employer shall be no less favorable than the benefits (and cost to Employee) under the retiree medical program to be provided to Employee as in effect immediately prior to Employee's date of termination, and shall be provided to Employee (and Employee's eligible dependents) notwithstanding any amendment to, or termination of, Employer's retiree medical program. e. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events without Employee's express written consent: (i) the assignment to Employee of duties or responsibilities (including reporting responsibilities) inconsistent with the title, position and status of the offices and positions of Employee pursuant to Section 1 of this Agreement (including any adverse diminution of such duties or responsibilities); (ii) any failure by Employer to comply with any of the provisions of Section 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by Employer promptly after receipt of notice thereof given by Employee; (iii) any relocation of Employee more than 30 miles from the location specified in Section 1 of this Agreement or the breach by Employer of any material provision of this Agreement; (iv) any purported termination of the employment of Employee by Employer which is not effected in accordance with this Agreement; (v) the failure of Employer to obtain assumption of this Agreement by successor as contemplated in Section 10(f) of this Agreement; or (vi) Employee's termination of employment for any reason (other than Just Cause) during the thirty-day period immediately following the occurrence of a Change in Control. For purposes of this Section 6(e), the determination of "Good Reason" shall be made by the CEO, and the CEO shall advise Employee of the basis for such determination. If Employee shall object to such determination, the provisions of Section 9 shall apply. A "Change of Control" shall be deemed to have occurred if (i) any person or group of persons (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934) together with its affiliates, excluding Employee benefit plans of Employer or BB&T, is or becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of securities of Employer or BB&T representing 20% or more of the combined voting power of Employer's or BB&T's then outstanding securities; or (ii) as a result of a tender offer or exchange offer for the purchase of securities of Employer or BB&T (other than such an offer by BB&T for its own securities), or as a result of a proxy contest, merger, consolidation or sale of assets, or as a result of any combination of the foregoing, individuals who at the beginning of any two-year period constitute BB&T's Board of Directors, plus new directors whose election or nomination for election by BB&T's shareholders is approved by a vote of at least two-thirds of the directors still in office who were directors at the beginning of such two-year period, cease for any reason during such two-year period to constitute at least two-thirds of the members of such Board of Directors; or (iii) the shareholders of BB&T approve a merger or consolidation of BB&T with any other corporation or entity regardless of which entity is the survivor, other than a merger or consolidation which would result in the voting securities of BB&T outstanding immediately prior thereto continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity) at least 40% of the combined voting power of the voting securities of BB&T or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the shareholders of BB&T approve a plan of complete liquidation or winding-up of BB&T or an agreement for the sale or disposition by BB&T of all or substantially all of BB&T's assets; or (v) any event which BB&T's Board of Directors determines constitutes a Change of Control. f. In receiving any payments pursuant to this Section 6, Employee shall not be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Employee hereunder, and such amounts shall not be reduced or terminated whether or not Employee obtains other employment. 7. Other Employment. ---------------- During the Term, and excluding any periods of vacation and sick leave to which Employee is entitled, Employee agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of Employer and, to the extent necessary to discharge the responsibilities assigned to Employee hereunder, to use Employee's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Term it shall not be a violation of this Agreement for Employee, in accordance with Employer's policies, to (i) serve, with prior approval of the CEO, on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfilling speaking engagements or teach on a limited basis at educational institutions and (iii) manage Employee's personal investments, so long as such activities described in clauses (i), (ii) and (iii) do not significantly interfere with the performance of Employee's responsibilities as an employee of Employer in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by Employee prior to the Effective Time in accordance with One Valley's policies, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Time shall not thereafter be deemed to interfere with the performance of Employee's responsibilities to Employer. Employee shall not, during the period of his employment hereunder, become interested directly or indirectly in any manner, as partner, officer, director, stockholder, advisor, employee or in any other capacity in any other Competitive Business; provided, however, that nothing herein contained (including without limitation the provisions of Section 4(a)) shall be deemed to prevent or limit the right of Employee to invest in a business substantially similar to Employer's business if such investment is limited to less than five percent of the capital stock or other securities of any corporation or similar organization whose stock or securities are publicly owned or are regularly traded on any public exchange. 8. Certain Additional Payments by Employer. --------------------------------------- (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by Employer (or any of its affiliated entities) or any entity which effectuates a Change in Control (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then Employer shall pay to Employee (or to the Internal Revenue Service on behalf of Employee) an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to the Gross-Up Payment. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made as elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. (b) Subject to the provisions of Section 8(a), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by Employer (as of the date immediately prior to the Change in Control, if applicable) (the "Accounting Firm") which shall provide detailed supporting calculations both to Employer and Employee within fifteen business days of the receipt of notice from Employer or Employee that there has been a Payment, or such earlier time as is requested by Employer (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control (or if the Accounting Firm fails to make the Determination), Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by Employer and Employer shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 8 with respect to any Payments shall be made no later than thirty days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, or if the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, and if Employer concurs in such determination, such determination shall be binding upon Employer and Employee and Employee shall file his applicable tax returns consistent with such determination (except that, if Employee's tax advisor shall advise Employee that filing in such manner would or could likely constitute criminal fraud, Employee shall not be obligated to file any such return on such basis). The Determination by the Accounting Firm shall be binding upon Employer and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by Employer should have been made ("Underpayment"), or that Gross-Up Payments which are made by Employer should not have been made ("Overpayment"). In the event that Employee is required to make payment of any Excise Tax or additional Excise Tax following an Underpayment, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by Employer to or for the benefit of Employee. In the event that Employee becomes entitled to receive a refund of any Excise Tax or additional Excise Tax following an Overpayment, the Accounting Firm shall determine the amount of the Overpayment that has occurred and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly refunded by Employee to or for the benefit of Employer. Employee shall cooperate, to the extent his out-of-pocket expenses are reimbursed by Employer, with any reasonable requests by Employer in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 9. Reimbursement of Expenses. ------------------------- If any contest or dispute shall arise under this Agreement involving termination of Employee's employment with Employer or involving the failure or refusal to perform fully in accordance with the terms hereof, Employer shall reimburse Employee, on a current basis, for all legal fees and expenses, if any, reasonably incurred by Employee in connection with such contest or dispute (regardless of the result thereof), together with interest in an amount equal to the "prime rate" as set forth in The Wall Street Journal from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date Employer receives Employee's statement for such fees and expenses through the date of payment thereof. 10. Miscellaneous. ------------- a. This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina without regard to conflicts of law principles thereof. b. This Agreement constitutes the entire Agreement between Employee and Employer with respect to the subject matter hereof and, as of the Effective Time, shall supersede in their entirety any and all prior oral or written agreements, understandings or arrangements between Employee and Employer, One Valley or any of their respective Affiliates relating to the terms of Employee's employment, including without limitation the Change in Control Severance Agreement entered into by Employee and One Valley dated October 16, 1996. All such agreements, understandings and arrangements are terminated and are of no force and effect as of the Effective Time. Employee hereby expressly disclaims any rights under any prior agreements, understandings and arrangements. This Agreement may not be amended or terminated except by an agreement in writing signed by both parties. c. This Agreement may be executed in one or more counterparts, all of which, taken together, shall constitute one and the same instrument. d. Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered in person or by nationally recognized overnight courier service or deposited in the mails, postage prepaid, return receipt requested, addressed as follows: To Employer or BB&T: BB&T Corporation 200 West Second Street Winston-Salem, NC 27101 Attention: Chief Operating Officer To Employee: J. Holmes Morrison Route 2 Box 330-R Charleston, WV 25314 Notices given in person or by overnight courier service shall be deemed given when delivered in person or when delivered to the courier addressed to the address required by this Section 10(d), and notices given by mail shall be deemed given three days after deposit in the mails. Any party hereto may designate by written notice to the other party in accordance herewith any other address to which notices addressed to him shall be sent. e. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. It is understood and agreed that no failure or delay by Employer, BB&T or Employee in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. f. This Agreement may not be assigned by Employee without the written consent of Employer. This Agreement shall be binding on any successors or assigns of either party hereto. g. For purposes of this Agreement, employment of Employee by any Affiliate of BB&T shall be deemed to be employment by Employer hereunder, and a transfer of employment of Employee from one such Affiliate to another shall not be deemed to be a termination of employment of Employee by Employer or a cessation of the Term, it being the intention of the parties hereto that employment of Employee by any Affiliate of BB&T shall be treated as employment by Employer and that the provisions of this Agreement shall continue to be fully applicable following any such transfer. References herein to the "Employer" shall mean any such Affiliate which employs Employee. BB&T, by its signature below, guarantees the obligations herein of Employer. [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. BRANCH BANKING AND TRUST COMPANY By: /s/ John A. Allison ------------------------------------------ Name: John A. Allison ---------------------------------------- Title: Chairman and Chief Executive Officer --------------------------------------- EMPLOYEE: /s/ J. Holmes Morrison ----------------------------------- J. Holmes Morrison EX-10.20 5 0005.txt BB&T CORPORATION PENSION PLAN EXHIBIT 10(t) BB&T CORPORATION PENSION PLAN EFFECTIVE DATE: JANUARY 1, 2000 TABLE OF CONTENTS
Page ---- Section 1. Definitions.....................................................................................1 1.1 Accrued benefit.................................................................................1 1.2 Actuarial equivalent............................................................................1 1.3 Affiliated employer.............................................................................2 1.4 Annuity starting date...........................................................................2 1.5 Beneficiary.....................................................................................2 1.6 Board...........................................................................................3 1.7 Break in service................................................................................3 1.8 Code............................................................................................3 1.9 Committee.......................................................................................3 1.10 Company.........................................................................................3 1.11 Compensation....................................................................................3 1.12 Computation period..............................................................................4 1.13 Covered compensation............................................................................5 1.14 Creditable service..............................................................................5 1.15 Disability......................................................................................6 1.16 Earliest retirement age.........................................................................6 1.17 Effective date..................................................................................6 1.18 Election period.................................................................................6 1.19 Eligible employee...............................................................................7 1.20 Employee........................................................................................8 1.21 Entry date......................................................................................8 1.22 ERISA...........................................................................................8 1.23 Final average compensation......................................................................8 1.24 Highly compensated participant..................................................................9 1.25 Hour of service.................................................................................9 1.26 Leased employee................................................................................11 1.27 Minimum death benefit..........................................................................12 1.28 Normal retirement age..........................................................................12 1.29 Participant....................................................................................12 1.30 Participating Employer.........................................................................13 1.31 Plan...........................................................................................13 1.32 Plan year......................................................................................14 1.33 Predecessor plan...............................................................................14 1.34 Qualified election.............................................................................14 1.35 Qualified joint and survivor annuity...........................................................15 1.36 Qualified preretirement survivor annuity.......................................................15 1.37 Required beginning date........................................................................15 1.38 Retire or retirement...........................................................................16 1.39 Service........................................................................................16 1.40 Single life annuity............................................................................16 1.41 Social Security retirement age.................................................................16 1.42 Spouse or surviving spouse.....................................................................16
i 1.43 Statutory compensation.........................................................................17 1.44 Trust agreement................................................................................17 1.45 Trust or trust fund............................................................................17 1.46 Trustee........................................................................................17 1.47 Vesting service................................................................................18 Section 2. Retirement; Termination of Service.............................................................18 2.1 Normal Retirement..............................................................................18 2.2 Delayed Retirement.............................................................................19 2.3 Early Retirement...............................................................................20 2.4 Disability Retirement..........................................................................20 2.5 Termination of Service.........................................................................21 2.6 Special Limitation on Benefits.................................................................22 Section 3. Vesting........................................................................................26 3.1 Full Vesting...................................................................................26 3.2 Vesting Service................................................................................27 3.3 Forfeitures....................................................................................27 3.4 Predecessor Plan...............................................................................27 3.5 Change in Vesting Schedule.....................................................................27 Section 4. Payment of Benefits............................................................................28 4.1 Payment of Retirement Benefits Other Than Disability Benefits..................................28 4.2 Payment of Death Benefits......................................................................29 4.3 Requirements for Retirement and Death Benefits.................................................30 Section 5. Contributions..................................................................................34 Section 6. Administration by Committee....................................................................34 6.1 Membership of Committee........................................................................34 6.2 Committee Officers; Subcommittee...............................................................34 6.3 Committee Meetings.............................................................................35 6.4 Transaction of Business........................................................................35 6.5 Committee Records..............................................................................35 6.6 Establishment of Rules.........................................................................35 6.7 Conflicts of Interest..........................................................................35 6.8 Correction of Errors...........................................................................36 6.9 Authority to Interpret Plan....................................................................36 6.10 Third Party Advisors...........................................................................36 6.11 Compensation of Members........................................................................37 6.12 Committee Expenses.............................................................................37 6.13 Indemnification of Committee...................................................................37 Section 7. Management of Funds and Amendment of Plan......................................................37 7.1 Fiduciary Duties...............................................................................37 7.2 Authority to Amend.............................................................................38 7.3 Trust Agreement................................................................................39 7.4 Requirements of Writing........................................................................40
ii Section 8. Allocation of Responsibilities Among Named Fiduciaries.........................................40 8.1 Duties of Named Fiduciaries....................................................................40 8.2 Co-fiduciary Liability.........................................................................41 Section 9. Benefits Not Assignable........................................................................41 9.1 Benefits Not Assignable........................................................................41 9.2 Payments to Minors and Others..................................................................42 Section 10. Termination of Plan............................................................................42 10.1 Complete Termination...........................................................................42 10.2 Partial Termination............................................................................43 10.3 Liability......................................................................................43 10.4 Early Termination Restrictions.................................................................43 Section 11. Merger or Consolidation of Plan................................................................45 Section 12. Communication to Participants..................................................................45 Section 13. Claims Procedure...............................................................................45 13.1 Filing of a Claim for Benefits.................................................................46 13.2 Notification to Claimant of Decision...........................................................46 13.3 Procedure for Review...........................................................................46 13.4 Decision on Review.............................................................................47 13.5 Action by Authorized Representative of Claimant................................................47 Section 14. Parties to the Plan............................................................................47 14.1 Application of Plan and Trust Agreement........................................................47 14.2 Service with a Participating Employer..........................................................48 14.3 Contributions..................................................................................48 14.4 Authority of Board.............................................................................48 Section 15. Service in Another Status......................................................................48 Section 16. Special Top-Heavy Provisions...................................................................49 16.1 Definitions....................................................................................49 16.2 Top-heavy Requirements.........................................................................51 Section 17. Portability of Accrued Benefits................................................................52 17.1 Definitions....................................................................................53 17.2 Construction...................................................................................53 Section 18. Special Provisions Relating to Employees of Acquired Companies: ...............................53 18.1 General Policy Involving Acquired Companies with a Defined Benefit Plan........................54 18.2 General Policy Involving Acquired Companies Without a Defined Benefit Plan.....................55 Section 19. Miscellaneous Provisions.......................................................................55 19.1 Notices........................................................................................55
iii 19.2 Lost Distributees..............................................................................55 19.3 Reliance on Data...............................................................................56 19.4 Bonding........................................................................................56 19.5 Receipt and Release for Payments...............................................................56 19.6 Headings.......................................................................................56 19.7 Continuation of Employment.....................................................................56 19.8 Nonliability of Company........................................................................57 19.9 Construction...................................................................................57 19.10 Compliance With The Uniformed Services Employment and Reemployment Act of 1994...................................................................57
iv EXHIBIT A Participating Employers EXHIBIT B Early Retirement Factors EXHIBIT C Special Provisions of Merging Companies Prior to January 1, 1996 Under the BB&T Predecessor Plan EXHIBIT D Special Provisions of Merging Companies Prior to January 1, 1996 Under the Southern National Predecessor Plan EXHIBIT E Special Provisions of Merging Companies After January 1, 1996 and Prior to January 1, 2001 EXHIBIT F Special Provisions of Merging Companies After January 1, 2001 v BB&T CORPORATION PENSION PLAN INTRODUCTION ------------ On February 28, 1995, BB&T Corporation (the "Company") (formerly, the Southern National Corporation) and BB&T Financial Corporation, the former parent corporation of Branch Banking and Trust Company ("BB&T"), were merged. As a result of the corporate merger, the Company became the parent corporation of BB&T. At that time, the Company maintained the Southern National Retirement Plan (the "Southern National prior plan") for the benefit of its employees, and BB&T maintained the Retirement Plan for the Employees of Branch Banking and Trust Company (the "BB&T prior plan") for the benefit of its employees. Effective as of January 1, 1996, the Southern National prior plan and the BB&T prior plan were merged into a single plan, entitled the "Southern National Corporation Pension Plan." As a result of the change in the Company's corporate name to BB&T Corporation, the name of such plan was ultimately changed to the "BB&T Corporation Pension Plan." This plan amends and restates the BB&T Corporation Pension Plan effective as of January 1, 2000. BB&T CORPORATION PENSION PLAN* Section 1. Definitions: --------- ----------- As used in the plan, including this Section 1, and in the trust agreement which is a part of the plan, references to one gender shall include the other and, unless otherwise indicated by the context: 1.1 "Accrued benefit" of a participant as of any date (the "accrual date") shall be determined by the actuary servicing the plan and shall be the amount of the annual normal retirement benefit determined in accordance with Section 2.1 and the applicable provisions of Exhibits C, D, E or F, based on his final average compensation (as defined in Section 1.23) and years of creditable service (as defined in Section 1.14) as of the accrual date. In no event shall a participant's accrued benefit be less than his accrued benefit on December 31, 1999, as determined under the terms of the predecessor plan then in effect. 1.2 "Actuarial equivalent" means a benefit of equal present value. For this purpose, present value means the value of an amount or series of amounts payable at various times, determined as of a given date by application of the plan's actuarial assumptions. The actuarial assumptions of this plan are as follows: (a) Applicable mortality rate: The mortality table prescribed from time to time by the Commissioner of Internal Revenue in the Internal Revenue Bulletin. Such table shall be based on the prevailing commissioners' standard table (described in Section 807(d)(5)(A) of the Code) used to determine reserves for group annuity contracts issued on the date as of which the present value of benefits is being determined (without regard to any other subparagraph of Section 807(d)(5) of the Code). As of the effective date, the applicable mortality table is the 1983 Group Annuity Mortality Table, as specified in Revenue Ruling 95- 6, 1995-4 I.R.B. 22. __________________ *NOTE: This plan amends and supersedes as of January 1, 2000, the BB&T Corporation Pension Plan which was originally adopted as of October 1, 1944, and last amended on October 28, 1997. The predecessor plan was last rewritten in its entirety effective as of January 1, 1996. Reference is made to the BB&T Corporation Pension Plan Trust Agreement by and between the Company and Branch Banking and Trust Company, of even date herewith, which is a part of the plan. (b) Applicable interest rate: The annual rate of interest on 30-year Treasury securities as specified from time to time by the Commissioner of Internal Revenue in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. The applicable interest rate shall be determined for the month of November next preceding the first day of the plan year in which the benefit is payable. 1.3 "Affiliated employer" means: (i) any corporation that is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; (ii) any trade or business (whether or not incorporated) that is under common control (as defined in Section 414(c) of the Code) with the Company; (iii) any organization (whether or not incorporated) that is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company; and (iv) any other entity required to be aggregated with the Company pursuant to Section 414(o) of the Code. 1.4 "Annuity starting date" means the first day of the first period for which an amount of a participant's benefit is paid as an annuity or in any other form. The annuity starting date may or may not be the same date payments commence. Notwithstanding the foregoing, the following rules shall apply: (i) The annuity starting date for a participant who retires because of disability means the first day of the first period for which his benefit becomes payable, unless the benefit is an auxiliary benefit such that upon attainment of early or normal retirement age the participant shall receive a benefit that satisfies the accrual and vesting rules of Section 411 of the Code without taking into account the benefit payments up to that date. (ii) The recommencement of benefit payments following a suspension of benefits after the annuity starting date and after the employee separates from service, pursuant to Section 411(a)(3)(B) of the Code, shall not be treated as a new annuity starting date. The recommencement of benefit payments following a suspension of benefits for an employee who continues in service without termination and without receiving benefits shall be treated as the annuity starting date. (iii) An annuity starting date that occurs on or after normal retirement age shall apply to any additional accrual after such annuity starting date. 2 1.5 "Beneficiary" means the surviving spouse or other beneficiary of the participant, as determined pursuant to this Section 1.5. If a participant has no spouse (as defined in Section 1.42) or makes a qualified election (as defined in Section 1.34) for his beneficiary to be other than his spouse, such participant may designate a beneficiary (which may include more than one person, natural or otherwise, and one or more contingent beneficiaries), or change or revoke a beneficiary designation at any time before he dies, by filing a written election with the Committee. Such beneficiary shall be entitled to a death benefit following the participant's death. If a participant dies before designating a beneficiary, any death benefit with respect to such participant shall be payable to the surviving spouse of the participant or, if he has no surviving spouse, to his estate. If a beneficiary receives or is entitled to receive payments from the plan and dies before receiving all payments due him, the remaining payments shall be made to the contingent beneficiary, if any. If there is no contingent beneficiary, the remaining payments shall be made to the estate of the beneficiary. 1.6 "Board" means the Board of Directors of the Company. 1.7 A "break in service" means a computation period in which an employee does not complete more than 500 hours of service and shall occur at the beginning of such computation period. 1.8 "Code" means the Internal Revenue Code of 1986, as amended, and rules and regulations issued thereunder. 1.9 "Committee" means the administrative committee provided for in Section 6. 1.10 "Company" means BB&T Corporation, a North Carolina corporation with its principal office at Winston-Salem, North Carolina. 1.11 "Compensation" means wages within the meaning of Section 3401(a) of the Code and all other payments of compensation to an employee by the Participating Employer (in the course of the Participating Employer's trade or business) for which the Participating Employer is 3 required to furnish the employee a written statement under Sections 6041(d), 6051(a)(3) and 6052 of the Code, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed, plus any amounts contributed by the Participating Employer pursuant to a salary reduction agreement which are not includible in the gross income of the employee under Section 125, 402(e)(3), 402(h) or 403(b) of the Code, if any, and less reimbursements or other expense allowances, fringe benefits, moving expenses, deferred compensation, welfare benefits, any income realized from the grant or exercise of a stock option or from the sale or other disposition of stock acquired under a stock option, and any payments which are characterized by the Participating Employer as pay-to- stay or severance payments. For plan years beginning on or after January 1, 1989, but prior to January 1, 1994, the annual compensation of each employee taken into account shall not exceed $200,000. This limitation shall be adjusted by the Secretary of the Treasury at the same time and in the same manner as under Section 415(d) of the Code, except that the dollar increase in effect on January 1 of any calendar year is effective for plan years beginning in such calendar year and the first adjustment to the $200,000 limitation is effective on January 1, 1990. For plan years beginning on or after January 1, 1994, the annual compensation of each employee taken into account under the plan shall not exceed $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (the "determination period") beginning in such calendar year. The $200,000 limitation and the $150,000 limitation, whichever shall be applicable, shall be hereinafter referred to as the "annual compensation limitation." If a determination period consists of fewer than 12 months, the annual compensation limitation will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. 1.12 "Computation period" means a 12 consecutive month period, as follows: 4 1.12.1 For purposes of plan participation, the computation period initially shall be the 12 consecutive month period beginning on the date an employee first completes an hour of service. Thereafter, the computation period shall be the plan year, beginning with the plan year in which falls the first anniversary of the date the employee first completed an hour of service. 1.12.2 For all other purposes under the plan, the computation period shall be the plan year. 1.13 "Covered compensation" of a participant means the average of the Social Security taxable wage bases for each year during the 35-year period ending with the year in which the participant attains his Social Security retirement age. To determine covered compensation in any year preceding the year in which the participant attains his Social Security retirement age, the annual amount of the Social Security taxable wage base shall assume to be level for each year subsequent to the determination year and prior to the year the participant attains his Social Security retirement age. 1.14 "Creditable service" means the following: 1.14.1 With respect to service prior to the effective date of the plan, years of service taken into account for benefit accrual purposes as determined pursuant to the terms of the predecessor plan. 1.14.2 With respect to service on or after the effective date, 1,000 or more hours of service during a computation period; provided, that the following provisions shall apply: (i) Except as otherwise provided in subparagraph (ii) immediately following, if an employee has a break in service, years of creditable service of such employee prior to such break shall not be taken into account unless and until he has a year of creditable service following recommencement of service; (ii) Notwithstanding the foregoing, if an employee has a break in service all years of creditable service prior to such break shall be disregarded if (a) he has no vested interest in his accrued benefit at the time of such break, and (b) the number of his consecutive breaks in service equals or exceeds 5. For the purpose of determining years of creditable service prior to such break, any years of creditable service previously disregarded under this subparagraph (ii) shall be excluded; (iii) Except as otherwise provided in subparagraph (iv) immediately following, in determining years of creditable service, service with any 5 employer prior to the date such employer adopted the plan (i.e., prior to the date such employer became a Participating Employer) shall be disregarded; and (iv) Notwithstanding the foregoing, service with a company or business acquired by the Company or one of its affiliates shall be taken into account in determining years of creditable service to the extent provided for in Section 18 and Exhibits C, D, E and F. 1.15 "Disability" means a condition for which a participant is entitled to disability benefits under the BB&T Corporation Disability Plan. 1.16 "Earliest retirement age" means the earliest date on which a participant could elect to retire and commence receiving a distribution of benefits under the plan. 1.17 "Effective date" of the plan shall be January 1, 2000. However, in order to comply with the Retirement Protection Act of 1994, the Uniformed Services Employment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Internal Revenue Service Restructuring and Reform Act of 1998, which are first effective as of an earlier date, the following Sections of the plan are effective as indicated below: Section Effective Date ------- -------------- 1.11 January 1, 1997 1.18 January 1, 1997 1.24 January 1, 1997 1.26 January 1, 1997 1.43 January 1, 1998 2.5.3 January 1, 1998 4.3.4 January 1, 1998 4.3.6 January 1, 1997 4.3.10 January 1, 1997 10.4.3(iii) January 1, 1998 16.1.3 January 1, 1998 19.10 December 12, 1994 1.18 "Election period" in the case of retirement benefits payable pursuant to Section 4.1, the "election period" means the 90-day period preceding a participant's annuity starting date. Notwithstanding the foregoing, if the notice required by Section 4.3.6 is provided to the participant 6 after the annuity starting date, the election period shall be the 30-day period following the date the notice is provided to the participant. In the case of death benefits payable pursuant to Section 4.2, the "election period" means the period which begins on the first day of the plan year in which the participant attains age 35 and ends on the date of the participant's death. If a participant terminates service prior to the first day of the plan year in which he attains age 35, with respect to his accrued benefit as of the date of separation, the election period shall begin on the date of termination. A participant who will not yet attain age 35 as of the end of any current plan year may make a special qualified election to waive the qualified preretirement survivor annuity for the period beginning on the date of such election and ending on the first day of the plan year in which the participant will attain age 35. Such election shall not be valid unless the participant receives a written explanation of the qualified preretirement survivor annuity in such terms as are comparable to the explanation required under Section 4.3.6. Qualified preretirement survivor annuity coverage will be automatically reinstated as of the first day of the plan year in which the participant attains age 35. Any new waiver on or after such date shall be subject to the full requirements of this Section 1.18. 1.19 "Eligible employee" means each employee of a Participating Employer except the following: (a) An employee included in a unit of employees covered by a collective bargaining unit, which has entered into a bona fide collective bargaining agreement with a Participating Employer which does not specifically provide for coverage of the employee under this plan; provided, that retirement benefits were the subject of good faith bargaining between the Participating Employer and employee representatives. (b) An employee who is a nonresident alien and who receives no earned income (within the meaning of Section 911(d)(2) of the Code) from the Participating Employer constituting income from sources within the United States (within the meaning of Section 861(a)(3) of the Code). (c) An individual who is deemed to be an employee solely by reason of being a leased employee. 7 (d) An individual who is an employee of an affiliated employer that has not adopted the plan and is on a temporary assignment to a Participating Employer. See Section 1.29 for provisions governing eligibility of an eligible employee to become a participant in the plan. 1.20 "Employee" means, except as otherwise provided herein, an individual in the service of a Participating Employer if the relationship between him and the Participating Employer is the legal relationship of employer and employee. In determining who is an employee for purposes of the plan, the following provisions shall apply: 1.20.1 All leased employees shall be treated as employees. 1.20.2 An individual who is identified on the books and records of a Participating Employer as other than a common law employee shall not be treated as an employee for purposes of the plan regardless of a later agency or judicial determination to the effect that such individual is a common law employee of a Participating Employer. See Sections 1.19 and 1.29 for provisions governing eligibility of an employee to become a participant in the plan. 1.21 "Entry date" means the first day of each calendar month. 1.22 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended (including amendments of the Code affected thereby), and rules and regulations issued thereunder. 1.23 "Final average compensation" of a participant means the average of his annual compensation for his 5 consecutive plan years within the last 10 plan years, including the plan year in which occurs his retirement date or other accrual date as specified in Section 1.1., which will produce the highest average. If a participant has less than 5 consecutive plan years of compensation, "final average compensation" means the average of his annual compensation for those plan years within the last 10 plan years in which he received compensation. 8 1.24 "Highly compensated participant" means any participant who is a highly compensated employee. "Highly compensated employee" means any employee who: (a) during the plan year or preceding plan year was at any time a 5 percent owner (as defined in Section 416(i)(l)(B) of the Code); or (b) during the preceding plan year received statutory compensation (as defined in Section 1.43) from the Company and affiliated employers in excess of $80,000 (as adjusted pursuant to Section 414(q)(1)) and was in the top-paid group of employees for such preceding plan year. For purposes of this Section 1.24, the following provisions shall apply: 1.24.1 An employee who performs service for the Company or any affiliated employer at any time during a plan year shall be in the top-paid group of employees for such year if such employee is in the top 20 percent of the employees of the Company ranked on the basis of statutory compensation paid during such year. 1.24.2 A former employee shall be treated as a highly compensated employee if he was a highly compensated employee when he separated from service, or was a highly compensated employee at any time after attaining age 55. The determination of who is a highly compensated employee, including the determination of the number and identity of employees in the top-paid group, shall be made in accordance with Section 414(q) of the Code. 1.25 "Hour of service" means the following: 1.25.1 Each hour for which an employee is paid, or entitled to payment by, the Company or an affiliated employer for the performance of duties. Each such hour shall be credited to the computation period in which the duties are performed. 1.25.2 Each hour for which an employee is paid, or entitled to payment, by the Company or an affiliated employer for a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) by reason of vacation, holiday, illness, incapacity (including disability), lay-off, jury duty, military duty or leave of absence. Each such hour shall be credited to the computation period or periods in which the period during which no duties are performed occurs. In applying this Section 1.25.2, the following provisions shall apply: (i) The number of hours to be credited with respect to any single continuous period, whether or not such period occurs in a single computation period, shall be the lesser of: (a) 501 hours, or (b) the 9 number of hours for which the employee is paid with respect to such single continuous period; (ii) No hours shall be credited with respect to payments made to the employee for the purpose of complying with applicable workers' compensation, unemployment compensation or disability insurance laws, or payments made solely to reimburse an employee for medical or medically related expenses incurred by the employee; and (iii) An amount paid to an employee by the Company or an affiliated employer indirectly, such as by a trust, fund or insurer to which the Company or affiliated employer makes contributions or pays premiums, shall be deemed to be paid by the Company or affiliated employer. 1.25.3 Each hour (to the extent not included in Section 1.25.1 or 1.25.2) for which back pay (irrespective of mitigation of damages) has been either awarded or agreed to by the Company or an affiliated employer. Each such hour shall be credited to the computation period or periods to which the award or agreement pertains rather than to the computation period in which the award, agreement or payment is made. 1.25.4 Each hour for which an employee is not actually in service but is required to be given credit for service under any law of the United States, including, but not limited to the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act of 1994. Each such hour shall be credited to the computation period or periods for which the employee is required to be given credit for service. 1.25.5 Solely for the purpose of determining whether an employee has incurred a break in service, each hour with respect to a period during which he is absent from work for maternity or paternity reasons which otherwise would be credited to such employee but for such absence, or if such hours cannot be determined, 8 hours of service per day of such absence. For purposes of this Section 1.25.5, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the employee; (b) by reason of the birth of a child of the employee; (c) by reason of the placement of a child with the employee in connection with the adoption of such child by such employee; or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. The hours of service credited under this Section 1.25.5 shall be credited with respect to the computation period in which the absence begins, if necessary to prevent a break in service in such computation period. In all other cases, such hours of service shall be credited to the subsequent computation period. No more than 501 hours of service shall be required to be credited for maternity or paternity reasons. No credit shall be given under this Section 1.25.5 unless the employee furnishes to the Committee such timely information as the Committee reasonably may require to establish that the absence is for a reason described in this Section 1.25.5 and the number of days for which there was such an absence. 10 1.25.6 Solely for the purpose of determining whether an employee has incurred a break in service, an employee who is absent from work due to a leave of absence approved by the Participating Employer for which he is not paid (other than a leave of absence for maternity or paternity reasons) shall be credited with each hour of service such employee would otherwise be credited with but for such leave of absence. The hours of service credited pursuant to this Section 1.25.6 shall be credited with respect to the computation period in which the absence begins, if necessary to prevent a break in service in such computation period. In all other cases, such hours of service shall be credited to the subsequent computation period. No more than 501 hours of service shall be required to be credited due to such leave of absence. The hours of service granted pursuant to the provisions of this Section 1.25.6 shall be disregarded if the participant does not return to service upon the expiration of such leave of absence; provided that this sentence shall not apply if the employee dies or becomes disabled during such leave of absence. An employee with respect to whom the Company or an affiliated employer maintains records of hours for which payment for the performance of duties is made shall be credited with hours of service on the basis of such records. Any other employee shall be credited with 45 hours of service for each week if under this Section 1.25 he would be credited with at least one hour of service for such week. The provisions of this Section 1.25 shall apply in accordance with the provisions of United States Department of Labor Regulations Section 2530.200b-2(b) and (c), which is incorporated herein by reference. 1.26 "Leased employee" means any individual, other than an employee of the Company or an affiliated employer (the "recipient employer") who, pursuant to an agreement between the recipient employer and any other person (the "leasing organization") has performed services for the recipient employer, or the recipient employer and related persons determined in accordance with Section 414(n) of the Code, on a substantially full-time basis for a period of at least one year, and such services are performed under the primary direction or control of the recipient employer. Contributions or benefits provided a leased employee by the leasing organization that are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A leased employee shall not be considered an employee of the recipient employer if: (a) such individual is 11 covered by a money purchase pension plan providing (i) a nonintegrated employer contribution rate of at least 10 percent of statutory compensation, (ii) immediate participation, and (iii) full and immediate vesting; and (b) leased employees do not constitute more than 20 percent of the recipient employer's nonhighly compensated work force (as defined in Section 414(n)(C) of the Code). 1.27 "Minimum death benefit" with respect to a participant who dies on or before his earliest retirement age means the same benefit that would be payable to the participant's spouse had the participant terminated service at the earlier of his date of death or date of termination of service, survived to his earliest retirement age, retired with an immediate joint and 50% survivor annuity (as defined in Section 1.35) at his earliest retirement age, and died on the day thereafter. "Minimum death benefit" with respect to a participant who dies after his earliest retirement age means the same benefit that would be payable to the participant's spouse had the participant retired with an immediate joint and 50% survivor annuity on the day before the participant's date of death. In either situation, if a participant elects a joint and 100% survivor annuity before his death, the amount of the payments provided in this Section 1.27 and Section 4.2.1, shall be determined in accordance with such election. 1.28 "Normal retirement age" of a participant means the later of (i) age 65, or (ii) the 5th anniversary of the participant's initial participation in the plan. The "normal retirement date" of a participant means the first day of the calendar month coincident with or next following attainment of his normal retirement age. 1.29 "Participant" means with respect to any plan year an eligible employee who has entered the plan and any former employee who has an accrued benefit under the plan. An employee or former employee on the effective date who was a participant in the predecessor plan immediately preceding the effective date, shall be a participant in this plan as of the effective date. An eligible employee who has not otherwise entered the plan shall become a participant as of the entry date next following the later of (i) attainment of age 21, or (ii) the close of the first computation period (as defined 12 in Section 1.12.1) during which he completes 1,000 or more hours of service. For the purpose of applying the foregoing provisions of this Section 1.29, the following provisions shall apply: 1.29.1 An eligible employee who is not in service on the date he is eligible to enter the plan and who reenters service as an eligible employee before his entry date shall enter the plan on his entry date. 1.29.2 An eligible employee who is not in service on the date he is eligible to enter the plan and who reenters service as an eligible employee after his entry date but before incurring 5 consecutive breaks in service shall enter the plan on the date he reenters service. 1.29.3 An eligible employee who is not in service on the date he is eligible to enter the plan and who reenters service as an eligible employee after incurring 5 consecutive breaks in service shall be treated as a new employee for eligibility purposes. 1.29.4 A participant who terminates service and reenters service as an eligible employee shall reenter the plan on the date he reenters service if at the time of such termination of service he had a vested interest in his accrued benefit under the plan, or if he did not have a vested interest in his accrued benefit, the number of his consecutive breaks in service is less than 5. 1.29.5 A participant who terminates services and reenters service as an eligible employee shall be treated as a new employee for eligibility purposes if at the time of such termination of service he does not have a vested interest in his accrued benefit under the plan and the number of his consecutive breaks in service equals or exceeds 5. See Section 18 and Exhibits C, D, E and F for special provisions that may apply to employees of companies or businesses acquired by the Company or one of its affiliates. 1.30 "Participating Employer" means the Company and each employer that has adopted the plan and is listed on Exhibit A attached hereto. See Section 14 for special provisions concerning Participating Employers. 1.31 "Plan" means the BB&T Corporation Pension Plan, as herein set out or as duly amended. 1.32 "Plan year" means the 12-month period ending on December 31 of each year. 1.33 "Predecessor plan" means the BB&T Corporation Pension Plan in effect prior to January 1, 2000, and any other plan which was merged into such plan prior to such date. The term 13 "predecessor plan" shall also include any plan which is merged into this plan after the effective date. The "Southern National predecessor plan" means the Southern National Retirement Plan as in effect as of December 31, 1995. The "BB&T predecessor plan" means the Retirement Plan for the Employees of Branch Banking and Trust Company in effect as of December 31, 1995. 1.34 "Qualified election" means the waiver of a qualified joint and survivor annuity or a qualified preretirement survivor annuity made by a participant in writing and filed with the Committee during the election period. No such election shall be effective unless: (a) the participant's spouse consents in writing to the election; (b) the election designates a specific alternate beneficiary or a class of beneficiaries, including any contingent beneficiary, which may not be changed without spousal consent, or the spouse acknowledges the right to limit consent to a specific beneficiary, voluntarily relinquishes such right, and expressly permits such designations without further spousal consent; (c) the spouse's consent acknowledges the effect of the election; and (d) the spouse's consent is witnessed by a representative of the Committee or a notary public. Additionally, a participant's waiver of the qualified joint and survivor annuity shall not be effective unless the election also designates a method of payment, as described in Sections 4.1.1through 4.1.4, which may not be changed without spousal consent or the spouse acknowledges the right to limit consent to a specific method of payment, voluntarily relinquishes such right, and expressly permits such designation without further spousal consent. Spousal consent shall not be required if it is established to the satisfaction of the Committee that there is no spouse or the spouse cannot be located. If the spouse is legally incompetent to give consent, the spouse's legal guardian may give consent. If the participant is legally separated or has been abandoned and has a court order recognizing such abandonment, spousal consent shall not be required unless a qualified domestic relations order, as defined in Section 414(p) of the Code, provides otherwise. The election made by the participant and any required consent by the spouse may be revoked by the participant in writing without the consent of the spouse at any time during the applicable election period. 14 A participant's waiver of the qualified joint and survivor annuity shall be revoked automatically if the participant dies before benefit payments commence. The number of revocations is not limited. Any new election must comply with the requirements of this Section 1.34. A former spouse's consent shall not be binding on a new spouse. The election in effect as of the close of the election period shall be irrevocable. No consent obtained under this provision shall be valid unless the participant has received notice as provided in Section 4.3.6. 1.35 "Qualified joint and survivor annuity" means an annuity that is the actuarial equivalent of a single life annuity (as defined in Section 1.40), providing approximately equal monthly installments payable to the participant on the first day of each calendar month commencing no later than the required beginning date (as defined in Section 1.37) and continuing for the life of the participant with a survivor annuity for the life of the participant's spouse, if the participant is survived by the spouse to whom he was married on his retirement date, which is 50 percent of the amount of the annuity payable during the joint lives of the participant and his spouse (a "joint and 50 percent survivor annuity"), unless the participant elects for the spouse to receive the same amount payable during their joint lives (a "joint and 100 percent survivor annuity"). 1.36 "Qualified preretirement survivor annuity" means an annuity providing approximately equal monthly installments payable to the surviving spouse of the participant on the first day of each calendar month and continuing for the life of such spouse. 1.37 "Required beginning date" means April 1 of the calendar year following the later of (a) the calendar year in which the participant attains age 70 1/2, or (b) the calendar year in which the participant retires. Notwithstanding the foregoing, the required beginning date of a participant who is a 5 percent owner (as defined in Section 416 of the Code) shall be April 1 of the calendar year following the calendar year in which the participant attains age 70 1/2. Distribution of the entire benefit of a participant shall commence no later than the required beginning date. In the event that, as of the 15 required beginning date, the amount of the payment to commence cannot be determined or the recipient thereof cannot be located after a reasonable effort has been made to locate him, payments retroactive to the required beginning date shall be made within 60 days after the amount has been determined or the recipient has been located, whichever is applicable. 1.38 "Retire" or "retirement" means retirement within the meaning of Section 2.1, 2.2, 2.3 or 2.4. 1.39 "Service" means employment by the Participating Employer or an affiliated employer as an employee. 1.40 "Single life annuity" means an annuity providing approximately equal monthly installments to the participant on the first day of each calendar month and continuing for the life of the participant. 1.41 "Social Security retirement age" means the age determined in accordance with the following table, based on the participant's year of birth: Year of Birth Social Security Retirement Age ------------- ------------------------------ 1937 or earlier 65 1938-1954 66 1955 or later 67 1.42 "Spouse" or "surviving spouse" means the legally married spouse or surviving spouse of a participant; provided, that a former spouse shall be treated as the spouse or surviving spouse of the participant to the extent provided under a qualified domestic relations order described in Section 414(p) of the Cod e. 1.43 "Statutory compensation" means wages within the meaning of Section 3401(a) of the Code and all other payments of compensation to an employee by a Participating Employer (in the course of the Participating Employer's trade or business) for which the Participating Employer is required to furnish the employee a written statement under Sections 6041(d), 6051(a)(3) and 6052 of 16 the Code, other than amounts paid or reimbursed by the Participating Employer for moving expenses incurred by the employee to the extent that at the time of the payment it is reasonable to believe that these amounts are deductible by the employee under Section 217 of the Code. Compensation must be determined for this purpose without regard to any rules under Section 3401(a) of the Code that limit the remuneration included in wages based on the nature or location of the employment or the services performed. For plan years beginning on or after January 1, 1998, the statutory compensation of an employee shall include any elective deferral (as defined in Section 402(g)(3) of the Code) and any other amount which is contributed or deferred by the Participating Employer at the election of the employee and which is not includible in the gross income of the employee by reason of Sections 125 or 457 of the Code. For purposes of Section 16 (relating to the special top-heavy provisions), the statutory compensation of any participant shall be limited to the annual compensation limitation as described in Section 1.11. 1.44 "Trust agreement" means the agreement between the Company and the Trustee which is a part of the plan. 1.45 "Trust" or "trust fund" means the trust fund held by the Trustee under the plan. 1.46 "Trustee" shall mean the entity appointed by the Company to administer the Trust. 1.47 "Vesting service" means the following: 1.47.1 With respect to service prior to the effective date of the plan, years of service taken into account for vesting purposes as determined pursuant to the terms of the predecessor plan. 1.47.2 With respect to service on or after the effective date, 1,000 or more hours of service during a computation period; provided, that the following provisions shall apply: 17 (i) Except as otherwise provided in subparagraph (ii) immediately following, if an employee has a break in service, years of vesting service of such employee prior to such break shall not be taken into account unless and until he has a year of vesting service following recommencement of service; and (ii) Notwithstanding the foregoing, if an employee has a break in service, all years of vesting service prior to such break shall be disregarded if: (a) he has no vested interest in his accrued benefit at the time of such break, and (b) the number of his consecutive breaks in service equals or exceeds 5. For the purpose of determining years of vesting service prior to such break, any years of vesting service previously disregarded under this subparagraph (ii) shall be excluded. 1.47.3 Years of vesting service shall include any period for which an employee would have been a leased employee but for the requirement that a leased employee perform service for the Company, or the Company and related persons determined in accordance with Section 414(n)(6) of the Code, on a substantially full-time basis for a period of at least one year. Section 2 Termination of Service: --------- ---------------------- 2.1 Normal Retirement: As of his normal retirement date, a participant in service shall be eligible to retire and receive his annual normal retirement benefit. The annual normal retirement benefit of a retired participant shall be computed on the basis of a single life annuity with respect to him equal to the sum of the amounts determined pursuant to Sections 2.1.1 and 2.1.2, as follows: 2.1.1 1 percent of the participant's final average compensation multiplied by his years of creditable service (not in excess of 35 years); plus 2.1.2 .5 percent of the participant's final average compensation in excess of his covered compensation multiplied by his years of creditable service (not in excess of 35 years). The following provisions shall apply: (a) In no event shall the annual normal retirement benefit payable to a participant under the plan be less than the greatest early retirement benefit he could have received (computed as a single life annuity) had he been eligible for and elected early retirement pursuant to the applicable provisions of Section 2.3. (b) In no event shall the annual normal retirement benefit of a participant in this plan who was a participant in the predecessor plan immediately preceding the effective date be less than his accrued benefit determined pursuant to the applicable provisions of the predecessor plan immediately preceding such date. 18 (c) In no event shall the annual normal retirement benefit of a participant in this plan who was a participant in the Southern National predecessor plan and was employed by the Company prior to January 1, 1979, be less than his accrued benefit determined pursuant to the applicable provisions of the Southern National predecessor plan as of December 31, 1995. (d) Each Section 401(a)(17) employee's accrued benefit under this plan shall be the greater of the accrued benefit determined for the employee under (1) or (2) below: (1) the employee's accrued benefit determined with respect to the benefit formula applicable for the plan year beginning on or after January 1, 1994, as applied to the employee's total years of creditable service taken into account under the plan for the purposes of benefit accruals; or (2) the employee's accrued benefit as of the last day of the last plan year beginning before January 1, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the Treasury Regulations. A Section 401(a)(17) employee means an employee whose current accrued benefit as of a date on or after the first day of the first plan year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first plan year beginning on or after January 1, 1994, that exceeded $150,000. (e) See Section 18 and Exhibits C, D, E and F for special rules that may apply to employees of companies or businesses acquired by the Company or one of its affiliates. 2.2 Delayed Retirement: If a participant remains in service following his normal retirement date, his retirement date (his "delayed retirement date") shall be the first day of the calendar month next following the date he terminates service for any reason other than death. The delayed retirement benefit of a participant as of any date after his normal retirement date shall be the greater of (i) his accrued benefit as of his delayed retirement date based on his final average compensation and years of creditable service as of his delayed retirement date, or (ii) his accrued benefit as of his normal retirement date based on his final average compensation and years of creditable service as of his normal retirement date, increased actuarially to his delayed retirement date. Payment of his delayed retirement 19 benefit shall be deferred until the earlier of his delayed retirement date or his required beginning date, whereupon he shall commence receiving such benefit determined as of such date. If the participant's required beginning date occurs prior to his delayed retirement date, his benefit shall be recalculated as of the last day of each plan year beginning on or after such required beginning date in order to reflect any additional benefit accrued pursuant to this Section 2.2. Payment of such delayed retirement benefit shall be made pursuant to Section 4. 2.3 Early Retirement: A participant in service who has both attained at least age 55 (but not normal retirement age) and completed 10 or more years of vesting service may retire as of the first day of any calendar month following written notice of at least 30 days to the Participating Employer and the Committee (his "early retirement date"). Notwithstanding the foregoing, the 10 years of vesting service requirement shall not apply to a participant who was a participant in the BB&T predecessor plan and had attained at least age 55 and completed 5 years of vesting service as of December 31, 1995. The participant's early retirement benefit shall be payable to him as of his early retirement date and shall equal his accrued benefit as of such date reduced in the manner described in Exhibit B attached hereto to reflect the commencement of payment prior to his normal retirement date. Payment of such early retirement benefit shall be made pursuant to Section 4. 2.4 Disability Retirement: If a participant in service becomes disabled within the meaning of Section 1.15 before he is eligible for normal retirement, he shall continue to accrue benefits under the plan during his "period of disability," which will commence on the date his disability is established and end on the earlier of (i) the date he ceases to receive or to be eligible to receive disability benefits under the BB&T Corporation Disability Plan; or (ii) his normal retirement date. The date the disabled participant's period of disability ends shall be referred to herein as his "disability retirement date." During his period of disability, the disabled participant shall be credited with hours of service as if he were an active employee performing services for the Participating Employer and shall be treated 20 as if he had continued to receive the compensation he was receiving during the last full plan year immediately preceding the plan year in which occurs the establishment of his disability. If the disabled participant has attained normal retirement age as of his disability retirement date, he shall be eligible to retire and receive his accrued benefit determined as of his disability retirement date. If the disabled participant has not attained normal retirement age as of his disability retirement date but is eligible for early retirement as of such date, he may elect to receive as of such date his early retirement benefit determined in the manner provided in Section 2.3. If the disabled participant has not attained normal retirement age and is not eligible for early retirement as of his disability retirement date, he shall be deemed to have terminated service on his disability retirement date, and the benefit to be paid to him shall be determined in the manner provided in Section 2.5. 2.5 Termination of Service: If a participant who is not eligible to retire terminates service, his vested accrued benefit shall be determined as of the first day of the calendar month coincident with or next following the date of such termination. Payment of such vested accrued benefit shall commence at his normal retirement date if he is then living in the same manner as if he were then in service; provided, that the following provisions shall apply: 2.5.1 If the participant's vested accrued benefit, determined as of the first day of the calendar month coincident with or next following his date of termination, is zero, the participant shall be deemed to have received a distribution of such vested accrued benefit. His nonvested accrued benefit shall be treated as a forfeiture for purposes of Section 3.3. 2.5.2 If a participant terminates service and has satisfied the service requirement but not the age requirement for early retirement under Section 2.3, he may elect early retirement as of the first day of any calendar month next following satisfaction of the age requirement for early retirement as if he were an active participant electing early retirement as of such date. 2.5.3 If the actuarial equivalent of the vested accrued benefit of the participant does not exceed $5,000 (or at the time of any prior distribution in plan years beginning before August 6, 1997 exceeded $3,500 or in plan years beginning after August 5, 1997 exceeded $5,000), such benefit shall be paid to the participant in cash in a lump sum as soon as practicable following his termination date. If a distribution is made pursuant to 21 this Section 2.5.3 to a participant before he attains age 55, the Committee shall advise the participant that an additional income tax may be imposed in an amount equal to 10 percent of the portion of the amount received which is includible in his gross income for such taxable year. See Section 17 for special rules that allow the participant to have lump sum payments made pursuant to this Section 2.5.3 transferred directly to an eligible retirement plan. 2.6 Special Limitation on Benefits: Notwithstanding any other provision of the plan, for limitation years beginning on and after January 1, 1987, in no event shall the annual retirement benefit to which a participant is entitled under the plan (computed as a single life annuity without taking into account ancillary benefits or the value of a qualified joint and survivor annuity) exceed the lesser of: (i) $90,000, referred to herein as the "dollar limitation", or (ii) 100 percent of the participant's average statutory compensation for the period of 3 consecutive calendar years (or the actual number of consecutive years of employment with the Company if the participant was employed by the Company for fewer than 3 consecutive years) which produces the highest average, referred to herein as the "compensation limitation"; provided, that if a participant was a participant in the plan before January 1, 1987, and his current accrued benefit as of the last day of the plan year ending in 1986 exceeds the dollar limitation with respect to him (but such current accrued benefit did not exceed the dollar limitation as in effect with respect to him on January 1, 1987), the dollar limitation of this Section 2.6 shall equal such current accrued benefit. For limitation years beginning on and after January 1, 1988, the amount of the dollar limitation and the amount of the compensation limitation shall be adjusted in accordance with Treasury regulations to reflect increases in the cost of living. In applying the provisions of this Section 2.6, the following provisions shall apply: 2.6.1 If benefits are payable under the plan to a participant at or after attainment of age 62 but before attainment of his Social Security retirement age, the dollar limitation shall be reduced by 5/9 of 1 percent for each of the first 36 months by which the benefits commence before the month in which the participant attains Social Security retirement age, and by 5/12 of 1 percent for each additional month by which the benefits commence before the month in which the participant attains Social Security retirement age. In the event benefits are payable under the plan to a participant prior to attainment of age 62, the dollar limitation shall be reduced to the actuarial equivalent 22 of a benefit equal to such dollar limitation payable at age 62, and further reduced for each month by which benefits commence before the month in which the participant attains age 62. The reduced dollar limitation shall be the lesser of the equivalent amount determined using the plan's early retirement reduction factors specified in Exhibit B and the equivalent amount computed using 5 percent and the applicable mortality table described in Section 1.2. No cost-of-living increase under Section 415(d)(1) of the Code shall be taken into account before the limitation year for which such increase first takes effect. 2.6.2 If benefits are payable under the plan to a participant following attainment of his Social Security retirement age, the dollar limitation shall be increased to the actuarial equivalent of a benefit equal to such dollar limitation payable at such retirement age. For the purpose of determining actuarially equivalent amounts pursuant to this Section 2.6.2, the interest rate assumption shall not exceed the lesser of 5 percent or the rate specified in Section 1.2 at the time such determination is made, and no cost-of-living increase under Section 415(d)(1) of the Code shall be taken into account before the limitation year for which such increase first takes effect. 2.6.3 Subject to the provisions of Section 2.6.4, the limitation on benefits in this Section 2.6 shall not apply with respect to a participant if the annual retirement benefit of such participant (determined without regard to the participant's age when such benefit commences or to the manner in which such benefit is payable) under this plan and all other defined benefit plans of the Company is $10,000 or less, and if the Company has not at any time maintained a defined contribution plan in which the participant has participated. 2.6.4 If a participant has fewer than 10 years of participation at the date retirement benefit payments under the plan commence with respect to him, the dollar limitation shall be reduced by multiplying such limitation by a fraction the numerator of which is his number of months of participation and the denominator of which is 120. If a participant has fewer than 10 years of service at the date retirement benefit payments under the plan commence with respect to him, the compensation limitation and the $10,000 limitation shall be reduced by multiplying the applicable limitation by a fraction the numerator of which is his number of months of service with the Company and the denominator of which is 120. For purposes of this Section 2.6.4, "month of participation" or "month of service" means any month in which the participant completes 83 or more hours of service. 2.6.5 This Section 2.6.5 shall apply with respect to limitation years beginning prior to January 1, 2000. If an individual is at any time a participant in the plan and in a defined contribution plan of the Company, the sum of the defined benefit fraction (as defined in this Section 2.6.5) and the defined contribution fraction (as defined in this Section 2.6.5) for any limitation year shall not exceed 1.0; provided, that if the limitations of Section 415 of the Code as in effect for the last limitation year beginning before January 1, 1987 were not exceeded for such limitation year, but the limitation of this Section 2.6.5 would be exceeded for any subsequent year, the defined contribution fraction computed for the limitation year beginning before January 1, 1987, shall be 23 permanently adjusted by subtracting from the numerator an amount equal to the product of (i) and (ii), where (i) is the amount by which the sum of the defined benefit fraction and the defined contribution fraction exceed 1.0, and (ii) is the denominator of the defined contribution fraction, determined as of the day next preceding the first limitation year beginning after December 31, 1986. For purposes of this Section 2.6.5, the defined benefit fraction for any limitation year of this plan shall be a fraction the numerator of which is the projected annual retirement benefit of the participant under this plan (as determined as of the close of such limitation year), and the denominator of which is the lesser of (i) the product of 1.25 and the dollar limitation for the limitation year, or (ii) the product of 1.4 and the compensation limitation for the limitation year; provided, that in the case of an individual who was a participant in the plan before January 1, 1983, if such participant's current accrued benefit as of December 31, 1982 exceeds the dollar limitation, the denominator of the defined benefit fraction shall be the product of 1.25 and the amount of such participant's current accrued benefit as of December 31, 1982. The defined contribution fraction for any limitation year of a defined contribution plan shall be a fraction the numerator of which is the sum of the annual additions to the participant's account (or accounts) through the close of such limitation year, and the denominator of which is the sum of the lesser of (A) or (B) for such limitation year and for each prior limitation year during which the participant was an employee of the Company (regardless of whether a plan was in existence during those years), where (A) is the product of 1.25 and the dollar limitation in effect for defined contribution plans for such limitation year (referred to herein as the "defined contribution dollar limitation") and (B) is the product of 1.4 and 25 percent of the participant's statutory compensation for such limitation year (referred to herein as the "defined contribution compensation limitation"); provided, that the plan administrator may elect for the denominator of the defined contribution fraction for all limitation years ending before January 1, 1983 to be the product of the denominator of the defined contribution fraction computed as of the limitation year ending in 1982 and the transition fraction. The transition fraction is a fraction the numerator of which is the lesser of (I) $51,875, or (II) the product of 1.4 and the defined contribution compensation limitation for the limitation year ending in 1981, and the denominator of which is the lesser of (a) $41,500, or (b) the defined contribution compensation limitation for the limitation year ending in 1981. If the limitation of this Section 2.6.5 would be exceeded for any limitation year, the reduction necessary to comply with the limitation shall be made in the numerator of the defined benefit fraction. 2.6.6 For the purpose of applying the rules of this Section 2.6, the following provisions shall apply: (a) the "limitation year" shall be the plan year; (b) all defined benefit plans of the Company shall be considered as a single plan, and all defined contribution plans of the Company shall be considered as a single plan; (c) "projected annual benefit" means the annual normal retirement benefit payable in the form of a single life annuity (with no ancillary benefits) to which a participant would be entitled under the terms of the plan if the following factors are assumed: (i) the participant will continue employment with the Company until he reaches Social Security retirement age (or until his then current age, if he has previously reached Social Security retirement age); (ii) the participant's statutory compensation for the limitation year will remain the same until the date the participant attains Social Security retirement age; (iii) all other 24 relevant factors used to determine benefits under the defined benefit plan for the limitation year will remain constant for all future limitation years; (d) "current accrued benefit" means the accrued benefit of a participant as of the last day of the plan year computed as a single life annuity (with no ancillary benefits); provided, that in computing a participant's current accrued benefit as of the last day of the plan year ending in 1982, no amendments to the plan adopted after July 1, 1982, which would affect such benefit and no cost-of-living adjustments occurring after July 1, 1982, shall be taken into account; further provided, that in computing a participant's current accrued benefit as of the last day of the plan year ending in 1986, no amendment to the plan adopted after May 5, 1986 which would affect such benefit and no cost-of-living adjustments occurring after May 5, 1986 shall be taken into account; (e) the "annual addition" with respect to any limitation year of any defined contribution plan beginning on or after January 1, 1987, means the sum of the following items allocated on behalf of a participant to his account (or accounts) under such defined contribution plan: (i) Company contributions; (ii) all forfeitures; and (iii) the participant's nondeductible employee contributions (nondeductible employee contributions shall be considered made with respect to a particular plan year if such contributions actually are made by the participant during such plan year or within 30 days after the close of such plan year); (iv) amounts allocated after March 31, 1984 to an individual medical account, as defined in Section 415(l) of the Code, which is part of a defined benefit plan maintained by the Company; (v) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee, as defined in Section 419A(d) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Company; provided, that the following are not "annual additions": (1) transfers of funds from one qualified plan to another; (2) rollover contributions (as defined in Sections 402(a)(5), 403(a)(4) and 408(d)(3) of the Code); (3) repayments of loans made to a participant from the plan; (4) repayments of distributions received by an employee pursuant to Section 411(a)(7)(B) of the Code; (5) repayments of distributions received by an employee pursuant to Section 411(a)(3)(D) of the Code (mandatory contributions); (6) employee contributions to a simplified employee pension allowed as a deduction under Section 219(a) of the Code; and (7) deductible employee contributions to a qualified plan; (f) "defined contribution plan" means a plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account and any income, expenses, gains and losses, and any forfeitures of accounts of other participants that may be allocated to such participant's account; and "defined benefit plan" means any plan, including this plan, which is not a defined contribution plan; provided, that only plans described in Section 415(k)(1) of the Code shall be included within the definition of a defined contribution plan or a defined benefit plan, as the case may be; and (g) any affiliated employer shall be considered to be the Company; provided, that for purposes of this Section 2.6, determination of the members of a controlled group or employers under common control pursuant to Sections 414(b) and (c) of the Code shall be made by substituting the phrase "more than 50 percent" for the phrase "at least 80 percent" each place it appears in Section 1563(a)(1) of the Code. 25 2.6.7 Notwithstanding the provisions of this Section 2.6, the following special provisions shall apply: (i) Except as provided in subparagraph (ii) of this Section 2.6.7, for purposes of adjusting any benefit payable in any form other than a single life annuity, the interest rate assumption shall be either five percent (5%) or the rate described in Section 1.2, whichever produces the greatest single life annuity; (ii) For purposes of adjusting any benefit or any form of benefit subject to Section 417(e) of the Code, the applicable interest rate described in Section 1.2 shall be substituted for five percent (5%) in subparagraph (i) of this Section 2.6.7; and (iii) For purposes of adjusting any benefit or limitation pursuant to this Section 2.6, the mortality table used shall be the applicable mortality table described in Section 1.2. Section 3. Vesting: --------- ------- 3.1 Full Vesting: The accrued benefit of each participant who completes an hour of service in a plan year beginning after December 31, 1999, shall be fully vested (subject to forfeiture only upon death, and then only to the extent provided herein) on the first to occur of: 3.1.1 Completion of his first hour of service on or after attainment of normal retirement age; or 3.1.2 Completion of 5 or more years of vesting service. See Section 10 for provisions regarding vesting on termination of the plan. See Section 18 and Exhibits C, D, E and F for special provisions that may apply to employees of companies or businesses acquired by the Company or one of its affiliates. If a participant whose accrued benefit is vested in him terminates service, such vested accrued benefit shall be payable to him as provided in Section 2.5. 3.2 Vesting Service: For the purposes of Section 3.1.2, all years of vesting service of an employee shall be taken into account. 3.3 Forfeitures: If a participant who is not vested in his accrued benefit (i) has 5 consecutive breaks in service; (ii) dies; or (iii) terminates service and is deemed to receive a distribution 26 pursuant to Section 2.5.1, he shall forfeit his accrued benefit. Such forfeited accrued benefit shall be used to reduce the cost of the plan to the Participating Employer consistent with the actuarial methods then being used in determining accrued liabilities under the plan. If a participant forfeits his accrued benefit under subparagraph (iii), such forfeited accrued benefit shall be restored if the participant reenters service before he incurs his 5th consecutive break in service. 3.4 Predecessor Plan: In no event may the vested percentage of the accrued benefit of a participant under this plan who was a participant in the predecessor plan immediately prior to the effective date of this plan be less than the vested percentage of his accrued benefit under the applicable provisions of the predecessor plan had the predecessor plan continued in effect through the date such vested percentage is determined. 3.5 Change in Vesting Schedule: If an amendment to the plan directly or indirectly affects determination of a participant's vested percentage, or the plan is deemed amended by an automatic change to or from the top-heavy vesting schedule in Section 16.2.2, each participant in service with at least 3 years of vesting service may irrevocably elect to have his vested percentage determined without regard to such amendment. Such participant may make such election during the period beginning on the date such amendment is adopted and ending on the date that is 60 days after the latest of the date (i) such amendment is adopted; (ii) such amendment is effective; or (iii) the Committee advises the participant in writing of such amendment. 27 Section 4. Payment of Benefits: --------- ------------------- 4.1 Payment of Retirement Benefits Other Than Disability Benefits: On retirement, the vested accrued benefit of a participant under the plan, determined pursuant to the applicable provisions of Sections 2 and 3 (his "vested retirement benefit"), shall be payable in accordance with the provisions of this Section 4.1. The vested retirement benefit of a participant who has a spouse on the annuity starting date shall be paid in the form of a qualified joint and survivor annuity. The vested retirement benefit of a participant who does not have a spouse on the annuity starting date shall be paid in the form of a single life annuity. Notwithstanding the foregoing, a participant may file a qualified election during the election period for his vested retirement benefit to be paid under one of the following methods applicable to him, each of which shall be the actuarial equivalent of the participant's vested retirement benefit: 4.1.1 Single life annuity: Approximately equal monthly installments to the participant on the first day of each calendar month for as long as he lives. 4.1.2 Ten-year certain and life annuity: Approximately equal monthly installments to the participant, on the first day of each calendar month for 120 months certain and thereafter on the first day of each calendar month for as long as he lives, and providing that, if the participant dies before the expiration of the 120 months certain, payment of the monthly amount shall be made to the participant's beneficiary for the remainder of the 120 months certain. No benefit shall be payable to a beneficiary following the expiration of the 120 months certain. 4.1.3 Joint and survivor annuity: Approximately equal monthly installments to the participant, on the first day of each calendar month for as long as he lives with a survivor annuity for the life of the participant's beneficiary which is either 50 percent or 100 percent, as elected by the participant, of the amount of the annuity payable during the joint lives of the participant and his beneficiary. 4.1.4 Level income: If the participant retires prior to the date on which he may receive Social Security benefits, an annuity payable to him in monthly installments on the first day of each calendar month for as long as he lives, adjusted to provide level income when aggregated with monthly social security benefits to which he is entitled; that is, the monthly amount payable to him under the plan prior to the date on which he may receive Social Security benefits equals as nearly as practicable the sum of the monthly amounts payable to him from the plan following such date and the primary insurance amount payable to him under the Federal Social Security Act in effect on the 28 date benefits become payable to him from the plan (whether or not he actually receives such Social Security benefits). 4.2 Payment of Death Benefits: On the death of any vested participant, whether or not such participant is in service at the time of death, his surviving spouse, if any, or beneficiary shall be entitled to receive the applicable death benefit, as follows: 4.2.1 Death prior to annuity starting date: On the death of any vested participant with respect to whom benefit payments have not commenced under the plan, a death benefit shall be payable, as follows: (i) If the participant's beneficiary is his surviving spouse, his surviving spouse shall be entitled to receive the minimum death benefit payable in the form of a qualified preretirement survivor annuity commencing as of the first day of the calendar month following the later of the participant's death or earliest retirement age. (ii) If the participant's beneficiary is not his surviving spouse, his beneficiary shall be entitled to receive a death benefit determined in accordance with the provisions of this subparagraph (ii). If the participant dies on or before his earliest retirement age, his beneficiary shall be entitled to receive the benefit that would be payable to him had the participant terminated service at the earlier of his date of death or actual date of termination of service, survived to his earliest retirement age, retired with an immediate 50% joint and survivor annuity at his earliest retirement age, and died on the day thereafter. If the participant dies after his earliest retirement age, his beneficiary shall be entitled to receive the benefit that would be payable to him had the participant retired with an immediate 50% joint and survivor annuity on the day before his death. In either situation, if a participant elects a 100% joint and survivor annuity before his death, the amount of payments provided under this Section 4.2.1 shall be determined in accordance with such election. Except as otherwise provided herein, the death benefit shall be payable to the beneficiary as a single life annuity commencing as of the first day of the calendar month following the later of the participant's death or earliest retirement age. In the event the actual age of the participant's beneficiary cannot be obtained, or if the beneficiary is not a natural person, it shall be assumed for purposes of calculating the death benefit payable pursuant to this subparagraph (ii) that the beneficiary is the same age as the participant. If the participant designates more than one beneficiary, the death benefit payable pursuant to this subparagraph (ii) shall be calculated assuming a single beneficiary with an age equal to the average of the ages of all beneficiaries. The lump sum value of the death benefit shall be allocated equally among all beneficiaries and each beneficiary may elect 29 to have his share of the death benefit payable in a single lump sum payment in lieu of a single life annuity. Notwithstanding the foregoing, the participant's spouse or beneficiary, as the case may be, may elect to receive the present value of the death benefit payable pursuant to this Section 4.2.1 in a single lump sum payment. 4.2.2 Death on or after annuity starting date: On the death of a participant on or after the annuity starting date, payments shall continue following his death only if his retirement benefit was payable under an option providing for such payments and only in accordance with such option. 4.3 Requirements for Retirement and Death Benefits: The following provisions shall apply for purposes of this Section 4: 4.3.1 Distribution and spousal benefit requirements: All distributions required under this Section 4 shall be determined and made in accordance with Section 401(a)(9) of the Code, including the minimum distribution incidental benefit requirement of Treasury Regulations Section 1.401(a)(9)-2. The spousal benefit requirements of this Section 4 shall be construed and enforced according to the requirements of Sections 401(a)(11) and 417 of the Code and Section 205 of ERISA. 4.3.2 Limits on distribution periods: Distributions shall be made over a period not exceeding: (i) the joint lives of the participant and his spouse or, if he has no spouse, the life of the participant, or (ii) a period certain not extending beyond the joint life expectancies of the participant and his spouse, or, if he has no spouse, the life expectancy of the participant. Life expectancies shall be computed by the use of the expected return multiples in Tables V and VI of Treasury Regulations Section 1.72-9. The life expectancy of the participant, and spouse if applicable, shall be recalculated annually, unless the participant elects otherwise. 4.3.3 Purchase of insurance: The Committee in its discretion may direct the Trustee to purchase from a legal reserve life insurance company an immediate, noncashable, nontransferable annuity contract providing for the retirement benefit of a participant. Assignment and delivery of such annuity contract to the participant shall be in complete satisfaction of all liabilities of the plan to the participant and all persons claiming through him to the extent of the benefit provided by such contract. Any annuity contract purchased by the plan and distributed to or owned by the participant must comply with the requirements of Sections 401(a) and 402 of the Code as if the benefit was paid directly from the trust. 4.3.4 Immediate payment: Notwithstanding the provisions of this Section 4, if, as of the date that payment of the retirement or death benefit of a participant is to commence, the actuarial equivalent of the participant's vested accrued benefit does not exceed $5,000 (or at the time of any prior distribution in plan years beginning before August 6, 1997 exceeded $3,500, or in plan years beginning after August 5, 1997 30 exceeded $5,000), such amount shall be paid in cash in a lump sum on or before the annuity starting date. 4.3.5 Changes in Social Security benefits: Benefits being paid to a participant or beneficiary may not be decreased by reason of any post-separation Social Security benefit increase or any increase in the Social Security wage base under Title II of the Federal Social Security Act. The vested retirement benefit of a participant may not be decreased by reason of an increase in a benefit level or wage base under the Federal Social Security Act. 4.3.6 Notice requirements: (i) In the case of benefits payable pursuant to Section 4.1, no more than 90 days before his annuity starting date, the plan administrator shall provide a participant, whether or not such participant is in service, a written notice in nontechnical terms advising him that the normal method of payment of his benefit is a qualified joint and survivor annuity or single life annuity, whichever is applicable. The notice shall set forth: (a) the terms and conditions of the applicable annuity; (b) the participant's right to make, and the effect of, a qualified election to waive the qualified joint and survivor annuity; (c) the right of the participant's spouse not to consent to any election to waive the qualified joint and survivor annuity; (d) the participant's right to revoke a previous election, and the effect of such revocation; and (e) the participant's right to elect an optional method of payment pursuant to a qualified election and the relative values of each of the applicable optional methods of payment described in Sections 4.1.1 through 4.1.4. (ii) In the case of death benefits payable pursuant to Section 4.2, during the applicable period (as defined in this Section 4.3.6), the plan administrator shall provide each participant, whether or not such participant is in service, a written notice in nontechnical terms explaining the death benefit payable under the plan. The statement shall set forth: (a) the terms and conditions of the death benefits payable under the plan; (b) the participant's right to make, and the effect of, a qualified election to waive the qualified preretirement survivor annuity; (c) the right of the participant's spouse not to consent to any election to waive the qualified preretirement survivor annuity, (d) the right of the participant to revoke a previous election and the effect of such revocation; and (e) the participant's right to designate an alternate beneficiary pursuant to Section 4.2.1. For purposes of this Section 4.3.6, the "applicable period" means the last to end of the following periods: (a) the period beginning with the first day of the plan year in which the participant attains age 32 and ending with the close of the plan year in which the participant attains age 35; (b) the 2-year period beginning one 31 year before the individual becomes a participant and ending one year after such date; or (c) the 2-year period beginning one year before this Section 4.3.6 first applies to the participant and ending one year after such date. In the case of a participant who separates from service before the plan year in which he attains age 35, such period shall be the 2-year period beginning one year before separation and ending one year after separation. 4.3.7 Obligation for commencement of payments: Payment of a participant's vested accrued benefit shall commence within 60 days following the later of the close of the plan year in which the participant: (i) attains normal retirement age, or (ii) retires or otherwise terminates service. If within such 60-day period, the amount of the payment to commence cannot be determined or the recipient thereof cannot be located after a reasonable effort has been made to locate him, payments retroactive to the close of such 60-day period shall be made within 60 days after the amount has been determined or the recipient located, whichever is applicable. 4.3.8 Payments under predecessor plan: Notwithstanding any other provision hereof, if a participant in the predecessor plan is receiving benefits or terminated service and was then eligible to receive benefits under the predecessor plan, the amount of the benefit payable to such participant, and the manner and time for payment thereof, shall be determined under the provisions of the predecessor plan. If a participant in the predecessor plan terminated service prior to the effective date of the plan and is entitled to a deferred benefit commencing on or after such effective date, the amount of the benefit payable to such participant shall be determined under the provisions of the predecessor plan, and the manner and time for payment thereof, including the amount of any reduction in such benefit due to the commencement of payment prior to his normal retirement age, shall be determined under the provisions of this plan. 4.3.9 Directions: The Committee shall notify the Trustee of a participant's retirement or death and shall direct the Trustee to make a distribution to the person or persons entitled thereto from the trust at such time and in such manner as required by the provisions of Section 4. 4.3.10 Waiver of waiting period: The distribution of a participant's vested accrued benefit may commence less than 30 days after the date the notice required by Section 4.3.6 is provided to the participant, provided that: (i) The plan administrator clearly informs the participant that the participant has a right to at least 30 days to consider whether to waive the normal form of payment under the plan and to elect an optional method of payment; (ii) The participant, after receiving the notice, makes a qualified election; and (iii) The distribution to the participant pursuant to his qualified election commences more than 7 days after the notice is provided to him. 32 4.3.11 Reemployment: Notwithstanding the provisions of this Section 4, if a participant who commences receiving payment of his vested accrued benefit under the plan reenters service prior to his normal retirement date, his benefit payments shall cease if on the date he reenters service he is regularly scheduled to work 1,000 or more hours of service during the next succeeding 12 calendar months. If a participant who commences receiving payment of his vested accrued benefit under the plan reenters service and is not regularly scheduled to work 1,000 or more hours of service during the next succeeding 12 calendar months or if he reenters service after his normal retirement date, his benefit payments shall continue during the period he is in service, but shall be adjusted as of the last day of each plan year to reflect any additional benefits accrued while in service. If a participant's benefit payments cease while he is in service, his vested accrued benefit on his subsequent retirement, death or other termination of service, shall be determined taking into account all of his years of creditable service and compensation, but shall be reduced by the actuarial equivalent of the benefit payments that he previously received under the plan. If a participant terminates service and receives all of his vested benefit under the plan, or the actuarial equivalent thereof, and later reenters service, his years of creditable service and compensation prior to his termination of service shall be included for purposes of determining his accrued benefit on his subsequent retirement, death or other termination of service, but his accrued benefit shall be reduced by the actuarial equivalent of the benefit payment or payments he previously received under the plan. No duplication of benefits shall occur with respect to any period of service completed by a participant. 4.3.12 Direct rollovers: If a participant or his surviving spouse becomes entitled to receive a lump sum distribution or other eligible rollover distribution (as defined in Section 17.1.1) pursuant to the provisions of this Section 4, see Section 17 for special rules that allow the participant or his surviving spouse, as the case may be, to elect to have such distribution transferred directly by the Trustee to the Trustee or custodian of an eligible retirement plan (as defined in Section 17.1.2). 4.3.13 Special provisions: See Section 18 and Exhibits C, D, E and F for special rules that may apply to employees of companies or businesses acquired by the Company or one of its affiliates. 33 Section 5. Contributions: --------- ------------- Contributions to the plan to defray the actuarial cost of benefits under the plan shall be made by the Participating Employer at such times and in such amounts as the Board determines, but in a manner consistent with ERISA and the Code, based on the financial needs of the plan as determined pursuant to Section 6.10. All contributions to the plan shall be conditioned on qualification of the plan under Section 401(a) of the Code and on their deductibility for federal income tax purposes under Section 404 of the Code. No contribution from any participant shall be required or permitted. Section 6. Administration by Committee: --------- --------------------------- 6.1 Membership of Committee: The Committee shall consist of not less than 3 individuals appointed by the Board to serve at the pleasure of the Board. Any member of the Committee may resign, and his successor, if any, shall be appointed by the Board. The Committee shall be responsible for the general administration and interpretation of the plan and for carrying out its provisions except to the extent all or any of such obligations specifically are imposed on the Trustee or the Board. The Chairman of the Committee shall be the plan administrator and agent for service of legal process on the plan. 6.2 Committee Officers; Subcommittee: The members of the Committee shall elect from its membership a chairman and may elect an acting chairman. They shall also elect a secretary and may elect an acting secretary, either of whom may be but need not be a member of the Committee. The Committee may appoint from its membership such subcommittees with such powers as the Committee determines and may authorize one or more of its members or any agent to execute or deliver any instrument or make any payment on behalf of the Committee. 6.3 Committee Meetings: The Committee shall hold such meetings upon such notice and at such places and intervals as it from time to time may determine. Notice of meetings shall 34 not be required if notice is waived in writing by all members of the Committee at the time in office, or if all such members are present at the meeting. 6.4 Transaction of Business: A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business. All resolutions or other actions taken by the Committee at any meeting will be by vote of a majority of those present and entitled to vote at any such meeting. Resolutions may be adopted or other action taken without a meeting upon written consent thereto signed by all members of the Committee. 6.5 Committee Records: The Committee shall maintain full and complete records of its deliberations and decisions. The minutes of its proceedings shall be conclusive proof of the facts of the operation of the plan. The records of the Committee shall contain all relevant data pertaining to individual participants and their rights under the plan and in the trust fund. 6.6 Establishment of Rules: Subject to the limitations of the plan and ERISA, the Committee from time to time may establish rules or bylaws for administration of the plan and transaction of its business. 6.7 Conflicts of Interest: No individual member of the Committee shall have any right to vote or decide upon any matter relating solely to himself or any of his rights or benefits under the plan (except that such member may sign unanimous written consent to resolutions adopted or other action taken without a meeting), except for elections pursuant to Sections 2, 3 and 4 hereof. 6.8 Correction of Errors: The Committee may correct errors and, so far as practicable, adjust any benefit, credit or payment accordingly. The Committee in its discretion may waive any notice requirement in the plan; provided, that a waiver of a requirement to notify the Trustee may only be made with the consent of the Trustee. A waiver of notice in one case shall not be deemed a waiver of notice in any other case. Any power or authority that the Committee has discretion to exercise under the plan shall be exercised in a nondiscriminatory manner. 35 6.9 Authority to Interpret Plan: Subject to objective plan terms and the claims procedure set forth in Section 13, the Committee and the plan administrator shall have the duty and discretionary authority to interpret and construe the provisions of the plan and decide any dispute that may arise regarding the rights of participants hereunder, including the discretionary authority to make determinations as to eligibility for participation and benefits under the plan. Determinations by the Committee and the plan administrator shall apply uniformly to all persons similarly situated and shall be binding and conclusive on all interested persons. Such determinations shall only be set aside if the Committee and the plan administrator are found to have acted arbitrarily and capriciously in interpreting and construing the provisions of the plan. 6.10 Third Party Advisors: The Committee may engage an actuary, attorney, accountant or any other technical adviser on matters regarding the operation of the plan and to perform such other duties as may be required in connection therewith and may employ such clerical and related personnel as it deems requisite or desirable in carrying out the provisions of the plan. From time to time, but no less frequently than annually and with the advice of an actuary, the Committee shall review the financial condition of the plan and determine the financial and liquidity needs of the plan as required by ERISA. The Committee shall communicate such financial needs to the Company and Trustee so that the funding policy and investment policy may be coordinated appropriately to meet such needs. 6.11 Compensation of Members: No member of the Committee shall receive any fee or compensation for his services as such. 6.12 Committee Expenses: The Committee shall be entitled to reimbursement out of the trust fund for its reasonable expenses properly and actually incurred in the performance of its duties in the administration of the plan; provided, that the Company, in the discretion of the Board, may pay such expenses. 36 6.13 Indemnification of Committee: To the maximum extent permitted by ERISA, no member of the Committee shall be personally liable by reason of any contract or other instrument executed by him or on his behalf as a member of the Committee or for any mistake of judgment made in good faith. The Company shall indemnify and hold harmless, directly from its own assets (including the proceeds of any insurance policy the premiums for which are paid from the Company's assets), each member of the Committee and each other officer, employee or director of the Company to whom any duty or power relating to the administration or interpretation of the plan may be delegated or allocated against any unreimbursed or uninsured cost or expense (including any sum paid in settlement of a claim with the prior written approval of the Board) arising out of any act or omission to act in connection with the plan unless arising out of such person's own fraud, bad faith, willful misconduct or gross negligence. Section 7. Management of Funds and Amendment of Plan: ----------------------------------------- 37 7.1 Fiduciary Duties: All assets of the plan shall be held in a trust forming part of the plan, which shall be administered as a trust fund to provide payment of benefits as provided in the plan to participants or their successors in interest out of the income and principal of the trust. All fiduciaries (as defined in ERISA) with respect to the plan shall discharge their duties as such solely in the interest of the participants and their successors in interest and (i) for the exclusive purposes of providing benefits to participants and their successors in interest and defraying reasonable expenses of administering the plan, including the trust, (ii) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims, and (iii) in accordance with the plan and trust agreement, except to the extent such documents may be inconsistent with the then applicable federal laws relating to fiduciary responsibility. The trust fund shall be used for the exclusive benefit of the participants and their beneficiaries and to pay administrative expenses of the plan and trust to the extent not paid by the Participating Employers. No portion of the trust fund ever shall revert or inure to the benefit of the Participating Employers or any affiliated employers (except as otherwise provided in Sections 7.1 and 10.1). Notwithstanding the foregoing, the following provisions shall apply: 7.1.1 If the plan receives an adverse determination with respect to the qualification of the plan under Section 401(a) of the Code, upon written request of the Company, the Trustee shall return to the Company the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the plan is denied; provided, that the application for the determination must be made by the time prescribed by law for filing the Company's federal income tax return for the taxable year in which the plan is adopted or such later date as the Secretary of the Treasury may prescribe. 7.1.2 All contributions to the plan are conditioned upon their deductibility under Section 404 of the Code, and to the extent the deduction is disallowed, upon written request of the Company the Trustee shall return the disallowed contribution (reduced by losses attributable thereto, but not increased by earnings attributable thereto) to the Company within one year after the date the deduction is disallowed. 38 7.1.3 If a contribution or any portion thereof is made by the Participating Employer by mistake of fact, upon written request of the Company, the Trustee shall return the contribution or such portion (reduced by losses attributable thereto, but not increased by earnings attributable thereto) to such Participating Employer within one year after the date of payment to the Trustee. 7.2 Authority to Amend: The Board, acting on behalf of the Participating Employers, shall have the right at any time and from time to time to amend or terminate the plan and the trust agreement; provided, that (i) except as provided in Sections 7.1 and 10.1, no such amendment or termination may divert the trust funds to purposes other than the exclusive benefit of the participants; and (ii) no such amendment that alters the duties, responsibilities or liabilities of the Trustee may be made unless the Trustee consents thereto in writing. No amendment to the plan shall decrease a participant's accrued benefit as of the date of such amendment, except to the extent permitted by Section 412(c)(8) of the Code. A plan amendment that has the effect of decreasing a participant's accrued benefit or eliminating an optional form of distribution shall be treated as reducing an accrued benefit. Notwithstanding the foregoing, and until otherwise decided by the Board, the officer of the Company specifically designated in resolutions adopted by the Board shall have the authority to amend the plan to (i) comply with changes in laws or government rules or regulations applicable to the plan; (ii) maintain the tax-qualified status of the plan; (iii) provide for the merger or consolidation of another plan into this plan, or the transfer of the assets or liabilities of another plan to this plan, and, in connection therewith to comply with the provisions of the Treasury Regulations under Section 411(d)(6) of the Code; and (iv) revise the Exhibits attached hereto. See Section 10 for provisions regarding termination of the plan. 7.3 Trust Agreement: The Company, on behalf of each Participating Employer, and the Trustee shall enter into an appropriate trust agreement for the administration of the trust under the plan. The trust agreement shall contain such powers and reservations as to investment, reinvestment, control and disbursement of the funds of the trust, and such other provisions not inconsistent with the 39 provisions of the plan and its nature and purposes, as shall be agreed upon and set forth therein. The trust agreement shall provide that the Board may remove the Trustee at any time upon reasonable notice, the Trustee may resign at any time upon reasonable notice, and on such removal or resignation of the Trustee, the Board shall designate a successor trustee. 7.4 Requirements of Writing: All requests, directions, requisitions and instructions of the Committee to the Trustee shall be in writing and signed by such person or persons as are designated by the Committee. Section 8. Allocation of Responsibilities Among Named Fiduciaries: ------------------------------------------------------ 8.1 Duties of Named Fiduciaries: The named fiduciaries with respect to the plan and the fiduciary duties and other responsibilities allocated to each, which shall be carried out in accordance with the other applicable terms and provisions of the plan, shall be as follows: 8.1.1 Board: (i) To appoint and remove members of the Committee; and (ii) To appoint and remove trustees under the plan. 8.1.2 Committee: (i) To interpret the provisions of the plan and determine the rights of participants under the plan, except to the extent otherwise provided in Section 13 relating to claims procedure; (ii) To administer the plan in accordance with its terms, except to the extent powers to administer the plan specifically are delegated to another named fiduciary or other person or persons as provided in the plan; (iii) To account for the accrued benefits of participants; and (iv) To direct the Trustee in the distribution of trust assets. 8.1.3 Plan Administrator: (i) To file such reports as may be required with the United States Department of Labor, the Internal Revenue Service and any other 40 government agency to which reports may be required to be submitted from time to time; (ii) To comply with requirements of the law for disclosure of plan provisions and other information relating to the plan to participants and other interested parties; and (iii) To administer the claims procedure to the extent provided in Section 13. 8.1.4 Trustee: (i) To invest and reinvest trust assets subject to directions of the investment manager, if any, appointed pursuant to the provisions of the trust agreement; (ii) To make distributions to plan participants as directed by the Committee; (iii) To render annual accountings to the Company as provided in the trust agreement; and (iv) Otherwise to hold, administer and control the assets of the trust as provided in the plan and trust agreement. 8.1.5 Investment Manager: In the event the Company appoints an investment manager to manage assets of the trust under the plan (including the power to acquire and dispose of assets) the duties of the investment manager shall be to manage, acquire and dispose of assets of the trust, or to direct the Trustee in the management, acquisition and disposition of assets of the trust. 8.2 Co-fiduciary Liability: Except as otherwise provided in ERISA, a named fiduciary shall not be responsible or liable for an act or omission of another named fiduciary with respect to fiduciary responsibilities allocated to such other named fiduciary. A named fiduciary of the plan shall be responsible and liable only for its own acts or omissions with respect to fiduciary duties specifically allocated to it and designated as its responsibility. Section 9. Benefits Not Assignable: --------- ----------------------- 41 9.1 Benefits Not Assignable: No portion of the accrued benefit of any participant shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge. Any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void. No portion of such accrued benefit shall be payable in any manner to any assignee, receiver or trustee, liable for the participant's debts, contracts, liabilities, engagements or torts, or be subject to any legal process to levy upon or attach. Notwithstanding the foregoing provisions of this Section 9 or any other provisions of the plan, (i) the vested accrued benefit of any participant shall be subject to and payable in accordance with the applicable requirements of any qualified domestic relations order, as defined in Section 414(p) of the Code, and the plan administrator shall direct the Trustee to provide for payment of a participant's vested accrued benefit in accordance with such order and with the provisions of Section 414(p) of the Code and any Treasury Regulations promulgated thereunder; and (ii) an offset to a participant's accrued benefit against an amount that the participant is ordered or required to pay the plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, shall be permitted in accordance with Code Sections 401(a)(13)(C) and (D). 9.2 Payments to Minors and Others: If any individual entitled to receive a payment under the plan shall be physically, mentally or legally incapable of receiving or acknowledging receipt of such payment, the plan administrator, upon the receipt of satisfactory evidence of his incapacity and satisfactory evidence that another person or institution is maintaining him and that no guardian or committee has been appointed for him, may cause the payment otherwise payable to him to be made to such person or institution so maintaining him. Payment to such person or institution shall be in full satisfaction of all claims by or through the participant to the extent of the amount thereof. Section 10. Termination of Plan: ---------- ------------------- 42 10.1 Complete Termination: In the event of a complete termination of the plan, no additional employees shall enter the plan. The right of each participant to his accrued benefit as of the date of termination, to the extent then funded, shall become fully vested (that is, nonforfeitable). In determining the extent to which the accrued benefit of each participant is funded, the assets of the plan, after deducting expenses for administration and liquidation of the plan, shall be allocated to the participants as provided in Section 4044 of ERISA, subject to such adjustments as may be required by the Internal Revenue Service to avoid discrimination in favor of highly compensated employees. The assets of the plan so allocated shall be distributed to the participants in such manner as the Board determines, subject to the applicable distribution requirements of ERISA and the Code. If assets remain in the trust after all liabilities to participants and their beneficiaries are satisfied, such remaining assets shall be distributed to the Company unless otherwise prohibited by law. 10.2 Partial Termination: In the event of a partial termination of the plan, the provisions of Section 10.1 regarding a complete termination shall apply in determining interests and rights of the participants and their beneficiaries with respect to whom the partial termination occurs to the portion of the trust fund allocable to such participants and beneficiaries. Unless and to the extent the Board otherwise determines, the vested amount to which each participant is entitled shall be retained in the trust until the earlier of his normal retirement date or death, whereupon such amount shall be distributed to him (or to his beneficiary) as if he had continued to be a participant until his normal retirement date or death. 10.3 Liability: Notwithstanding any other provision of the plan, the Company shall have no liability or responsibility to any participant, or other person claiming under or through him, on account of or arising out of failure of the plan to pay to such participant or other person the full amount to which he would be entitled under the terms of the plan following termination of the plan or otherwise, 43 or on account of or arising out of recapture or recovery pursuant to Section 4045 of ERISA of retirement benefits previously paid to any such participant or other person under the plan. 10.4 Early Termination Restrictions: The following provisions shall apply for the purpose of complying with Treasury Regulations Section 1.401(a) (4)-5(b): 10.4.1 In the event the plan is terminated, the benefit of any participant who is a highly compensated employee (including any former highly compensated employee) shall be limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code. 10.4.2 The payment of benefits to or on behalf of a restricted employee (as defined in Section 10.4.4) shall not exceed an amount equal to the payments that would be made to or on behalf of the restricted employee under: (i) a single life annuity that is the actuarial equivalent of the restricted employee's accrued benefit and other benefits to which he is entitled under the plan (other than a social security supplement); and (ii) the amount of the payments that the restricted employee is entitled to receive under a social security supplement, if any. 10.4.3 Notwithstanding the foregoing, the restrictions of Section 10.4.2 shall not apply if: (i) after payment to or on behalf of the restricted employee of all benefits payable to or on behalf of such restricted employee under the plan, the value of plan assets equals or exceeds 110 percent of the value of current liabilities (as defined in Section 412(l)(7) of the Code); or (ii) the value of the benefits payable to or on behalf of the restricted employee is less than 1 percent of the value of current liabilities (as defined in Section 412(l)(7) of the Code) before distribution; or (iii) the value of the benefits payable to or on behalf of the restricted employee does not exceed $5,000. 10.4.4 For purposes of this Section 10.4, the following terms shall have the following meanings: (i) the term "restricted employee" means any highly compensated employee or former highly compensated employee who is in the group of 25 nonexcludable employees and former employees 44 of the Company with the largest amount of compensation in the current or prior plan year; and (ii) the term "benefit" includes, among other benefits, loans in excess of the amount set forth in Section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living employee or former employee, and any death benefits not provided for by insurance on the employee's or former employee's life. Section 11. Merger or Consolidation of Plan: ---------- ------------------------------- In the event of any merger or consolidation of the plan with any other plan, or a transfer of assets or liabilities of the plan to any other plan (which merged, consolidated or transferee plan shall be referred to in this Section 11 as the "successor plan"), the amount each participant would receive if the successor plan (and this plan, if he has any interest remaining therein) were terminated immediately after the merger, consolidation or transfer shall be equal to or greater than the amount he would have received if this plan (and the successor plan, if he had any interest therein immediately prior to the merger, consolidation or transfer) were terminated immediately preceding the merger, consolidation or transfer. The defined benefit feature of the plan, as defined in Treasury Regulations under Section 411(d)(6) of the Code, and the provisions of Sections 2, 3 and 4 of the plan, shall be preserved with respect to the accrued benefit of each participant as of the date of any termination, partial termination, merger, consolidation or transfer of assets or liabilities of the plan, unless the provisions of any exception to the foregoing rule, as provided in Treasury Regulations under Section 411(d)(6) of the Code, are met. 45 Section 12. Communication to Participants: ---------- ----------------------------- The Company shall communicate the principal terms of the plan to the participants and beneficiaries in accordance with the requirements of ERISA. The Company shall make available for inspection by participants and their beneficiaries during reasonable hours at the principal office of the Company and at such other places as may be required by ERISA, a copy of the plan, trust agreement and such other documents as may be required by ERISA. Section 13. Claims Procedure: ---------- ---------------- The following claims procedure shall apply with respect to the plan: 13.1 Filing of a Claim for Benefits: If a participant or beneficiary (the "claimant") believes he is entitled to benefits under the plan that are not being paid to him or accrued for his benefit, he may file a written claim therefor with the plan administrator. 13.2 Notification to Claimant of Decision: Within 90 days after receipt of a claim by the plan administrator, or within 180 days if special circumstances require an extension of time, the plan administrator shall notify the claimant of its decision with regard to the claim. If special circumstances require an extension of time, a written notice of the extension shall be furnished to the claimant prior to commencement of the extension setting forth the special circumstances and the date by which the decision will be furnished. If such claim is wholly or partially denied, notice thereof shall be written in a manner calculated to be understood by the claimant and shall set forth: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent plan provisions on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the procedure for review of the denial. If the plan administrator fails to notify the claimant of the decision in timely manner, the claim shall be deemed denied as of the close of the initial 90-day period (or the extension period, if applicable). 46 13.3 Procedure for Review: Within 60 days following receipt by the claimant of notice denying his claim in whole or in part, or, if such notice is not given, within 60 days following the latest date on which such notice timely could have been given, the claimant may appeal denial of the claim by filing a written application for review with the Committee. Following such request for review, the Committee shall fully and fairly review the decision denying the claim. Prior to the decision of the Committee, the claimant shall be given an opportunity to review pertinent documents and submit issues and comments in writing. 13.4 Decision on Review: The decision on review of a claim denied in whole or in part by the plan administrator shall be made in the following manner: 13.4.1 Notification to claimant of decision: Within 60 days following receipt by the Committee of the request for review, or within 120 days if special circumstances require an extension of time, the Committee shall notify the claimant in writing of its decision with regard to the claim. If special circumstances require an extension of time, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. If the decision on review is not furnished in a timely manner, the claim shall be deemed denied as of the close of the initial 60- day period (or the extension period, if applicable). 13.4.2 Format and content of decision: The decision on review of a claim that is denied in whole or in part shall set forth specific reasons for the decision written in a manner calculated to be understood by the claimant and shall cite the pertinent plan provisions on which the decision is based. 13.4.3 Effect of decision: The decision of the Committee shall be final and conclusive. 13.5 Action by Authorized Representative of Claimant: All actions set forth in this Section 13 to be taken by the claimant may be taken by a representative of the claimant duly authorized by him to act on his behalf on such matters. The plan administrator and the Committee may require such evidence as either reasonably deems necessary or advisable of the authority of any such representative to act. 47 Section 14. Parties to the Plan: ---------- ------------------- The employers listed on Exhibit A are employer-parties to the plan. By separate agreement with the Company, one or more additional employers may become parties to the plan. The following provisions shall apply to all parties to the plan except as otherwise expressly provided herein or in such separate agreement: 14.1 Application of Plan and Trust Agreement: The plan shall apply as a single plan with respect to each Participating Employer as if there were only one employer-party. 14.2 Service with a Participating Employer: Service for purposes of the plan shall be interchangeable among Participating Employers and shall not be deemed interrupted or terminated by the transfer at any time of an employee from the service of one Participating Employer to service of another Participating Employer. 14.3 Contributions: The accrued benefit of any participant who is or was in the service of more than one Participating Employer (either concurrently or successively) shall be determined as if there were only one plan and one employer, it being the intent hereof that service and compensation with respect to all Participating Employers shall be treated as a unit, and the benefits described in the plan will be taken into account only once. 14.4 Authority of Board: The Board shall have the authority to amend or terminate the plan and trust agreement as applied to each Participating Employer and the proper officers of each Participating Employer shall be authorized to execute all documents and take all other actions as shall be deemed necessary or advisable to effectuate and carry out any such amendment as applied to such party. Section 15. Service in Another Status: ---------- ------------------------- If a person employed by the Participating Employer or an affiliated employer in a status other than as an eligible employee is transferred to status as an eligible employee, his service as a 48 noneligible employee shall be taken into account for determining his eligibility to become a participant and his vested percentage in his accrued benefit. Such service shall not be taken into account for the purpose of determining his years of creditable service. If a participant is transferred from eligible employee status to noneligible employee status, his accrued benefit determined as of the date of such transfer shall be held in the plan until he retires, dies or otherwise terminates service. At such time, such accrued benefit shall be distributed or forfeited in the same manner as if he were an eligible employee immediately preceding such retirement, death or termination of service. Service following transfer shall be taken into account for the purpose of determining his vested percentage in his accrued benefit, but not for determining his years of creditable service. If he later returns to eligible employee status, he shall reenter the plan on the date he returns to such status. Section 16. Special Top-Heavy Provisions: ---------- ---------------------------- The following provisions shall apply and supersede any conflicting provision in the plan with respect to any plan year in which the plan is top- heavy (as described in Section 16.1.7): 16.1 Definitions: The following definitions shall apply for purposes of this Section 16: 16.1.1 "Company" means the Participating Employer and its affiliated employers. 16.1.2 "Determination date" means for any plan year after the first plan year the last day of the preceding plan year. 16.1.3 "Key employee" means any employee or former employee, and any beneficiary of such employee, who at any time during the determination period is an officer of the Company if such individual's annual compensation exceeds 50 percent of the dollar limitation under Section 415(b)(1)(A) of the Code, an owner (or considered an owner under Section 318 of the Code) of one of the 10 largest interests in the Company if such individual's compensation exceeds 100 percent of the dollar limitation under Section 415(c)(1)(A) of the Code, a 5 percent owner of the Company, or a one percent owner of the Company who has an annual compensation of more than $150,000. Annual compensation means statutory compensation. The determination period shall be the plan year containing the determination date and the preceding 4 plan years. The determination of who is a key employee shall be made in accordance with Section 49 416(i)(1) of the Code. A non-key employee means any employee who is not a key employee. 16.1.4 "Permissive aggregation group" means the required aggregation group and any other plan or plans of the Company which, when considered with the required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. 16.1.5 "Present value" means the value based on an interest rate of 5 percent and the mortality rates specified in Section 1.2. 16.1.6 "Required aggregation group" means (a) each qualified plan of the Company in which at least one key employee participates or participated at any time during the determination period, regardless of whether the plan is terminated, and (b) any other qualified plan of the Company that enables a plan described in (a) to meet the requirements of Section 401(a)(4) or 410 of the Code. 16.1.7 "Top-heavy plan" means for any plan year beginning after December 31, 1983, the plan if any of the following conditions exists: (i) The top-heavy ratio for the plan exceeds 60 percent, and the plan is not part of any required aggregation group or permissive aggregation group. (ii) The plan is a part of a required aggregation group but not part of a permissive aggregation group, and the top-heavy ratio for such group exceeds 60 percent. (iii) The plan is a part of a required aggregation group and part of a permissive aggregation group, and the top-heavy ratio for the permissive aggregation group exceeds 60 percent. 16.1.8 "Top-heavy ratio" means the following: (i) If the Company maintains one or more defined benefit plans and has not maintained any defined contribution plan (including any simplified employee pension plan) which during the 5-year period ending on the determination date(s) has or had account balances, the top-heavy ratio for this plan alone or for the required or permissive aggregation group, as appropriate, shall be a fraction the numerator of which is the sum of the accrued benefits of all key employees as of the determination date(s), including any part of any accrued benefit distributed in the 5-year period ending on the determination date(s), and the denominator of which is the sum of all accrued benefits, including any part of any accrued benefit distributed in the 5-year period ending on the determination date(s), both computed in accordance with Section 416 of the Code. Both the numerator and denominator of the top-heavy ratio shall be increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Section 416 of the Code. 50 (ii) If the Company maintains one or more defined benefit plans and maintains or maintained one or more defined contribution plans (including any simplified employee pension plan) which during the 5-year period ending on the determination date(s) has or had any account balances, the top-heavy ratio for any required or permissive aggregation group, as appropriate, shall be a fraction the numerator of which is the sum of accrued benefits under the aggregated defined benefit plan or plans for all key employees determined in accordance with paragraph (i) above and the sum of account balances under the aggregated defined contribution plan or plans for all key employees as of the determination date(s), and the denominator of which is the sum of the accrued benefits under the aggregated defined benefit plan or plans for all participants determined in accordance with paragraph (i) above and the sum of accrued benefits under the defined benefit plan or plans for all participants as of the determination date(s), all determined in accordance with Section 416 of the Code. The account balances under a defined contribution plan in both the numerator and denominator of the top- heavy ratio shall be increased for any distribution of an account balance made in the 5-year period ending on the determination date. (iii) For purposes of paragraphs (i) and (ii) above, the value of account balances and the present value of accrued benefits shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Section 416 of the Code for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a participant who (a) is not a key employee but who was a key employee in a prior year, or (b) is not credited with at least one hour of service with any employer maintaining the plan at any time during the 5-year period ending on the determination date shall be disregarded. Calculation of the top-heavy ratio, and the extent to which distributions, rollovers and transfers are taken into account shall be made in accordance with Section 416 of the Code. Deductible employee contributions shall not be taken into account for purposes of computing the top-heavy ratio. When aggregating plans, the value of account balances and accrued benefits shall be calculated with reference to determination dates that fall within the same calendar year. The accrued benefit of a participant other than a key employee shall be determined under (1) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Company, or (2) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code. 16.1.9 "Valuation date" means the date for computing the minimum funding costs under the plan, regardless of whether a valuation is performed on such date. 16.2 Top-heavy Requirements: Notwithstanding any other provision of the plan, the plan must satisfy the following requirements for any plan year in which it is a top-heavy plan: 16.2.1 Minimum accrued benefit requirements: Except as otherwise provided in (a), (b) or (c) below, each participant who is a non-key employee and has completed 1,000 hours of service shall accrue a benefit, provided solely by employer contributions and expressed as a life annuity commencing at normal retirement age, of not less than 51 2 percent of his highest average statutory compensation for the 5 consecutive years for which he had the highest statutory compensation. The aggregate statutory compensation for the years during such 5-year period in which the participant was credited with a year of service shall be divided by the number of such years in order to determine average statutory compensation. The minimum accrued benefit shall be determined without regard to any Social Security contribution. The minimum accrued benefit shall apply even though, under other plan provisions, the participant is not entitled to receive an accrual or would receive a lesser accrual for the year because (i) the participant fails to make mandatory contributions to the plan; (ii) the participant's compensation is less than a stated amount; (iii) the participant is not employed on the last day of the plan year; or (iv) the plan is integrated with Social Security. The provisions of this Section 16.2.1 shall be subject to the following: (a) the minimum accrued benefit shall not be required to the extent that total accruals on behalf of a participant attributable to Company contributions provide a benefit expressed as a life annuity commencing at normal retirement age of not less than 20 percent of such participant's highest average statutory compensation for the 5 consecutive years for which he had the highest statutory compensation; (b) the minimum accrued benefit shall not be required to the extent that a participant is covered under any other plan or plans of the Company that provide that the minimum allocation or benefit requirement applicable to top-heavy plans shall be met in such other plan or plans; and (c) all accruals of employer-derived benefits, whether or not attributable to any plan year in which the plan is top-heavy, may be used in determining whether the minimum accrued benefit requirement of (a) above is satisfied. If the form of benefit is other than a straight life annuity, the participant must receive the actuarial equivalent of the minimum straight life annuity benefit. If the benefit commences at a date other than normal retirement age, the participant must receive at least the actuarial equivalent of the minimum straight life annuity commencing at normal retirement age. The minimum accrued benefit required (to the extent required to be nonforfeitable under Section 416(b) of the Code) shall not be forfeitable under Section 411(a)(3)(B) or 411(a)(3)(D) of the Code. 16.2.2 Minimum vesting requirements: A participant whose accrued benefit is not vested under Section 3.1 and who shall complete at least one hour of service in any top-heavy plan year shall be fully vested in his accrued benefit as follows: Number of Years of Vesting Service Percentage --------------- ---------- Less than 2 0% 2 20% 3 40% 4 60% 5 100% The vesting schedule shall apply to all benefits within the meaning of Section 411(a)(7) of the Code, except those attributable to employee contributions, including benefits accrued before the effective date of Section 416 and before the plan became top-heavy. Further, no reduction in vested benefits may occur in the event the plan's status as top- 52 heavy changes for any plan year. However, this Section 16.2.2 shall not apply to the accrued benefit of any employee who does not have an hour of service after the plan first becomes top-heavy, and such employee's accrued benefit attributable to Company contributions shall be determined without regard to this Section 16. Section 17. Portability of Accrued Benefits: ---------- ------------------------------- Notwithstanding any provision of the plan to the contrary that would otherwise limit a distributee's election under this Section 17, a distributee may elect, at the time and in the manner prescribed by the plan administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 17.1 Definitions: The following definitions shall apply for purposes of this Section 17: 17.1.1. Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; any hardship distribution described in Section 401(k)(2)(B)(i)(iv); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 17.1.2 Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. 17.1.3 Distributee: A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. 17.1.4 Direct rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. 53 17.2 Construction: Notwithstanding anything contained in this Section 17 to the contrary, the provisions of this Section 16 shall at all times be construed and enforced according to the requirements of Section 401(a)(31) of the Code and the Treasury Regulations thereunder, as the same may be amended from time to time. Section 18. Special Provisions Relating to Employees of Acquired ---------- ---------------------------------------------------- Companies: --------- The following provisions shall apply to employees who were employed by a company or business that has merged with or otherwise been acquired by the Company or one of its affiliates (an "acquired company"), unless otherwise specified in Exhibits C, D, E and F. 18.1 General Policy Involving Acquired Companies with a Defined Benefit Plan: The following provisions shall apply to employees who were previously employed by an acquired company (the "acquired employees") that has a defined benefit plan, unless otherwise specified in Exhibits C, D, E and F. (a) Each acquired employee who is a participant in the defined benefit plan of the acquired company (the "acquired plan") and is an employee of a Participating Employer on the "benefit plan determination date" (as defined in this Section 18.1) shall become a participant in this plan as of the benefit plan determination date. Each other acquired employee who becomes an employee of a Participating Employer shall become a participant in this plan in accordance with the provisions of Section 1.29. (b) For purposes of determining eligibility and vesting under this plan, service with the acquired company shall be deemed service with the Participating Employer. (c) Each acquired employee who is a participant in the acquired plan shall continue to accrue benefits under the acquired plan until the benefit plan determination date. As of the close of business of the acquired plan immediately preceding the benefit plan determination date, the accrued benefit of each such acquired employee under the acquired plan shall be determined (the "frozen accrued benefit"). (d) On and after the benefit plan determination date, each acquired employee who becomes a participant in this plan shall accrue benefits under this plan based solely on his compensation and service on and after the benefit plan determination date (the "BB&T accrued benefit"). 54 (e) If the acquired plan is merged into this plan, the accrued benefit of each acquired employee under this plan shall equal the sum of his frozen accrued benefit and his BB&T accrued benefit. If the acquired plan is not merged into this plan, the accrued benefit of each acquired employee under this plan shall be his BB&T accrued benefit. (f) The "benefit plan determination date" shall be the date designated by the Company following the Company's acquisition of the acquired company. 18.2 General Policy Involving Acquired Companies Without a Defined Benefit Plan: The following provisions shall apply to acquired employees of an acquired company that does not have a defined benefit plan, unless otherwise specified in Exhibits C, D, E and F. (a) Each acquired employee who becomes an employee of a Participating Employer and, as of the benefit plan determination date, has met the eligibility requirements of Section 1.29 shall become a participant in this plan as of the benefit plan determination date. Each other acquired employee who becomes an employee of a Participating Employer shall become a participant in this plan in accordance with the provisions of Section 1.29. (b) For purposes of determining eligibility and vesting under this plan, service with the acquired company shall be deemed service with the Participating Employer. (c) On and after the benefit plan determination date, each acquired employee who becomes a participant in this plan shall accrue benefits under this plan based solely on his compensation and service on and after the benefit plan determination date (the "BB&T accrued benefit"). Section 19. Miscellaneous Provisions: ---------- ------------------------ 19.1 Notices: Each participant not in service and each beneficiary shall be responsible for furnishing the plan administrator with his current address for mailing notices, reports and benefit payments. Any notice required or permitted to be given to such participant or beneficiary shall be deemed given if directed to such address and mailed by first class mail. If any check mailed to such address is returned as undeliverable to the addressee, mailing of checks shall be suspended until the participant or beneficiary furnishes the proper address. This provision shall not require the mailing of any notice or notification otherwise permitted to be given by posting or other publication. 55 19.2 Lost Distributees: A benefit shall be deemed forfeited if the plan administrator is unable after a reasonable period of time to locate the participant or beneficiary to whom payment is due; provided, that such benefit shall be reinstated if a valid claim therefor is made by or on behalf of the participant or beneficiary. 19.3 Reliance on Data: The Company, Committee, Trustee and plan administrator shall have the right to rely on any data provided by a participant or beneficiary, including representations as to age, health and marital status. Such representations shall be binding on any party seeking to claim a benefit through a participant, and the Company, Committee, Trustee and plan administrator shall have no obligation to inquire into the accuracy of any representation made at any time by a participant or beneficiary. 19.4 Bonding: Each fiduciary shall be bonded for each plan year to the extent required by ERISA. The bond shall protect the plan against any loss by reason of acts of fraud or dishonesty by the fiduciary alone or in connivance with others. The cost of the bond shall be an expense of the trust paid from the trust fund unless the Board elects for such cost to be paid by the Company. 19.5 Receipt and Release for Payments: Each participant by participating in the plan shall be deemed conclusively to agree to look solely to the assets held under the trust for payment of any benefit to which such participant may be entitled by reason of such participation. Any payment to or with respect to any participant or beneficiary, or pursuant to a disclaimer by a beneficiary, shall be in full satisfaction of all claims against the plan, Company and all fiduciaries with respect to the plan to the extent of such payment. The recipient of any payment from the plan may be required by the Committee, as a condition precedent to such payment, to execute a receipt and release therefor in a form acceptable to the Committee. 19.6 Headings: The headings and subheadings of the plan are for convenience of reference and shall be ignored in any construction of the provisions hereof. 56 19.7 Continuation of Employment: The establishment of the plan shall not be construed as conferring any legal or other right on any employee or any person for continuation of employment, nor shall it interfere with the right of the Participating Employer or any affiliated employer to discharge any employee or deal with him without regard to the effect under the plan. 19.8 Nonliability of Company: The Company does not guarantee the trust, participants, former participants, spouses or beneficiaries against loss of or depreciation in value of any right or benefit that any of them may acquire under the terms of the plan, nor does the Company guarantee to any of them that the assets of the trust under the plan will be sufficient to provide any or all benefits payable under the plan at any time, including any time the plan may be terminated or partially terminated. All benefits payable under the plan shall be paid or provided for solely from the trust fund, or, as applicable, the Pension Benefit Guaranty Corporation. The Company does not assume any liability or responsibility whatsoever for the benefits. 19.9 Construction: The provisions of the plan shall be construed and enforced according to the laws of the State of North Carolina, except to the extent such laws are superseded by ERISA. 19.10 Compliance With The Uniformed Services Employment and Reemployment Act of 1994: Notwithstanding anything contained in the plan to the contrary, effective as of December 12, 1994, the plan shall at all times be construed and enforced according to the requirements of the Uniformed Services Employment and Reemployment Rights Act of 1994. 57 IN WITNESS WHEREOF, the BB&T Corporation Pension Plan is, by the authority of the Board of Directors of the Company, executed in behalf of the Company, as of the day 20 of December, 2000. BB&T CORPORATION By: /s/ Robert E. Greene ---------------------------- Authorized Officer Attest: /s/ Jerone C. Herring - ------------------------- Secretary [Corporate Seal] 58 EXHIBIT A PARTICIPATING EMPLOYERS Branch Banking and Trust Company Branch Banking and Trust Company of South Carolina Branch Banking and Trust Company of Virginia BB&T Insurance Services, Inc. BB&T Investment Services, Inc. BB&T Leasing Corporation Agency Technologies, Inc. AutoBase Information Systems, Inc. Regional Acceptance Corporation Car Mart, Inc. FARR Associates, Inc.* Prime Rate Premium Finance Corporation BB&T Factors Corporation Scott & Stringfellow, Inc.* Scott & Stringfellow Realty, Inc.* Scott & Stringfellow Capital Management* Freedom Financial Services, Inc. Rose Shannis Financial Services, LLC *Effective as of 1/1/01, such employer will no longer be a Participating Employer. A-1 EXHIBIT B EARLY RETIREMENT FACTORS A participant's early retirement benefit shall equal his accrued benefit as of his early retirement date multiplied by the appropriate factor below: Participant's Age ----------------- on Benefit ---------- Commencement Date Factor ----------------- ------ 64 .98 63 .96 62 .94 61 .92 60 .86 59 .80 58 .725 57 .65 56 .575 55 .50 Interpolated values shall be used if the participant's age on his benefit commencement date is not an integer value. B-1 EXHIBIT C SPECIAL PROVISIONS OF MERGING COMPANIES PRIOR TO JANUARY 1, 1996 UNDER THE BB&T PREDECESSOR PLAN The following is a summary of the special rules that apply to certain participants in the plan who were employees of a company or business that was acquired by the Company or one if its affiliates prior to January 1, 1996. Unless otherwise indicated by the context, all defined terms used in this Exhibit C shall have the meanings assigned to them in the BB&T predecessor plan and all Section references shall be to the BB&T predecessor plan. (a) The Citizens Bank of Warrenton. The Citizens Bank of Warrenton merged ------------------------------ with the Employer on December 20, 1976. (1) The monthly normal retirement benefit of an employee of The Citizens Bank of Warrenton who became an Employee of the Employer as a result of the merger of The Citizens Bank of Warrenton into the Employer on December 20, 1976, shall be offset by the benefit that the Employee had accrued under the retirement plan of The Citizens Bank of Warrenton as of the merger date. (2) For purposes of participation, vesting, and benefit accrual, Years of Continuous Service and Years of Credited Service for such Employee shall be determined under the terms and provisions of this Plan. (3) Schedule of Benefit Offsets from the Citizen's Bank of Warrenton Name Social Security Number Benefit Offset ---- ---------------------- -------------- Allen, P.C. ###-##-#### $ 36.22 Farrar, C.R. ###-##-#### 6.85 Hawks, L.F. ###-##-#### 26.62 Manning, B.W. ###-##-#### 12.56 Miles, G.W. ###-##-#### 66.05 Price, C.K. ###-##-#### 52.49 Riggan, N.H. ###-##-#### 11.28 Robertson, R.P. ###-##-#### 47.35 Schuster, P.S. ###-##-#### 2.53 Weldon, E.R. ###-##-#### 81.45 Weldon, N.B. ###-##-#### 114.95 White, A.S. ###-##-#### 77.66 (b) Edgecombe Bank and Trust Company. Edgecombe Bank and Trust Company -------------------------------- merged with the Employer on October 20, 1980. (1) The minimum monthly normal retirement benefit of an Employee of Edgecombe Bank and Trust Company who became an Employee of the Employer as a result of the merger of Edgecombe Bank and Trust Company into the Employer on October 20, 1980, shall not be less than the benefit that the Employee had C-1 accrued under the retirement plan of Edgecombe Bank and Trust Company as of the date of the merger. (2) For purposes of participation, vesting, and benefit accrual, Years of Continuous Service and Years of Credited Service shall be determined under the terms and provisions of this Plan. (c) Independence National Bank. Independence National Bank was merged with -------------------------- the Employer on October 5, 1981. Employees who were "participants" in the Pension Plan for the Employees of Independence National Bank on December 31, 1981 shall become Participants in this Plan on January 1, 1982. (1) (A) An Employee of Independence National Bank who became an Employee of the Employer on October 5, 1981, as a result of the merger of Independence National Bank into the Employer, and is employed by the Employer on December 31, 1981, who was a "participant" (as defined in Section 2.18) in the Pension Plan for the Employees of Independence National Bank immediately prior to the merger of said plan into this Plan, shall be entitled to a "Past Service Benefit" equal to his "accrued benefit" as of December 31, 1981 determined in accordance with Section 2.2 of said plan in effect immediately prior to the merger of said plan into this Plan. (B) An Employee described above shall be entitled to an Accrued Benefit as of any date prior to his Normal Retirement Date equal to his "Future Service Benefit" (which will be based on his compensation as defined in Section 2.14 and his Years of Credited Service as defined in Section 2.42 after December 31, 1981) plus, if he was a "participant" (as defined in Section 2.33) in the Pension Plan for the Employees of Independence National Bank immediately prior to the merger of said plan into this Plan, a "Past Service Benefit" (determined in accordance with the preceding paragraph). (2) With respect to any individual who became an Employee as a result of the merger of Independence National Bank into the Employer on October 5, 1981, and is employed by the Employer on December 31, 1981, for purposes of determining the vested portion of the Employee's Accrued Benefit should a Break in Service occur prior to death or retirement, the Employee shall receive credit for prior service with Independence National Bank, and service up to December 31, 1981 (including such prior service) shall be credited in accordance with the rules set forth in Sections 2.41 and 2.42. (d) City National Bank. City National Bank merged with the Employer on ------------------ July 5, 1983. Employees who were participants in the prior plan of City National Bank shall become Participants in this Plan on July 5, 1983. C-2 (1) An employee of City National Bank who became an Employee of the Employer as a result of the merger of City National Bank into the Employer on July 5, 1983 shall begin to accrue Years of Credited Service under this Plan on January 1, 1984 in accordance with Section 2.42. (2) With respect to any individual who became an Employee as a result of the merger of City National Bank into the Employer on July 5, 1983, and is employed by the Employer on December 31, 1983, for purposes of determining the vested portion of the Employee's Accrued Benefit should a Break in Service occur prior to death or retirement, the Employee shall receive credit for prior service with City National Bank. (e) Bank of Alamance. Bank of Alamance merged with the Employer on July 1, ---------------- 1984. (1) An employee of the Bank of Alamance who became an Employee of the Employer as a result of the merger of the Bank of Alamance into the Employer on July 1, 1984 shall participate in this Plan and begin to accrue Years of Credited Service under this Plan as of July 1, 1984. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of June 30, 1984, were employees of the Bank of Alamance shall be determined by applying the provisions of Subsections 2.41(a) and (b). (3) The normal retirement benefit for those Employees who, as of June 30, 1984, were employees of the Bank of Alamance shall be determined under Section 5.1 of this Plan. (f) Carolina Bank. Carolina Bank was merged with the Employer on December ------------- 31, 1984. (1) The Accrued Benefit, at December 31, 1984, for any Employee who was a participant in the Amended and Restated Retirement Plan of the Carolina Bank shall equal the accrued benefit for each such Employee as defined in Section 1.27 of that plan on December 31, 1984, plus an amount determined by multiplying such accrued benefit by the fraction (not to be less than one) resulting when (A) is divided by (B) where: (A) equals the fair market value of the assets in the Carolina Bank Retirement Trust as of December 31, 1984, less the present value of the accrued benefit (as defined in Section 1.27 of the Amended and Restated Retirement Plan of the Carolina Bank) for any former participant of the Amended and Restated Retirement Plan of the Carolina Bank, and (B) equals the total of the present value of the accrued benefits (as defined in the Amended and Restated Retirement Plan of the Carolina Bank) of all active participants in the Amended and Restated Retirement Plan of the Carolina Bank on December 31, 1984. C-3 For purposes of this subsection (1) the present value of the accrued benefit shall be determined assuming an annual effective interest rate of five percent (5 %) and by using the 1951 Group Annuity Mortality Table with Projection C to 1960 set back 5 years for females. For purposes of this subsection (1), female rates shall be applied to all such participants regardless of their sex. After December 31, 1984, the Accrued Benefit of any Employee who was an active participant in the Amended and Restated Retirement Plan of the Carolina Bank on December 31, 1984, shall equal the product of Section 2.1 (a) and Section 2.1 (b) plus the amount determined in this subsection (1). (2) Years of Credited Service for those Employees who, as of December 31, 1984, were employees of the Carolina Bank shall begin as of January 1, 1985. (3) For purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1984, were employees of the Carolina Bank shall be determined by applying the provisions of Section 1.13 of the Amended and Restated Retirement Plan of the Carolina Bank for service prior to January 1, 1985. For service after December 31, 1984, Continuous Service for these Employees shall be determined under the provisions of this Plan. (g) First Union National Bank. First Union National Bank merged with the ------------------------- Employer on January 1, 1986. Employees who were participants in the First Union Corporation Pension Plan shall participate in this Plan on January 1, 1986. (1) The Accrued Benefit of an employee of First Union National Bank who became an Employee of the Employer as a result of the acquisition of the Employee's place of employment by the Employer after January 1, 1986 and on or before March 10, 1986, shall, on the date he or she became an Employee of the Employer, equal his or her accrued benefit, if any, under the First Union Corporation Pension Plan determined as of the date before such date. (2) Years of Continuous Service for former employees of First Union National Bank who became Employees of the Employer as a result of the acquisition of the Employee's place of employment by the Employer after January 1, 1986 and on or before March 10, 1986, shall include the Employee's "years of service" as determined under the terms of the First Union Corporation Pension Plan as of December 31, 1985. In addition, Years of Continuous Service for such Employees shall be computed by treating employment with First Union National Bank after December 31, 1985, and before March 10, 1986, as employment with the Employer. (3) Years of Credited Service for former employees of First Union National Bank who became Employees of the Employer as a result of the acquisition of the Employee's place of employment by the Employer after January 1, 1986, and on or before March 10, 1986, shall be computed by treating employment with C-4 First Union National Bank after December 31, 1985, and before March 10, 1986, as employment with the Employer. (4) The monthly normal retirement benefit of a former employee of First Union National Bank who became an Employee of the Employer as a result of the acquisition of the Employee's place of employment by the Employer after January 1, 1986, and on or before March 10, 1986, shall equal the sum of subsection 5.1 (a) or subsection 5.1 (b) of this Plan, whichever is applicable, and the benefit, if any, the Employee had accrued under the First Union Corporation Pension Plan as of the day before he or she became an Employee of the Employer. (h) Alexander and Alexander Insurance Company. Alexander and Alexander ----------------------------------------- Insurance Company merged into the Employer on October 1, 1987. Employees who were participants in the prior plan of Alexander and Alexander Insurance Company shall become Participants in this Plan on October 1, 1987. (1) An employee of Alexander and Alexander Insurance Company who became an Employee of the Employer as a result of the merger of Alexander and Alexander Insurance Company into the Employer on October 1, 1987 shall begin to accrue Years of Credited Service under the Plan on October 1, 1987 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of September 30, 1987, were employees of Alexander and Alexander Insurance Company shall include all Years of Continuous Service completed since their date of employment with Alexander and Alexander Insurance Company. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (i) Community Bank. Community Bank merged into the Employer on January 1, -------------- 1988. Employees who were participants in the prior plan of Community Bank shall become Participants in this Plan on the later of January 1, 1988 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Community Bank who became an Employee of the Employer as a result of the merger of Community Bank into the Employer on January 1, 1988 shall begin to accrue Years of Credited Service under the Plan on January 1, 1988 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1987, were employees of Community Bank shall include all Years of Continuous Service completed since their date of employment with Community Bank. C-5 (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (j) Ervin, Haywood and Rankin Insurance Company. Ervin, Haywood and Rankin ------------------------------------------- Insurance Company merged into the Employer on January 1, 1989. Employees of Ervin, Haywood and Rankin Insurance Company shall become Participants in this Plan on the later of January 1, 1989 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Ervin, Haywood and Rankin Insurance Company who became an Employee of the Employer as a result of the merger of Ervin, Haywood and Rankin Insurance Company into the Employer on January 1, 1989 shall begin to accrue Years of Credited Service under the Plan on January 1, 1989 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1988, were employees of Ervin, Haywood and Rankin Insurance Company shall include all Years of Continuous Service completed since their date of employment with Ervin, Haywood and Rankin Insurance Company. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (k) Westbrook-Norton. Inc. Westbrook-Norton, Inc. merged into the Employer --------------------- on April 1, 1989. Employees of Westbrook-Norton, Inc. shall become Participants in this Plan on the later of April 1, 1989 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Westbrook-Norton, Inc. who became an Employee of the Employer as a result of the merger of Westbrook-Norton, Inc. into the Employer on April 1, 1989 shall begin to accrue Years of Credited Service under the Plan on April 1, 1989 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of March 31, 1989, were employees of Westbrook- Norton, Inc. shall include all Years of Continuous Service completed since their date of employment with Westbrook-Norton, Inc. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (l) Cline-Southern Insurance Company. Cline-Southern Insurance Company -------------------------------- merged into the Employer on January 1, 1990. Employees of Cline- Southern Insurance Company shall become Participants in this Plan on the later of January 1, 1990 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. C-6 (1) An employee of Cline-Southern Insurance Company who became an Employee of the Employer as a result of the merger of Cline- Southern Insurance Company into the Employer on January 1, 1990 shall begin to accrue Years of Credited Service under the Plan on January 1, 1990 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1989, were employees of ClineSouthern Insurance Company shall include all Years of Continuous Service completed since their date of employment with Cline-Southern Insurance Company. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (m) Albemarle Savings & Loan Association. Albemarle Savings & Loan ------------------------------------ Association merged into the Employer on January 1, 1992. Effective January 1, 1992, all Participants in the Albemarle Savings & Loan Association of Elizabeth City, N.C. Retirement Plan shall become Participants in this Plan. Other employees of Albemarle Savings & Loan Association shall become Participants in this Plan on the later of January 1, 1992 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Albemarle Savings & Loan Association who became an Employee of the Employer as a result of the merger of Albemarle Savings & Loan Association into the Employer on January 1, 1992 shall be credited with Years of Credited Service under the Plan as if employment with Albemarle Savings & Loan Association had been with the Employer. In addition, Employees of Albemarle Savings & Loan Association shall be given credit for a Year of Credited Service for the 12-month period beginning March 1, 1991 and ending February 28, 1992, if such Employee had completed 1,000 Hours of Service under the terms of the Albemarle Savings & Loan Association of Elizabeth City, N.C. Retirement Plan in effect prior to merger with this Plan. (2) For the purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1991, were employees of Albemarle Savings & Loan Association shall include all Years of Continuous Service completed since their date of employment with Albemarle Savings & Loan Association. In addition, Employees of Albemarle Savings & Loan Association shall be given credit for a Year of Continuous Service for the 12-month period beginning March 1, 1991 and ending February 28, 1992, if such Employee had completed 1,000 Hours of Service under the terms of the Albemarle Savings & Loan Association of Elizabeth City, N.C. Retirement Plan in effect prior to merger with this Plan. (3) The normal retirement benefit for non-highly compensated Employees shall be the greater of the normal retirement benefit calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company or the normal retirement benefit calculated under the terms of the Albemarle Savings & Loan Association Pension Plan (including the right to a lump sum C-7 payment). The normal retirement benefit for "highly compensated employees" (as defined in Code Section 414(q)) shall be calculated under the terms of the Retirement Plan for the Employees of Branch Banking and. Trust Company but in no event shall the benefit for such Employee be less than his benefit calculated under the terms of the Albemarle Savings & Loan Association Pension Plan (including the right to a lump sum payment) on the later of December 31, 1991 or the date such employee is first considered to be "highly compensated." (n) Gate City Federal Savings and Loan Association. Gate City Federal ---------------------------------------------- Savings and Loan Association merged into the Employer on January 1, 1992. Effective January 1, 1992, all Participants in the Gate City Federal Savings and Loan Association Pension Plan shall become Participants in this Plan. Other employees of Gate City Federal Savings and Loan Association shall become Participants in this Plan on the later of January 1, 1992 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Gate City Federal Savings and Loan Association who became an Employee of the Employer as a result of the merger of Gate City Federal Savings and Loan Association into the Employer on January 1, 1992 shall be credited with Years of Credited Service under the Plan as if employment with Gate City Federal Savings and Loan Association had been with the Employer. (2) For the purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1991, were employees of Gate City Federal Savings and Loan Association shall include all Years of Continuous Service completed since their date of employment with Gate City Federal Savings and Loan Association. (3) The normal retirement benefit for non-highly compensated Employees shall be the greater of the normal retirement benefit calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company or the normal retirement benefit calculated under the terms of the Gate City Federal Savings and Loan Association Pension Plan (including the right to a lump sum payment). The normal retirement benefit for "highly compensated employees" (as defined in Code Section 414(q)) shall be calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company but in no event shall the benefit for such Employee be less than his benefit calculated under the terms of the Gate City Federal Savings and Loan Association Pension Plan (including the right to a lump sum payment) on the later of December 31, 1991 or the date such employee is first considered to be "highly compensated." (o) Peoples Federal Savings & Loan Association. Peoples Federal Savings & ------------------------------------------ Loan Association merged into the Employer on December 31, 1992. Effective December 31, 1992, all Participants in the Peoples Federal Savings & Loan Association Employees' Pension Plan shall become Participants in this Plan. Other employees of Peoples C-8 Federal Savings & Loan Association shall become Participants in this Plan on the later of January 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) Years of Credited Service for those Employees who, as of December 31, 1992, were employees of Peoples Federal Savings & Loan Association shall include all Years of Credited Service completed as of March 31, 1992 with Peoples Federal Savings & Loan Association. In addition, Employees of Peoples Federal Savings & Loan Association shall be given credit for a Year of Credited Service for the 12-month period beginning April 1, 1992 and ending March 31, 1993, if such Employee would have completed 1,000 Hours of Service under the terms of the Peoples Federal Savings & Loan Association Employees' Pension Plan in effect prior to merger with this Plan. In addition, Years of Credited Service will be based on the terms of this Plan effective for the Plan Year beginning January 1, 1993. (2) Years of Continuous Service for those Employees who, as of December 31, 1992, were employees of Peoples Federal Savings & Loan Association shall include all Years of Vesting Service completed as of March 31, 1992 with Peoples Federal Savings & Loan Association. In addition, Employees of Peoples Federal Savings & Loan Association shall be given credit for a Year of Vesting Service for the 12-month period beginning April 1, 1992 and ending March 31, 1993, if such Employee would have completed 1,000 Hours of Service under the terms of the Peoples Federal Savings & Loan Association Employees' Pension Plan in effect prior to merger with this Plan. In addition, Years of Continuous Service will be based on the terms of this Plan effective for the Plan Year beginning January 1, 1993. (3) The normal retirement benefit for non-highly compensated Employees shall be the greater of the normal retirement benefit calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company or the normal retirement benefit calculated under the terms of the Peoples Federal Savings & Loan Association Employees' Pension Plan (including the right to a lump sum payment). The normal retirement benefit for "highly compensated employees" (as defined in Code Section 414(q)) shall be calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company but in no event shall the benefit for such Employee be less than his benefit calculated under the terms of the Peoples Federal Savings & Loan Association Employees' Pension Plan (including the right to a lump sum payment) on the later of December 31, 1992 or the date such employee is first considered to be "highly compensated". Each Participant will have a minimum lump sum calculated as the present value of the Accrued Benefit (as of December 31, 1992) under the Peoples Federal Savings & Loan Association Employees' Pension Plan using the definition of Actuarial Equivalent in effect for that plan on December 31, 1992. C-9 (p) Regional Insurance Services, Inc. Regional Insurance Services, Inc. --------------------------------- merged into the Employer on October 1, 1992. Consistent with the general policies established in Section 17.1 of the Plan, Employees of Regional Insurance Services, Inc. shall become Participants in this Plan on the later of October 1, 1992 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Regional Insurance Services, Inc. who became an Employee of the Employer as a result of the merger of Regional Insurance Services, Inc. into the Employer on October 1, 1992 shall begin to accrue Years of Credited Service under the Plan on October 1, 1992 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of September 30, 1992, were employees of Regional Insurance Services, Inc. shall include all Years of Continuous Service completed since their date of employment with Regional Insurance Services, Inc. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (q) Gouger, O'Neal & Saunders Insurance Services, Inc. Gouger, O'Neal & -------------------------------------------------- Saunders Insurance Services, Inc. merged into the Employer on January 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, Employees of Gouger, O'Neal & Saunders Insurance Services, Inc. shall become Participants in this Plan on the later of January 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of Gouger, O'Neal & Saunders Insurance Services, Inc. who became an Employee of the Employer as a result of the merger of Gouger, O'Neal & Saunders Insurance Services, Inc. on January 1, 1993 shall begin to accrue Years of Credited Service under the Plan on January 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of December.31, 1992, were employees of Gouger, O'Neal & Saunders Insurance Services, Inc. shall include all Years of Continuous Service completed since their date of employment with Gouger, O'Neal & Saunders Insurance Services, Inc. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (r) West Insurance and Associate, Inc. West Insurance and Associates, Inc. --------------------------------- merged into the Employer on March 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, Employees of West Insurance and Associates, Inc. shall become Participants in this Plan on the later of March 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. C-10 (1) An employee of West Insurance and Associates, Inc. who became an Employee of the Employer as a result of the merger of West Insurance and Associates, Inc. on March 1, 1993 shall begin to accrue Years of Credited Service under the Plan on March 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of February 28, 1993, were employees of West Insurance and Associates, Inc. shall include all Years of Continuous Service completed since their date of employment with West Insurance and Associates, Inc. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (s) First Fincorp, Inc. First Fincorp, Inc. merged into the ------------------- Employer on April 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, Employees of First Fincorp, Inc. shall become Participants in this Plan on the later of April 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) An employee of First Fincorp, Inc. who became an Employee of the Employer as a result of the merger of First Fincorp, Inc. on April 1, 1993 shall begin to accrue Years of Credited Service under the Plan on April 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of March 31, 1993, were employees of First Fincorp, Inc. shall include all Years of Continuous Service completed since their date of employment with First Fincorp, Inc. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (t) The Winston-Salem and Raleigh Branches of 1st Home Federal ---------------------------------------------------------- Savings and Loan Association of the Carolinas, F.A. The assets --------------------------------------------------- of the Winston-Salem and Raleigh branches of 1st Home Federal Savings and Loan Association of the Carolinas, F.A. were acquired by the Employer effective June 1, 1993. The affected employees became Employees of the Employer effective June 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of June 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of the Winston-Salem and Raleigh Branches of 1st Home Federal Savings and Loan Association of the Carolinas, F.A. who became an Employee of the Employer on June 1, 1993, shall begin to accrue Years of Credited Service under the Plan on June 1, 1993 in accordance with Section 2.42. C-11 (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of May 31, 1993, were employees of the Winston-Salem and Raleigh Branches of 1st Home Federal Savings and Loan Association of the Carolinas, F.A. shall include all Years of Continuous Service completed since their date of employment with 1st Home Federal Savings and Loan Association of the Carolinas, F.A. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (u) Security Federal Savings Bank. ("Security Federal") was ----------------------------- acquired by the Employer on August 7, 1992, and the employees of Security Federal as of such date ("Former Security Federal Employees") remained covered under the Financial Institutions Retirement Fund (the "FIRF') until withdrawal from the FIRF effective June 30, 1995. Effective July 1, 1995, each Former Security Federal Employee shall become a Participant in the Plan, subject to the following provisions: (1) A Former Security Federal Employee who does not elect to transfer his accrued benefit under the FIRF, determined as of June 30, 1995, to the Plan shall receive credit for Years of Service under the Plan, including, solely for vesting purposes, his years of vesting service determined under the FIRF as in effect on June 30, 1995. (2) A Former Security Federal Employee who elects to transfer his accrued benefit under the FIRF, determined as of June 30, 1995, (the "FIRF Benefit"), to the Plan shall be credited with Years of Service under the Plan, including his years of vesting service and years of benefit accrual service as determined under the FIRF as in effect on June 30, 1995. The provisions of subparagraphs (3) and (4) shall apply solely to a former Security Federal employee who elects to transfer his FIRF Benefit to the Plan. (3) The normal retirement benefit for a Former Security Federal Employee who is not a highly compensated employee (as defined in Code Section 414(q)) shall be the greater of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) two percent (2%) of High-5 Salary, as defined in the FIRF, multiplied by Years of Service; provided, that compensation used under clause (A) for years before January 1, 1993 shall be as defined in the FIRF, and compensation used under clause (B) for all years shall be as defined in the FIRF. The normal retirement benefit for a Former Security Federal Employee who is a highly compensated employee (as defined in Code Section 414(q)) shall be his benefit calculated under the terms of the Plan, but in no event shall such benefit be less than his benefit calculated under the terms of the FIRF as of the later of June 30, 1995 or the date he first becomes a highly compensated employee. (4) The benefit determined under subparagraph (3)(B) and the second clause of the last sentence of subparagraph (3) (benefits relating to the benefit formula under C-12 the FIRF) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) The Normal Form of Benefit shall be an annuity paid in equal monthly installments on the first day of each calendar month in which the Participant or Inactive Participant shall have lived the entire preceding calendar month; provided, that there shall be a death benefit equal to twelve (12) times the monthly retirement benefit reduced by the sum of the retirement benefit payments already paid. (B) The Early Retirement Age of a Former Security Federal Employee shall be Age 45. (C) The early retirement benefit of a Former Security Federal Employee shall be calculated as the Normal Form of Benefit and shall equal his Accrued Benefit as of his Early Retirement Date, reduced three percent (3%) for each year benefits commence before his Normal Retirement Age. (D) Subject to the election provisions of Article V of the Plan the following methods of payment shall be available in lieu of those provided in Section 5.6: (I) A life annuity payable monthly in equal installments during the lifetime of the Participant or Inactive Participant, (II) a joint and full survivor annuity payable to the Participant or Inactive Participant during his lifetime and thereafter in the same monthly amount to his Beneficiary; provided, that if both the Participant or Inactive Participant and Beneficiary die before 120 monthly installments have been paid, the Actuarial Equivalent present value of the remaining installments shall be paid to the Participant's or Inactive Participant's Beneficiary; 0lB a joint and one-half survivor annuity payable to the Participant or Inactive Participant during his lifetime and thereafter in the same monthly amount to his Beneficiary; (IV) subject to the provisions of Article 15, any other Actually Equivalent annuity with some other death benefit; and (V) a single-sum distribution of the Actuarial Equivalent of his retirement benefit for a Former Security Federal Employee who is at least Age 45 on his Annuity Starting Date. The Actuarial Equivalent factors for determining the amount of all optional methods of payment for Former Security Federal Employees shall be as provided in the Appendix to this Amendment. (E) If a Former Security Federal Employee became a member of the FIRF before July 1, 1983 and retires on or after Age 55, he shall receive a retirement adjustment payment in a single sum equal to three (3) times his monthly benefit amount, as determined and payable as of his Annuity Starting Date, before adjustment for any optional method of payment. C-13 (F) A Former Security Federal Employee who is receiving retirement benefits and who has attained Age 65 shall receive an annual payment as of the end of each calendar year equal to one percent (! %) of his annual benefit multiplied by the number of years from the calendar year in which the retiree reached Age 65 to the current Plan Year at the end of which such adjustment is payable. No such payment shall be made after the retiree's death; provided, that if he had elected a contingent annuitant who is alive on the later of (i) the date of the retiree's death, or (ii) the date the retiree would have attained Age 66, such contingent annuitant shall be entitled to an annual payment as of the end of each calendar year equal to one percent (1%) of the contingent annuitant's annual benefit multiplied by the number of years from the calendar year in which the retiree reached Age 65 (or would have reached Age 65) to the current Plan Year at the end of which such adjustment is payable. Upon the contingent annuitant's death, no further such payment shall be made. (G) The lump-sum Actuarial Equivalent of a benefit with an Annuity Starting Date before the date this Amendment is executed shall be determined using the mortality table and interest rate specified in the FIRF. The lump-sum Actuarial Equivalent of a benefit with an Annuity Starting Date after the date this Amendment is executed shall be determined using the mortality table and interest rate specified in Section 2.4; provided, that for the period beginning on the date of execution and ending one year later, the interest rate determination date shall be the date under the provisions of the Plan or the date under the provisions of the FIRF, whichever produces the larger distribution; and provided further, that the lump sum shall not be less than the actuarial equivalent of the Accrued Benefit on the date of execution of this Amendment, determined using an interest rate, determined by reference to the last month of each calendar quarter, equal to the average of the 10- and 20-year U.S. Treasury bond annual yields, as reported in the Federal Reserve Statistical Release (G. 13), rounded to the nearest 0.5 %, except that if the annual yield of 20-year U.S. Treasury bonds is not published, such rate shall be the annual yield of 10-year U.S. Treasury bonds, and the rate so determined shall be applicable to distributions made in the calendar quarter beginning three months later. (v) Wilkinson, Bulluck & Company. Wilkinson, Bulluck & Company ---------------------------- merged into the Employer on July 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of July 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Wilkinson, Bulluck & Company who became an Employee of the Employer as a result of the merger of Wilkinson, Bulluck & Company on C-14 July 1, 1993 shall begin to accrue Years of Credited Service under the Plan on July 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of June 30, 1993, were employees of Wilkinson, Bulluck & Company shall include all Years of Continuous Service completed since their date of employment with Wilkinson, Bulluck & Company. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (w) Carolina Savings Bank. Carolina Savings Bank merged into the --------------------- Employer on August 16, 1993. Effective August 16, 1993, all Participants in the Carolina Savings Bank Pension Plan shall become Participants in this Plan. Other employees of Carolina Savings Bank shall become Participants in this Plan on the later of September 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1. (1) Years of Credited Service for those Employees who, as of August 16, 1993, were employees of Carolina Savings Bank shall include all Years of Service completed as of April 30, 1993 with Carolina Savings Bank. In addition, Employees of Carolina Savings Bank shall be given credit for a Year of Credited Service for the 12-month period beginning May 1, 1993 and ending April 30, 1994, if such Employee would have completed 1,000 Hours of Service under the terms of the Carolina Savings Bank Pension Plan in effect prior to merger with this Plan. In addition, Years of Credited Service will be based on the terms of this Plan effective for the Plan Year beginning January 1, 1994. (2) Years of Continuous Service for those Employees who, as of August 16, 1993, were employees of Carolina Savings Bank shall include all Years of Service completed as of April 30, 1993 with Carolina Savings Bank. In addition, Employees of Carolina Savings Bank shall be given credit for a Year of Service for the 12-month period beginning-May 1, 1993 and ending April 30, 1994, if such Employee would have completed 1,000 Hours of Service under the terms of the Carolina Savings Bank Pension Plan in effect prior to merger with this Plan. In addition, Years of Continuous Service will be based on the terms of this Plan effective for the Plan Year beginning January 1, 1994. (3) The normal retirement benefit for non-highly compensated Employees shall be the greater of the normal retirement benefit calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company or the normal retirement benefit calculated under the terms of the Carolina Savings Bank Pension Plan (including the right to a lump sum payment). The normal retirement benefit for "highly compensated employees" (as defined in Code Section 414(q)) shall be calculated under the terms of the Retirement Plan for the Employees of Branch Banking and Trust Company but in no event shall the benefit for such Employee be less than his benefit calculated under the terms of C-15 the Carolina Savings Bank Pension Plan (including the right to a lump sum payment) on the later of August 16, 1993 or the date such employee is first considered to be "highly compensated". Each Participant will have a minimum lump sum calculated as the present value of the Accrued Benefit (as of August 16, 1993) under the Carolina Savings Bank Pension Plan using the definition of Actuarial Equivalent in effect for that plan on August 16, 1993. (x) Edenton Savings and Loan Association. Edenton Savings and Loan ------------------------------------ Association merged into the Employer on September 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of September 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Edenton Savings and Loan Association who became an Employee of the Employer as a result of the merger of Edenton Savings and Loan Association on September 1, 1993 shall begin to accrue Years of Credited Service under the Plan on September 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of August 31, 1993, were employees of Edenton Savings and Loan Association shall include all Years of Continuous Service completed since their date of employment with Edenton Savings and Loan Association. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (y) Ralph Carlton Insurance Agency. Ralph Carlton Insurance Agency ------------------------------ merged into the Employer on September 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of September 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Ralph Carlton Insurance Agency who became an Employee of the Employer as a result of the merger of Ralph Carlton Insurance Agency on September 1, 1993 shall begin to accrue Years of Credited Service under the Plan on September 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of August 31, 1993, were employees of Ralph Carlton Insurance Agency shall include all Years of Continuous Service completed since their date of employment with Ralph Carlton Insurance Agency. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. C-16 (z) Wall Insurance Agency. Wall Insurance Agency merged into the --------------------- Employer on October 1, 1993. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of October 1, 1993 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Wall Insurance Agency who became an Employee of the Employer as a result of the merger of Wall Insurance Agency on October 1, 1993 shall begin to accrue Years of Credited Service under the Plan on October 1, 1993 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of September 30, 1993, were employees of Wall Insurance Agency shall include all Years of Continuous Service completed since their date of employment with Wall Insurance Agency. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (aa) Old Stone Bank of North Carolina. Old Stone Bank of North -------------------------------- Carolina merged into the Employer on January 1, 1994. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of January 1, 1994 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Old Stone Bank of North Carolina who became an Employee of the Employer as a result of the merger of Old Stone Bank of North Carolina on January 1, 1994 shall begin to accrue Years of Credited Service under the Plan on January 1, 1994 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1993, were employees of Old Stone Bank of North Carolina shall include all Years of Continuous Service completed since their date of employment with Old Stone Bank of North Carolina. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (bb) Citizens Savings Bank, SSB, Newton. Citizens Savings Bank, ---------------------------------- SSB, Newton merged into the Employer on June 1, 1994. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of June 1, 1994 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Citizens Savings Bank, SSB, Newton who became an Employee of the Employer as a result of the merger of Citizens Savings Bank, SSB, C-17 Newton on June 1, 1994 shall begin to accrue Years of Credited Service under the Plan on June 1, 1994 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of May 31, 1994, were employees of Citizens Savings Bank, SSB, Newton shall include all Years of Continuous Service completed since their date of employment with Citizens Savings Bank, SSB, Newton. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (cc) Mutual Bank of Rockingham County, SSB. Mutual Savings Bank of ------------------------------------- Rockingham County, SSB merged into the Employer during 1993. These Employees shall become Participants in this Plan on the later of July 1, 1994 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) Any "highly compensated employee" (as defined in Code Section 414(q)) of the Employer who became an Employee of the Employer as a result of the merger of Mutual Savings Bank of Rockingham County, SSB during 1993 shall begin to accrue Years of Credited Service under the Plan on July 1, 1994 in accordance with Section 2.42. (2) Years of Credited Service for any non-highly compensated employee of the Employer who became an Employee of the Employer as a result of the merger of Mutual Savings Bank of Rockingham County, SSB during 1993 shall include all Years of Credited Service completed since their date of employment with Mutual Savings Bank of Rockingham County, SSB. (3) For purposes of vesting, Years of Continuous Service for those Employees who, immediately before the merger, were employees of Mutual Savings Bank of Rockingham County, SSB shall include all Years of Continuous Service completed since their date of employment with Mutual Savings Bank of Rockingham County, SSB. (4) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (dd) Citizens Savings Bank, SSB, Mooresville. Citizens Savings --------------------------------------- Bank, SSB, Mooresville merged into the Employer during 1993. These Employees shall become Participants in this Plan on the later of July 1, 1994 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) Years of Credited Service for an employee of Citizens Savings Bank, SSB, Mooresville who became an Employee of the Employer as a result of the merger of Citizens Savings Bank, SSB, Mooresville during 1993 shall include all Years C-18 of Credited Service completed since their date of employment with Citizens Savings Bank, SSB, Mooresville. (2) For purposes of vesting, Years of Continuous Service for those Employees who, immediately before the merger, were employees of Citizens Savings Bank, SSB, Mooresville shall include all Years of Continuous Service completed since their date of employment with Citizens Savings Bank, SSB, Mooresville. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (ee) Cummings LeGrande Insurance Agency. Cummings LeGrande ---------------------------------- Insurance Agency merged into the Employer on July 1, 1994. Consistent with the general policies established in Section 17.1 of the Plan, these Employees shall become Participants in this Plan on the later of July 1, 1994 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Cummings LeGrande Insurance Agency who became an Employee of the Employer as a result of the merger of Cummings LeGrande Insurance Agency on July 1, 1994 shall begin to accrue Years of Credited Service under the Plan on July 1, 1994 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of June 30, 1994, were employees of Cummings LeGrande Insurance Agency shall include all Years of Continuous Service completed since their date of employment with Cummings LeGrande Insurance Agency. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.1. (ff) Lexington State Bank. The Lexington State Bank Pension Plan -------------------- merged into this Plan on December 31, 1994. Consistent with the general policies established in Section 17.1 above, these Employees shall become Participants in this Plan on the later of December 31, 1994 or the first Entry Date coincident with or next following completion of the requirements of Section 3.1 (with retroactive service granted for such purpose). (1) An employee of Lexington State Bank who became an Employee of the Employer as a result of the merger of Lexington State Bank shall begin to accrue Years of Credited Service under the Plan on January 1, 1995 in accordance with Section 2.42. (2) For purposes of vesting, Years of Continuous Service for those Employees who, as of December 31, 1994, were employees of Lexington State Bank shall include all Years of Continuous Service completed since their date of employment with Lexington State Bank. (3) The normal retirement benefit for such Employees shall be determined C-19 according to Section 5.1. (4) The monthly normal retirement benefit of a former employee of Lexington State Bank who became an Employee of the Employer as a result of the acquisition of the Employee's place of employment by the Employer, shall equal the sum of subsection 5.1(a) or subsection 5.1(b) of this Plan, whichever is applicable, and the benefit, if any, the Employee had accrued under The Lexington State Bank Pension Plan and Trust Agreement as of December 31, 1994. (5) Participants who were at least partially vested under the terms of The Lexington State Bank Pension Plan as of December 31, 1994 shall be subject to the following vesting schedule: Number of Years of Continuous Service Percentage --------------------- ---------- Less than 3 0% 3 20% 4 40% 5 100% All other Participants shall be subject to the vesting schedule contained in Section 6.1 of the Plan. C-20 EXHIBIT D SPECIAL PROVISIONS OF MERGING COMPANIES PRIOR TO JANUARY 1, 1996 UNDER THE SOUTHERN NATIONAL PREDECESSOR PLAN The following is a summary of the special rules that apply to certain participants in the plan who were employees of a company or business that was merged into or acquired by the Company or one of its affiliates prior to January 1, 1996. Unless otherwise indicated by the context, all defined terms used herein shall have the meanings assigned to them in the Southern National predecessor plan and all Section references shall be to the Southern National predecessor plan. (a) The Bank of Charlotte merged into the Employer on January 1, 1970. Permanent full-time salaried employees of the Bank of Charlotte on July 31, 1970 shall become participants in this Plan on January 1, 1970. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of July 31, 1970, were permanent full-time salaried employees of the Bank of Charlotte and who continue as an Employee of the Employer for a period of one year thereafter, shall include all Years of Benefit Service completed since their date of employment with the Bank of Charlotte (but not to exceed 20 years as of January 1, 1970). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of July 31, 1970, were permanent full-time salaried employees of the Bank of Charlotte and who continue as an Employee of the Employer for a period of one year thereafter, shall include all Years of Vesting Service completed since their date of employment with the Bank of Charlotte (but not to exceed ten years as of August.3, 1970). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (b) Lafayette Bank merged into the Employer on April 1, 1977. Employees of Lafayette Bank shall become participants in this Plan following completion of the requirements of Section 2.01. (1) For purposes of benefit accrual, Employees of Lafayette Bank shall begin to accrue Years of Benefit Service under this Plan on April 1, 1977. (2) For purposes of vesting, Employees of Lafayette Bank shall begin to accrue Years of Vesting Service under this Plan on April 1, 1977. (3) The normal retirement benefit for such Employees shall be determined D-1 according to Section 5.01. (c) NCNB (Goldsboro Office) merged into the Employer on March 1, 1979. Employees of NCNB (Goldsboro Office) shall become participants in this Plan following completion of the requirements of Section 2.01. (1) For purposes of benefit accrual, Employees of NCNB (Goldsboro Office) shall begin to accrue Years of Benefit Service under this Plan on March 1, 1979. (2) For purposes of vesting, Employees of NCNB (Goldsboro Office) shall begin to accrue Years of Vesting Service under this Plan on March 1, 1979. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (d) Carolina State Bank merged into the Employer on October 1, 1979. Employees of Carolina State Bank shall become participants in this Plan on October 1, 1979. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of October 1, 1979, were employees of Carolina State Bank, shall include all Years of Benefit Service completed since their date of employment with Carolina State Bank (but not to exceed 20 years as of October 1, 1979). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of October 1, 1979, were employees of Carolina State Bank, shall include all Years of Vesting Service completed since their date of employment with Carolina State Bank (but not to exceed 20 years as of October 1, 1979). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (e) Forsyth Bank and Trust Company merged into the Employer on March 30, 1982. Employees of Forsyth Bank and Trust Company shall become participants in this Plan on March 30, 1982. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of March 30, 1982, were employees of Forsyth Bank and Trust Company, shall include all Years of Benefit Service completed since their date of employment with Forsyth Bank and Trust Company (but not to exceed 20 years as of March 30, 1982). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of March 30, 1982, were employees of Forsyth Bank and Trust Company, shall D-2 include all Years of Vesting Service completed since their date of employment with Forsyth Rank and Trust Company (but not to exceed 20 years as of March 30, 1982). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or, after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (f) Community Bank of Carolina merged into the Employer on March 30, 1984. Employees of Community Bank of Carolina shall become participants in this Plan on March 30, 1984. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of March 30, 1984, were employees of Community Bank of Carolina, shall include all Years of Benefit Service completed since their date of employment with Community Bank of Carolina (but not to exceed 20 years as of March 30, 1984). (2) For purposes of vesting, Years of Vesting Service for those. Employees who, as of March 30, 1984 were employees of Community Bank of Carolina, shall include all Years of Vesting Service completed since their date of employment with Community Bank of Carolina (but not to exceed 20 years as of March 30, 1984). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (g) First National Bank of Anson County merged into the Employer on March 30, 1984. Employees of First National Bank of Anson County shall become participants in this Plan on March 30, 1984. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of March 30, 1984, were employees of First National Bank of Anson County, shall include all Years of Benefit Service completed since their date of employment with First National Bank of Arson County (but not to exceed four years as of March 30, 1984). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of March 30, 1984, were employees of First National Bank of Anson County, shall include all Years of Vesting Service completed since their date of D-3 employment with First National Bank of Anson County (but not to exceed four years as of March 30, 1984). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (h) Cherryville National Bank merged into the Employer on March 30, 1984. Employees of Cherryville National Bank shall become participants in this Plan on March 30, 1984. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of March 30, 1984, were employees of Cherryville National Bank, shall include all Years of Benefit Service completed since their date of employment with Cherryville National Bank (but not to exceed one year as of March 30, 1984). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of March 30, 1984, were employees of Cherryville National Bank, shall include all Years of Vesting Service completed since their date of employment with Cherryville National Bank (but not to exceed one year as of March 30, 1984). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (i) First Union National Bank (Hickory and Statesville offices) merged into the Employer on March 10, 1986. Employees of First Union National Bank (Hickory and Statesville offices) shall become participants in this Plan on March 10, 1986. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of March 10, 1986, were employees of First Union National Bank (Hickory and Statesville offices), shall include all Years of Benefit Service completed since their date of employment with First Union National Bank. (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of March 10, 1986, were employees of First Union National Bank (Hickory and Statesville offices), shall include all Years of Vesting Service completed since their date of employment with First Union National Bank. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. D-4 (j) Horry County National Bank merged into the Employer on March 31, 1986. Employees of Horry County National Bank shall become participants in this Plan on March 31, 1986. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of March 31, 1986, were employees of Horry County National Bank, shall include all Years of Benefit Service completed since their date of employment with Horry County National Bank (but not to exceed 20 years as of March 31, 1986). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of March 31, 1986 were employees of Horry County National Bank, shall include all Years of Vesting Service completed since their date of employment with Horry County National Bank (but not to exceed 20 years as of March 31, 1986). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (k) Capital Bank and Trust merged into the Employer on December 31, 1986. Employees of Capital Bank and Trust shall become participants in this Plan on December 31, 1986. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of December 31, 1986, were employees of Capital Bank and Trust, shall include all Years of Benefit Service completed since their date of employment with Capital Bank and Trust (but not to exceed 20 years as of December 31, 1986). (2) Far purposes of vesting, Years of Vesting Service for those Employees who, as of December 31, 1986, were employees of Capital Bank and Trust, shall include all Years of Vesting Service completed since their date of employment with Capital Bank and Trust (but not to exceed 20 years as of December 31, 1986). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. D-5 (l) First Palmetto State Bank merged into the Employer on December 31, 1986. Employees of First Palmetto State Bank shall become participants in this Plan on December 31, 1986. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of December 31, 1986, were employees of First Palmetto State Bank, shall include all Years of Benefit Service completed since their date of employment with First Palmetto State Bank (but not to exceed 20 years as of December 31, 1986). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of December 31, 1986, were employees of First Palmetto State Bank, shall include all Years of Vesting Service completed since their date of employment with First Palmetto State Bank (but not to exceed 20 years as of December 31, 1986). Provided further that beginning January 1, 1991 and thereafter, far Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (m) Liberty National Bank merged into the Employer on July 1, 1987. Employees of Liberty National Bank shall become participants in this Plan following completion of the requirements of Section 2.01. (1) For purposes of benefit accrual, Employees of Liberty National Bank shall begin to accrue Years of Benefit Service under this Plan on July 1, 1987. (2) For purposes of vesting, Employees of Liberty National Bank shall begin to accrue Years of Vesting Service under this Plan on July 1, 1987. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (n) Union National Bank merged into the Employer on October 31, 1987. Employees of Union National Bank shall become participants in this Plan on October 31, 1987. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of October 31, 1987, were employees of Union National Bank, shall include all Years of Benefit Service completed since their date of employment with Union National Bank. (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of October 31, 1987, were employees of Union National Bank, shall include all D-6 Years of Vesting Service completed since their date of employment with Union National Bank. (3) Employees who, as of December 31, 1987, were employees of Union National Bank and had five or more Years of Vesting Service, will be eligible for early retirement upon attainment of age 55 regardless of their Years of Vesting Service if they are still employed at that time. (4) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (o) Western Carolina Savings and Loan merged into the Employer on August 31, 1990. Employees of Western Carolina Savings and Loan shall become participants in this Plan on August 31, 1990. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of August 31, 1990, were employees of Western Carolina Savings and Loan, shall include all Years of Benefit Service completed since their date of employment with Western Carolina Savings and Loan (but not to exceed ten years as of August 31, 1990). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of August 31, 1990, were employees of Western Carolina Savings and Loan, shall include all Years of Vesting Service completed since their date of employment with Western Carolina Savings and Loan (but not exceed ten years as of August 31, 1990). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (4) Former employees of Western Carolina Savings and Loan shall be subject to the following vesting schedule: Years of Vesting Service Percentage ------------------------ ---------- Less than 2 years 0% 2 years 20% 3 years 40% 4 years 60% 5 years or more 100% (5) A former employee of Western Carolina Savings and Loan may elect the actuarial equivalent of his accrued benefit as of August 31, 1990 determined D-7 under the terms of the Western Carolina Savings and Loan Pension Plan in a lump sum payment (using the actuarial equivalence factors provided under the Western Carolina Savings and Loan Pension Plan as in effect on August 31, 1990). The difference between his total accrued benefit under this Plan and his accrued benefit as of August 31, 1990 shall be paid in accordance with Section 5.6 of this Plan. (p) Mutual Federal Savings and Loan Association, Inc. merged into the Employer on September 30, 1990. Employees of Mutual Federal Savings and Loan Association, Inc. shall become participants in this Plan on September 30, 1990. (1) For purposes of benefit accrual, Years of Benefit Service for those Employees who, as of September 30, 1990, were employees of Mutual Federal Savings and Loan Association, Inc., shall include all Years of Benefit Service completed since their date of employment with Mutual Federal Savings and Loan Association, Inc. (but not to exceed seven years as of September 30, 1990). (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of September 30, 1990, were employees of Mutual Federal Savings and Loan Association, Inc., shall include all Years of Vesting Service completed since their date of employment with Mutual Federal Savings and Loan Association, Inc. (but not exceed seven years as of September 30, 1990). Provided further that beginning January 1, 1991 and thereafter, for Employees still in service on or after that date, no maximum shall be applied to the Years of Vesting Service credited for any purpose under the Plan. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (4) Former employees of Mutual Federal Savings and Loan Association, Inc. shall be subject to the following vesting schedule: Years of Vesting Service Percentage ------------------------ ---------- Less than 2 years 0% 2 years 20% 3 years 40% 4 years 60% 5 years or more 100% (5) A former employee of Mutual Federal Savings and Loan Association, Inc. may elect the actuarial equivalent of his accrued benefit as of September 30, 1990 determined under the terms of the Mutual Federal Savings and Loan Association, Inc. Pension Plan in a lump sum payment (using the actuarial D-8 equivalence factors provided under the Mutual Federal Savings and Loan Association, Inc. Pension Plan as in effect on September 30, 1990). The difference between his total accrued benefit under this Plan and his accrued benefit as of September 30, 1990 shall be paid in accordance with Section 5.6 of this Plan. (q) Workman's Federal Savings Bank merged into the Employer on March 20, 1992. Employees of Workman's Federal Savings Bank shall become participants in this Plan on July 1, 1992. (1) For purposes of benefit accrual, Employees of Workman's Federal Savings Bank shall begin to accrue Years of Benefit Service under this Plan on July 1, 1992. (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of March 20, 1992, were employees of Workman's Federal Savings Bank shall include all Years of Vesting Service completed since their date of employment with Workman's Federal Savings Bank. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (4) Former employees of Workman's Federal Savings Bank shall be subject to the following vesting schedule: Years of Vesting Service Percentage ------------------------ ---------- Less than 2 years 0% 2 years 20% 3 years 40% 4 years 60% 5 years or more 100% (5) A former employee of Workman's Federal Savings Bank may elect the actuarial equivalent of his accrued benefit as of June 30, 1992 determined under the terms of the Workman's Federal Savings Bank Pension Plan in a lump sum payment (using the actuarial equivalence factors provided under the Workman's Federal Savings Bank Pension Plan as in effect on June 30, 1992). The difference between his total accrued benefit under this Plan and his accrued benefit as of June 30, 1992 shall be paid in accordance with Section 5.6 of this Plan. (r) FedFirst Bancshares, Inc. merged into the Employer on January 29, 1993. Employees of FedFirst Bancshares, Inc. shall become participants in this Plan following completion of the requirements of Section 2.01. D-9 (1) For purposes of benefit accrual, Employees of FedFirst Bancshares, Inc. shall begin to accrue Years of Benefit Service under this Plan on January 29, 1993. (2) For purposes of vesting, Employees of FedFirst Bancshares, Inc. shall begin to accrue Years of Vesting Service under this Plan on January 29, 1993. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (s) Home Federal Savings Bank, FSB merged into the Employer on February 24, 1994. Employees of Home Federal Savings Bank, FSB shall become participants in this Plan following completion of the requirements of Section 2.01. (1) For purposes of benefit accrual, Employees of Home Federal Savings Bank, FSB shall begin to accrue Years of Benefit Service under this Plan on February 24, 1994. (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of February 2.4, 1994, were employees of Home Federal Savings Bank, FSB shall include all Years of Vesting Service completed since their date of employment with Home Federal Savings Bank, FSB. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. (t) Regency Bancshares, Inc. merged into the Employer on January 31, 1994. Employees of Regency Bancshares, Inc. shall become participants in this Plan following completion of the requirements of Section 2.01. (1) For purposes of benefit accrual, Employees of Regency Bancshares, Inc. shall begin to accrue Years of Benefit Service under this Plan on January 31, 1994. (2) For purposes of vesting, Years of Vesting Service for those Employees who, as of January 31, 1994, were employees of Regency Bancshares, Inc., shall include all Years of Vesting Service completed since their date of employment with Regency Banc-shares, Inc. (3) The normal retirement benefit for such Employees shall be determined according to Section 5.01. D-10 SPECIAL PROVISIONS APPLICABLE TO CERTAIN FORMER EAST COAST EMPLOYEES ----------------------------------- 1. Applicability and Scope ----------------------- (a) The provisions of pages D-12, D-13 and D-14 of this Exhibit D apply in addition to the other terms of the Southern National Retirement Plan (the "Plan"). Any situation not addressed by the provisions of this Exhibit D are controlled by the general terms of the Plan. (b) The provisions of pages D-12, D-13 and D-14 of this Exhibit D apply to East Coast Affected Participants and other former East Coast employees. (c) Except as provided in 3(a), (f) or (h), the provisions of pages D-12, D-13 and D-14 of this Exhibit D apply only with respect to the East Coast Amount. 2. Definitions ----------- For purposes of pages D-12, D-13 and D-14 of this Exhibit D, any term defined below has the indicated meaning. Any term used in pages D-12, D-13 and D-14 of this Exhibit D that is not defined below has the meaning set forth in the Plan. (a) East Coast Affected Participant means any participant who was a ------------------------------- participant in, and had an accrued benefit under, the East Coast Plan on October 7, 1993, and whose accrued benefit, as defined under the East Coast Plan, and the assets and liabilities relating thereto, were transferred to the Plan as of December 31, 1993. (b) East Coast means East Coast Savings Bank, SSB and its affiliates. ---------- (c) East Coast Amount means with respect to each East Coast Affected ----------------- Participant, such East Coast Affected Participant's accrued benefit, as defined under the East Coast Plan, transferred to the Plan from the East Coast Plan as of December 31, 1993. (d) East Coast Plan means the East Coast Federal Savings Bank Employees' --------------- Pension Plan, as amended through December 31, 1993. 3. Special Provisions ------------------ (a) Eligibility. Each employee of East Coast on October 7, 1993, ----------- employed by an Employer on October 8, 1993, shall become a Participant in the Plan an October 8, 1993, if they are otherwise eligible, taking into account their service with East Coast. Persons employed by East Coast on October 7, 1993, who were not participants in the East Coast Plan on such date, and who were employed by an Employer on October 8, 1993, shall be eligible to participate in the Plan as of the entry date coincident with or next following completion of one year of Eligibility Service, as defined in the Plan, taking into account their service with East Coast. (b) Normal Retirement Date. Without regard to section 1.24, Normal ---------------------- Retirement Date for East Coast Affected Participants shall mean the earlier of (i) an East Coast Affected Participant's 65th D-11 birthday, or (ii) the date an East Coast Affected Participant has attained age 62 and completed 30 Years of Service. (c) Disability. Without regard to Sections 4.08, Disability Conditions and ---------- 5.07, Disability, East Coast Affected Participants who terminate employment with an Employer prior to their Normal Retirement Date because of a "disability" shall be entitled to receive their accrued benefit under the East Coast Plan, determined as of October 7, 1993, as of their termination of employment reduced for early commencement in the following manner: by 1/180 for each of the first 60 months and 1/360 for each of the next 60 months by which the starting date of the benefit precedes their Normal Retirement Date and reduced actuarially in accordance with Plan Section 5.03 for each additional month by which the commencement of the East Coast Affected Participant's benefit commencement date precedes such Participant's Normal Retirement Date. In addition, the East Coast Affected Participant will be 100 percent vested in his or her accrued benefit under the East Coast Plan, determined as of October 7, 1993, upon such termination. "Disability" for purposes of this paragraph shall mean: (i) a condition that qualifies an East Coast Affected Participant for disability benefits sponsored by the Employer under an insured disability income plan, or (ii) if no such benefits are provided, then a condition resulting from a physical or mental impairment that renders an East Coast Affected Participant unable to engage in any substantial gainful occupation, which on the basis of competent medical opinion satisfactory to the Committee, meets the following requirements: (i) the East Coast Affected Participant has become totally disabled by bodily injury, disease or mental disorder and is unable to perform any and every duty of any gainful occupation for which he or she is reasonably fitted by training, education, or experience; and (ii) such disability has continued for a period of six consecutive months and will likely be permanent and continuous for the remainder of the East Coast Affected Participant's lifetime. However, no East Coast Affected Participant shall be deemed to have a "Disability" if such disability results from chronic alcoholism, addiction to narcotics, injury, or injury incurred while engaging in any illegal or felonious enterprise, intentionally self-inflicted injury, or injury incurred while serving in the armed forces of any country. The Employer may require proof of continued Disability from time to time, but not more frequently than once in any six-month period. (d) In service distributions. East Coast Affected Participants are not ------------------------ required to separate from service in order to begin receiving benefits on or after their Normal Retirement Dates. An East Coast Affected Participant may elect to begin receiving his or her accrued benefit on the first day of any month on or after the East Coast Affected Participant's Normal Retirement Date. On the actual retirement of an East Coast Affected Participant who has not elected to commence receiving benefits on or after his or her Normal Retirement Date, such Participant will be entitled to a distribution of any benefit accrued under the Plan. (e) Optional forms of payment of retirement benefits. Each East Coast ------------------------------------------------ Affected Participant who is entitled to a retirement benefit, or who is a Terminated Vested Participant whose accrued benefit and related assets have been transferred to the Plan, shall, in addition to the right to have such benefit distributed under the optional forms available under the Plan, have the right to receive the Actuarial Equivalent of the East Coast Amount payable in the form of: (1) A life annuity providing for 180 or 240 minimum guaranteed monthly payment. (2) With appropriate consents and elections, a lump sum payment of the Actuarial Equivalent of a Participant's retirement benefit, if the amount is less than $12,000. Furthermore, D-12 if the lump sum value exceeds $ 3,500, the Participant must be offered an immediately payable Qualified Joint and Survivor Annuity before the lump sum may be paid. (f) Past service credit. Each former East Coast employee shall receive ------------------- credit for all service with East Coast through October 7, 1993, recognized for the applicable purpose (other than benefit accrual purposes) under the East Coast Plan through October 7, 1993, to the extent such service would have been taken into account under the Plan if it were service with an Employer, including but not limited to Early Retirement and Disability. (g) Vesting. Further, each East Coast Affected Participant in the employ ------- of East Coast or any subsidiary or affiliate thereof on July 1, 1993, who remained in the employ of such entities thereafter will be entitled to one- twelfth of a year of credited service under the Plan for each full or partial month of service completed from July 1 through December 31, 1993, the date benefit accruals were discontinued under the East Coast Plan. In the case of the short East Coast Plan Year ending December 31, 1993, an East Coast Affected Participant who was credited with 1,000 hours of service in the 12-consecutive month period ending on that date shall be credited with a year of service for vesting purposes under the Plan. (h) Benefit accruals. The benefit of a former East Coast employee who was ---------------- employed by East Coast on October 7, 1993, and who is employed by Southern National Bank of North Carolina or an affiliate of Southern National Corporation (collectively "SNC") on October 8, 1993, and becomes a Participant hereunder on October 8, 1993, or the date such person first satisfies the Plan's eligibility requirements taking into account the person's East Coast service, shall be the sum of the person's East Coast Amount, plus benefits accrued under the Plan for service on or after October 8, 1993. (i) Vested Accrued Benefits and benefits in pay status. The vested accrued -------------------------------------------------- benefits and benefits in pay status of former participants in the East Coast Plan who do not become eligible to actively participate in the Plan shall be held under and paid from the Plan in accordance with the elected distribution form. D-13 SPECIAL PROVISIONS APPLICABLE TO FORMER FSB EMPLOYEES -------------------- 1. Applicability and Scope ----------------------- (a) The provisions of pages D-15, D-16 and D-17 this Exhibit D apply in addition to the other terms of the Southern National Retirement Plan (the "Plan"), of which this Exhibit D is a part. Any situation not addressed by the provisions of this Exhibit D are controlled by the general terms of the Plan. (b) The provisions of pages D-15, D-16 and D-17 this Exhibit D apply only to FSB Affected Participants and other former FSB employees. (c) Except as provided in 3(a), (f) or (h), the provisions of pages D-15, D-16 and D-17 of this Exhibit D apply only with respect to the FSB Amount. 2. Definitions ----------- For purposes of pages D-15, D-16 and D-17 of this Exhibit D, any term defined below will have the indicated meaning. Any term used in pages D-15, D-16 and D-17 of this Exhibit D that is not defined below has the meaning set forth in the Plan. (a) FSB Affected Participant means any participant who was a participant ------------------------ in the FSB Plan on January 28, 1994 who had an accrued benefit under the FSB Plan as of December 31, 1993, and whose accrued benefit, as defined under the FSB Plan, and the assets and liability relating thereto, were transferred to the Plan. (b) FSB means The First Savings Bank, FSB and its affiliates. --- (c) FSB Amount means with respect to each FSB Affected Participant, such ---------- FSB Affected Participant's accrued benefit, as defined under the FSB Plan, as of December 31, 1993, and transferred to the Plan. (d) FSB Plan means The First Savings Bank, FSB Pension Plan and Trust -------- Agreement, as amended through January 1, 1994. 3. Special Provisions ------------------ (a) Eligibility. Each employee of FSB on January 28, 1994, employed by an ----------- Employer on January 29, 1994, shall become a Participant in the Plan on January 29, 1994, if he or she is otherwise eligible, taking into account his or her service with FSB. Persons employed by FSB on January 28, 1994, who were not participants in the FSB Plan on such date, and who were employed by an Employer on January 29, 1994, shall be eligible to participate in the Plan as of the entry date coincident with or next following the completion of one year of Eligibility Service, as defined in the Plan, taking into account such individual's service with FSB. (b) Early Retirement Date. Without regard to Sections 4.04, early --------------------- Retirement Conditions D-14 and 5.03, Early Retirement Benefit, FSB Affected Participants shall be eligible to retire on the first day of any month which is coincident with or following the date that the FSB Affected Participant has attained age 50 and completed 10 years of Vesting Service and to commence receiving their FSB Amount. The FSB Amount due at early retirement shall be equal to the FSB Affected Participant's fully vested, Accrued Benefit at the time of such early retirement reduced by 1/15 for each of the first five years and 1/30 for each of the next five years by which the commencement date precedes such FSB Affected Participant's Normal Retirement Date, and actuarially reduced for each additional year by which such FSB Affected Participant's Early Retirement Date precedes the FSB Affected Participant's Normal Retirement Date. (c) Disability. Without regard to Sections 4.08, Disability Conditions and ---------- 5.07, Disability, FSB Affected Participants who terminate employment with an Employer prior to their Normal Retirement Date because of a "disability" shall be fully vested in and entitled to receive their FSB Amount, as of their termination of employment, actuarially reduced for early commencement and calculated in the same manner as early retirement as described in (b) above. "Disability" for this purpose shall mean total and permanent physical or mental incapacity of a FSB Affected Participant to perform the duties of his or her employment with an Employer, unless such physical or mental incapacity occurs as a result of a willful act or gross negligence of the FSB Affected Participant. Such incapacity shall be established by examination by a medical doctor selected or approved by the Committee. (d) In service distributions. FSB Affected Participants are not required ------------------------ to separate from service in order to begin receiving Normal Retirement Benefits or Delayed Retirement Benefits. A FSB Affected Participant may elect to begin receiving his or her FSB Amount at the FSB Affected Participant's Normal Retirement Date although the FSB Affected Participant continues in the employ of the Employer beyond such date. At the FSB Affected Participant's actual retirement date under the Plan, a FSB Affected Participant who elected to start receiving his or her FSB Amount shall be entitled to a distribution of any additional benefits accrued under the Plan. (e) Optional forms of payment of retirement benefits. Each FSB Affected ------------------------------------------------ Participant who is entitled to a retirement benefit, or who is a Terminated Vested Participant whose accrued benefit and related assets have been transferred to the Plan, shall, in addition to the right to have such benefit distributed under the optional form available under the Plan, have the right to receive the Actuarial Equivalent of his or her FSB Amount in the form of: (1) A single annuity for the Participant's life. Upon the Participant's death, his or her Beneficiary shall be entitled to a cash refund equal to the excess, if any, of the actuarially equivalent value of a single lump sum payment as of the date payments began less the total of all benefits which have been paid to the Participant at the time of his or her death. (2) A joint and 50 percent survivor annuity with 120 monthly payments guaranteed. (3) A joint and 100 percent survivor annuity with 120 monthly payments guaranteed. (4) A single lump sum payment if the FSB Affected Participant was initially hired by FSB on or before January 1, 1987. D-15 (5) A single lump sum payment if the FSB Affected Participant was initially hired by FSB after January 1, 1987 and the lump sum payment is $10,000 or less. Notwithstanding the above, the $10,000 limitation in the preceding paragraph shall not apply in the case of a FSB Affected Participant who elects to participate in the Special Early Retirement Window described in Plan Section 5.03(b) (the "Window"). (f) Past service credit. Each former FSB employee shall receive credit for ------------------- all service with FSB through January 28, 1994, recognized for the applicable purpose (other than benefit accrual purposes) under the FSB Plan through January 28, 1994, to the extent such service would have been taken into account under the Plan if it were service with an Employer, including but not limited to Early Retirement and Disability. (g) Benefit Accruals (1) The benefit of a former FSB employee who was employed by FSB on January 28, 1994, and who is employed by Southern National Bank of South Carolina or an affiliate of Southern National Corporation (collectively "SNC") on January 29, 1994, and who becomes a Participant hereunder on January 29, 1994, or the date such person first satisfies the Plan's eligibility requirements taking into account the person's FSB service, shall be the sum of such person's FSB Amount, plus benefits accrued under the Plan for service after December 31, 1993. (2) Each former FSB employee who was employed by FSB on January 28, 1994, and who was employed by SNC on January 29, 1994, shall, in addition to receiving credit for all service with FSB recognized under the FSB Plan for eligibility, vesting and other non-benefit accrual purposes under the Plan, be entitled to benefit accrual service under the Plan for their service with FSB on or after January 1, 1994. (3) Each former FSB employee who continues his or her employment after January 29, 1994, at the request of SNC but whose employment will be terminated on or after January 29, 1994, in conjunction with the acquisition of FSB by Southern National Corporation, effective January 28, 1994, and who is eligible to receive special severance benefits as a result thereof shall be eligible to receive one-twelfth of a year of credited service for benefit accrual purposes under the Plan for each full or partial calendar month such employee works for SNC after January 1, 1994, or receives severance payments under the special severance arrangement with SNC. (h) Vested Accrued Benefits and benefits in pay status. Vested accrued -------------------------------------------------- benefits and benefits in pay status of former participants in the FSB Plan who do not become eligible to actively participate in the Plan shall be held under and paid from the Plan in accordance with the elected form of distribution and in accordance with the terms of the Plan, as amended by this Exhibit. D-16 EXHIBIT E SPECIAL PROVISIONS OF MERGING COMPANIES AFTER JANUARY 1, 1996 AND PRIOR TO JANUARY 1, 2001 The following is a summary of the special rules that apply to certain participants in the plan who were employees of a company or business that was merged into or acquired by the Company or one of its affiliates on or after January 1, 1996 and prior to January 1, 2001. Unless otherwise indicated by the context, all defined terms used herein shall have the meanings assigned to them in the BB&T Corporation Pension Plan as amended and restated as of January 1, 1996 and all Section references shall be to such Plan. (a) United Carolina Bancshares Corporation. United Carolina --------------------------------------- Bancshares Corporation ("UCB") was acquired by BB&T Corporation on July 1, 1997 (the "Bank Merger"). As a result of the Bank Merger, BB&T Corporation became the sponsor of the Pension Plan for the Employees of United Carolina Bancshares Corporation (the "UCB Plan"). To create a single pension plan for the benefit of the eligible employees of BB&T Corporation and its affiliates, the UCB Plan was merged into the Plan effective as of December 31, 1997. The transferred UCB Plan assets will be used along with other Plan assets to fund the benefits provided under the Plan, including benefit obligations of the UCB Plan assumed by the Plan as a result of the merger. Effective as of January 1, 1998, each employee of UCB as of December 31, 1997 ("Former UCB Employee") shall become a Participant in the Plan, subject to the provisions of Section 3.1 and further subject to the following provisions: (1) A Former UCB Employee shall receive credit for Qualifying Years of Service and Years of Service for vesting purposes under the Plan, including his years of eligibility service and years of vesting service determined under the UCB Plan as in effect on December 31, 1997. A Former UCB Employee shall receive credit for Years of Service for benefit accrual under Section 2.43 of the Plan beginning January 1, 1998. (2) The normal retirement benefit for a Former UCB Employee shall be the sum of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) the normal retirement benefit determined under the terms of the UCB Plan as of December 31, 1997. (3) A former Richmond County Bank Profit Sharing Plan participant (a "Former Richmond Participant") shall be fully vested in his account balance under the Richmond County Bank Profit Sharing Plan as of December 31, 1983, which shall be credited with interest until the date on which it becomes payable under the Plan at the interest rate being used by the Plan from time to time for actuarial funding purposes (the "Account"). Benefits payable with respect to a Former Richmond Participant shall be determined as follows: E-1 (A) If a Former Richmond Participant terminates employment and becomes entitled to payment of benefits under the Plan, the present value of such benefits shall be determined and compared with the amount in his Account. Benefits shall be payable as follows: (I) If the value of the Account is greater than the present value of the benefits, then the Former Richmond Participant shall be entitled to receive the value of the Account. The Former Richmond Participant may elect, subject to the appropriate spousal waiver, that the value of his Account be paid to him as a lump sum distribution as soon as practicable after he becomes entitled to payment, and such payment shall be in full satisfaction of the Former Richmond Participant's rights under the Plan. If the Former Richmond Participant elects, subject to the appropriate spousal waiver, to receive his benefits as a lump sum and is later rehired, any benefits thereafter payable to such Former Richmond Participant under the Plan shall not include any Years of Service prior to his date of termination, subject to the Break in Service rules provided herein. If the Former Richmond Participant does not elect, subject to the appropriate spousal waiver, to have his benefits paid as a lump sum, his benefits will be paid to him in the form and at the time provided in Article 5 of the Plan. (II) If the present value of his benefits under the Plan is greater than his Account, then the Former Richmond Participant shall have the right to elect, subject to the appropriate spousal waiver, a lump sum payment of the amount of his Account. In such event, the Former Richmond Participant's benefits under the Plan shall be recalculated by deducting from the present value of his benefits the amount of the Former Richmond Participant's Account. The remaining benefit shall be payable to the Former Richmond Participant in the manner and at the time provided in Article 5 of the Plan. If the Former Richmond Participant does not elect, subject to the appropriate spousal waiver, to receive his Account as a lump sum, then his entire benefit under the Plan shall be paid to him in the manner and at the time provided in Article 5. (B) If a Former Richmond Participant dies while actively employed, and his surviving Spouse or other Beneficiary is entitled to E-2 benefits under Article 7 of the Plan, the comparisons provided in subparagraphs (A)(1) and (2) shall be made, and the surviving Spouse or other Beneficiary shall be entitled to make the election regarding lump sum payment, subject to the appropriate survivor annuity waiver. (4) The benefit determined under subparagraph (2) or (3) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) Subject to the election provisions of Article 5 of the Plan, the following methods of payment shall be available in addition to those provided in Section 5.6 of the Plan: (I) the Actuarial Equivalent present value of the Participant's vested Accrued Benefit; provided, that such amount does not exceed $10,000; or (II) solely with respect to former participants in the Triad Bank Employees' Pension Plan, a joint and 75 percent survivor annuity payable to the Participant or Inactive Participant during his lifetime and thereafter in the same monthly amount to his Beneficiary; a fifteen year certain and life annuity; or a twenty year certain and life annuity. (B) Subject to the election provisions of Article 5 of the Plan, a Participant who terminates employment may elect to receive payment of his vested Accrued Benefit in a lump sum distribution; provided, that the Actuarial Equivalent present value of such benefit does not exceed $10,000. Subject to the appropriate survivor annuity waiver, a surviving Spouse or other Beneficiary may elect to receive benefits on account of the death of a Participant or Inactive Participant in a lump sum distribution; provided, that the Actuarial Equivalent present value of such benefit does not exceed $10,000. (C) Optional methods of payment with respect to the benefit payable under subparagraph (2)(B), including the options in subparagraph (4)(A) above, shall be determined using the mortality table and interest rate specified in the Plan; provided, that in no event shall the amount payable under any such optional method of payment be less than the amount determined using the mortality table and interest rate specified in the UCB Plan and based on the Participant's accrued benefit under the terms of the UCB Plan as of December 31, 1997. (b) Maryland Federal Bancorp, Inc. Maryland Federal Bancorp, Inc. ------------------------------ ("Maryland Federal") was acquired by the Employer on September 30, 1998, and the Maryland Federal Savings and Loan Association Retirement Plan (the "Maryland Federal Plan") was merged into the Plan effective December 31, 1998. The transferred Maryland Federal Plan assets will be used along with E-3 other Plan assets to fund the benefits provided under the Plan, including benefit obligations of the Maryland Federal Plan assumed by the Plan as a result of the merger. Effective January 1, 1999, each employee of Maryland Federal as of December 31, 1998 ("Former Maryland Federal Employee") shall become a Participant in the Plan, subject to the provisions of Section 3.1 and further subject to the following provisions: (1) A Former Maryland Federal Employee shall receive credit for Qualifying Years of Service and Years of Service for vesting purposes under the Plan, including his years of credited service determined under the Maryland Federal Plan as in effect on December 31, 1998. Notwithstanding the foregoing, a Former Maryland Federal Employee who is credited with 1,000 Hours of Service during the 12-month period beginning on November 1, 1998 and ending on October 31, 1999 and with 1,000 Hours of Service during the period beginning on January 1, 1999 and ending on December 31, 1999 shall be credited with two Years of Service for vesting purposes under the Plan. A Former Maryland Federal Employee shall receive credit for Years of Service for benefit accrual under Section 2.43 beginning on January 1, 1999. (2) The normal retirement benefit for a Former Maryland Federal Employee shall be the sum of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) the normal retirement benefit determined under the terms of the Maryland Federal Plan as of December 31, 1998 (the "Maryland Federal Benefit"). For purposes of the preceding clause (B), a Former Maryland Federal Employee shall receive two-twelfths of a year of credited service, as determined under the Maryland Federal Plan as in effect on December 31, 1998, for the period beginning on November 1, 1998 and ending on December 31, 1998. The normal form of benefit under the Maryland Federal Plan was a ten-year certain and life annuity. For purposes of this subparagraph (2), the Maryland Federal Benefit shall be converted to the Normal Form of Benefit under the Plan using the factors in Table III attached to the Maryland Federal Plan. (3) The benefit determined under subparagraph (2) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) If a Participant retires early under the provisions of Section 5.2, any reduction to his Accrued Benefit due to commencement before his Normal Retirement Age shall be determined using the table specified in Section 5.2; provided, that in no event shall such reduced benefit be less than the amount determined using the early retirement reduction factors specified in the Maryland Federal Plan and based on the Participant's Maryland Federal Benefit. E-4 (B) If a Participant retires after his Normal Retirement Date under the provisions of Section 5.4, any actuarial increase in his Accrued Benefit at the Normal Retirement Date shall be determined according to the provisions of Section 5.4; provided, that in no event shall the amount of his benefit at actual retirement be less than the amount determined using the factors in Table II attached to the Maryland Federal Plan and based on the Participant's Maryland Federal Benefit. (C) Subject to the election provisions of Article 5, the following methods of payment shall be available in addition to those provided in Section 5.6: (I) the Actuarial Equivalent present value of the Participant's vested Accrued Benefit; (II) a joint and 66-2/3 percent survivor annuity, whereby a monthly installment shall be paid to the Participant or Inactive Participant during his lifetime, and thereafter 66-2/3 percent of such monthly amount shall be paid to his Beneficiary during the Beneficiary's lifetime; (III) a five-year certain and life annuity; (IV) a fifteen-year certain and life annuity; and (V) a twenty-year certain and life annuity. (D) Subject to the election provisions of Article 5, a Participant who terminates employment may elect to receive payment of his vested Accrued Benefit in a lump sum distribution or other applicable method of payment at any time. (E) Optional methods of payment with respect to the benefit payable under subparagraph (2), including the options in subparagraph (3)(C) above, shall be determined using the mortality table and interest rate specified in the Plan; provided, that in no event shall the amount payable under any such optional method of payment be less than the amount determined using the factors in Table III or Table IV attached to the Maryland Federal Plan, as applicable, or, for a lump sum, the actuarial equivalent factors specified in the Maryland Federal Plan, including the COLA percentages in Table I, but solely with respect to his accrued benefit under the Maryland Federal Plan as of October 31, 1996, and based on the Participant's Maryland Federal Benefit. (F) A Former Maryland Federal Employee who meets the requirements of Section 3.04 of the Maryland Federal Plan shall be entitled to a cost-of-living adjustment determined under the provisions of such Section 3.04 solely with respect to his accrued benefit under the Maryland Federal Plan as of October 31, 1996. E-5 (c) Life Bancorp, Inc. Life Bancorp, Inc. ("Life Bancorp") was ----------------- acquired by the Employer on March 1, 1998, and the employees of Life Bancorp as of such date ("Former Life Bancorp Employees") remained covered under the Financial Institutions Retirement Fund (the "FIRF") until withdrawal from the FIRF effective December 31, 1998. Effective January 1, 1999, each Former Life Bancorp Employee shall become a Participant in the Plan, subject to the provisions of Section 3.1 and further subject to the following provisions: (1) A Former Life Bancorp Employee who does not elect to transfer his accrued benefit under the FIRF, determined as of December 31, 1998, to the Plan shall receive credit solely for vesting purposes for Years of Service under the Plan for his years of vesting service determined under the FIRF as in effect on December 31, 1998. (2) A Former Life Bancorp Employee who elects to transfer his accrued benefit under the FIRF, determined as of December 31, 1998, (the "FIRF Benefit"), to the Plan shall be credited with Years of Service for vesting purposes under the Plan as determined under the FIRF as in effect on December 31, 1998, and with Years of Service for benefit accrual under Section 2.43 beginning on January 1, 1999. The provisions of subparagraphs (3) and (4) below shall apply solely to a Former Life Bancorp Employee who transfers his FIRF Benefit to the Plan. (3) The normal retirement benefit for a Former Life Bancorp Employee shall be the sum of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) the FIRF Benefit. The normal form of benefit under the FIRF was a ten-year certain and life annuity. For purposes of this subparagraph (3), the FIRF Benefit shall be converted to the Normal Form of Benefit under the Plan using the factors attached to the FIRF. (4) The benefit determined under subparagraph (3) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) The Normal Retirement Age under Section 2.31 for a Former Life Bancorp Employee shall be Age 65. (B) If a Participant retires after his Normal Retirement Date under the provisions of Section 5.4, any actuarial increase in his Accrued Benefit at the Normal Retirement Date shall be determined according to the provisions of Section 5.4; provided, that in no event shall the amount of his benefit at actual retirement be less than the amount determined using an increase of 0.8 percent for each month of deferral after Normal Retirement Age (9.6 percent per year, with a maximum E-6 increase of 48 percent) and based on the Participant's FIRF Benefit. (C) Subject to the election provisions of Article 5, the following methods of payment shall be available in addition to those provided in Section 5.6: (I) the Actuarial Equivalent present value of the Participant's vested Accrued Benefit for a Former Life Bancorp Employee who is at least Age 55 on his Annuity Starting Date; (II) a ten-year certain and life annuity; provided that if the Participant or Inactive Participant dies before 120 monthly installments have been paid, the commuted value of such unpaid installments shall be paid to the Beneficiary in a lump sum; (III) a joint and full survivor annuity payable to the Participant or Inactive Participant during his lifetime and thereafter in the same monthly amount to his Beneficiary (contingent annuitant); provided, that if both the Participant or Inactive Participant and Beneficiary die before 120 monthly installments have been paid, the Actuarial Equivalent present value of the remaining installments shall be paid to the Participant's or Inactive Participant's Beneficiary (other named beneficiary); and (III) subject to the provisions of Article 15, any other Actuarially Equivalent annuity with some other death benefit. (D) Optional methods of payment with respect to the benefit payable under subparagraph (3), including the options in subparagraph (4)(C) above, shall be determined using the mortality table and interest rate specified in the Plan; provided, that in no event shall the amount payable under any such optional method of payment be less than the amount determined using the factors or assumptions specified in the FIRF and based on the Participant's FIRF Benefit. (d) MainStreet Financial Corporation. MainStreet Financial -------------------------------- Corporation ("MainStreet") was acquired by the Employer and merged into BB&T Financial on March 5, 1999, and the Virginia Bankers Association Master Defined Benefit Plan for MainStreet Financial Corporation (the "MainStreet Plan") was merged into the Plan effective December 31, 1999. The transferred MainStreet Plan assets will be used along with other Plan assets to fund the benefits provided under the Plan, including benefit obligations of the MainStreet Plan assumed by the Plan as a result of the merger. Effective January 1, 2000, each employee of MainStreet as of December 31, 1999 ("Former MainStreet Employee") shall become a Participant in the Plan, subject to the provisions of Section 3.1 and further subject to the following provisions: (1) A Former MainStreet Employee shall receive credit for Qualifying Years of Service and Years of Service for vesting and early retirement eligibility purposes under the Plan, including his years of service for similar purposes determined under the MainStreet Plan as in effect on December 31, 1999. Notwithstanding the foregoing, a Former MainStreet Employee who is credited with 1,000 Hours of Service during the 12-month period beginning on October 1, 1999 and ending on September 30, 2000, and with 1,000 Hours of Service during the 12- E-7 month period beginning on January 1, 2000 and ending on December 31, 2000, shall be credited with two Years of Service for vesting purposes under the Plan. A Former MainStreet Employee shall receive credit for Years of Service for benefit accrual under Section 2.43 beginning on January 1, 2000. (2) Average Compensation under Section 2.8 shall not take into account compensation a Former MainStreet Employee received before January 1, 2000. (3) The normal retirement benefit for a Former MainStreet Employee shall be the sum of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) the normal retirement benefit determined under the terms of the MainStreet Plan as of December 31, 1999 (the "MainStreet Benefit"). For purposes of determining the MainStreet Benefit, a Former MainStreet Employee shall receive one-fourth of a year of credited service, as determined under the MainStreet Plan as in effect on December 31, 1999, for the period beginning on October 1, 1999 and ending on December 31, 1999, and a Former MainStreet Employee's compensation for calendar year 1999 shall be taken into account. (4) The benefit determined under subparagraph (3) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) A Former MainStreet Employee at all times shall be fully vested in his MainStreet Benefit. (B) A Former MainStreet Employee shall reach Early Retirement Age on meeting the conditions in Section 2.19 or on the first day of the month coincident with or next following Age 60 and the completion of five Years of Service. (C) If a Participant retires after his Normal Retirement Date under the provisions of Section 5.4, any actuarial increase in his Accrued Benefit at the Normal Retirement Date shall be determined according to the provisions of Section 5.4; provided, that in no event shall the amount of his benefit at actual retirement be less than the amount determined using (I) an interest rate of five percent, and (II) the Unisex Pension 1984 Table. (D) Subject to the election provisions of Article 5, the following methods of payment shall be available in addition to those provided in Section 5.6: (I) solely for participants in the Virginia Bankers Association Defined Benefit Plan for First National Bank of Clifton Forge as of September 30, 1996 ("Former Clifton Forge Participants"), which plan was merged into the MainStreet Plan as of October 1, 1996, the Actuarial E-8 Equivalent present value of the Participant's vested Accrued Benefit; and (II) a joint and 66-2/3 percent survivor annuity, whereby a monthly installment shall be paid to the Participant or Inactive Participant during his lifetime, and thereafter 66-2/3 percent of such monthly amount shall be paid to his surviving Spouse during the surviving Spouse's lifetime. (E) Subject to the election provisions of Article 5 and solely for Former Clifton Forge Participants, a Participant who terminates employment may elect to receive payment of his vested Accrued Benefit in a lump sum distribution. (F) Optional methods of payment with respect to the benefit payable under subparagraph (3) including the options in subparagraphs (4)(D) and (E) above, shall be determined using the mortality table and interest rate specified in the Plan; provided, that in no event shall the amount payable under any such optional method of payment be less than the amount determined using (I) an interest rate of five percent, and (II) the Unisex Pension 1984 Table, and based on the Participant's MainStreet Benefit. (G) As a result of the merger of the MainStreet Plan into the Plan, and under the provisions of Section 15.6(e)(1), the required beginning date of a Former MainStreet Employee is April 1 of the calendar year following the later of the calendar year in which he attains Age 70 1/2 or the calendar year in which he retires. (e) Mason-Dixon Bancshares, Inc. Mason-Dixon Bancshares, Inc. ---------------------------- ("Mason-Dixon") was acquired by the Employer on July 14, 1999, and the Carroll County Bank and Trust Company Pension Plan (the "Carroll County Plan"), which was maintained by Mason- Dixon, was merged into the Plan effective December 31, 1999. The transferred Carroll County Plan assets will be used along with other Plan assets to fund the benefits provided under the Plan, including benefit obligations of the Carroll County Plan assumed by the Plan as a result of the merger. Effective January 1, 2000, each employee of Mason-Dixon as of December 31, 1999 ("Former Carroll County Employee") shall become a Participant in the Plan, subject to the provisions of Section 3.1 and further subject to the following provisions: (1) A Former Carroll County Employee shall receive credit for Qualifying Years of Service and Years of Service for vesting and early retirement eligibility purposes under the Plan, including his years of service for similar purposes determined under the Carroll County Plan as in effect on December 31, 1999. A Former Carroll County Employee shall receive credit for Years of Service for benefit accrual under Section 2.43 beginning on January 1, 2000. E-9 (2) Average Compensation under Section 2.8 shall not take into account compensation a Former Carroll County Employee received before January 1, 2000. (3) The normal retirement benefit for a Former Carroll County Employee shall be the sum of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) the normal retirement benefit determined under the terms of the Carroll County Plan as of December 31, 1999 (the "Carroll County Benefit"). (4) The benefit determined under subparagraph (3) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) Subject to the election provisions of Article 5, the following methods of payment shall be available in addition to those provided in Section 5.6: (I) the Actuarial Equivalent present value of the Participant's vested Accrued Benefit not greater than $10,000; and (II) a joint and 75 percent survivor annuity, whereby a monthly installment shall be paid to the Participant or Inactive Participant during his lifetime, and thereafter 75 percent of such monthly amount shall be paid to his surviving Spouse during the surviving Spouse's lifetime. (B) Optional methods of payment with respect to the benefit payable under subparagraph (3), including the options in subparagraph (4)(A) above, shall be determined using the mortality table and interest rate specified in the Plan; provided, that in no event shall the amount payable under any such optional method of payment be less than the amount determined using the factors described under the definition of actuarial equivalent in the Carroll County Plan and based on the Participant's Carroll County Benefit. (f) One Valley Bancorp, Inc. One Valley Bancorp, Inc. ("One ------------------------ Valley") was acquired by BB&T Corporation on July 6, 2000, and the One Valley Bancorp, Inc. Retirement Plan (the "One Valley Plan") was merged into the Plan effective December 31, 2000. The transferred One Valley Plan assets will be used along with other Plan assets to fund the benefits provided under the Plan, including benefit obligations of the One Valley Plan assumed by the Plan as a result of the merger. Effective as of January 1, 2001, each employee of the Company (or subsidiary of the Company) as of December 31, 2000, who was an employee of One Valley as of July 6, 2000 ("Former One Valley Employee") shall become a Participant in the Plan, subject to the provisions of Section 3.1 and further subject to the following provisions: (1) A former One Valley Employee shall receive credit for Qualifying Years of Service and Years of Service for vesting and early retirement eligibility purposes under the Plan, including his years of E-10 service for similar purposes determined under the One Valley Plan as in effect on December 31, 2000. Notwithstanding the foregoing, a Former One Valley Employee who is credited with 1,000 Hours of Service during the 12-month period beginning on November 1, 2000 and ending on October 31, 2001, and with 1,000 Hours of Service during the 12- month period beginning on January 1, 2001 and ending on December 31, 2001, shall be credited with two Years of Service for vesting purposes under the Plan. A Former One Valley Employee shall receive credit for Years of Service for benefit accrual under the Plan beginning on January 1, 2001. (2) Average Compensation under Section 2.8 shall not take into account compensation a Former One Valley Employee received before January 1, 2001. (3) The normal retirement benefit for a Former One Valley Employee shall be the sum of (A) the normal retirement benefit calculated under the terms of the Plan, and (B) the normal retirement benefit determined under the terms of the One Valley Plan as of December 31, 2000 (the "One Valley Benefit"). (4) The benefit determined under subparagraph (3) shall be paid pursuant to the provisions of the Plan, with the following exceptions: (A) Early Retirement Age--A Former One Valley -------------------- Employee shall reach Early Retirement Age on the earlier of meeting the conditions defined in the Plan or on the first day of the month coincident with or next following Age 60. (B) Early Retirement Benefit--The early ------------------------ retirement benefit for a Former One Valley Employee shall be the sum of (A) the early retirement benefit calculated under the Plan with Years of Service beginning on or after January 1, 2001, and (B) the early retirement benefit under the terms of the One Valley Plan based on the One Valley Benefit defined above (the "One Valley Early Benefit"). For purposes of determining the One Valley Early Benefit, the following provisions of the One Valley Plan shall apply: i. If the Participant has completed less than 25 total Years of Service credit for benefit accrual purposes, including Credited Service as of December 31, 2000 under the One Valley Plan (and does not satisfy the "Rule of 87" as explained below), his One Valley Benefit shall be reduced by .4167 percent for each month by which the payments commence prior to his Normal Retirement Date. E-11 ii. If the Participant has completed 25 or more total Years of Service credit for benefit accrual purposes (but does not satisfy the "Rule of 87" as explained below), his One Valley Benefit shall be reduced by .4167 percent for each month by which the payments commence prior to age 62. If the payments commence on or after age 62, there shall be no reduction in his One Valley Benefit. iii. If the Participant's age (computed to the nearest month, with a fraction of a month ignored) plus his total Years of Service credit for benefit accrual purposes equals or exceeds 87 at his date of termination of employment, then the Participant has satisfied the "Rule of 87." In such event, there shall be no reduction in his One Valley Benefit. (C) Subject to the election provisions of Article 5, for a Former One Valley Employee who terminates employment prior to eligibility for early or normal retirement, the Actuarial Equivalent present value may be paid if the present value is less than $7,500. (D) Subject to the election provisions of Article 5 and solely for certain Former Participants of certain plans previously merged into the One Valley Plan, a Participant who terminates employment may elect to receive payment of his vested Accrued Benefit in a lump sum distribution. These plans are listed below along with the date of participation in the prior plan required to be eligible to receive a lump sum distribution: New River Banking & Trust Pension Plan October 31, 1986 Bank of Lubeck Pension Plan July 31, 1988 Mountaineer Bankshares Retirement Plan December 31, 1988 Pension Plan for Employees of First Federal Bank December 31, 1998
(E) Optional methods of payment with respect to the benefit payable under subparagraph (3) including the options in subparagraphs (4)(C) and (D) above, shall be determined using the mortality table and interest rate specified in the Plan; provided, that in no event shall the amount payable under any such optional method of payment be less than the amount determined using the factors described under the definition of actuarial equivalent in the One Valley Plan, and based on the Participant's One Valley Benefit. E-12 (F) As a result of the merger of the One Valley Plan into the Plan, and under the provisions of Section 15.6(e)(1), the required beginning date of a Former One Valley Employee is April 1 of the calendar year following the later of the calendar year in which he attains Age 70 1/2 or the calendar year in which he retires. E-13 EXHIBIT F SPECIAL PROVISIONS OF MERGING COMPANIES AFTER JANUARY 1, 2001 The following is a summary of the special rules that apply to certain participants in the plan who were employees of a company or business that was merged into or acquired by the Company or one of its affiliates on or after January 1, 2001. Unless otherwise indicated by the context, all defined terms used herein shall have the meanings assigned to them in the BB&T Corporation Pension Plan as amended and restated as of January 1, 2000 and all Section references shall be to such Plan. F-1 EX-10.21 6 0006.txt NONQUALIFIED DEFINED CONTRIBUTION PLAN EXHIBIT 10(u) 2000 DECLARATION OF AMENDMENT TO THE BB&T CORPORATION NON-QUALIFIED DEFINED CONTRIBUTION PLAN THIS DECLARATION OF AMENDMENT, made the 24 day of October, 2000, by BB&T Corporation (the "Company"), as sponsor of the BB&T Corporation Non-Qualified Defined Contribution Plan (the "Plan"). R E C I T A L S : - - - - - - - - - It is deemed advisable for the Company to amend the Plan to: (i) clarify the provisions of the Plan relating to the calculation of installment payments; and (ii) allow a designated officer of the Company to amend the Plan to provide for the merger or consolidation of another plan into the Plan. NOW, THEREFORE, it is declared, that effective as of the date hereof, the Plan shall be and hereby is amended as follows: 1. Delete Section 5.2.5 in its entirety and substitute therefor the following: "5.2.5 Installment Payments: If the Participant's vested Accrued Benefit is to be distributed in installments pursuant to the Term Certain Option, the amount of each monthly installment shall initially be equal to the value of the Account as of the date benefit payments are to commence multiplied by a fraction, the numerator of which shall be one and the denominator of which shall be the total number of installments to be paid. As of each February 1 (the `Annual Valuation Date'), the amount of the monthly installment payment shall be adjusted so that for the twelve consecutive month period beginning on such Annual Valuation Date the amount of each monthly installment payment shall be equal to the value of the Account on such Annual Valuation Date multiplied by a fraction, the numerator of which shall be one and the denominator of which shall be the number of installments remaining to be paid. The Account shall continue to be adjusted as provided in Section 7 until the entire balance credited to the Account has been paid." 1 2. Insert the following new material after the second sentence of Section 13: "Notwithstanding the foregoing, and until otherwise decided by the Board, the officer of the Company specifically designated in resolutions adopted by the Board shall have the authority to amend the Plan to provide for the merger or consolidation of another non-qualified defined contribution plan into this Plan, and in connection therewith, to set forth any special provisions that may apply to the participants in such other plan on an Exhibit attached hereto." IN WITHNESS WHEREOF, this Amendment has been executed by the Company as of the day and year first above written. BB&T CORPORATION By: /s/ Robert E. Greene ---------------------------- Attest: President /s/ Jerone C. Herring - ------------------------ Secretary [Corporate Seal] 2 EX-10.22 7 0007.txt DEFERRED COMPENSATION AND STOCK OPTION PLAN Exhibit 10(v) 2000 DECLARATION OF AMENDMENT TO THE BB&T CORPORATION NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION AND STOCK OPTION PLAN THIS DECLARATION OF AMENDMENT, made the 24 day of October, 2000, by BB&T Corporation (the "Company"), as sponsor of the BB&T Corporation Non- Employee Directors' Deferred Compensation and Stock Option Plan (the "Plan"). R E C I T A L S : --------------- It is deemed advisable for the Company to amend the Plan to: (i) clarify the provisions of the Plan relating to the calculation of installment payments; and (ii) allow a designated officer of the Company to amend the Plan to provide for the merger or consolidation of another plan into the Plan. NOW, THEREFORE, it is declared, that effective as of the date hereof, the Plan shall be and hereby is amended as follows: 1. Delete Section 3.3.2(e) in its entirety and substitute therefor the following: "(e) Installment Payments: If the Participant's vested Accrued Benefit is to be distributed in installments pursuant to the Term Certain Option, the amount of each monthly installment shall initially be equal to the value of the Deferred Compensation Account as of the date benefit payments are to commence multiplied by a fraction, the numerator of which shall be one and the denominator of which shall be the total number of installments to be paid. As of each February 1 (the `Annual Valuation Date'), the amount of the monthly installment payment shall be adjusted so that for the twelve consecutive month period beginning on such Annual Valuation Date the amount of each monthly installment payment shall be equal to the value of the Deferred Compensation Account on such Annual Valuation Date multiplied by a fraction, the numerator of which shall be one and the denominator of which shall be the number of installments remaining to be 1 paid. The Deferred Compensation Account shall continue to be adjusted as provided in Section 3.6 until the entire balance credited to the Deferred Compensation Account has been paid." 2. Insert the following new material after the second sentence of Section 10: "Notwithstanding the foregoing, and until otherwise decided by the Board, the officer of the Company specifically designated in resolutions adopted by the Board shall have the authority to amend the Plan to provide for the merger or consolidation of another directors' deferred compensation and/or stock option plan into this Plan, and in connection therewith, to set forth any special provisions that may apply to the participants in such other plan as an Exhibit attached hereto." IN WITHNESS WHEREOF, this Amendment has been executed by the Company as of the day and year first above written. BB&T CORPORATION /s/ Robert E. Greene By:-------------------------- President Attest: /s/ Jerone C. Herring - --------------------- Secretary [Corporate Seal] 2 EX-10.23 8 0008.txt SUPPLEMENTAL DEFINED CONTRIBUTION PLAN Exhibit 10(w) 2000 DECLARATION OF AMENDMENT TO THE BB&T CORPORATION SUPPLEMENTAL DEFINED CONTRIBUTION PLAN FOR HIGHLY COMPENSATED EMPLOYEES THIS DECLARATION OF AMENDMENT, made the 24th day of October, 2000, by BB&T Corporation (the "Company"), as sponsor of the BB&T Corporation Supplemental Defined Contribution Plan for Highly Compensated Employees (the "Plan"). R E C I T A L S : - - - - - - - - It is deemed advisable for the Company to amend the Plan to allow a designated officer of the Company to amend the Plan to provide for the merger or consolidation of another plan into the Plan. NOW, THEREFORE, it is declared, that effective as of the date hereof, the Plan shall be and hereby is amended by inserting the following new material after the second sentence of Section 13: "Notwithstanding the foregoing, and until otherwise decided by the Board, the officer of the Company specifically designated in resolutions adopted by the Board shall have the authority to amend the Plan to provide for the merger or consolidation of another non-qualified defined contribution plan into this Plan, and in connection therewith, to set forth any special provisions that may apply to the participants in such other plan on an Exhibit attached hereto." IN WITHNESS WHEREOF, this Amendment has been executed by the Company as of the day and year first above written. BB&T CORPORATION By: /s/ Robert E. Greene --------------------------- President Attest: /s/ Jerone C. Herring - -------------------------------- Secretary [Corporate Seal] 1 EX-21 9 0009.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 SUBSIDIARIES OF THE REGISTRANT BB&T Corporation, a North Carolina corporation, is a financial holding company. The table below sets forth all of BB&T's subsidiaries as to State or Jurisdiction of Organization and Percentage of Voting Securities Owned as well as their relationship to BB&T. All of the subsidiaries listed below are included in the consolidated financial statements, and no separate financial statements are submitted for any subsidiary.
Percentage State or Jurisdiction of Voting Subsidiary of Organization Shares Owned - --------------------------------------------------- ---------------------------- ----------------------- Branch Banking and Trust Company North Carolina 100% Regional Acceptance Corporation North Carolina 100% Money 24, Inc. North Carolina 100% Scott & Stringfellow, Inc. Virginia 100% Scott & Stringfellow Realty, Inc. Virginia 100% BB&T Factors Corporation North Carolina 100% Unified Investors Life Insurance Company Arizona 100% BB&T Bankcard Corporation Georgia 100% Grey Hawk, Inc. Nevada 100% Mason-Dixon Capital Trust Maryland 100% Mason-Dixon Capital Trust II Maryland 100% Rose Shanis Financial Services, LLC Maryland 100% Bay Insurance, LLC Maryland 100% Matewan Venture Fund, Inc. West Virginia 100% (19) Liberty Properties Georgia 100% (19) MainStreet Capital Trust I Virginia 100% BB&T Leasing Corporation North Carolina 100% (1) BB&T Investment Services, Inc. North Carolina 100% (1) BB&T Insurance Services, Inc. North Carolina 100% (1) Grey Eagle, Inc. Delaware 100% (1) Prime Rate Premium Finance Corporation, Inc. South Carolina 100% (1) Agency Technologies, Inc. South Carolina 100% (1) Farr Associates, Inc. North Carolina 100% (1) eFuel, Inc. North Carolina 7.5% (1) W.E. Stanley, Inc. North Carolina 100% (1) BB&T Credit Participation Company Georgia 100% (1) BB&T Small Business Loan Company Maryland 100% (1) BB&T Service Corp Nevada 100% (1) North Carolina Trustee Company North Carolina 100% (1,19) BT Financial Corporation North Carolina 100% (1,19) Branch Banking and Trust Company of South Carolina South Carolina 100% Investor Services, Inc. South Carolina 100% (2,19) FICORP of South Carolina South Carolina 100% (2,19) Branch Banking and Trust Company of Virginia Virginia 100% Freedom Financial Services, Inc. Virginia 100% (3) Colony Financial Virginia 100% (3,19) Fidelity Service Corporation Virginia 100% (3,19) Regional Acceptance Investment Corporation of Nevada Nevada 100% (5) Rega Insurance Services, Inc. North Carolina 100% (5) Greenville Car Mart, Inc. North Carolina 100% (5) Regional Fidelity Reinsurance Limited British Virgin Islands 99% (5) Mountain Financial Corporation Virginia 100% (4) Sheffield Financial Corporation North Carolina 100% BB&T Loan Participation Company Georgia 100% (8) Skylight Investment Corporation Delaware 100% (1) Sterling Title Holdings, Inc. Maryland 100% (1,19) Sterling I, Inc. Maryland 100% (15,19) Sterling III, Inc. Maryland 100% (15,19) Matewan Insurance and Investments, Inc. West Virginia 100% (1,19) Matewan Title Agency, LLC West Virginia 60% (13) Matewan Real Estate Holdings, Inc. West Virginia 100% (1) Matewan Realty Inc. West Virginia 100% (7) Liberty Mortgage Corporation Georgia 100% (1) First Freedom Investments, Inc. Georgia 100% (1,19) First Freedom Insurance Services, Inc. Georgia 100% (1,19) Laureate Capital, LLC North Carolina 100% (1) Edgar M. Norris & Co., Inc. South Carolina 100% Premier Lending Corporation Georgia 100% (1) PMB Holdings Inc. Georgia 100% (1) PMB Investments, Inc. Georgia 100% (11) Lendmark Financial Services, Inc. Georgia 100% (1) Hardwick Bank & Trust Company Georgia 100% Pentz Corporation Georgia 100% First National Bank of Northwest Georgia Georgia 100% Northwest Georgia Computer Services Georgia 100% (10) First Bulloch Bank & Trust Company Georgia 100% First National Bank of Effingham Georgia 100% Metter Banking Company Georgia 100% Wayne National Bank Georgia 100% One Valley Square, Inc. West Virginia 100% (19) Carson Insurance Agency West Virginia 100% (1,19) Nicholas County Insurance Agency West Virginia 100% (12,19) Patterson Bell & Crane West Virginia 100% (12,19) OVB Foreclosed Properties, Inc. West Virginia 100% (1,19) One Property Management, Inc. West Virginia 100% (1,19) One Valley Insurance Corporation West Virginia 100% (1,19) One Valley Securities Corporation West Virginia 100% (1,19) CSB Financial Services, Inc. West Virginia 100% (14,19) Valley Security Insurance Company West Virginia 100% (3,19) Premier Capital Trust I Georgia 100% BankFirst Trust Company Tennessee 100% The First National Bank and Trust Company Georgia 100% Friendly Finance Company, Inc. Georgia 100% (17) BankFirst Tennessee 100% Eastern Life Insurance Co., Inc. Tennessee 100% (16) Curtis Mortgage Company, Inc. Tennessee 100% (16) National Financial Securities Corporation Delaware 100% (4) BB&T Overseas Leasing, Ltd. Bermuda 100% Arnall Insurance Agency Georgia 100% (1,19) Gulfstream Advisors, Inc. South Carolina 100% (6) BB&T Asset Management, LLC North Carolina 100% (1) BB&T International Services, LLC North Carolina 100% (1) Pioneer Title, LLC Virginia 100% (9) National Mortgage Acceptance Corporation Virginia 51% (4) National Mortgage Securities Corp. Virginia 51% (18)
- -------------------------------------------------------------------------------- (1) Owned by Branch Banking and Trust Company (2) Owned by Branch Banking and Trust Company of South Carolina (3) Owned by Branch Banking and Trust Company of Virginia (4) Owned by Scott & Stringfellow, Inc. (5) Owned by Regional Acceptance Corporation (6) Owned by Edgar M. Norris (7) Owned by Matewan Real Estate Holdings, Inc. (8) Owned by BB&T Small Business Loan Company (9) Owned by BB&T Insurance Services (10) Owned by First National Bank of Northwest Georgia (11) Owned by PMB Holdings, Inc. (12) Owned by Carson Insurance Agency (13) Owned by Matewan Insurance & Investments Inc. (14) Owned by One Valley Securities Corporation (15) Owned by Sterling Title Holdings, Inc. (16) Owned by BankFirst (17) Owned by The First National Bank & Trust Company (18) Owned by National Mortgage Acceptance Corporation (19) Inactive EX-23.1 10 0010.txt CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-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 and 333-35879 filed on Form S-3. Arthur Andersen LLP Charlotte, North Carolina, March 16, 2001. -----END PRIVACY-ENHANCED MESSAGE-----