How did BB&T's earnings perform in 1997 after adjusting for merger costs?

Reported diluted EPS was $2.60, but the company incurred $115.3 million in pretax nonrecurring charges tied to the United Carolina Bancshares merger. Excluding those charges, net income would have been $408.6 million, or $2.96 per diluted share, up about 17% from the prior year's recurring diluted EPS.

Is BB&T's credit quality deteriorating?

Some indicators weakened. Nonperforming assets rose 36.2% to $122.7 million, and net charge-offs increased to 0.39% of average loans from 0.30%. Management attributes much of the increase to acquired portfolios and to Regional Acceptance, a used-auto lender that accounted for 24.5% of charge-offs. The allowance remained at 1.30% of loans, and the provision rose to $89.9 million.

What acquisitions are pending and how could they affect shareholders?

Franklin Bancorporation (about $535 million in assets, pooling of interests) and Maryland Federal Bancorp (about $1.2 billion in assets, purchase accounting) were both expected to close in Q3 1998. Stock-based deals can dilute per-share earnings and book value, and purchase deals can create goodwill amortization and front-end charges, so shareholders should monitor integration costs and dilution.

How strong is BB&T's capital position?

BB&T remained well-capitalized at year-end 1997, with a total risk-based capital ratio of 13.7% and a leverage ratio of 7.2%, both above regulatory minimums. However, the Tier 1 risk-based ratio fell from 11.5% to 9.9%, largely because of share repurchases used to offset acquisition issuance, and the company announced a new share repurchase plan in February 1998.

What are the main risks flagged in the filing?

The filing cites competitive pressure, interest rate changes that could compress margins, a weaker economy or credit quality deterioration, regulatory changes, failure to realize expected merger cost savings or retain deposits and customers after mergers, and Year 2000 compliance failures. The Year 2000 project carries a remaining estimated cost of $26 million, with completion targeted for December 31, 1998.

TFC 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 18, 1998. Cited figures are marked; the original filing is the authoritative source.

BB&T Corporation (NYSE: BBK), a multi-bank holding company headquartered in Winston-Salem, North Carolina, reported 1997 net income of $359.9 million^a, or $2.60 per diluted share, up from $330.2 million ($2.38) in 1996.

Results were depressed by $115.3 million^b in pretax merger and conversion charges tied to the July 1997 United Carolina Bancshares (UCB) pooling merger. Excluding those charges, net income would have been $408.6 million, or $2.96 per diluted share, a 17.0% increase in diluted EPS over 1996 on a recurring basis. Total assets grew to $29.2 billion at year-end, and return on average assets on a recurring basis was 1.52%.

Credit quality was mixed. Nonperforming assets rose 36.2% to $122.7 million^c, net charge-offs rose to 0.39% of average loans from 0.30%, and Regional Acceptance, a used-auto lender acquired in 1996, accounted for 24.5% of net charge-offs despite being under 1% of assets. The allowance for loan and lease losses stayed at 1.30% of loans.

Capital remained above well-capitalized thresholds, though the Tier 1 risk-based ratio fell to 9.9% from 11.5%, reflecting share repurchases tied to acquisitions. The company also disclosed a $25.6 million^d pretax unrealized gain on derivatives and a $26 million remaining Year 2000 remediation budget. Looking forward, BB&T has several pending transactions: the Franklin Bancorporation pooling merger (expected Q3 1998), the Maryland Federal Bancorp purchase (expected Q3 1998), and the completed Life Bancorp pooling merger on March 1, 1998.

Management also announced a share repurchase plan on February 27, 1998. Investors should weigh strong fee-income growth and margin improvement (net yield on earning assets rose to 4.55%) against rising charge-offs, the dilution and integration risk from a steady acquisition program, and the Year 2000 exposure.

02—Key points

Key Highlights

Reported 1997 diluted EPS of $2.60 (up from $2.38), or $2.96 excluding $115.3 million in pretax UCB merger charges; net income was $359.9 million.
Total assets reached $29.2 billion at December 31, 1997, up from $25.7 billion, with total deposits of $20.2 billion.
Net yield on earning assets improved to 4.55% from 4.48%, while noninterest income rose 34.4% to $474.9 million, including a $47.5 million deposit divestiture premium.
Nonperforming assets increased 36.2% to $122.7 million, and net charge-offs rose to 0.39% of average loans, driven largely by Regional Acceptance and purchase-acquired loans.
Tier 1 risk-based capital ratio declined to 9.9% from 11.5% due to share repurchases; all banking subsidiaries remained well-capitalized.
Pending acquisitions include Franklin Bancorporation (pooling, ~$535 million assets) and Maryland Federal Bancorp (purchase, ~$1.2 billion assets), with Life Bancorp ($1.5 billion) completed March 1, 1998.
Year 2000 remediation is estimated at $26 million in remaining costs, targeted for completion by December 31, 1998.

03—Questions

Frequently Asked Questions

How did BB&T's earnings perform in 1997 after adjusting for merger costs?
Reported diluted EPS was $2.60, but the company incurred $115.3 million in pretax nonrecurring charges tied to the United Carolina Bancshares merger. Excluding those charges, net income would have been $408.6 million, or $2.96 per diluted share, up about 17% from the prior year's recurring diluted EPS.
Is BB&T's credit quality deteriorating?
Some indicators weakened. Nonperforming assets rose 36.2% to $122.7 million, and net charge-offs increased to 0.39% of average loans from 0.30%. Management attributes much of the increase to acquired portfolios and to Regional Acceptance, a used-auto lender that accounted for 24.5% of charge-offs. The allowance remained at 1.30% of loans, and the provision rose to $89.9 million.
What acquisitions are pending and how could they affect shareholders?
Franklin Bancorporation (about $535 million in assets, pooling of interests) and Maryland Federal Bancorp (about $1.2 billion in assets, purchase accounting) were both expected to close in Q3 1998. Stock-based deals can dilute per-share earnings and book value, and purchase deals can create goodwill amortization and front-end charges, so shareholders should monitor integration costs and dilution.
How strong is BB&T's capital position?
BB&T remained well-capitalized at year-end 1997, with a total risk-based capital ratio of 13.7% and a leverage ratio of 7.2%, both above regulatory minimums. However, the Tier 1 risk-based ratio fell from 11.5% to 9.9%, largely because of share repurchases used to offset acquisition issuance, and the company announced a new share repurchase plan in February 1998.
What are the main risks flagged in the filing?
The filing cites competitive pressure, interest rate changes that could compress margins, a weaker economy or credit quality deterioration, regulatory changes, failure to realize expected merger cost savings or retain deposits and customers after mergers, and Year 2000 compliance failures. The Year 2000 project carries a remaining estimated cost of $26 million, with completion targeted for December 31, 1998.

04—Continue

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