-----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, AUaTX97aymo730Zt3m9JDWlqSPAN+TuBflSCElVm7KjFdGtIHJYR8/pLSc/p9wAf ICEUe5OiNix9xIGjitpIjw== 0000950168-98-001574.txt : 19980514 0000950168-98-001574.hdr.sgml : 19980514 ACCESSION NUMBER: 0000950168-98-001574 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980513 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BB&T CORP CENTRAL INDEX KEY: 0000092230 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560939887 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10853 FILM NUMBER: 98617999 BUSINESS ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 9107332000 MAIL ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NATIONAL CORP /NC/ DATE OF NAME CHANGE: 19920703 8-K 1 BB&T CORPORATION 8-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- Form 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 May 13, 1998 Date of Report (Date of earliest event recorded) BB&T Corporation (Exact name of registrant as specified in its charter) Commission file number : 1-10853 North Carolina 56-0939887 (State of Incorporation) (I.R.S. Employer Identification No.) 200 West Second Street Winston-Salem, North Carolina 27101 (Address of Principal Executive Offices) (Zip Code)
(336) 733-2000 (Registrant's Telephone Number, Including Area Code) --------------- This Form 8-K has 51 pages. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 5. Other Events On March 1, 1998, BB&T Corporation completed its merger with Life Bancorp, Inc. ("Life") of Norfolk, Virginia. To consummate the transaction, Life shareholders received .58 shares of BB&T common stock in exchange for each share of Life common stock held, resulting in the issuance of 9.8 million shares of BB&T common stock. The transaction was accounted for under the pooling-of-interests method of accounting. Accordingly, the consolidated financial statements (including notes to consolidated financial statements), and supplemental financial information contained in BB&T's Annual Report on Form 10-K for the year ended December 31, 1997, restated for the accounts of Life, are included in this Current Report on Form 8-K. Item 7. Financial Statements and Exhibits
Exhibit Description - ------------ ---------------------------------------------------- 11 Statement re Computation of Earnings Per Share. Filed herewith as Note R. of the "Notes to Consolidated Financial Statements." 23 Consent of Independent Public Accountants. Filed herewith on page 3. 27 Financial Data Schedule. Filed herewith as an exhibit to the electronically filed document as required. 99.1 Report of Independent Public Accountants. Filed herewith on page 4. 99.2 BB&T's restated audited financial statements and Filed herewith beginning on page 5. notes thereto, including the accounts of Life. 99.3 BB&T's restated Securities Act Guide 3 statistical Filed herewith beginning on page 39. disclosures, including the accounts of Life.
1 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BB&T CORPORATION (Registrant) By: /s/ SHERRY A. KELLETT ------------------------------------ Sherry A. Kellett Senior Executive Vice President and Controller (Principal Accounting Officer) Date: May 13, 1998. 2 EX-23 2 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 8-K into BB&T Corporation's previously filed Registration Statement File Nos. 33-52367, 33-57865, 33-57867, 333-03989 and 333-50035 filed on Form S-8 and Registration Statement File Nos. 33-57859, 33-57861, 33-57871 and 333-02899 filed on Form S-3. ARTHUR ANDERSEN LLP Charlotte, North Carolina, May 13, 1998. 3 EX-27 3 ARTICLE 9 FDS FOR 8-K
9 1,000 DEC-31-1997 JAN-01-1997 DEC-31-1997 12-MOS 851,971 77,065 103,245 67,878 7,199,198 147,799 151,581 20,933,429 275,404 30,642,799 20,948,177 3,276,177 443,101 3,575,517 0 0 708,816 1,691,011 30,642,799 1,768,024 458,373 3,224 2,229,621 774,291 1,092,628 1,136,993 97,526 3,164 954,831 540,537 354,450 0 0 354,450 2.51 2.46 4.45 98,891 44,213 0 0 239,726 97,447 18,086 275,404 275,404 0 44,064 Effective December 31, 1997, BB&T adopted SFAS No. 128, "Earnings Per Share." The lines labeled EPS-PRIMARY and EPS-DILUTED on this exhibit actually reflect EPS-BASIC and EPS-DILUTED, respectively, as determined under SFAS No. 128.
EX-99 4 EXHIBIT 99.1 Exhibit 99.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of 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, 1997 and 1996, 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, 1997. 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 generally accepted auditing standards. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Charlotte, North Carolina, May 13, 1998. 4 EX-99 5 EXHIBIT 99.2 Exhibit 99.2 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1997 and 1996 (Dollars in thousands, except per share data)
1997 1996 --------------- --------------- Assets Cash and due from banks ............................................................... $ 851,971 $ 848,180 Interest-bearing deposits with banks .................................................. 77,065 5,504 Federal funds sold and securities purchased under resale agreements or similar arrangements ......................................................................... 103,245 84,940 Trading securities .................................................................... 67,878 -- Securities available for sale ......................................................... 7,199,198 6,623,135 Securities held to maturity (market value: $151,581 in 1997 and $317,013 in 1996)...... 147,799 311,782 Loans held for sale ................................................................... 509,141 228,333 Loans and leases, net of unearned income .............................................. 20,424,288 18,150,285 Allowance for loan and lease losses .................................................. (275,404) (239,726) ----------- ----------- Loans and leases, net ............................................................... 20,148,884 17,910,559 ----------- ----------- Premises and equipment, net ........................................................... 431,631 392,422 Other assets .......................................................................... 1,105,987 722,553 ----------- ----------- Total assets ........................................................................ $30,642,799 $27,127,408 =========== =========== Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand deposits .................................................. $ 2,833,238 $ 2,625,986 Savings and interest checking ........................................................ 1,708,657 2,108,479 Money rate savings ................................................................... 5,241,055 4,239,653 Other time deposits .................................................................. 9,779,594 10,123,129 Foreign deposits ..................................................................... 1,385,633 638,415 ----------- ----------- Total deposits ...................................................................... 20,948,177 19,735,662 Short-term borrowed funds ............................................................. 3,276,177 2,539,824 Long-term debt ........................................................................ 3,575,517 2,320,978 Accounts payable and other liabilities ................................................ 443,101 308,439 ----------- ----------- Total liabilities ................................................................... 28,242,972 24,904,903 ----------- ----------- Shareholders' equity: Preferred stock, $5 par, 5,000,000 shares authorized, none issued and outstanding at December 31, 1997 and 1996 ....................................................... -- -- Common stock, $5 par, 500,000,000 shares authorized, issued and outstanding 141,763,220 at December 31, 1997 and 142,608,032 at December 31, 1996 ............... 708,816 713,040 Additional paid-in capital ........................................................... 161,018 209,368 Retained earnings .................................................................... 1,482,037 1,295,463 Loan to employee stock ownership plan and unvested restricted stock .................. (962) (9,073) Net unrealized appreciation on securities available for sale, net of income taxes of $31,593 in 1997 and $9,702 in 1996................................................... 48,918 13,707 ----------- ----------- Total shareholders' equity .......................................................... 2,399,827 2,222,505 ----------- ----------- Total liabilities and shareholders' equity .......................................... $30,642,799 $27,127,408 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 5 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996 and 1995 (Dollars in thousands, except per share data)
1997 1996 1995 --------------- --------------- ------------- Interest Income Interest and fees on loans and leases ........................... $ 1,768,024 $ 1,603,678 $1,555,558 Interest and dividends on securities ............................ 458,373 421,162 392,528 Interest on short-term investments .............................. 3,224 4,863 9,096 ----------- ----------- ---------- Total interest income .......................................... 2,229,621 2,029,703 1,957,182 ----------- ----------- ---------- Interest Expense Interest on deposits ............................................ 774,291 748,153 719,991 Interest on short-term borrowed funds ........................... 148,130 121,442 195,342 Interest on long-term debt ...................................... 170,207 118,204 81,772 ----------- ----------- ---------- Total interest expense ......................................... 1,092,628 987,799 997,105 ----------- ----------- ---------- Net Interest Income ............................................... 1,136,993 1,041,904 960,077 Provision for loan and lease losses ............................. 97,526 62,246 42,378 ----------- ----------- ---------- Net Interest Income After Provision for Loan and Lease Losses ..... 1,039,467 979,658 917,699 ----------- ----------- ---------- Noninterest Income Service charges on deposits ..................................... 148,844 132,809 114,108 Mortgage banking income ......................................... 50,383 40,218 31,497 Trust income .................................................... 31,957 28,794 23,872 Agency insurance commissions .................................... 40,148 27,541 19,874 Other insurance commissions ..................................... 13,164 12,822 12,384 Bankcard fees and merchant discounts ............................ 22,705 18,435 16,207 Other nondeposit fees and commissions ........................... 66,957 47,529 35,332 Securities gains (losses), net .................................. 3,164 3,179 (19,472) Other income .................................................... 78,579 28,162 21,477 ----------- ----------- ---------- Total noninterest income ....................................... 455,901 339,489 255,279 ----------- ----------- ---------- Noninterest Expense Personnel expense ............................................... 459,494 397,845 434,137 Occupancy and equipment expense ................................. 160,939 125,152 128,670 Federal deposit insurance expense ............................... 5,096 49,995 28,224 Amortization of intangibles and mortgage servicing rights ....... 24,370 15,218 11,902 Advertising and public relations expense ........................ 26,514 24,309 16,643 Professional services ........................................... 46,072 26,080 24,277 Other expense ................................................... 232,346 176,111 174,465 ----------- ----------- ---------- Total noninterest expense ...................................... 954,831 814,710 818,318 ----------- ----------- ---------- Earnings Income before income taxes ...................................... 540,537 504,437 354,660 Provision for income taxes ...................................... 186,087 165,648 118,244 ----------- ----------- ---------- Net Income ...................................................... 354,450 338,789 236,416 Preferred dividend requirements ................................. -- 610 5,079 ----------- ----------- ---------- Income applicable to common shares ............................. $ 354,450 $ 338,179 $ 231,337 =========== =========== ========== Per Common Share Net income: Basic .......................................................... $ 2.51 $ 2.39 $ 1.63 =========== =========== ========== Diluted ........................................................ $ 2.46 $ 2.34 $ 1.60 =========== =========== ========== Cash dividends declared ......................................... $ 1.16 $ 1.00 $ .86 =========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 6 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
Shares of Additional Retained Total Common Preferred Common Paid-In Earnings Shareholders' Stock Stock Stock Capital and Other* Equity --------------- ----------- ----------- ------------ ------------- -------------- Balance, December 31, 1994, as previously reported .................... 135,269,365 $ 3,850 $ 676,347 $ 285,703 $ 837,988 $1,803,888 Merger with Life Bancorp, Inc. accounted for under the pooling-of- interests method ...................... 6,328,163 -- 31,641 74,604 42,266 148,511 ----------- -------- --------- ---------- ---------- ---------- Balance, December 31, 1994, restated ..... 141,597,528 3,850 707,988 360,307 880,254 1,952,399 Add (Deduct): Net income ............................. -- -- -- -- 236,416 236,416 Common stock issued .................... 3,167,198 -- 15,836 34,050 1,287 51,173 Redemption of common stock ............. (1,993,351) -- (9,967) (37,344) -- (47,311) Preferred stock cancellations and conversions ........................... 104,836 (181) 524 (2,714) -- (2,371) Net unrealized appreciation on securities available for sale ......... -- -- -- -- 118,029 118,029 Cash dividends declared: Common stock .......................... -- -- -- -- (120,315) (120,315) Preferred stock ....................... -- -- -- -- (5,079) (5,079) Other .................................. -- -- -- (16) 3,128 3,112 ----------- -------- --------- ---------- ---------- ---------- Balance, December 31, 1995 ............... 142,876,211 3,669 714,381 354,283 1,113,720 2,186,053 Add (Deduct): Net income ............................. -- -- -- -- 338,789 338,789 Common stock issued .................... 2,788,586 -- 13,942 57,178 1,386 72,506 Redemption of common stock ............. (7,391,457) -- (36,957) (185,614) 2 (222,569) Preferred stock cancellations and conversions ........................... 4,334,692 (3,669) 21,674 (18,005) -- -- Net unrealized depreciation on securities available for sale ......... -- -- -- -- (22,182) (22,182) Cash dividends declared: Common stock .......................... -- -- -- -- (131,981) (131,981) Preferred stock ....................... -- -- -- -- (610) (610) Other .................................. -- -- -- 1,526 973 2,499 ----------- -------- --------- ---------- ---------- ---------- Balance, December 31, 1996 ............... 142,608,032 -- 713,040 209,368 1,300,097 2,222,505 Add (Deduct): Net income ............................. -- -- -- -- 354,450 354,450 Common stock issued .................... 6,098,340 -- 30,492 240,083 5,495 276,070 Redemption of common stock ............. (6,943,152) -- (34,716) (286,508) -- (321,224) Net unrealized appreciation on securities available for sale ......... -- -- -- -- 35,211 35,211 Cash dividends declared on common stock ................................. -- -- -- -- (168,340) (168,340) Other .................................. -- -- -- (1,925) 3,080 1,155 ----------- -------- --------- ---------- ---------- ---------- Balance, December 31, 1997 ............... 141,763,220 $ -- $ 708,816 $ 161,018 $1,529,993 $2,399,827 =========== ======== ========= ========== ========== ==========
- --------- * Other includes net unrealized appreciation (depreciation) on securities available for sale, unvested restricted stock and a loan to the employee stock ownership plan. The accompanying notes are an integral part of these consolidated financial statements. 7 BB&T CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995 (Dollars in thousands)
1997 --------------- Cash Flows From Operating Activities: Net income .......................................................................... $ 354,450 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses ............................................... 97,526 Depreciation of premises and equipment ............................................ 58,113 Amortization of intangibles and mortgage servicing rights ......................... 24,370 Accretion of negative goodwill .................................................... (6,180) Amortization of unearned stock compensation ....................................... 1,227 Discount accretion and premium amortization on securities, net .................... 2,301 Net increase in trading account securities ........................................ (25,688) Loss (gain) on sales of securities, net ........................................... (3,164) Loss (gain) on sales of loans and mortgage loan servicing rights, net ............. (15,992) Loss (gain) on disposals of premises and equipment, net ........................... 30,660 Proceeds from sales of loans held for sale ........................................ 1,562,944 Purchases of loans held for sale .................................................. (734,727) Origination of loans held for sale, net of principal collected .................... (996,943) Decrease (increase) in: Accrued interest receivable ...................................................... 3,619 Other assets ..................................................................... (185,112) Increase (decrease) in: Accrued interest payable ......................................................... 4,584 Accounts payable and other liabilities ........................................... 96,500 Other, net ........................................................................ 1,139 ------------- Net cash provided by operating activities ........................................ 269,627 ------------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale ................................ 1,560,400 Proceeds from maturities of securities available for sale ........................... 1,533,172 Purchases of securities available for sale .......................................... (3,424,111) Proceeds from sales of securities held to maturity .................................. -- Proceeds from maturities of securities held to maturity ............................. 37,200 Purchases of securities held to maturity ............................................ (14,516) Leases made to customers ............................................................ (74,420) Principal collected on leases ....................................................... 57,581 Loan originations, net of principal collected ....................................... (1,147,154) Purchases of loans .................................................................. (205,232) Net cash acquired in transactions accounted for under the purchase method ........... 95,205 Purchases and originations of mortgage servicing rights ............................. (39,093) Proceeds from disposals of premises and equipment ................................... 14,512 Purchases of premises and equipment ................................................. (146,970) Proceeds from sales of foreclosed property .......................................... 15,917 Proceeds from sales of other real estate held for development or sale ............... 9,611 Other, net .......................................................................... 5,699 ------------- Net cash used in investing activities ............................................ (1,722,199) ------------- Cash Flows From Financing Activities: Net increase (decrease) in deposits ................................................. 317,024 Net (decrease) increase in short-term borrowed funds ................................ 388,268 Proceeds from long-term debt ........................................................ 5,598,914 Repayments of long-term debt ........................................................ (4,303,648) Net proceeds from common stock issued ............................................... 22,583 Redemption of common stock .......................................................... (321,224) Preferred stock cancellations and conversions ....................................... -- Cash dividends paid on common and preferred stock ................................... (155,688) ------------- Net cash provided by financing activities ........................................ 1,546,229 ------------- Net (Decrease) Increase in Cash and Cash Equivalents ................................. 93,657 Cash and Cash Equivalents at Beginning of Year ....................................... 938,624 ------------- Cash and Cash Equivalents at End of Year ............................................. $ 1,032,281 ============= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest ........................................................................... $ 1,043,047 Income taxes ....................................................................... 137,195 Noncash financing and investing activities: Transfer of securities from held to maturity to available for sale ................. -- Transfer of securities from available for sale to held to maturity ................. -- Transfer of loans to foreclosed property ........................................... 17,136 Transfer of fixed assets to other real estate owned ................................ 13,761 Common stock issued upon conversion of debentures .................................. -- Restricted stock issued ............................................................ 74 Securitization of mortgage loans ................................................... -- ============= 1996 1995 --------------- --------------- Cash Flows From Operating Activities: Net income .......................................................................... $ 338,789 $ 236,416 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses ............................................... 62,246 42,378 Depreciation of premises and equipment ............................................ 45,601 42,363 Amortization of intangibles and mortgage servicing rights ......................... 15,218 11,902 Accretion of negative goodwill .................................................... (6,238) (6,239) Amortization of unearned stock compensation ....................................... 2,450 3,128 Discount accretion and premium amortization on securities, net .................... 6,502 (26,156) Net increase in trading account securities ........................................ -- -- Loss (gain) on sales of securities, net ........................................... (3,179) 19,472 Loss (gain) on sales of loans and mortgage loan servicing rights, net ............. (9,061) 1,477 Loss (gain) on disposals of premises and equipment, net ........................... 331 3,971 Proceeds from sales of loans held for sale ........................................ 1,349,010 799,757 Purchases of loans held for sale .................................................. (429,523) (311,059) Origination of loans held for sale, net of principal collected .................... (880,376) (611,127) Decrease (increase) in: Accrued interest receivable ...................................................... 19,864 (27,162) Other assets ..................................................................... (110,441) 14,388 Increase (decrease) in: Accrued interest payable ......................................................... 5,567 15,012 Accounts payable and other liabilities ........................................... (9,888) 89,676 Other, net ........................................................................ 4,122 2,581 ------------- ------------- Net cash provided by operating activities ........................................ 400,994 300,778 ------------- ------------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale ................................ 605,792 1,357,277 Proceeds from maturities of securities available for sale ........................... 2,709,491 1,711,859 Purchases of securities available for sale .......................................... (2,518,919) (3,343,379) Proceeds from sales of securities held to maturity .................................. -- 3,810 Proceeds from maturities of securities held to maturity ............................. 179,423 396,804 Purchases of securities held to maturity ............................................ (301,392) (266,230) Leases made to customers ............................................................ (72,390) (18,091) Principal collected on leases ....................................................... 48,222 14,620 Loan originations, net of principal collected ....................................... (1,711,909) (764,684) Purchases of loans .................................................................. (232,236) (189,997) Net cash acquired in transactions accounted for under the purchase method ........... (4,187) -- Purchases and originations of mortgage servicing rights ............................. (26,356) (18,082) Proceeds from disposals of premises and equipment ................................... 8,769 18,260 Purchases of premises and equipment ................................................. (70,161) (62,581) Proceeds from sales of foreclosed property .......................................... 16,156 14,213 Proceeds from sales of other real estate held for development or sale ............... 8,961 2,241 Other, net .......................................................................... (3,818) (7,000) ------------- ------------- Net cash used in investing activities ............................................ (1,364,554) (1,150,960) ------------- ------------- Cash Flows From Financing Activities: Net increase (decrease) in deposits ................................................. 740,026 892,888 Net (decrease) increase in short-term borrowed funds ................................ (144,341) (357,845) Proceeds from long-term debt ........................................................ 1,586,766 2,945,754 Repayments of long-term debt ........................................................ (919,661) (2,471,904) Net proceeds from common stock issued ............................................... 49,736 49,226 Redemption of common stock .......................................................... (225,565) (47,311) Preferred stock cancellations and conversions ....................................... -- (2,371) Cash dividends paid on common and preferred stock ................................... (127,771) (112,669) ------------- ------------- Net cash provided by financing activities ........................................ 959,190 895,768 ------------- ------------- Net (Decrease) Increase in Cash and Cash Equivalents ................................. (4,370) 45,586 Cash and Cash Equivalents at Beginning of Year ....................................... 942,994 897,408 ------------- ------------- Cash and Cash Equivalents at End of Year ............................................. $ 938,624 $ 942,994 ============= ============= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest ........................................................................... $ 956,827 $ 964,051 Income taxes ....................................................................... 163,947 147,465 Noncash financing and investing activities: Transfer of securities from held to maturity to available for sale ................. 36,646 1,763,513 Transfer of securities from available for sale to held to maturity ................. 240 -- Transfer of loans to foreclosed property ........................................... 25,119 11,785 Transfer of fixed assets to other real estate owned ................................ 10,466 21,846 Common stock issued upon conversion of debentures .................................. -- 4,896 Restricted stock issued ............................................................ 88 -- Securitization of mortgage loans ................................................... 817,268 354,882 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 8 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 BB&T Corporation ("BB&T" or "Parent Company"), formerly Southern National Corporation, is a multi-bank holding company organized under the laws of North Carolina and registered with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. BB&T changed its corporate name from Southern National Corporation effective at the close of business on May 16, 1997. 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"), Fidelity Federal Savings Bank ("Fidelity"), Virginia First Savings Bank ("Virginia First") and Life Savings Bank, FSB ("Life") (collectively, the "Banks"), Regional Acceptance Corporation ("Regional Acceptance") and Craigie Incorporated ("Craigie") comprise the principal subsidiaries. The accounting and reporting policies of BB&T Corporation and Subsidiaries are in accordance with generally accepted accounting principles and conform to general practices within the banking industry. The following is a summary of the more significant policies. NOTE A. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of BB&T include the accounts of the Parent Company and its subsidiaries. In consolidation, all significant intercompany accounts and transactions have been eliminated. Prior period financial statements have been restated to include the accounts of companies acquired in material transactions accounted for as poolings of interests (See Note B). Results of operations of companies acquired in transactions accounted for as purchases are included from the dates of acquisition. Certain amounts for prior years have been reclassified to conform with statement presentations for 1997. The reclassifications have no effect on either shareholders' equity or net income as previously reported. Nature of Operations BB&T is a multi-bank holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations in North Carolina, South Carolina and Virginia primarily through its commercial banking subsidiaries and, to a lesser extent, through its other subsidiaries. BB&T's subsidiaries provide a full range of traditional commercial banking services and additional services including investment brokerage, trust services, agency insurance, credit-related insurance and leasing. Substantially all of BB&T's loans are to businesses and individuals in the Carolinas and Virginia. 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 at 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. 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 in one of three categories: held to maturity, available for sale and 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. 9 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securities, which may be used to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital and investment requirements, or unforeseen changes in market conditions, including interest rates, market values or inflation rates, are classified as available for sale. 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 tax. 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 selected according to fundamental and technical analyses that identify potential market movements. Trading account securities are positioned to take advantage of such movements and are reported at fair value. Market adjustments, fees and gains or losses earned on trading account securities are included in noninterest income. Interest income on trading account securities is included in other interest income. Gains or losses realized from the sale of trading securities are determined by specific identification. During 1996, BB&T transferred securities with an amortized cost of $36.6 million from the held-to-maturity portfolio to the available-for-sale portfolio. These securities were previously classified as held-to-maturity by entities acquired 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 portfolio to BB&T's existing interest rate risk position. During the fourth quarter of 1995, BB&T transferred $1.8 billion of securities which were previously classified as held to maturity under SFAS No. 115 to the available-for-sale category. The Financial Accounting Standards Board ("FASB") provided enterprises the opportunity to make a one-time reassessment of the classification of all investment securities held at that time, such that the reclassification of any security from the held-to-maturity category would not call into question the enterprise's intent to hold other debt securities to maturity in the future. Management anticipates that this classification will allow more flexibility in the day-to-day management of the overall portfolio than the prior classifications. Loans Held for Sale Loans held for sale are reported at the lower of cost or market value on an aggregate loan basis. Gains or losses realized on the sales of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold, adjusted for any servicing asset or liability. Any resulting deferred premium or discount is amortized, as an adjustment of servicing income, over the estimated lives of the loans using the level-yield method. Loans and Lease Receivables Loans receivable that management has the intent and ability to hold for the foreseeable future or 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, including commitment fees and certain direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the loans using methods which approximate level-yield, with adjustments for prepayments as they occur. If the loan commitment expires unexercised, the income is recognized upon expiration of the commitment. Discounts and premiums are amortized to interest income over the estimated life of the loans using methods which 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. Lease receivables are stated at the total amount of lease payments receivable plus guaranteed residual values, less unearned income. Recognition of income over the lives of the lease contracts approximates the level-yield method. As of January 1, 1995, BB&T adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which was amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures." SFAS No. 114, as amended, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral-dependent. A loan is impaired when, based on current information and events, it is probable that BB&T will be unable to collect all amounts due according to the contractual terms of the loan 10 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS agreement. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. BB&T had previously measured the allowance for credit losses using methods similar to those prescribed in SFAS No. 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995. BB&T's policy is to disclose as impaired loans all commercial loans, greater than $250,000, that are on nonaccrual status. Substantially all other loans made by BB&T are excluded from the scope of SFAS No. 114 as they are large groups of smaller balance homogeneous loans (residential mortgage and consumer installment) that are collectively evaluated for impairment. Allowance for Loan and Lease Losses The provision for loan and lease losses is the estimated amount required to maintain the allowance for loan and lease losses at a level adequate to cover estimated incurred losses related to loans and leases currently outstanding. The primary factors considered in determining the allowance are the distribution of loans by risk class, the amount of the allowance specifically allocated to nonperforming loans and other problem loans, prior years' loan loss experience, economic conditions in BB&T's market areas and the growth of the credit portfolio. While management uses the best information available in establishing the allowance for 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 consumer loans past due 90 days or more may remain on accrual status if management determines that concern over the collectability 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 when 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 collectability of principal or interest. Assets acquired as a result of foreclosure are valued at the lower of cost or fair value, and carried thereafter at the lower of cost or fair value less estimated costs to sell the asset. Cost is 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 losses. Generally, such properties are appraised annually and the carrying value, if greater than the fair value, less costs to sell, is adjusted with a charge to income. Routine maintenance costs, declines in market value and net losses on disposal are included in other noninterest expense. Premises and Equipment Premises, equipment, capital leases and leasehold improvements are stated at cost less accumulated depreciation or amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the improvements. Capitalized leases are amortized by the same methods as premises and equipment over the estimated useful lives or the lease term, whichever is lesser. Obligations under capital leases are amortized using the interest method to allocate payments between principal reduction and interest expense. Income Taxes BB&T and its subsidiaries file a consolidated Federal income tax return. Each subsidiary pays its calculated portion of Federal income taxes to BB&T, or receives payment from BB&T to the extent that tax benefits are realized. Deferred income 11 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS taxes have been provided where different accounting methods have been used for reporting for income tax purposes and for financial reporting purposes. Deferred tax assets and liabilities are recognized based on future tax consequences of the differences arising from their carrying values and respective tax bases. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects included in the income tax provision. 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 with securities gains and losses. BB&T also utilizes over-the-counter purchased put options and net purchased put options (combination of purchased put option and written call option) in its mortgage banking activities. These options are used to hedge the mortgage warehouse and pipeline 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 carried with loans held for sale at the lower of cost or market on an aggregate basis. Realized gains and losses on purchased put options and net purchased put options are included in mortgage banking income. Per Share Data Effective December 31, 1997, BB&T adopted the provisions of SFAS No. 128, "Earnings Per Share." This statement establishes standards for computing and presenting earnings per share ("EPS") and simplifies the standards for computation previously found in Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per Share," making them more comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS (which replaces the former fully diluted EPS) for all entities with complex capital structures. The EPS information reported herein reflects the implementation of SFAS No. 128. Prior periods have been restated to include the provisions of the statement. Basic net income per common share has been computed by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during the years presented. 12 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Diluted net income per common share has been computed by dividing net income, as adjusted for the interest expense related to convertible debt in prior years, by the weighted average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the years. Restricted stock grants are considered as issued for purposes of calculating net income per share. Weighted average numbers of shares were as follows:
1997 1996 1995 ------------- ------------- ------------ Basic ............ 141,062,260 141,549,598 141,829,072 Diluted .......... 143,798,238 144,560,965 147,871,049
Intangible Assets BB&T's intangible assets consist of the cost in excess of the fair value of net assets acquired in transactions accounted for as purchases (goodwill), premiums paid on acquisitions of deposits (core deposit intangibles) and other identifiable intangible assets. Such assets are included in other assets in the "Consolidated Balance Sheets." Intangible assets are being amortized on straight-line or accelerated bases over periods ranging from 5 to 25 years. At December 31, 1997, BB&T had $206.0 million recorded as goodwill and $6.8 million as core deposit and other intangibles, net of amortization. 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, 1997, BB&T had negative goodwill totaling $33.0 million, net of amortization. Mortgage Servicing Rights Amounts paid to acquire the right to service certain mortgage loans are capitalized and amortized over the estimated lives of the loans to which they relate. In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," which amends SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." This statement was superseded by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which BB&T adopted on January 1, 1997. SFAS No. 122, as superseded by SFAS No. 125, requires that mortgage banking enterprises recognize, as separate assets, rights to service mortgage loans for others, however those servicing rights are obtained. The statement further requires mortgage banking enterprises to assess their capitalized mortgage servicing rights for impairment based on the fair value of those rights. BB&T elected, in the third quarter of 1995, to adopt this statement effective as of January 1, 1995. The impact of the adoption of this statement resulted in additional mortgage banking income of $7.6 million, before taxes, or $.03 per diluted share, after taxes, during 1995. SFAS No. 125 prohibits retroactive application to prior years. At December 31, 1997, BB&T had capitalized mortgage servicing rights totaling $68.8 million. Changes in Accounting Principles and Effects of New Accounting Pronouncements During 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement establishes accounting standards for long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and to be disposed of. The statement requires such assets to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any resulting impairment loss is required to be reported in the period in which the recognition criteria are first applied and met. BB&T adopted the provisions of the statement on January 1, 1996. The implementation did not have a material impact on the consolidated financial position or consolidated results of operations. In October of 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock-based compensation plans. The statement defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages the adoption of that method of accounting. However, the statement also allows entities to continue to account for such plans under Accounting Principles Board Opinion No. 25. Entities electing to remain with the accounting in Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in the statement had been applied. BB&T adopted the statement effective January 1, 1996 and elected to continue to account for stock-based compensation plans under the provisions of Opinion No. 25. Therefore, the implementation of the statement did not have an impact 13 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS on BB&T's consolidated financial position or consolidated results of operations. The required pro forma disclosures relating to SFAS No. 123 are presented in Note J. In June of 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides accounting and reporting standards for such transactions based on consistent application of a financial components approach. This approach recognizes the financial and servicing assets an entity controls and the liabilities it has incurred, as well as derecognizes financial assets when control has been surrendered and liabilities when they are extinguished. The statement requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets be initially measured at fair value, if practicable. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair values at the date of transfer. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." This statement allows the implementation of certain provisions of SFAS No. 125 to be deferred for one year. BB&T adopted SFAS No. 125, as amended by SFAS No. 127, effective January 1, 1997. The adoption of these statements did not have a material impact on BB&T's consolidated financial position or consolidated results of operations. In February of 1997, the FASB issued SFAS No. 128, "Earnings Per Share," as discussed above. The statement was effective for financial statements issued for periods ending after December 15, 1997, including interim periods, and requires restatement of all prior periods presented. Accordingly, BB&T adopted the provisions of the statement effective December 31, 1997, including retroactive restatement of prior periods. The implementation of the statement did not have a material impact on BB&T's consolidated financial position or consolidated results of operations. In February of 1997, the FASB issued SFAS No. 129, "Disclosure of Information about Capital Structure," which establishes standards for disclosing information about an entity's capital structure by continuing and amending existing standards. The statement is effective for financial statements for periods ending after December 15, 1997. Management has determined that BB&T is currently in compliance with the disclosure requirements of SFAS No. 129, and, therefore, the implementation of the statement did not affect the capital structure disclosures made by BB&T. In June of 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income (revenues, expenses, gains and losses) in a full set of general purpose financial statements. Comprehensive income is net income plus other comprehensive income, or the change in equity (net assets) of a company during a period from transactions and other events. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997, including interim periods, and requires restatement of all prior periods presented. Management does not believe that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of BB&T, but will require additional disclosures to be made. Currently, BB&T's only item that is considered to qualify as other comprehensive income is unrealized gains and losses on available-for-sale securities, net of reclassification adjustments and taxes. At December 31, 1997, this balance totaled $48.9 million. In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for periods beginning after December 15, 1997, and requires restatement of all prior periods presented. Management does not believe that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of BB&T, but will require substantial additional disclosures to be made. In March of 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which revises the disclosure requirements for pensions and other postretirement benefit plans. SFAS No. 132 is effective for periods ending after December 15, 1997, and requires restatement of all prior periods presented. Management does not believe that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of BB&T, but will require additional disclosures to be made. 14 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Supplemental Disclosures of Cash Flow Information As referenced in the "Consolidated Statements of Cash Flows," BB&T acquired assets and assumed liabilities in transactions accounted for under the purchase method of accounting. The fair values of these assets acquired and liabilities assumed, at acquisition, were as follows:
1997 1996 1995 ------------- ------------ ----- (Dollars in thousands) Fair value of net assets acquired ................ $ 129,719 $ 4,994 $-- Purchase price ................................... (276,483) (31,056) -- ---------- --------- --- Excess of purchase price over net assets acquired $ (146,764) $ (26,062) $-- ========== ========= ===
During the first quarter of 1996, BB&T redeemed all outstanding shares of Convertible Preferred Stock. This transaction, a noncash financing activity, resulted in the conversion of 733,869 shares of preferred stock into 4,334,692 shares of common stock. Income and Expense Recognition Items of income and expense are recognized using the accrual basis of accounting, except for some immaterial amounts. NOTE B. Acquisitions and Mergers Completed Mergers and Acquisitions On June 30, 1996, BB&T completed the purchase of certain fixed assets and expiration rights from the James R. Lingle Agency of Florence, South Carolina. In conjunction with the purchase, BB&T recorded expiration rights totaling $1.7 million which are being amortized using the straight-line method over 15 years. On August 28, 1996, BB&T became a majority shareholder of AutoBase Information Systems, Inc., ("AutoBase") through the purchase of 51% of AutoBase's outstanding common stock. In conjunction with this investment, BB&T recorded $1.2 million in goodwill which is being amortized using the straight-line method over 15 years. During November 1996, BB&T completed the acquisitions of three insurance agencies in South Carolina. On November 7, 1996, BB&T completed the acquisition of the William Goldsmith Agency Inc. ("Goldsmith") of Greenville, South Carolina through the issuance of 70,207 shares of common stock. On November 13, 1996, BB&T completed the acquisition of the C. Dan Joyner Insurance Agency ("Joyner") based in Greenville, South Carolina through the issuance of 48,120 shares of common stock. Boyle-Vaughan Associates, Inc. ("Boyle-Vaughan") based in Columbia, South Carolina, was acquired on November 22, 1996 through the issuance of 492,063 shares of common stock. In conjunction with the purchase of these agencies, BB&T recorded $17.9 million in goodwill, which is being amortized using the straight-line method over 15 years. On January 31, 1996, BB&T completed its acquisition of Seaboard Bancorp, Inc. ("Seaboard Bancorp") of Virginia Beach, Virginia, in a transaction accounted for as a purchase. The acquisition was accomplished through the payment of $8.8 million in cash. In conjunction with the purchase, BB&T recorded $5.2 million in goodwill, which is being amortized using the straight-line method over 15 years. On March 1, 1997, BB&T completed its acquisition of Fidelity Financial Bankshares Corporation ("Fidelity") of Richmond, Virginia, in a transaction accounted for as a purchase. BB&T issued 1.6 million shares for all of the shares of Fidelity's common stock outstanding. In conjunction with the acquisition, BB&T recorded $37.9 million in goodwill, which is being amortized using the straight-line method over 15 years. On May 20, 1997, BB&T completed its acquisition of Phillips Factors Corporation ("Phillips") and its subsidiaries, Phillips Financial Corporation and Phillips Acceptance Corporation, all of High Point, North Carolina. Phillips purchases and manages receivables in the temporary staffing industry nationwide. It also provides payroll processing services to that industry. Phillips also buys and manages account receivables primarily in the furniture, textiles and home furnishings-related industries. The acquisition of Phillips was accounted for as a purchase. In conjunction with the acquisition, BB&T recorded $11.1 million of goodwill which is being amortized using the straight-line method over 15 years. 15 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On July 31, 1997, BB&T completed its acquisition of Refloat, Inc. of Mount Airy, North Carolina, and its principal subsidiary, Sheffield Financial Corp. (collectively, "Refloat"), a financial company that specializes in loans to small commercial lawn care businesses across the country. The acquisition, which was completed through the issuance of 375,000 shares of common stock, was accounted for as a purchase. In conjunction with the acquisition of Refloat, BB&T recorded $3.0 million of goodwill which is being amortized using the straight-line method over 15 years. On October 1, 1997, BB&T completed its acquisition of Craigie Incorporated ("Craigie"), an investment banking firm located in Richmond, Virginia. Craigie specializes in the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. Craigie 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 acquisition, which was accounted for as a purchase, was accomplished through the issuance of approximately 463,000 shares of BB&T's common stock. In conjunction with the acquisition, BB&T recorded $6.8 million of goodwill, which is being amortized using the straight-line method over a period of 25 years. On December 1, 1997, BB&T completed its acquisition of Virginia First Financial Corporation of Petersburg, Virginia ("Virginia First"), a financial institution with $822.9 million in assets at the time of purchase. The merger, which was accounted for under the purchase method of accounting, was consummated through the issuance of 1.9 million shares of BB&T's common stock and the payment of $44.8 million. In conjunction with the acquisition, BB&T recorded $89.5 million in goodwill, which is being amortized using the straight-line method over a period of 15 years. The above-discussed acquisitions were accounted for under the purchase method of accounting, and, therefore, the financial information contained herein includes data relevant to the acquirees since the date of acquisition. The pro forma effects of the material 1997 purchase transactions, as if they had been acquired as of the beginning of the years presented, are presented in the accompanying table:
For the Years Ended ------------------------------- 1997 1996 --------------- --------------- (Dollars in thousands, except per share data) Total revenues ......... $ 1,536,925 $ 1,436,786 =========== =========== Net income ............. $ 354,437 $ 337,026 =========== =========== Basic EPS .............. $ 2.51 $ 2.38 =========== =========== Diluted EPS ............ $ 2.46 $ 2.33 =========== ===========
On February 28, 1995, BB&T (formerly Southern National Corporation) and BB&T Financial Corporation completed a merger accounted for as a pooling of interests. BB&T Financial Corporation's shareholders received 57.9 million shares of the common stock of the resulting company for all of the shares of BB&T Financial Corporation stock held. On January 10, 1995, BB&T acquired Commerce Bank (subsequently, BB&T-VA) through the issuance of 5.2 million shares of BB&T common stock for all of the outstanding stock of Commerce Bank. On April 28, 1995, BB&T issued 75,273 shares of common stock to complete an acquisition of United Agencies, Inc., a general insurance agency located in Wilmington, North Carolina. The transaction was accounted for under the pooling-of-interests method of accounting. Effective January 25, 1996, BB&T consummated a merger with Seaboard Savings Bank, Inc. ("Seaboard"), headquartered in Plymouth, North Carolina. BB&T issued 475,158 shares of common stock for all of the outstanding shares of Seaboard common stock. The transaction was accounted for as a pooling of interests. Effective March 29, 1996, BB&T consummated a merger with Triad Bank ("Triad") headquartered in Greensboro, North Carolina. BB&T issued 1.8 million shares of common stock for all of the outstanding shares of Triad common stock. The transaction was accounted for as a pooling of interests. On August 30, 1996, BB&T issued 42,135 shares of common stock to complete an acquisition of Tomlinson Insurers, Inc., a general insurance agency in Fayetteville, North Carolina. The transaction was accounted for under the pooling-of-interests method of accounting. 16 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On September 1, 1996, BB&T completed a merger with Regional Acceptance Corporation of Greenville, N.C. ("Regional Acceptance") in a transaction accounted for as a pooling of interests. BB&T issued 5.85 million shares in exchange for all of the outstanding stock of Regional Acceptance. On July 1, 1997, BB&T merged with United Carolina Bancshares Corporation ("UCB") of Whiteville, North Carolina, in a stock transaction accounted for as a pooling of interests. UCB shareholders received 27.7 million shares of BB&T common stock in exchange for all of the shares of UCB common stock outstanding. On March 1, 1998, BB&T completed its merger with Life Bancorp, Inc. ("Life") of Norfolk, Virginia. The transaction was accounted for as a pooling of interests. In conjunction with the merger, BB&T issued 5.8 million shares of common stock in exchange for all of the outstanding shares of Life common stock. The following presentation reflects key line items on an historical basis for BB&T and Life and on a restated basis assuming the merger was effective as of and for the periods presented.
Historical Basis ----------------------------- BB&T BB&T Life restated* --------------- ------------- ---------------- (Dollars in thousands, except per share data) 1997 - ----- Net interest income .......... $ 1,099,525 $ 37,468 $ 1,136,993 Net income ................... 359,942 (5,492) 354,450 Net earnings per share Basic ...................... 2.65 (0.60) 2.51 Diluted .................... 2.60 (0.57) 2.46 Assets ....................... 29,177,600 1,465,199 30,642,799 Deposits ..................... 20,210,116 738,061 20,948,177 Shareholders' equity ......... 2,237,637 162,190 2,399,827 1996 - ----- Net interest income .......... $ 1,007,700 $ 34,204 $ 1,041,904 Net income ................... 330,175 8,614 338,789 Net earnings per share Basic ...................... 2.42 .90 2.39 Diluted .................... 2.38 .89 2.34 Assets ....................... 25,707,646 1,419,762 27,127,408 Deposits ..................... 19,003,340 732,322 19,735,662 Shareholders' equity ......... 2,071,567 150,938 2,222,505
- --------- * Balances reflect adjustments necessary to combine BB&T and Life accounts. Pending Mergers and Acquisitions On December 16, 1997, BB&T announced plans to acquire Franklin Bancorporation Inc. ("Franklin") of Washington, D.C. in a stock transaction to be accounted for under the pooling-of-interests method of accounting. Franklin shareholders will receive between .35 and .3743 shares of BB&T common stock in exchange for each share of Franklin stock held. On February 25, 1998, BB&T announced plans to acquire Maryland Federal Bancorp, Inc. ("Maryland Federal") of Hyattsville, Maryland in a stock transaction to be accounted for as a purchase. Maryland Federal shareholders will receive no less than .5975 and no greater than .6102 shares of BB&T common stock in exchange for each share of Maryland Federal stock held. 17 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C. Securities The amortized costs and estimated fair values of securities held to maturity and available for sale were as follows:
December 31, 1997 ---------------------------------------------- Gross Unrealized Estimated Amortized ------------------ Fair Cost Gains Losses Value ------------- --------- -------- ------------- (Dollars in thousands) Securities held to maturity: U.S. Treasury, government and agency obligations ............ $ 14,952 $ -- $ 30 $ 14,922 States and political subdivisions ...................... 132,847 3,884 72 136,659 Mortgage-backed securities .......... -- -- -- -- ---------- ------- ------ ---------- Total securities held to maturity .......................... 147,799 3,884 102 151,581 ---------- ------- ------ ---------- Securities available for sale: U.S. Treasury, government and agency obligations ............ 4,315,512 32,521 5,382 4,342,651 States and political subdivisions ...................... 36,785 387 31 37,141 Mortgage-backed securities .......... 2,354,343 43,513 3,078 2,394,778 Equity and other securities ......... 412,047 12,583 2 424,628 ---------- ------- ------ ---------- Total securities available for sale .......................... 7,118,687 89,004 8,493 7,199,198 ---------- ------- ------ ---------- Total securities .................... $7,266,486 $92,888 $8,595 $7,350,779 ========== ======= ====== ========== December 31, 1996 ----------------------------------------------- Gross Unrealized Estimated Amortized -------------------- Fair Cost Gains Losses Value ------------- --------- ---------- ------------ (Dollars in thousands) Securities held to maturity: U.S. Treasury, government and agency obligations ............ $ 6,283 $ -- $ 4 $ 6,279 States and political subdivisions ...................... 164,525 5,121 181 169,465 Mortgage-backed securities .......... 140,974 1,247 952 141,269 ---------- ------- ------- ---------- Total securities held to maturity .......................... 311,782 6,368 1,137 317,013 ---------- ------- ------- ---------- Securities available for sale: U.S. Treasury, government and agency obligations ............ 3,980,355 17,405 12,979 3,984,781 States and political subdivisions ...................... 23,985 168 176 23,977 Mortgage-backed securities .......... 2,297,120 35,596 16,605 2,316,111 Equity and other securities ......... 298,266 2 2 298,266 ---------- ------- ------- ---------- Total securities available for sale .......................... 6,599,726 53,171 29,762 6,623,135 ---------- ------- ------- ---------- Total securities .................... $6,911,508 $59,539 $30,899 $6,940,148 ========== ======= ======= ==========
Securities with a book value of approximately $3.7 billion and $3.1 billion at December 31, 1997 and 1996, respectively, were pledged to secure municipal deposits, securities sold under agreements to repurchase, Federal Reserve discount window borrowings and for other purposes as required by law. At December 31, 1997 and 1996, there was no concentration of investments in obligations of states and political subdivisions that were secured by or payable from the same taxing authority or revenue source and that exceeded ten percent of shareholders' equity. Trading securities totaling $67.9 million are excluded from the accompanying tables. These securities are reported at fair value with net unrealized gains of $.7 million included in earnings during 1997. Proceeds from sales of securities during 1997, 1996 and 1995 were $1.6 billion, $605.8 million and $1.4 billion, respectively. Gross gains of $6.8 million, $5.5 million and $3.6 million and gross losses of $3.6 million, $2.3 million and $23.1 million were realized on those sales in 1997, 1996 and 1995, respectively. The amortized cost and estimated fair value of the securities portfolio at December 31, 1997, 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. 18 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 -------------------------------------------------- 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 .................... $ 38,677 $ 38,737 $ 755,903 $ 766,585 Due after one year through five years ...... 95,435 98,367 3,581,101 3,596,117 Due after five years through ten years ..... 11,494 12,077 403,548 405,010 Due after ten years ........................ 2,193 2,400 1,987,013 2,027,799 -------- -------- ---------- ---------- Total debt securities .................... $147,799 $151,581 $6,727,565 $6,795,511 ======== ======== ========== ==========
NOTE D. Loans and Leases Loans and leases were composed of the following:
December 31, --------------------------- 1997 1996 ------------- ------------- (Dollars in thousands) Loans: Commercial, financial and agricultural ............... $ 3,012,613 $ 2,715,363 Real estate -- construction and land development ..... 2,154,094 1,552,561 Real estate -- mortgage .............................. 11,956,390 10,641,833 Consumer ............................................. 2,745,706 2,827,214 ----------- ----------- Loans held for investment .......................... 19,868,803 17,736,971 ----------- ----------- Leases ................................................ 788,462 576,991 ----------- ----------- Total loans and leases ..................................... 20,657,265 18,313,962 Less: unearned income ...................................... 232,977 163,677 ----------- ----------- Loans and leases, net of unearned income ................... $20,424,288 $18,150,285 =========== ===========
The net investment in direct financing leases was $616.3 million and $470.5 million at December 31, 1997 and 1996, respectively. BB&T had loans held for sale at December 31, 1997 and 1996 totaling $509.1 million and $228.3 million, respectively. BB&T's only significant concentration of credit at December 31, 1997 occurred in loans secured by real estate, which totaled $14.6 billion. However, this amount was not concentrated in any specific market or geographic area other than the Banks' primary markets. The following table sets forth certain information regarding BB&T's impaired loans as defined under SFAS No. 114.
December 31, --------------------- 1997 1996 ---------- ---------- (Dollars in thousands) Total recorded investment -- impaired loans ................. $31,423 $27,501 ------- ------- Total recorded investment with related valuation allowance .. 31,423 26,423 Valuation allowance assigned to impaired loans .............. 3,086 6,030 ------- ------- Net carrying value -- impaired loans ...................... $28,337 $20,393 ======= ======= Average balance of impaired loans ........................... $23,296 $32,307 ======= ======= Cash basis interest income recognized on impaired loans ..... $ 189 $ 554 ======= =======
19 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 1997. 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, 1996 $174,668 Additions ................. 32,421 Repayments ................ 33,587 -------- Balance, December 31, 1997 $173,502 ========
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, ----------------------------------- 1997 1996 1995 ----------- ----------- ----------- (Dollars in thousands) Balance, January 1 ...................... $ 239,726 $ 223,490 $ 219,902 Provision for losses charged to expense . 97,526 62,246 42,378 Allowances of purchased companies ....... 17,513 5,185 -- --------- --------- --------- Subtotal .............................. 354,765 290,921 262,280 --------- --------- --------- Total charge-offs ....................... (97,447) (70,502) (53,852) Recoveries .............................. 18,086 19,307 15,062 --------- --------- --------- Net charge-offs ....................... (79,361) (51,195) (38,790) --------- --------- --------- Balance, December 31 .................... $ 275,404 $ 239,726 $ 223,490 ========= ========= =========
At December 31, 1997, 1996 and 1995, loans not currently accruing interest totaled $98.9 million, $64.7 million and $70.4 million, respectively. Loans 90 days or more past due and still accruing interest totaled $44.2 million, $41.7 million and $34.6 million, at December 31, 1997, 1996 and 1995, respectively. The gross interest income that would have been earned during 1997 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 $7.1 million. Foreclosed property was $34.9 million, $29.1 million and $19.5 million at December 31, 1997, 1996 and 1995, respectively. NOTE F. Premises and Equipment
December 31, --------------------- 1997 1996 ---------- ---------- (Dollars in thousands) Land and land improvements ................... $ 74,617 $ 66,676 Buildings and building improvements .......... 311,315 299,427 Furniture and equipment ...................... 340,877 282,524 Capitalized leases on premises and equipment . 3,647 3,804 -------- -------- Subtotal .................................... 730,614 652,431 Less -- accumulated depreciation and amortization298,825 260,009 -------- -------- Net premises and equipment .................. $431,631 $392,422 ======== ========
Depreciation expense, which is included in occupancy and equipment expense, was $58.1 million, $45.6 million and $42.4 million in 1997, 1996 and 1995, respectively. 20 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BB&T has noncancellable leases covering certain premises and equipment. Total rent expense applicable to operating leases was $44.9 million, $28.5 million and $33.1 million for 1997, 1996 and 1995, respectively. Future minimum lease payments for operating and capitalized leases for years subsequent to 1997 are as follows:
Leases ------------------------ Operating Capitalized ----------- ------------ (Dollars in thousands) Years ended December 31: 1998 ......................................... $ 21,593 $ 450 1999 ......................................... 20,663 450 2000 ......................................... 20,132 450 2001 ......................................... 19,184 450 2002 ......................................... 16,615 450 2003 and years later ......................... 82,359 4,547 -------- ------ Total minimum lease payments .................. $180,546 6,797 ======== Less -- amount representing interest .......... 3,506 ------ Present value of net minimum payments on capitalized leases (Note I) .............................. $3,291 ======
NOTE G. Loan Servicing The following is a summary of capitalized mortgage servicing rights, net of accumulated amortization and adjustments necessary to present the balances at the lower of cost or estimated fair value, which are included in the "Consolidated Balance Sheets":
Capitalized Mortgage Servicing Rights ----------------------- 1997 1996 ----------- ----------- (Dollars in thousands) Balance, January 1, ...... $ 41,891 $ 21,948 Amount capitalized ................ 39,093 26,356 Amortization expense .............. (9,561) (6,197) Change in valuation allowance ..... (2,643) (216) -------- -------- Balance, December 31, .... $ 68,780 $ 41,891 ======== ========
21 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Capitalized mortgage servicing rights are being amortized on a disaggregated loan basis using an accelerated method over the estimated life of the servicing income. The servicing rights portfolio is analyzed each quarter to identify possible impairment using a disaggregated discounted cash flow methodology that is stratified by predominant risk characteristics. These characteristics include stratification based on interest rates in intervals of 150 basis points, type of loan and maturity of loan. Following is an analysis of the aggregate changes in the valuation allowances for mortgage servicing rights in 1997 and 1996:
Valuation Allowance for Mortgage Servicing Rights ----------------------- (Dollars in thousands) Balance, January 1, 1996 . $ 499 Additions ................ 1,184 Reductions ............... (968) ------ Balance, December 31, 1996 715 ------ Additions ................ 3,257 Reductions ............... (614) ------ Balance, December 31, 1997 $3,358 ======
Mortgage loans serviced for others are not included in the accompanying "Consolidated Balance Sheets." The unpaid principal balances of mortgage loans serviced for others were $8.2 billion and $7.7 billion at December 31, 1997 and 1996, respectively. NOTE H. Short-Term Borrowed Funds
December 31, --------------------------- 1997 1996 ------------- ------------- (Dollars in thousands) Federal funds purchased .............................. $ 898,160 $ 729,995 Term Federal funds purchased ......................... -- 50,000 Securities sold under agreements to repurchase ....... 1,258,513 939,315 Master notes ......................................... 638,325 566,225 U.S. Treasury tax and loan deposit notes payable ..... 105,851 101,681 Short-term Federal Home Loan Bank advances ........... 155,810 150,000 Short-term bank notes ................................ 208,079 -- Other short-term borrowed funds ...................... 11,439 2,608 ---------- ---------- Total short-term borrowed funds ..................... $3,276,177 $2,539,824 ========== ==========
Federal funds purchased represent unsecured borrowings from other banks and generally mature daily. Term Federal funds purchased are identical to Federal funds; however, maturities vary and are greater than one day. Securities sold under agreements to repurchase are borrowings collateralized by securities of the U.S. Government or its agencies and have maturities ranging from one to ninety days. U.S. Treasury tax and loan deposit notes payable are payable upon demand to the U.S. Treasury. Master notes are unsecured, non-negotiable obligations of BB&T (variable rate commercial paper). Short-term Federal Home Loan Bank advances are typically unsecured and generally mature daily. 22 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE I. Long-Term Debt
December 31, ------------------------- 1997 1996 ------------ ------------ (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 .................. $ 3,291 $ 3,561 Medium-term bank notes, unsecured, varying maturities to 2001 with rates from 5.69% to 6.20% .......................................................................... 1,024,833 424,794 Advances from Federal Home Loan Bank, varying maturities to 2017 with rates from 1.00% to 8.95% .......................................................................... 2,038,500 1,637,682 Subordinated Notes, unsecured, dated May 21, 1996 and June 3, 1997, maturing May 23, 2003 and June 15, 2007, with interest ratesof 7.05% and 7.25%, respectively.* ........... 495,589 248,019 CMO Bonds, secured by investments, dated 1985, callable July 1, 2001, with an interest rate of 11.25% .......................................................................... 8,112 -- Thrift Financing Corporation notes, secured by investments, dated 1985, due January 1, 2016, with an interest rate of 11.61% ................................................... 4,261 5,227 Other mortgage indebtedness .............................................................. 931 1,695 ---------- ---------- Total long-term debt .................................................................... $3,575,517 $2,320,978 ========== ==========
- --------- * Subordinated notes qualify under the risk-based capital guidelines as Tier 2 supplementary capital. Excluding the capitalized leases set forth in Note F, future debt maturities total $3.6 billion and are $445.2 million, $1.2 billion, $321.2 million, $424.7 million, and $258.7 million for the next five years. The maturities for 2003 and later years are $972.1 million. 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, 1997, 141,763,220 shares of common stock and no shares of preferred stock were issued and outstanding. 23 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Stock Option Plans At December 31, 1997, BB&T had the following stock-based compensation plans: the 1994 and the 1995 Omnibus Stock Incentive Plans ("Omnibus Plans"), the Incentive Stock Option Plan ("ISOP"), the Non-Qualified Stock Option Plan ("NQSOP") and the Non-Employee Directors' Stock Option Plan ("Directors' Plan"), which are described below. BB&T accounts for these plans under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for these plans been determined based on the fair value at the grant dates for awards under those plans granted after December 31, 1994, consistent with the method described by SFAS No. 123, BB&T's pro forma net income and pro forma earnings per share would have been as follows:
For the Years Ended December 31, ------------------------------------------- 1997 1996 1995 ------------- -------------- -------------- (Dollars in thousands, except per share data) Net income applicable to common shares: As reported ......................... $ 354,450 $ 338,179 $ 231,337 Pro Forma ........................... 346,260 335,138 230,401 Basic EPS: As reported ......................... 2.51 2.39 1.63 Pro Forma ........................... 2.45 2.37 1.62 Diluted EPS: As reported ......................... 2.46 2.34 1.60 Pro Forma ........................... 2.41 2.32 1.59
The SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995; therefore, the weighted average fair value of options granted prior to that date has not been calculated. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield of 3.0% in 1997 and 3.5% in 1996 and 1995; expected volatility of 20% for all years; risk free interest rates of 6.2%, 6.4% and 5.7% for 1997, 1996 and 1995, respectively; and expected lives of 6.1 years, 6.5 years and 6.0 years for 1997, 1996 and 1995, respectively. Because the SFAS No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. In April, 1994 and May, 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 to 6,000,000 shares. The combined shares issuable under both Omnibus Plans is 10,000,000. 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, 1997, 2,944,576 incentive stock options at prices ranging from $9.4828 to $40.3750 and 2,051,342 non-qualified stock options at prices ranging from $.01 to $38.99 were outstanding. The stock options generally vest over 3 years and have a 10 year term. The ISOP and the NQSOP were established to retain key officers and key management employees and to offer them the incentive to use their best efforts on behalf of BB&T. The plans, which expire on December 19, 2000, further provide for up to 1,101,000 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. Incentive stock options granted must have an exercise price equal to at least 100% of the fair market value of common stock on the date granted, and the non-qualified stock options must have an exercise price equal to at least 85% of the fair market value on the date granted. At December 31, 1997, options to purchase 258,167 shares of common stock at prices ranging from $9.50 to $16.75 were outstanding pursuant to the NQSOP. At December 31,1997, options to purchase 94,174 shares of common stock at an exercise price of $19.777 were outstanding pursuant to the ISOP. 24 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Directors' 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 400,000 shares of BB&T common stock. At December 31, 1997, options to purchase 368,613 shares of common stock at prices ranging from $12.7155 to $45.2047 were outstanding pursuant to the Directors' Plan. BB&T also has options outstanding from companies acquired in prior years. These options, which have not been included in the plans described above, totaled 244,281 as of December 31, 1997, with option prices ranging from $2.6667 to $23.7069. A summary of the status of the Company's stock option plans at December 31, 1997, 1996 and 1995 and changes during the years then ended is presented below:
1997 1996 1995 --------------------------- ------------------------- -------------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Exercise Exercise Exercise Shares Price Shares Price Shares Price --------------- ----------- ------------- ----------- ------------- ------------ Outstanding at beginning of year ..... 6,183,607 $ 18.84 6,729,504 $ 18.03 5,527,583 $ 14.95 Granted .............................. 1,035,814 37.38 120,176 25.30 1,853,300 25.24 Exercised ............................ (1,189,703) 15.29 (615,452) 11.43 (608,181) 10.88 Forfeited or Expired ................. (67,713) 27.42 (50,621) 15.82 (43,198) 19.24 ---------- --------- --------- --------- --------- --------- Outstanding at end of year ........... 5,962,005 $ 22.68 6,183,607 $ 18.84 6,729,504 $ 18.03 ========== ========= ========= ========= ========= ========= Options exercisable at year-end ...... 4,840,759 $ 19.53 4,762,663 $ 17.26 4,414,099 $ 15.52
The weighted average fair value of options granted was $9.33, $6.59 and $5.05 per option at December 31, 1997, 1996 and 1995, respectively. The following table summarizes information about the options outstanding at December 31, 1997:
Options Outstanding Options Exercisable ----------------------------------------------- -------------------------- Weighted- Average Weighted- Weighted- Number Remaining Average Number Average Range of Outstanding Contractual Exercise Exercisable Exercise Exercise Prices at 12/31/97 Life Price at 12/31/97 Price - -------------------- ------------- ----------------- ----------- ------------- ---------- $ 0.01 998 5.0 yrs $ 0.01 998 $ 0.01 $2.67 to $3.67 13,571 6.1 2.88 13,571 2.88 $4.92 to $7.03 23,343 3.1 6.36 23,343 6.36 $7.45 to $10.81 275,346 3.3 9.29 275,346 9.29 $11.72 to $17.50 1,518,899 3.9 14.50 1,518,899 14.50 $18.13 to $26.75 3,155,636 7.0 22.93 2,928,623 22.91 $27.88 to $40.38 959,639 9.1 38.97 79,979 33.46 $45.20 14,573 10.0 45.20 -- -- --------- -------- -------- --------- -------- 5,962,005 6.3 yrs $ 22.68 4,840,759 $ 19.53 --------- -------- -------- --------- --------
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 25 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS group acquires 20% or more of BB&T's common stock, or BB&T's Board of Directors determines, pursuant to the terms of the Rights Agreement, that any person or group that has acquired 10% or more of BB&T's common stock is an "Adverse Person." Each right would then enable the holder to purchase 1/100th of a share of a new series of BB&T preferred stock at an initial exercise price of $145.00. The Board of Directors will be entitled to redeem the rights at $.01 per right under certain circumstances specified in the Rights Agreement. Under the terms of the Rights Agreement, if any person or group becomes the beneficial owner of 25% or more of BB&T's common stock, with certain exceptions, or if the Board of Directors determines that any 10% or more stockholder is an "Adverse Person," each right will entitle its holder (other than the person triggering exercisability of the rights) to purchase, at the right's then-current exercise price, shares of BB&T's common stock having a value of twice the right's exercise price. In addition, if after any person or group has become a 20% or more stockholder, BB&T is involved in a merger or other business combination transaction with another person in which its common stock is changed or converted, or sells 50% or more of its assets or earning power to another person, each right will entitle its holder to purchase, at the right's then-current exercise price, shares of common stock of such other person having a value of twice the right's exercise price. Note K. Income Taxes The provision for income taxes was composed of the following:
Years Ended December 31, ----------------------------------- 1997 1996 1995 ----------- ----------- ----------- (Dollars in thousands) Current expense: Federal .......................... $ 191,239 $156,996 $ 129,648 State ............................ 9,084 4,777 6,794 --------- -------- --------- Subtotal ........................ 200,323 161,773 136,442 Deferred expense (benefit) ......... (14,236) 3,875 (18,198) --------- -------- --------- Provision for income taxes ......... $ 186,087 $165,648 $ 118,244 ========= ======== =========
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, --------------------------------------- 1997 1996 1995 ------------ ------------ ----------- (Dollars in thousands) Federal income taxes at statutory rates of 35% ............. $187,192 $176,453 $124,031 Tax-exempt income from securities, loans and leases less related non-deductible interest expense ................... (9,885) (8,190) (8,222) State income taxes, net of Federal tax benefit ............. 4,931 3,520 3,640 Other, net ................................................. 3,849 (6,135) (1,205) -------- -------- -------- Provision for income taxes ................................. $186,087 $165,648 $118,244 ======== ======== ======== Effective income tax rate .................................. 34.4% 32.8% 33.3% ======== ======== ========
26 BB&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, -------------------------- 1997 1996 ------------- ------------ (Dollars in thousands) Deferred tax assets: Allowance for loan and lease losses ............................. $ 106,331 $ 90,669 Deferred compensation ........................................... 28,033 18,410 Postretirement benefits other than pensions ..................... 16,850 18,488 Expense accruals ................................................ 16,115 2,861 Other ........................................................... 27,045 21,477 ---------- --------- Total tax deferred assets ........................................ 194,374 151,905 ---------- --------- Deferred tax liabilities: Depreciation .................................................... (27,139) (24,367) Net unrealized appreciation on securities available for sale .... (31,593) (9,702) Lease financing ................................................. (19,193) (15,623) Pension plan contribution ....................................... (9,839) (6,363) Loan servicing rights ........................................... (9,745) (4,048) Other ........................................................... (24,897) (22,275) ---------- --------- Total tax deferred liabilities ................................... (122,406) (82,378) ---------- --------- Net deferred tax asset ........................................... $ 71,968 $ 69,527 ========== =========
The deferred tax assets have been determined to be realizable, and, accordingly, a valuation allowance was not required. At December 31, 1997, there were no operating losses, income tax credits or alternative minimum tax credit carryforwards. Securities transactions resulted in income tax expense (benefits) of $1.3 million, $1.3 million and ($7.8 million) related to securities gains (losses) for the years ended December 31, 1997, 1996 and 1995, respectively. 27 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note L. Benefit Plans BB&T has various employee benefit plans and arrangements. Employees of acquired entities typically participate in existing BB&T plans upon consummation of the acquisitions. Credit is usually given to these employees for years of service at the acquired institution. The combination of actuarial information for the benfit plans of acquired entities is not meaningful because the benefits offered in those plans and assumptions used in the calculations related to those plans are superseded by the beneifts offered in the BB&T plans and the assumptions used in the BB&T calculations. Accordingly, the actuarial information presented for retirement plans and postretirement benefits is that of BB&T as originally presented. The following table discloses expenses relating to employee benefit plans restated for transactions accounted for as poolings of interests.
1997 1996 1995 ----------- ----------- ----------- (Dollars in thousands) Defined benefit plans ........................ $ 13,246 $ 12,494 $ 18,921 Defined contribution and ESOP plans .......... 27,386 13,168 11,803 -------- -------- -------- Total expense related to benefit plans ..... $ 40,632 $ 25,662 $ 30,724 ======== ======== ========
Retirement Plans BB&T has a retirement plan 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 were in amounts between the minimum required for funding standard account purposes and the maximum deductible for Internal Revenue Service purposes. Supplemental retirement benefits are provided to certain key officers under supplemental 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. Net periodic pension cost, which is included in employee benefits expense, consisted of the following components in 1997, 1996 and 1995.
1997 1996 1995 ------------ ------------ ------------ (Dollars in thousands) Service cost ................................ $ 12,412 $ 11,488 $ 11,765 Interest cost ............................... 17,911 16,253 14,984 Actual return on assets ..................... (42,875) (24,260) (31,771) Early retirement ............................ -- -- 3,372 Net amortization and deferral and other ..... 25,684 8,833 19,746 --------- --------- --------- Net periodic pension cost .................. $ 13,132 $ 12,314 $ 18,096 ========= ========= =========
28 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the plans' funded status at December 31, 1997 and 1996.
Plans for which Plans for which assets exceed accumulated benefits accumulated benefits exceed assets ----------------------------- ---------------------------- 1997 1996 1997 1996 -------------- -------------- ------------- -------------- (Dollars in thousands) Accumulated benefit obligation Vested benefits ........................................ $ (185,227) $ (163,691) $ (10,110) $ (5,471) Nonvested benefits ..................................... (4,488) (3,720) (805) (751) ----------- ----------- ---------- ---------- $ (189,715) $ (167,411) $ (10,915) $ (6,222) =========== =========== ========== ========== Projected benefit obligation ............................ $ (234,396) $ (221,697) $ (22,946) $ (16,821) Plan assets at fair value ............................... 273,922 219,038 -- -- ----------- ----------- ---------- ---------- Plan assets in excess of (less than) projectedbenefit obligation ............................................. 39,526 (2,659) (22,946) (16,821) Unrecognized transition amount .......................... (6,523) (7,626) 277 321 Unrecognized prior service cost ......................... (23,201) (5,931) 3,516 4,163 Unrecognized net loss ................................... 6,616 22,281 6,066 3,153 Minimum liability adjustment ............................ -- -- (89) (861) ----------- ----------- ---------- ---------- Prepaid (accrued) pension cost included in other assets (other liabilities) ............................. $ 16,418 $ 6,065 $ (13,176) $ (10,045) =========== =========== ========== ==========
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 $ 20.3 million, $11.2 million and $7.9 million of BB&T common stock at December 31, 1997, 1996 and 1995, respectively. Actuarial assumptions used in calculating these amounts were:
1997 1996 1995 --------- ----------- --------- Rate of increase in future compensation ...................... 5.5% 5.5% 5.5% Weighted average discount rate ............................... 7.25 7.5 7.5 Weighted average expected long-term rate of return on assets . 8.0 8.0-9.0 8.0
Postretirement Benefits BB&T revised its retiree health care plans in preparation for the implementation of SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions." Effective January 1, 1996, the plans of BB&T and BB&T Financial Corporation were merged into a single plan. The new plan covers employees retiring after December 31, 1995 who are eligible for participation in the BB&T pension plan and have at least ten years of service. The plan requires retiree contributions, with a subsidy by BB&T based upon years of service of the employee at the time of retirement. The subsidy is periodically reviewed for adjustment. The plan provides flexible benefits to retirees which may also be used for dependents. The following table sets forth the components of the retiree benefit plan and the amount recognized in the consolidated financial statements at December 31, 1997, 1996 and 1995 as originally reported.
1997 1996 1995 ---------- -------- --------- (Dollars in thousands) Net periodic postretirement benefit cost: Service cost ............................... $ 733 $ 834 $1,048 Interest cost .............................. 2,586 2,667 2,920 Amortization of net loss and other ......... (37) 344 524 ------ ------ ------ Total expense ............................. $3,282 $3,845 $4,492 ====== ====== ======
29 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 1996 1995 -------------- -------------- -------------- (Dollars in thousands) Reconciliation of funded status: Accumulated postretirement benefit obligation ..................... $ (38,342) $ (38,208) $ (39,505) Unrecognized net (gain) loss ...................................... (4,359) (1,463) 1,766 ---------- ---------- ---------- Accrued postretirement benefit costs included in other liabilities $ (42,701) $ (39,671) $ (37,739) ========== ========== ==========
Actuarial assumptions used in calculating these amounts were:
1997 1996 1995 ---------- ---------------- --------------- Annual rate of increase in the per capita cost of health care claims Current year ......................................................... 10.0% 11.0-11.25% 8.0-14.00% Final constant amount ................................................ 5.0 5.0-6.25 4.75-6.5 Annual decrease ...................................................... 1.0 .5-1.0 .8-1.5 General inflation rate ................................................. 4.0 4.0 4.0 Weighted average discount rate ......................................... 7.25 7.5 7.5-8.0 Impact of 1% increase in assumed health care cost on: Net periodic benefit cost ............................................ -- 3.0 2.0-3.0 Expected postretirement benefit obligation ........................... 2.0 5.0 3.0-4.0
401-k Savings Plan Prior to 1996, BB&T had an Employee Stock Ownership Plan which allowed all employees to acquire common stock in BB&T by contributing up to 15% of their salaries to the plan. BB&T matched 100% of each employee's contributions, up to a maximum of 6% of the employee's salary. BB&T Financial Corporation had a Savings and Thrift Plan which permitted eligible employees to make contributions up to 16% of base compensation, with matching contributions up to 4% of the employee's base compensation. Effective January 1, 1996, BB&T's Employee Stock Ownership Plan was merged into the former BB&T Financial Corporation Savings and Thrift Plan to form the BB&T Corporation 401-k Savings Plan. The new plan permits employees to contribute up to 16% of their compensation. BB&T matches up to 6% of the employee's compensation with a 100% matching contribution. Settlement Agreements In connection with recent significant mergers, three executive officers of merged institutions agreed to retire during 1995 and 1997. BB&T entered into settlement and noncompetition agreements with these executive officers to settle existing employment contracts and to require them not to compete with BB&T. One of the agreements provides for annual payments of $1,655,000 less the company-provided portion of certain benefits payable under existing benefit plans. The payments continue for the life of the executive and his current wife but in no event for a period of less than fifteen years. The executive has agreed not to compete in a defined geographic area for fifteen years and to serve as a consultant to BB&T for five years. A second agreement provides for annual payments of $312,000 for ten years or until death. The third settlement agreement provides for annual payments of $769,392 (to be adjusted annually in accordance with the Consumer Price Index) until the executive reaches the age of 65 in 2002, at which time the annual payments will be reduced to 70% of the amount paid during the final year pursuant the agreement, estimated to be approximately $623,000, less the company-provided portion of benefits payable under certain existing benefit plans. The reduced payments will continue for the life of the executive. If the executive's current wife survives him, payments will continue to her in the annual amount equal to 35% of the amount paid to the executive during the final year pursuant to the agreement. The executive officer has agreed not to compete in a defined geographic area for ten years. Other There are various other employment contracts, deferred compensation arrangements and covenants not to compete with selected members of management and certain retirees. 30 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 its customers and to reduce its 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 other party 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 instruments.
Contract or Notional Amount at December 31, --------------------------- 1997 1996 ------------- ------------- (Dollars in thousands) Financial instruments whose contract amounts represent credit risk: Commitments to extend, originate or purchase credit ................. $7,836,594 $6,803,478 Standby letters of credit and financial guarantees written .......... 275,349 227,310 Commercial letters of credit ........................................ 35,915 21,703 Financial instruments whose notional or contract amounts exceed the amount of credit risk: Commitments to sell loans and securities ............................ $ 555,722 $ 240,121 Foreign exchange contracts .......................................... 145,855 103,506
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. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BB&T evaluates each customer's creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by BB&T upon extension of credit, is based on management's evaluation of the creditworthiness of the counterparty. Standby letters of credit and financial guarantees written are conditional commitments issued by BB&T to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers, and letters of credit are collateralized when necessary. Forward commitments to sell mortgage loans and mortgage-backed securities are contracts for delayed delivery of securities in which BB&T agrees to make delivery at a specified future date of a specified instrument, at a specified price or yield. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in securities' values and interest rates. Legal Proceedings The nature of the business of BB&T's banking subsidiaries ordinarily results in a certain amount of litigation. The subsidiaries of BB&T are involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities 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 based on certain percentages of deposit types subject to various adjustments. At December 31, 1997, these reserves (including average daily vault cash) amounted to $92.9 million. 31 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Subject to restrictions imposed by state laws and federal regulations, the Boards of Directors of the subsidiary banks could have declared dividends from their retained earnings up to $1.3 billion at December 31, 1997. The 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. BB&T was in compliance with these requirements at December 31, 1997. 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 as calculated under regulatory accounting practices. BB&T's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 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.
December 31, 1997 December 31, 1996 ------------------------------------------ ----------------------------------------- For Minimum For Minimum Actual Capital Actual Capital -------------------------- Adequacy -------------------------- Adequacy Ratio Amount Purposes Ratio Amount Purposes ---------- ------------- ------------- ---------- ------------- ------------ (Dollars in thousands) Tier 1 Capital BB&T ................... 10.3% $2,115,402 $ 821,195 11.8% $2,118,249 $ 715,730 BB&T -- NC ............. 11.0 1,672,558 606,912 10.8 1,513,438 558,944 BB&T -- SC ............. 12.2 368,256 121,094 14.0 396,537 113,370 BB&T -- VA ............. 12.1 73,296 24,297 11.7 66,640 22,845 Fidelity ............... 12.3 28,253 9,201 N/A N/A N/A Virginia First ......... 10.5 62,796 23,882 N/A N/A N/A Life ................... 22.1 135,834 24,606 20.5 121,055 23,570 ---- ---------- ---------- ----- ---------- ---------- Total Capital BB&T ................... 14.0 2,867,562 1,642,391 14.5 2,588,063 1,431,460 BB&T -- NC ............. 12.3 1,862,258 1,213,824 12.1 1,686,083 1,117,887 BB&T -- SC ............. 13.4 406,120 242,188 15.2 431,991 226,741 BB&T -- VA ............. 13.3 80,892 48,593 12.9 73,792 45,691 Fidelity ............... 13.3 30,636 18,402 N/A N/A N/A Virginia First ......... 11.8 70,317 47,764 N/A N/A N/A Life ................... 22.4 137,489 49,212 21.4 126,241 47,139 ---- ---------- ---------- ----- ---------- ---------- Leverage Capital BB&T ................... 7.2 2,115,402 880,645 7.9 2,118,249 806,924 BB&T -- NC ............. 7.6 1,672,558 656,147 7.4 1,513,438 609,794 BB&T -- SC ............. 8.5 368,256 129,748 9.4 396,537 126,303 BB&T -- VA ............. 9.4 73,296 23,284 8.6 66,640 23,267 Fidelity ............... 7.9 28,253 10,712 N/A N/A N/A Virginia First ......... 7.3 62,796 25,710 N/A N/A N/A Life ................... 9.2 135,834 44,487 8.5 121,055 42,535 ---- ---------- ---------- ----- ---------- ----------
- --------- N/A -- Not applicable. 32 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note O. Parent Company Financial Statements Condensed Balance Sheets December 31, 1997 and 1996
1997 1996 ------------ ------------ (Dollars in thousands) Assets Cash and due from banks ................................ $ 2,748 $ 9,047 Interest-bearing bank balances ......................... 605,319 587,330 Securities ............................................. 13,824 40,560 Investment in banking subsidiaries ..................... 2,706,373 2,214,223 Investment in other subsidiaries ....................... 185,504 52,283 Premises and equipment ................................. 5,537 5,809 Receivables from subsidiaries and other assets ......... 80,778 183,644 ---------- ---------- Total assets ........................................ $3,600,083 $3,092,896 ========== ========== Liabilities and Shareholders' Equity Short-term borrowed funds .............................. $ 638,325 $ 566,225 Dividends payable ...................................... 42,173 29,521 Accounts payable and accrued liabilities ............... 23,503 25,626 Long-term debt ......................................... 496,255 249,019 ---------- ---------- Total liabilities ................................... 1,200,256 870,391 ---------- ---------- Total shareholders' equity .......................... 2,399,827 2,222,505 ---------- ---------- Total liabilities and shareholders' equity .......... $3,600,083 $3,092,896 ========== ==========
Condensed Income Statements For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ----------- ----------- ----------- (Dollars in thousands) Income Dividends from subsidiaries .............................................. $248,294 $142,854 $240,699 Interest and other income from subsidiaries .............................. 61,649 36,627 20,261 Interest on investment securities ........................................ 1,739 2,936 1,855 Other income ............................................................. 722 7,835 6,143 -------- -------- -------- Total income ............................................................ 312,404 190,252 268,958 -------- -------- -------- Expenses Interest expense ......................................................... 53,161 33,845 17,859 Occupancy expense ........................................................ 249 171 171 Other expenses ........................................................... 14,289 11,327 26,760 -------- -------- -------- Total expenses .......................................................... 67,699 45,343 44,790 -------- -------- -------- Income before income tax benefit and equity in undistributed earnings of subsidiaries ............................................................. 244,705 144,909 224,168 Income tax (benefit) expense ............................................... (21) 661 (6,042) -------- -------- -------- Income before equity in undistributed earnings of subsidiaries ............. 244,726 144,248 230,210 Net income of subsidiaries in excess of dividends from subsidiaries ........ 109,724 194,541 6,206 -------- -------- -------- Net income ................................................................. $354,450 $338,789 $236,416 ======== ======== ========
33 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Condensed Statements of Cash Flows For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995 ------------- ----------------------- ------------- (Dollars in thousands) Cash Flows From Operating Activities: Net income .............................................................. $ 354,450 $ 338,789 $ 236,416 Adjustments to reconcile net income to net cash provided by operating activities: Net income of subsidiaries less than (in excess of) dividends from subsidiaries .......................................................... (109,724) (194,541) (6,206) Depreciation of premises and equipment .................................. 272 214 214 Amortization of unearned compensation ................................... 1,227 2,450 3,172 Discount accretion and premium amortization ............................. 396 192 (298) Loss (gain) on sales of securities ...................................... -- (9) 100 Loss on disposals of other real estate owned ............................ -- -- 240 Loss on disposal of premises and equipment .............................. -- -- 29 (Increase) decrease in other assets ..................................... (16,499) 125,793 (146,036) Increase (decrease) in accounts payable and accrued liabilities ......... (1,984) 2,293 5,974 ---------- ----------- ---------- Net cash provided by operating activities ............................. 228,138 275,181 93,605 ---------- ----------- ---------- Cash Flows From Investing Activities: Proceeds from sales of securities available for sale .................... -- 14 87 Proceeds from maturities of securities available for sale ............... 35,482 49,347 101,339 Purchases of securities available for sale .............................. (8,717) (52,324) (41,697) Proceeds from sales of securities held to maturity ...................... -- -- 520 Proceeds from sales of premises and equipment ........................... -- -- 79 Investment in subsidiaries .............................................. (483) (68,625) (264) Advances to subsidiaries ................................................ (430,897) (306,857) -- Repayment of advances to subsidiaries ................................... 369,375 182,875 -- Net cash paid (received) in purchase accounting transactions ............ (45,852) -- -- ---------- ----------- ---------- Net cash (used in) provided by investing activities ................... (81,092) (195,570) 60,064 ---------- ----------- ---------- Cash Flows From Financing Activities: Net increase (decrease) in long-term debt ............................... 246,873 247,625 (7,333) Net increase in short-term borrowed funds ............................... 72,100 169,952 142,004 Net proceeds from common stock issued ................................... 22,583 49,736 49,226 Redemption of common stock .............................................. (321,224) (225,565) (47,311) Preferred stock cancellations and conversions ........................... -- -- (2,371) Cash dividends paid on common and preferred stock ....................... (155,688) (127,771) (112,669) ---------- ----------- ---------- Net cash (used in) provided by financing activities ................... (135,356) 113,977 21,546 ---------- ----------- ---------- Net Increase in Cash and Cash Equivalents ............................... 11,690 193,588 175,215 Cash and Cash Equivalents at Beginning of Year .......................... 596,377 402,789 227,574 ---------- ----------- ---------- Cash and Cash Equivalents at End of Year ................................ $ 608,067 $ 596,377 $ 402,789 ========== =========== ==========
34 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note P. Disclosures about Fair Value of Financial Instruments SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires BB&T to disclose the estimated fair value of its on- and off-balance sheet financial instruments. A financial instrument is defined by SFAS No. 107 as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver to 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. Because 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 cannot always 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 at December 31, 1997 and 1996: Cash and cash equivalents: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values. Securities: Fair values for securities are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities. Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms and credit quality. The carrying amounts of accrued interest approximate fair values. Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and certain money market accounts are, by definition, equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. Short-term borrowed funds: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements, master notes and other short-term borrowed funds approximate their fair values. Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for similar instruments or by using discounted cash flow analyses, based on BB&T's current incremental borrowing rates for similar types of instruments. Interest rate swap agreements: The fair values of interest rate swaps (used for hedging purposes) are the estimated amounts that BB&T would receive or pay to terminate the swap agreements at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. Commitments to extend credit, standby letters of credit and financial guarantees written: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on fees currently charged for similar agreements. 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. 35 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 1996 ----------------------------- ---------------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------------- ------------- -------------- ------------- (Dollars in thousands) Financial assets: Cash and cash equivalents ............. $ 1,032,281 $ 1,032,281 $ 938,624 $ 938,624 Trading securities .................... 67,878 67,878 -- -- Securities available for sale ......... 7,199,181 7,199,181 6,610,049 6,610,049 Securities held to maturity ........... 147,799 151,581 311,782 317,013 Loans and leases: Loans ............................... 20,317,127 20,556,414 17,908,163 17,904,878 Leases .............................. 616,302 N/A 470,455 N/A Allowance for losses ................ (275,404) N/A (239,726) N/A ----------- ----------- Net loans and leases ............... $20,658,025 $18,138,892 =========== =========== Financial liabilities: Deposits .............................. $20,948,177 20,981,345 $19,735,662 19,788,728 Short-term borrowed funds ............. 3,276,177 3,276,177 2,539,824 2,539,824 Long-term debt ........................ 3,572,226 3,868,116 2,317,417 2,408,659 Capitalized leases .................... 3,291 N/A 3,561 N/A
1997 1996 -------------------------- -------------------------- Notional/ Notional/ Contract Fair Contract Fair Amount Value Amount Value ------------- ------------ ------------- ------------ Off balance sheet financial instruments: Interest rate swaps, caps and floors .................. $2,428,930 $ 25,570 $1,167,099 $ 5,775 Commitments to extend, originate or purchase credit ... 7,836,594 (14,835) 6,803,478 (12,576) Standby and commercial letters of credit and financial guarantees written .................................. 311,264 (4,495) 249,013 (3,579) Commitments to sell loans and securities .............. 555,722 (2,925) 240,121 822 Foreign exchange contracts ............................ 145,855 326 103,506 312 Option contracts purchased ............................ 55,000 (303) 14,000 142 Option contracts written .............................. 55,000 -- 14,000 -- Futures contracts ..................................... 8,486 -- -- --
- --------- N/A Not applicable. NOTE Q. Derivatives and Off-Balance Sheet Financial Instruments Interest rate volatility often increases to the point that balance sheet repositioning through the use of account repricing and other on-balance sheet strategies cannot occur rapidly enough to avoid adverse net income effects. At those times, off-balance sheet or synthetic hedges are utilized. During 1997, management used interest rate swaps, caps and floors to supplement balance sheet repositioning. Such actions were designed to lower the interest sensitivity of BB&T toward a neutral position. 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 transform the repricing characteristics of an asset or liability from a fixed to a floating rate, a floating rate to a fixed rate, or one floating rate to another floating rate. The underlying principal positions are not affected. Swap terms generally range from one year to ten years depending on the need. At December 31, 1997, derivatives with a total notional value of $2.4 billion, with terms ranging up to ten years, were outstanding. 36 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables set forth certain information concerning BB&T's interest rate swaps, caps and floors at December 31, 1997: Interest Rate Swaps, Caps and Floors December 31, 1997 (Dollars in thousands)
Notional Receive Pay Fair Amount Rate Rate Value ------------- --------- ---------- ---------- Type Receive fixed swaps ......... $1,301,000 6.39% 5.86% $23,785 Pay fixed swaps ............. 351,930 5.88 5.58 (121) Basis swaps ................. 100,000 5.70 5.63 -- Caps & Floors ............... 676,000 -- -- 1,906 ---------- ---- ---- ------- Total ....................... $2,428,930 6.25% 5.79% $25,570 ========== ==== ==== =======
Basis Swaps Receive Pay Fixed Caps & Fixed Swaps Swaps Floors Total ------------- ------------- ------------ ------------- Year-to-date Activity Balance, December 31, 1996 ......... $ 487,000 $ 304,099 $ 376,000 $1,167,099 Additions .......................... 849,000 223,900 660,000 1,732,900 Maturities/amortizations ........... (35,000) (176,069) (10,000) (221,069) Terminations ....................... -- -- (250,000) (250,000) ---------- ---------- ---------- ---------- Balance, December 31, 1997 ......... $1,301,000 $ 351,930 $ 776,000 $2,428,930 ========== ========== ========== ==========
One Year One to Five to or Less Five Years 10 Years Total ---------- ------------ ---------- ------------- Maturity Schedule Receive fixed swaps ......... $276,000 $ 525,000 $500,000 $1,301,000 Pay fixed swaps ............. 103,987 240,143 7,800 351,930 Basis swaps ................. 100,000 -- -- 100,000 Caps & Floors ............... 11,000 605,000 60,000 676,000 -------- ---------- -------- ---------- Total ....................... $490,987 $1,370,143 $567,800 $2,428,930 ======== ========== ======== ==========
As of December 31, 1997, unearned income from swap transactions initiated during 1997 was $13.5 million. There were no unamortized deferred gains or losses from terminated transactions remaining at year end. Active transactions resulted in pretax net income of $1.1 million. In addition to interest rate swaps, BB&T utilizes written covered over-the-counter call options on specific securities in the available-for-sale portfolio in order to enhance returns. During 1997, options were written on securities totaling $705.0 million. Option fee income was $1.4 million for 1997. There were no unexercised options outstanding at December 31, 1997 or 1996. BB&T also utilizes over-the-counter purchased put options and net purchased put options (combination of purchased put option and written call option) in its mortgage banking activities. These options are used to hedge the mortgage warehouse and pipeline 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, 1997, net purchased put option contracts with a notional value of $55.0 million were outstanding. 37 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The $2.4 billion of derivatives used in interest rate risk management are primarily used to hedge variable rate commercial loans, adjustable rate mortgage loans, retail certificates of deposit and fixed rate notes. BB&T does not utilize derivatives for trading purposes. Although off-balance sheet derivative financial instruments do not expose BB&T to credit risk equal to the notional amount, such agreements generate credit risk to the extent of the fair value gain in an off-balance sheet derivative financial instrument if the counterparty fails to perform. Such risk is minimized based on the quality of the counterparties and the consistent monitoring of these agreements. The counterparties to these transactions were large commercial banks and investment banks. Annually, the counterparties are reviewed 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, 1997, BB&T's interest rate swaps, caps and floors reflected an unrealized gain of $25.6 million. Other risks associated with interest-sensitive derivatives include the impact on fixed 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, 1997, BB&T had no indexed amortizing swaps outstanding. 38 BBT&T CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, -------------------------------------------------- 1997 1996 1995 ---------------- ---------------- ---------------- (Dollars in thousands, except per share data) Basic Earnings Per Share: Weighted average number of common shares outstanding during the period .................................................................. 141,453,468 141,549,598 141,829,072 Less: Unallocated ESOP shares ................................................. 391,208 -- -- ----------- ----------- ----------- Weighted average number of common shares, as adjusted .................... 141,062,260 141,549,598 141,829,072 =========== =========== =========== Net income ............................................................... $ 354,450 $ 338,789 $ 236,416 Less: Preferred dividend requirement .......................................... -- 610 5,079 ------------- ------------- ------------- Income available for common shares ....................................... $ 354,450 $ 338,179 $ 231,337 ============= ============= ============= Basic earnings per share ................................................. $ 2.51 $ 2.39 $ 1.63 ============= ============= ============= Diluted Earnings Per Share: Weighted average number of common shares outstanding during the period .................................................................. 141,062,260 141,549,598 141,829,072 Add: Shares issuable assuming conversion of convertible preferred stock .................................................................. -- 938,652 4,458,426 Dilutive effect of outstanding options (as determined by application of treasury stock method) .............................................. 2,663,684 1,970,697 1,256,800 Issuance of additional shares under share repurchase agreement, contingent upon market price ........................................... 72,294 102,018 326,751 ------------- ------------- ------------- Weighted average number of common shares, as adjusted .................... 143,798,238 144,560,965 147,871,049 ============= ============= ============= Net income ............................................................... $ 354,450 $ 338,789 $ 236,416 Add: After tax interest expense and amortization of issue costs applicable to convertible debentures .............................................. -- -- 211 ------------- ------------- ------------- Net income, as adjusted .................................................. $ 354,450 $ 338,789 $ 236,627 ============= ============= ============= Diluted earnings per share ............................................... $ 2.46 $ 2.34 $ 1.60 ============= ============= =============
39 EX-99 6 EXHIBIT 99.3 Exhibit 99.3 SIX-YEAR FINANCIAL SUMMARY AND SELECTED RATIOS (Dollars in thousands, except per share data)
As of / For the Years Ended December 31, ----------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- Summary of Operations Interest income ......................... $ 2,229,621 $ 2,029,703 $ 1,957,182 Interest expense ........................ 1,092,628 987,799 997,105 ----------- ----------- ----------- Net interest income ..................... 1,136,993 1,041,904 960,077 Provision for loan and lease losses ..... 97,526 62,246 42,378 ----------- ----------- ----------- Net interest income after provision for loan and lease losses ............. 1,039,467 979,658 917,699 Noninterest income ...................... 455,901 339,489 255,279 Noninterest expense ..................... 954,831 814,710 818,318 ----------- ----------- ----------- Income before income taxes .............. 540,537 504,437 354,660 Provision for income taxes .............. 186,087 165,648 118,244 ----------- ----------- ----------- Income before cumulative effect of changes in accounting principles ...... 354,450 338,789 236,416 Less: cumulative effect of changes in accounting principles, net of income taxes....... -- -- -- ----------- ----------- ----------- Net income .............................. $ 354,450 $ 338,789 $ 236,416 =========== =========== =========== Per Common Share Average shares outstanding (000's): Basic ................................. 141,062 141,550 141,829 Diluted ............................... 143,798 144,561 147,871 Basic earnings: Income before cumulative effect ....... $ 2.51 $ 2.39 $ 1.63 Less: cumulative effect ............... -- -- -- ----------- ----------- ----------- Net income ........................... $ 2.51 $ 2.39 $ 1.63 =========== =========== =========== Diluted earnings: Income before cumulative effect ....... $ 2.46 $ 2.34 $ 1.60 Less: cumulative effect ............... -- -- -- ----------- ----------- ----------- Net income ........................... $ 2.46 $ 2.34 $ 1.60 =========== =========== =========== Cash dividends declared ................. $ 1.16 $ 1.00 $ 0.86 Shareholders' equity .................... 16.93 15.58 14.81 Average Balance Sheets Securities, at carrying value ........... $ 7,124,652 $ 6,802,133 $ 6,803,072 Loans and leases * ...................... 19,308,577 17,538,038 16,736,054 Other assets ............................ 1,956,015 1,725,086 1,741,841 ----------- ----------- ----------- Total assets .......................... $28,389,244 $26,065,257 $25,280,967 =========== =========== =========== Deposits ................................ $20,051,207 $19,280,809 $18,289,320 Other liabilities ....................... 3,140,862 2,619,616 3,637,143 Long-term debt .......................... 2,925,628 2,027,683 1,303,992 Common shareholders' equity ............. 2,271,547 2,121,990 1,978,167 Preferred shareholders' equity .......... -- 15,159 72,345 ----------- ----------- ----------- Total liabilities and shareholders' equity ................ $28,389,244 $26,065,257 $25,280,967 =========== =========== =========== Period End Balances Total assets ............................ $30,642,799 $27,127,408 $25,768,277 Deposits ................................ 20,948,177 19,735,662 18,928,847 Long-term debt .......................... 3,575,517 2,320,978 1,542,064 Shareholders' equity .................... 2,399,827 2,222,505 2,186,053 Selected Performance Ratios Rate of return on: Average total assets .................. 1.25% 1.30% 0.94% Average common shareholders' equity ............................... 15.60 15.94 11.69 Dividend payout ......................... 46.22 41.84 52.76 Average equity to average assets ........ 8.00 8.20 8.11 As of / For the Years Ended December 31, ----------------------------------------------- Compound 1994 1993 1992 Growth Rate --------------- --------------- --------------- ------------ Summary of Operations Interest income ......................... $ 1,643,532 $ 1,480,194 $ 1,493,047 8.4% Interest expense ........................ 713,990 622,740 721,889 8.6 ----------- ----------- ----------- Net interest income ..................... 929,542 857,454 771,158 8.1 Provision for loan and lease losses ..... 25,161 60,544 76,924 4.9 ----------- ----------- ----------- Net interest income after provision for loan and lease losses ............. 904,381 796,910 694,234 8.4 Noninterest income ...................... 269,939 267,699 232,779 14.4 Noninterest expense ..................... 742,519 803,108 641,273 8.3 ----------- ----------- ----------- Income before income taxes .............. 431,801 261,501 285,740 13.6 Provision for income taxes .............. 150,010 97,328 100,575 13.1 ----------- ----------- ----------- Income before cumulative effect of changes in accounting principles ...... 281,791 164,173 185,165 13.9 Less: cumulative effect of changes in accounting principles, net of income taxes....... -- (32,629) -- NM ----------- ----------- ----------- Net income .............................. $ 281,791 $ 131,544 $ 185,165 13.9 =========== =========== =========== Per Common Share Average shares outstanding (000's): Basic ................................. 139,972 134,911 127,856 2.0 Diluted ............................... 146,199 141,748 136,504 1.0 Basic earnings: Income before cumulative effect ....... $ 1.98 $ 1.18 $ 1.41 12.2 Less: cumulative effect ............... -- (0.24) -- NM ----------- ----------- ----------- Net income ........................... $ 1.98 $ 0.94 $ 1.41 12.2 =========== =========== =========== Diluted earnings: Income before cumulative effect ....... $ 1.93 $ 1.16 $ 1.36 12.7 Less: cumulative effect ............... -- (0.23) -- NM ----------- ----------- ----------- Net income ........................... $ 1.93 $ 0.93 $ 1.36 12.7 =========== =========== =========== Cash dividends declared ................. $ 0.74 $ 0.64 $ 0.50 18.3 Shareholders' equity .................... 13.26 11.86 11.70 7.7 Average Balance Sheets Securities, at carrying value ........... $ 6,468,094 $ 5,686,306 $ 4,909,543 7.7 Loans and leases * ...................... 15,089,645 13,562,910 12,411,605 9.2 Other assets ............................ 1,775,937 1,689,903 1,632,285 3.7 ----------- ----------- ----------- Total assets .......................... $23,333,676 $20,939,119 $18,953,433 8.4 =========== =========== =========== Deposits ................................ $17,888,784 $16,777,490 $15,683,646 5.0 Other liabilities ....................... 2,759,767 1,745,317 1,606,184 14.4 Long-term debt .......................... 870,697 733,047 199,734 71.1 Common shareholders' equity ............. 1,740,285 1,609,122 1,398,064 10.2 Preferred shareholders' equity .......... 74,143 74,143 65,805 NM ----------- ----------- ----------- Total liabilities and shareholders' equity ................ $23,333,676 $20,939,119 $18,953,433 8.4 =========== =========== =========== Period End Balances Total assets ............................ $24,494,732 $23,043,669 $19,671,324 9.3 Deposits ................................ 18,046,347 18,123,340 16,196,214 5.3 Long-term debt .......................... 1,095,781 1,010,168 490,770 48.8 Shareholders' equity .................... 1,952,399 1,734,386 1,554,426 9.1 Selected Performance Ratios Rate of return on: Average total assets .................. 1.21% 0.63% 0.98% Average common shareholders' equity ............................... 15.89 7.85 12.92 Dividend payout ......................... 37.37 68.09 35.46 Average equity to average assets ........ 7.78 8.04 7.72
- --------- * Loans and leases are net of unearned income and the allowance for losses. Amounts include loans held for sale. NM -- Not meaningful. 40 Table 1 Selected Financial Data of Banking Subsidiaries As of / For the Years Ended December 31, 1997, 1996 and 1995
BB&T-NC BB&T-SC -------------------------------------------- ----------------------------------------- 1997 1996 1995 1997 1996 1995 -------------- -------------- -------------- ------------- ------------- ------------- (Dollars in thousands) Total assets ................... $22,530,009 $20,652,519 $19,654,218 $4,364,982 $4,213,458 $4,179,955 Securities ..................... 5,392,894 4,962,941 4,970,762 1,020,554 1,034,385 1,055,622 Loans and leases, net of unearned income* .............. 15,402,775 14,149,983 13,213,131 3,052,755 2,901,930 2,928,298 Deposits ....................... 15,931,795 15,683,080 14,856,949 3,401,236 3,336,711 3,255,945 Shareholder's equity ........... 1,771,589 1,601,950 1,380,924 374,871 399,965 385,481 Net interest income ............ 842,745 773,019 710,338 184,341 173,235 166,764 Provision for loan and lease losses ........................ 53,533 44,675 31,264 14,109 8,405 5,518 Noninterest income ............. 436,607 333,119 238,050 70,916 57,729 58,199 Noninterest expense ............ 809,599 689,969 659,681 135,018 134,200 119,931 Net income ..................... 278,536 250,956 172,970 68,024 56,489 62,319 BB&T-VA Life Fidelity** ----------------------------------- ----------------------------------------- ------------ 1997 1996 1995 1997 1996 1995 1997 ----------- ----------- ----------- ------------- ------------- ------------- ------------ (Dollars in thousands) Total assets ................... $785,870 $790,955 $737,462 $1,462,469 $1,418,659 $1,097,962 $356,226 Securities ..................... 132,596 147,019 154,358 702,817 736,752 585,185 28,639 Loans and leases, net of unearned income* .............. 590,306 550,218 505,767 649,777 630,463 474,984 275,640 Deposits ....................... 679,252 690,318 669,000 736,552 732,467 607,795 255,475 Shareholder's equity ........... 73,922 67,039 60,734 143,942 127,845 118,040 64,758 Net interest income ............ 36,670 35,144 31,231 8,666 8,678 6,427 10,960 Provision for loan and lease losses ........................ 2,033 2,550 1,910 579 34 88 605 Noninterest income ............. 12,546 10,296 4,650 1,296 1,515 (67) 1,230 Noninterest expense ............ 30,523 24,839 25,965 5,850 5,290 4,344 8,322 Net income ..................... 10,973 11,791 4,853 2,669 2,751 1,362 1,278 Virginia First** ----------- 1997 ----------- (Dollars in thousands) Total assets ................... $925,279 Securities ..................... 23,329 Loans and leases, net of unearned income* .............. 771,928 Deposits ....................... 662,594 Shareholder's equity ........... 152,626 Net interest income ............ 2,826 Provision for loan and lease losses ........................ 183 Noninterest income ............. 1,077 Noninterest expense ............ 2,654 Net income ..................... 468
* Includes loans held for sale. ** Fidelity Federal Savings Bank was acquired on March 1, 1997 and Virginia First Savings Bank was acquired on December 1, 1997. These acquisitions were accounted for as purchases and consequently the amounts above reflect the acquired institutions only since the dates of acquisition. 41 Table 2 Composition of Loan and Lease Portfolio *
December 31, --------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- (Dollars in thousands) Loans: Commercial, financial and agricultural ..... $ 3,012,613 $ 2,715,363 $ 2,395,084 $ 2,941,109 $ 2,303,554 Real estate -- construction and land development .............................. 2,154,094 1,552,561 1,185,128 898,790 871,346 Real estate -- mortgage .................... 11,956,390 10,641,833 10,611,912 9,593,805 8,755,685 Consumer ................................... 2,745,706 2,827,214 2,542,290 2,435,694 2,247,933 ----------- ----------- ----------- ----------- ----------- Loans held for investment ................ 19,868,803 17,736,971 16,734,414 15,869,398 14,178,518 Loans held for sale ...................... 509,141 228,333 261,364 141,676 707,973 ----------- ----------- ----------- ----------- ----------- Total loans ............................. 20,377,944 17,965,304 16,995,778 16,011,074 14,886,491 Leases ...................................... 788,462 576,991 376,152 304,544 225,312 ----------- ----------- ----------- ----------- ----------- Total loans and leases ................... $21,166,406 $18,542,295 $17,371,930 $16,315,618 $15,111,803 =========== =========== =========== =========== ===========
- --------- * Balances are gross of unearned income. 42 Table 3 Selected Loan Maturities and Interest Sensitivity *
December 31, 1997 ------------------------------------------- Commercial, Financial and Real Estate: Agricultural Construction Total -------------- -------------- ------------- (Dollars in thousands) Fixed rate: 1 year or less (2) .................... $ 216,859 $ 323,954 $ 540,813 1-5 years ............................. 419,260 159,560 578,820 After 5 years ......................... 86,743 -- 86,743 ---------- ---------- ---------- Total ............................... 722,862 483,514 1,206,376 ---------- ---------- ---------- Variable rate: 1 year or less (2) .................... 1,121,642 1,105,207 2,226,849 1-5 years ............................. 1,030,079 565,373 1,595,452 After 5 years ......................... 138,030 -- 138,030 ---------- ---------- ---------- Total ............................... 2,289,751 1,670,580 3,960,331 ---------- ---------- ---------- Total loans and leases (1) ......... $3,012,613 $2,154,094 $5,166,707 ========== ========== ==========
- --------- * Balances are gross of unearned income. Scheduled repayments are reported in the maturity category in which the payment is due. Determinations of maturities are based upon contract terms. BB&T's credit policy does not permit automatic renewals of loans. At the scheduled maturity date (including balloon payment date), the customer must request a new loan to replace the matured loan and execute a new note with rate, terms and conditions renegociated at that time.
(Dollars in thousands) ----------------------- (1) The table excludes: (i) consumer loans to individuals for household, family and other personal expenditures $ 2,745,706 (ii) real estate mortgage loans 11,956,390 (iii) loans held for sale 509,141 (iv) leases 788,462 ----------- $15,999,699 =========== (2) Includes loans due on demand.
43 Table 4 Allocation of Allowance for Loan and Lease Losses by Category
December 31, ------------------------------------------- 1997 1996 --------------------- --------------------- % Loans % Loans in each in each Amount category Amount category ---------- ---------- ---------- ---------- (Dollars in thousands) Balance at end of period applicable to: Commercial, financial and agricultural ............. $ 30,295 14% $ 31,543 16% Real estate: Construction and land development ........... 19,278 10 15,260 8 Mortgage ..................... 93,638 59 100,434 58 -------- -- -------- -- Real estate -- total ......... 112,916 69 115,694 66 -------- -- -------- -- Consumer ...................... 79,867 13 54,430 15 Leases ........................ 8,262 4 3,833 3 Unallocated ................... 44,064 -- 34,226 -- -------- -- -------- -- Total ........................ $275,404 100% $239,726 100% ======== === ======== === December 31, ---------------------------------------------------------------- 1995 1994 1993 --------------------- --------------------- -------------------- % Loans % Loans % Loans in each in each in each Amount category Amount category Amount category ---------- ---------- ---------- ---------- ---------- --------- (Dollars in thousands) Balance at end of period applicable to: Commercial, financial and agricultural ............. $ 33,026 14% $ 41,174 18% $ 49,240 15% Real estate: Construction and land development ........... 16,769 7 13,802 6 15,235 6 Mortgage ..................... 98,043 62 84,983 59 86,181 63 -------- -- -------- -- -------- -- Real estate -- total ......... 114,812 69 98,785 65 101,416 69 -------- -- -------- -- -------- -- Consumer ...................... 38,746 15 34,404 15 31,945 15 Leases ........................ 3,513 2 925 2 1,237 1 Unallocated ................... 33,393 -- 44,614 -- 32,142 -- -------- -- -------- -- -------- -- Total ........................ $223,490 100% $219,902 100% $215,980 100% ======== === ======== === ======== ===
Table 5 Composition of Allowance for Loan and Lease Losses
December 31, ------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 --------------- --------------- --------------- --------------- --------------- (Dollars in thousands) Balance, beginning of period .................. $ 239,726 $ 223,490 $ 219,902 $ 215,980 $ 179,484 ----------- ----------- ----------- ----------- ----------- Charge-offs: Commercial, financial and agricultural ..... (16,013) (10,178) (11,180) (11,888) (24,999) Real estate ................................ (14,068) (11,720) (12,336) (9,700) (11,962) Consumer ................................... (66,695) (47,836) (29,722) (16,664) (16,677) Lease receivables .......................... (671) (768) (614) (647) (771) ----------- ----------- ----------- ----------- ----------- Total charge-offs ......................... (97,447) (70,502) (53,852) (38,899) (54,409) ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial, financial and agricultural ..... 5,664 6,722 5,460 7,498 6,285 Real estate ................................ 4,931 6,232 3,737 3,643 3,612 Consumer ................................... 7,259 6,217 5,470 5,105 4,377 Lease receivables .......................... 232 136 395 295 149 ----------- ----------- ----------- ----------- ----------- Total recoveries .......................... 18,086 19,307 15,062 16,541 14,423 ----------- ----------- ----------- ----------- ----------- Net charge-offs .............................. (79,361) (51,195) (38,790) (22,358) (39,986) ----------- ----------- ----------- ----------- ----------- Provision charged to expense ............... 97,526 62,246 42,378 25,161 60,544 ----------- ----------- ----------- ----------- ----------- Allowance of loans acquired in purchase transactions .............................. 17,513 5,185 -- 1,119 15,938 ----------- ----------- ----------- ----------- ----------- Balance, end of period ........................ $ 275,404 $ 239,726 $ 223,490 $ 219,902 $ 215,980 =========== =========== =========== =========== =========== Average loans and leases * .................... $19,567,114 $17,765,208 $16,956,554 $15,297,500 $13,751,417 Net charge-offs as a percentage of average loans and leases ............................. .41% .29% .23% .15% .29% =========== =========== =========== =========== ===========
- --------- * Loans and leases are net of unearned income and include loans held for sale. 44 Table 6 Composition of Securities Portfolio
December 31, -------------------------------------- 1997 1996 1995 ------------ ------------ ------------ (Dollars in thousands) Trading Securities (at estimated fair value) ............... $ 67,878 $ -- $ -- ---------- ---------- ---------- Securities held to maturity (at amortized cost): U.S. Treasury, government and agency obligations ........ 14,952 6,283 41,570 States and political subdivisions ....................... 132,847 164,525 205,168 Mortgage-backed securities .............................. -- 140,974 173,110 Other securities ........................................ -- -- 77 ---------- ---------- ---------- Total securities held to maturity ......................... 147,799 311,782 419,925 ---------- ---------- ---------- Securities available for sale (at estimated fair value): U.S. Treasury, government and agency obligations ........ 4,342,651 3,984,781 4,811,172 States and political subdivisions ....................... 37,141 23,977 22,115 Mortgage-backed securities .............................. 2,394,778 2,316,111 1,400,649 Other securities ........................................ 424,628 298,266 162,301 ---------- ---------- ---------- Total securities available for sale ....................... 7,199,198 6,623,135 6,396,237 ---------- ---------- ---------- Total securities ........................................... $7,414,875 $6,934,917 $6,816,162 ========== ========== ==========
Table 7 Time Deposits $100,000 and Over Remaining Maturity at December 31, 1997
(Dollars in thousands) ------------ Less than three months .............. $1,018,600 Four through six months ............. 568,939 Seven through twelve months ......... 514,233 Over twelve months .................. 423,924 ---------- Total ............................. $2,525,696 ==========
At December 31, 1997, the scheduled maturities of total time deposits were:
(Dollars in thousands) -------------- 1998 ................... $ 8,943,871 1999 ................... 1,585,707 2000 ................... 361,957 2001 ................... 102,466 2002 ................... 151,686 2003 and later ......... 19,540 ----------- Total ................ $11,165,227 ===========
45 Table 8 Short-Term Borrowed Funds The following information summarizes certain pertinent information for the past three years on short-term borrowed funds:
1997 1996 1995 --------------- --------------- --------------- (Dollars in thousands) Maximum outstanding at any month-end during the year .. $ 3,276,177 $ 2,638,536 $ 4,103,219 Average outstanding during the year ................... 2,773,824 2,287,710 3,298,396 Average interest rate during the year ................. 5.34% 5.31% 5.92% Average interest rate at end of year .................. 5.50 4.91 5.41
Table 9 Capital Adequacy for BB&T Corporation and Banking Subsidiaries
Regulatory BB&T- BB&T- BB&T- Virginia Minimums BB&T NC SC VA Fidelity First Life ------------ ---------- ---------- ---------- ---------- ---------- --------- ---------- Risk-based capital ratios: Tier 1 capital (1) ............... 4.0% 10.3% 11.0% 12.2% 12.1% 12.3% 10.5% 22.1% Total risk-based capital (2) ..... 8.0 14.0 12.3 13.4 13.3 13.3 11.8 22.4 Tier 1 leverage ratio (3) .......... 3.0 7.2 7.6 8.5 9.4 7.9 7.3 9.2
- --------- (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 ratio of fourth quarter average assets less nonqualifying intangibles. Table 10 Composition of Average Total Assets
% Change -------------------- 1997 v. 1996 v. 1997 1996 1995 1996 1995 ---------------- ---------------- ---------------- --------- ---------- (Dollars in thousands) Securities * ................................... $ 7,102,225 $ 6,711,665 $ 6,701,270 5.8% 0.2% Federal funds sold and other earning assets .... 60,042 91,469 154,827 (34.4) (40.9) Loans and leases, net of unearned income ** .... 19,567,114 17,765,208 16,956,554 10.1 4.8 ------------ ------------ ------------ Average earning assets ......................... 26,729,381 24,568,342 23,812,651 8.8 3.2 Non-earning assets ............................. 1,659,863 1,496,915 1,468,316 10.9 1.9 ------------ ------------ ------------ Average total assets ........................... $ 28,389,244 $ 26,065,257 $ 25,280,967 8.9% 3.1% ============ ============ ============ ===== ===== Average earning assets as a percentage of average total assets ..................... 94.2% 94.3% 94.2% ============ ============ ============
- --------- * Based on amortized cost. ** Includes loans held for sale based on lower of amortized cost or market. Amounts are gross of the allowance for loan and lease losses. 46 Table 11 Securities
December 31, 1997 ----------------------------------- Carrying Value Average Yield (3) ---------------- ------------------ (Dollars in thousands) U.S. Treasury, government and agency obligations (1): Within one year ....................................... $ 780,655 6.13% One to five years ..................................... 3,551,316 6.77 Five to ten years ..................................... 392,880 7.08 After ten years ....................................... 2,027,530 7.19 ---------- ----- Total ................................................ 6,752,381 6.84 ---------- ----- States and political subdivisions: Within one year ....................................... 24,416 8.88 One to five years ..................................... 119,889 8.86 Five to ten years ..................................... 23,490 8.69 After ten years ....................................... 2,193 10.90 ---------- ----- Total ................................................ 169,988 8.87 ---------- ----- Other securities: Within one year ....................................... 191 5.03 One to five years ..................................... 20,347 6.79 Five to ten years ..................................... 134 7.90 After ten years ....................................... 269 6.96 ---------- ----- Total ................................................ 20,941 6.78 ---------- ----- Securities with no stated maturity ...................... 471,565 6.79 ---------- ----- Total securities (2) ................................. $7,414,875 6.88% ========== =====
- --------- (1) Included in U.S. Treasury, government and agency obligations are mortgage-backed securities totaling $2.4 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 $147.8 million disclosed at amortized cost and securities available for sale and trading securities disclosed at estimated fair values of $7.2 billion and $67.9 million, respectively. (3) Taxable equivalent basis as applied to amortized cost. 47 Table 12 Asset Quality
December 31, --------------------------------------- 1997 1996 1995 ------------- ------------ ------------ (Dollars in thousands) Nonaccrual loans and leases* ..................................... $ 98,891 $ 64,740 $ 70,369 Restructured loans ............................................... 1,377 2,464 4,525 Foreclosed property .............................................. 34,923 29,147 19,508 --------- -------- -------- Nonperforming assets ............................................ $ 135,191 $ 96,351 $ 94,402 ========= ======== ======== Loans 90 days or more past due and still accruing ............... $ 44,213 $ 41,742 $ 34,648 ========= ======== ======== Asset Quality Ratios: Nonaccrual loans and leases as a percentage of loans and leases .47% .35% .41% Nonperforming assets as a percentage of: Total assets ................................................ .44 .36 .37 Loans and leases plus foreclosed property ................... .64 .52 .55 Net charge-offs as a percentage of average loans and leases .... .41 .29 .23 Allowance for losses as a percentage of loans and leases ....... 1.32 1.30 1.29 Ratio of allowance for losses to: Net charge-offs ............................................. 3.47x 4.68x 5.76x Nonaccrual loans and leases ................................. 2.78 3.70 3.18
- --------- NOTE: Items referring to loans and leases are net of unearned income, gross of the allowance and include loans held for sale. * Includes $31.4 million of impaired loans at December 31, 1997 and $27.5 million of impaired loans at December 31, 1996. See Note D in the "Notes to Consolidated Financial Statements." Table 13 Composition of Average Deposits and Other Borrowings
1997 1996 1995 --------------------- --------------------- ---------------------- (Dollars in thousands) Savings and interest checking ........... $ 2,022,469 8% $ 2,202,450 9% $ 2,404,330 11% Money rate savings ...................... 4,681,160 18 3,899,694 17 3,770,329 16 Other time deposits ..................... 10,798,201 42 10,741,425 46 9,827,582 43 ----------- -- ----------- -- ----------- -- Total interest-bearing deposits ......... 17,501,830 68 16,843,569 72 16,002,241 70 Noninterest-bearing demand deposits ..... 2,549,377 10 2,437,240 10 2,287,079 10 ----------- -- ----------- -- ----------- -- Total deposits .......................... 20,051,207 78 19,280,809 82 18,289,320 80 Short-term borrowed funds ............... 2,773,824 11 2,287,710 10 3,298,396 14 Long-term debt .......................... 2,925,628 11 2,027,683 8 1,303,992 6 ----------- -- ----------- -- ----------- -- Total deposits and other borrowings ..... $25,750,659 100% $23,596,202 100% $22,891,708 100% =========== === =========== === =========== === % Change ------------------------- 1997 v. 1996 v. 1996 1995 ------------ ------------ Savings and interest checking ........... (8.2)% ( 8.4)% Money rate savings ...................... 20.0 3.4 Other time deposits ..................... 0.5 9.3 Total interest-bearing deposits ......... 3.9 5.3 Noninterest-bearing demand deposits ..... 4.6 6.6 Total deposits .......................... 4.0 5.4 Short-term borrowed funds ............... 21.2 (30.6) Long-term debt .......................... 44.3 55.5 Total deposits and other borrowings ..... 9.1% 3.1% ==== =====
48 Table 14 Net Interest Income and Rate/Volume Analysis For the Years Ended December 31, 1997, 1996 and 1995
Average Balances Yield / Rate ----------------------------------------- -------------------------------- Fully Taxable Equivalent -- 1997 1996 1995 1997 1996 1995 (Dollars in thousands) ------------- ------------- ------------- ---------- ---------- ---------- Assets Securities (1): U.S. Treasury, government and other (5) ............................ $ 6,930,250 $ 6,507,501 $ 6,465,905 6.78% 6.57% 6.14% States and political subdivisions ......................... 171,975 204,164 235,365 8.75 8.98 9.00 ----------- ----------- ----------- ----- ----- ----- Total securities (5) ................. 7,102,225 6,711,665 6,701,270 6.83 6.64 6.24 Other earning assets (2) ............... 60,042 91,469 154,827 5.47 5.36 5.89 Loans and leases, net of unearned income (1)(3)(4)(5) ................... 19,567,114 17,765,208 16,956,554 9.17 9.09 9.23 ----------- ----------- ----------- ----- ----- ----- Total earning assets ................. 26,729,381 24,568,342 23,812,651 8.54 8.41 8.37 ----------- ----------- ----------- ----- ----- ----- Non-earning assets ................... 1,659,863 1,496,915 1,468,316 ----------- ----------- ----------- Total assets ........................ $28,389,244 $26,065,257 $25,280,967 =========== =========== =========== Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest-checking ......... $ 2,022,469 $ 2,202,450 $ 2,404,330 1.78 1.89 2.28 Money rate savings .................... 4,681,160 3,899,694 3,770,329 3.05 2.82 3.11 Other time deposits ................... 10,798,201 10,741,425 9,827,582 5.51 5.55 5.58 ----------- ----------- ----------- ----- ----- ----- Total interest-bearing deposits ............................ 17,501,830 16,843,569 16,002,241 4.42 4.44 4.50 Short-term borrowed funds .............. 2,773,824 2,287,710 3,298,396 5.34 5.31 5.92 Long-term debt ......................... 2,925,628 2,027,683 1,303,992 5.82 5.83 6.27 ----------- ----------- ----------- ----- ----- ----- Total interest-bearing liabilities ......................... 23,201,282 21,158,962 20,604,629 4.71 4.67 4.84 ----- ----- ----- Noninterest-bearing demand deposits ............................ 2,549,377 2,437,240 2,287,079 Other liabilities .................... 367,038 331,906 338,747 Shareholders' equity ................. 2,271,547 2,137,149 2,050,512 ----------- ----------- ----------- Total liabilities and shareholders' equity ................ $28,389,244 $26,065,257 $25,280,967 =========== =========== =========== Average interest rate spread ........... 3.83 3.74 3.53 Net yield on earning assets ............ 4.45% 4.39% 4.18% ===== ===== ===== Taxable equivalent adjustment .......... 1997 v. 1996 ------------------- Income / Expense Change due to ----------------------------------------- ---------------------- Increase Fully Taxable Equivalent -- 1997 1996 1995 (Decrease) Rate Volume (Dollars in thousands) ------------- ------------- ------------- ----------- ---------- ----------- Assets Securities (1): U.S. Treasury, government and other (5) ............................ $ 469,969 $ 427,380 $ 397,201 $ 42,589 $14,223 $28,366 States and political subdivisions ......................... 15,046 18,333 21,173 (3,287) (460) (2,827) ---------- ---------- --------- -------- ------- -------- Total securities (5) ................. 485,015 445,713 418,374 39,302 13,763 25,539 Other earning assets (2) ............... 3,286 4,902 9,117 (1,616) 102 (1,718) Loans and leases, net of unearned income (1)(3)(4)(5) ................... 1,794,178 1,615,234 1,564,732 178,944 13,828 165,116 ---------- ---------- --------- -------- ------- -------- Total earning assets ................. 2,282,479 2,065,849 1,992,223 216,630 27,693 188,937 ---------- ---------- --------- -------- ------- -------- Non-earning assets ................... Total assets ........................ Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest-checking ......... 35,997 41,637 54,896 (5,640) (2,354) (3,286) Money rate savings .................... 142,855 110,078 117,167 32,777 9,445 23,332 Other time deposits ................... 595,439 596,438 547,928 (999) (4,142) 3,143 ---------- ---------- --------- -------- ------- -------- Total interest-bearing deposits ............................ 774,291 748,153 719,991 26,138 2,949 23,189 Short-term borrowed funds .............. 148,130 121,442 195,342 26,688 732 25,956 Long-term debt ......................... 170,207 118,204 81,772 52,003 (238) 52,241 ---------- ---------- --------- -------- ------- -------- Total interest-bearing liabilities ......................... 1,092,628 987,799 997,105 104,829 3,443 101,386 ---------- ---------- --------- -------- ------- -------- Noninterest-bearing demand deposits ............................ Other liabilities .................... Shareholders' equity ................. Total liabilities and shareholders' equity ................ Average interest rate spread ........... Net yield on earning assets ............ $1,189,851 $1,078,050 $ 995,118 $111,801 $24,250 $87,551 ========== ========== ========= ======== ======= ======== Taxable equivalent adjustment .......... $ 52,858 $ 36,146 $ 35,041 ========== ========== ========= 1996 v. 1995 ----------------------------------- Change due to Increase ------------------------- Fully Taxable Equivalent -- (Decrease) Rate Volume (Dollars in thousands) ---------- ------------ ------------ Assets Securities (1): U.S. Treasury, government and other (5) ............................$30,179 $27,609 $ 2,570 States and political subdivisions ......................... (2,840) (38) (2,802) ------- ------- ------- Total securities (5) ................. 27,339 27,571 (232) Other earning assets (2) ............... (4,215) (759) (3,456) Loans and leases, net of unearned income (1)(3)(4)(5) ................... 50,502 (23,281) 73,783 ------- ------- ------- Total earning assets ................. 73,626 3,531 70,095 ------- ------- ------- Non-earning assets ................... Total assets ........................ Liabilities and Shareholders' Equity Interest-bearing deposits: Savings and interest-checking .........(13,259) (8,910) (4,349) Money rate savings .................... (7,089) (11,009) 3,920 Other time deposits ................... 48,510 (2,242) 50,752 ------- ------- ------- Total interest-bearing deposits ............................ 28,162 (22,161) 50,323 Short-term borrowed funds ..............(73,900) (18,680) (55,220) Long-term debt ......................... 36,432 (6,115) 42,547 ------- ------- ------- Total interest-bearing liabilities ......................... (9,306) (46,956) 37,650 ------- ------- ------- Noninterest-bearing demand deposits ............................ Other liabilities .................... Shareholders' equity ................. Total liabilities and shareholders' equity ................ Average interest rate spread ........... Net yield on earning assets ............$82,932 $50,487 $32,445 ======= ======= ======= Taxable equivalent adjustment ..........
- ------- (1) Yields related to securities, loans and leases exempt from both federal and state income taxes, federal income taxes only or state income taxes only 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. 49 Table 15 Noninterest Income
% Change -------------------- Years Ended December 31, ----------------------------------- 1997 v. 1996 v. 1997 1996 1995 1996 1995 ----------- ----------- ----------- --------- ---------- (Dollars in thousands) Service charges on deposits ................. $148,844 $132,809 $ 114,108 12.1% 16.4% Mortgage banking income ..................... 50,383 40,218 31,497 25.3 27.7 Trust income ................................ 31,957 28,794 23,872 11.0 20.6 Agency insurance commissions ................ 40,148 27,541 19,874 45.8 38.6 Other insurance commissions ................. 13,164 12,822 12,384 2.7 3.5 Securities gains (losses), net .............. 3,164 3,179 (19,472) ( .5) NM Bankcard fees and merchant discounts ........ 22,705 18,435 16,207 23.2 13.7 Investment brokerage commissions ............ 19,908 17,069 10,103 16.6 68.9 Other bank service fees and commissions ..... 43,364 27,254 22,334 59.1 22.0 International income ........................ 3,685 3,206 2,895 14.9 10.7 Amortization of negative goodwill ........... 6,180 6,238 6,239 ( .9) -- Other noninterest income .................... 72,399 21,924 15,238 230.2 43.9 -------- -------- --------- Total noninterest income ................. $455,901 $339,489 $ 255,279 34.3% 33.0% ======== ======== ========= ===== ====
- --------- NM -- not meaningful. Table 16 Noninterest Expense
% Change ---------------------- Years Ended December 31, ----------------------------------- 1997 v. 1996 v. 1997 1996 1995 1996 1995 ----------- ----------- ----------- --------- ------------ (Dollars in thousands) Salaries and wages ............................................ $366,534 $321,720 $356,269 13.9% ( 9.7)% Pension and other employee benefits............................ 92,960 76,125 77,868 22.2 ( 2.3) Net occupancy expense on bank premises ........................ 77,535 57,662 61,120 34.5 ( 5.7) Furniture and equipment expense ............................... 83,404 67,490 67,550 25.1 ( 1.3) Federal deposit insurance premiums ............................ 5,096 49,995 28,224 (89.8) 77.1 Foreclosed property expense ................................... 3,289 2,531 3,745 29.9 (32.4) Amortization of intangibles and mortgage servicing rights ..... 24,370 15,218 11,902 60.1 27.9 Software ...................................................... 14,219 11,074 12,479 28.4 (11.3) Telephone ..................................................... 18,308 16,005 15,159 14.4 5.6 Donations ..................................................... 6,740 6,007 7,740 12.2 (22.4) Advertising and public relations .............................. 26,514 24,309 16,643 9.1 46.1 Travel and transportation ..................................... 8,693 7,372 7,193 17.9 2.5 Professional services ......................................... 46,072 26,080 24,277 76.7 7.4 Supplies ...................................................... 15,410 14,486 20,534 6.4 (29.5) Loan and lease expense ........................................ 41,237 32,186 24,888 28.1 29.3 Deposit related expense ....................................... 16,806 14,280 12,875 17.7 10.9 Other noninterest expenses .................................... 107,644 72,170 69,852 49.2 3.3 -------- -------- -------- Total noninterest expense .................................. $954,831 $814,710 $818,318 17.2% ( 0.4)% ======== ======== ======== ===== =====
50 Table 17 Interest Rate Sensitivity Gap Analysis December 31, 1997
Expected Repricing or Maturity Date --------------------------------------------------------------------------- Within One to Three to After Five One Year Three Years Five Years Years Total --------------- ---------------- -------------- ------------- ------------- (Dollars in thousands) Assets Securities and other interest-earning assets* ..... $ 1,711,150 $ 2,464,259 $2,187,452 $1,048,568 $ 7,411,429 Federal funds sold and securities purchased under resale agreements or similar arrangements .................................... 103,245 -- -- -- 103,245 Loans and leases** ................................ 13,402,945 4,452,131 2,097,135 981,218 20,933,429 ------------ ------------ ---------- ---------- ----------- Total interest-earning assets ...................... 15,217,340 6,916,390 4,284,587 2,029,786 28,448,103 ------------ ------------ ---------- ---------- ----------- Liabilities Other time deposits ............................... 7,674,481 1,843,570 248,826 12,717 9,779,594 Foreign deposits .................................. 1,385,633 -- -- -- 1,385,633 Savings and interest checking*** .................. -- 999,337 354,660 354,660 1,708,657 Money rate savings*** ............................. 2,651,470 2,589,585 -- -- 5,241,055 Federal funds purchased and securities sold under repurchase agreements or similar arrangements .................................... 2,156,673 -- -- -- 2,156,673 Long-term debt and other borrowings ............... 2,750,840 590,059 681,630 672,492 4,695,021 ------------ ------------ ---------- ---------- ----------- Total interest-bearing liabilities ................. 16,619,097 6,022,551 1,285,116 1,039,869 $24,966,633 ------------ ------------ ---------- ---------- =========== Asset-liability gap ................................ (1,401,757) 893,839 2,999,471 989,917 ------------ ------------ ---------- ---------- Derivatives affecting interest rate sensitivity: Pay fixed interest rate swaps ..................... 247,943 (220,726) (19,417) (7,800) Receive fixed interest rate swaps ................. (1,025,000) 525,000 -- 500,000 Caps and floors ................................... (665,000) 605,000 -- 60,000 ------------ ------------ ---------- ---------- (1,442,057) 909,274 (19,417) 552,200 ------------ ------------ ---------- ---------- Interest rate sensitivity gap ...................... $ (2,843,814) $ 1,803,113 $2,980,054 $1,542,117 ============ ============ ========== ========== Cumulative interest rate sensitivity gap ........... $ (2,843,814) $ (1,040,701) $1,939,353 $3,481,470 ============ ============ ========== ==========
- --------- * Securities based on amortized cost. ** Loans and leases include loans held for sale and are net of unearned income. *** Projected runoff of non-maturity deposits was computed based upon decay rate assumptions developed by bank regulators to assist banks in addressing FDICIA rule 305. Table 18 Interest Sensitivity Simulation Analysis
Annualized Interest Hypothetical Rate Percentage Scenario Change in - ----------- Prime Net Interest Linear Rate Income - ----------- ----------- ------------- + 3.00% 11.50% -2.34% + 1.50 10.00 -1.88 Flat 8.50 -.20 - - 1.50 7.00 .46 - - 3.00 5.50 .60
51 Table 19 Capital -- Components and Ratios
December 31, ------------------------------- 1997 1996 --------------- --------------- (Dollars in thousands) Tier 1 capital .............. $ 2,115,402 $ 2,118,249 Tier 2 capital .............. 752,160 469,814 ----------- ----------- Total regulatory capital .... $ 2,867,562 $ 2,588,063 =========== =========== Risk-based capital ratios: Tier 1 capital ............. 10.3% 11.8% Total regulatory capital ... 14.0 14.5 Tier 1 leverage ratio ...... 7.2 7.9
Table 20 Quarterly Common Stock Summary
1997 1996 ----------------------------------------------- ---------------------------------------------- Sales Prices Sales Prices ----------------------------------- Dividends ----------------------------------- Dividends High Low Last Paid High Low Last Paid ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---------- Quarter Ended: March 31 ............. $ 40.75 $ 35.25 $ 37.25 $ .27 $ 29.75 $ 25.88 $ 27.75 $ .23 June 30 .............. 47.13 35.75 45.00 .27 31.75 28.88 31.75 .23 September 30 ......... 55.13 45.31 53.44 .31 33.88 28.63 33.25 .27 December 31 .......... 65.00 51.94 64.06 .31 36.75 33.38 36.25 .27 Year ............... 65.00 35.25 64.06 1.16 36.75 25.88 36.25 1.00
Table 21 Quarterly Financial Summary
1997 --------------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter --------------- --------------- --------------- --------------- (Dollars in thousands, except per share data) Consolidated Summary of Operations: Net interest income FTE ................. $ 303,394 $ 300,716 $ 301,245 $ 284,496 FTE adjustment .......................... 15,223 14,169 13,039 10,427 Provision for loan and lease losses ..... 29,796 21,745 24,865 21,120 Securities gains (losses), net .......... 1,306 991 (933) 1,800 Other noninterest income ................ 109,396 149,204 97,788 96,349 Noninterest expense ..................... 239,460 311,517 205,180 198,674 Provision for income taxes .............. 41,800 38,786 53,155 52,346 ----------- ----------- ----------- ----------- Net income .............................. $ 87,817 $ 64,694 $ 101,861 $ 100,078 =========== =========== =========== =========== Diluted net income per share ............ $ .61 $ .45 $ .71 $ .69 =========== =========== =========== =========== Selected Average Balances: Assets .................................. $29,402,237 $28,647,083 $28,305,003 $27,175,348 Securities, at amortized cost ........... 7,213,182 7,209,155 7,157,151 6,823,961 Loans and leases * ...................... 20,287,804 19,735,137 19,487,514 18,739,135 Total earning assets .................... 27,580,097 26,984,200 26,705,385 25,623,542 Deposits ................................ 20,070,938 20,051,872 20,307,748 19,770,969 Short-term borrowed funds ............... 3,154,831 2,900,917 2,676,482 2,352,858 Long-term debt .......................... 3,406,587 3,109,329 2,709,641 2,464,586 Total interest-bearing liabilities ...... 23,991,016 23,485,509 23,144,675 22,160,695 Shareholders' equity .................... 2,285,107 2,263,096 2,280,193 2,257,577 1996 --------------------------------------------------------------- Fourth Third Second First Quarter Quarter Quarter Quarter --------------- --------------- --------------- --------------- (Dollars in thousands, except per share data) Consolidated Summary of Operations: Net interest income FTE ................. $ 279,769 $ 270,594 $ 268,428 $ 259,259 FTE adjustment .......................... 9,755 8,831 8,967 8,593 Provision for loan and lease losses ..... 18,384 15,105 15,123 13,634 Securities gains (losses), net .......... 2,756 719 (95) (201) Other noninterest income ................ 88,470 84,774 83,700 79,366 Noninterest expense ..................... 206,088 231,575 189,928 187,119 Provision for income taxes .............. 43,614 32,069 46,204 43,761 ----------- ----------- ----------- ----------- Net income .............................. $ 93,154 $ 68,507 $ 91,811 $ 85,317 =========== =========== =========== =========== Diluted net income per share ............ $ .65 $ .47 $ .63 $ .59 =========== =========== =========== =========== Selected Average Balances: Assets .................................. $26,876,912 $26,289,524 $25,745,032 $25,338,176 Securities, at amortized cost ........... 7,020,516 6,988,777 6,448,692 6,382,338 Loans and leases * ...................... 18,111,296 17,777,119 17,767,591 17,400,892 Total earning assets .................... 25,278,022 24,804,612 24,294,127 23,886,314 Deposits ................................ 19,801,709 19,518,321 19,017,910 18,776,963 Short-term borrowed funds ............... 2,125,122 2,213,054 2,357,912 2,442,939 Long-term debt .......................... 2,439,596 2,104,323 1,926,486 1,649,376 Total interest-bearing liabilities ...... 21,829,871 21,400,154 20,883,996 20,528,360 Shareholders' equity .................... 2,197,266 2,117,256 2,103,544 2,130,088
- --------- * Loans and leases are net of unearned income and include loans held for sale. 52 -----END PRIVACY-ENHANCED MESSAGE-----