How did BB&T's earnings perform in 1998?

Net income was $501.8 million, or $1.71 per diluted share, compared with $360.4 million, or $1.23 per diluted share, in 1997. Excluding $11.0 million of after-tax nonrecurring merger charges in 1998 and $68.1 million in 1997, net income grew 19.7% year over year, and return on average equity was 19.73%.

Is BB&T's loan portfolio showing signs of credit stress?

Credit quality improved in 1998. Net charge-offs dropped to 0.28% of average loans from 0.40%, nonaccrual loans fell to $85.0 million, and nonperforming assets declined 16.7% to $113.4 million. Loans 90 days or more past due and still accruing rose to $50.0 million, however, and the allowance covered nonaccrual and restructured loans 3.68 times.

What risks does BB&T's acquisition strategy pose for shareholders?

BB&T says acquisitions paid in stock or with debt may be dilutive to earnings per share or book value, and purchase-accounted deals can produce front-end charges. Goodwill amortization rose sharply, to $48.7 million in 1998 from $24.5 million, and the net interest margin fell partly because of share repurchases tied to pooled acquisitions. Management nonetheless plans to keep consolidating the industry through in-market and niche acquisitions.

How exposed is BB&T to interest rate changes?

Management's simulation shows net interest income falling 2.29% under a 300-basis-point rate increase and changing little under decreases of up to 300 basis points. The company uses swaps, caps and floors with $3.7 billion in notional value, which generated net interest income of $878,100 in 1998, and its internal limits cap the impact at 3% for a 150-basis-point move over six months.

What is the status of BB&T's Year 2000 readiness?

As of March 19, 1999, 97% of remediated core mainframe business systems had been returned to production, and 91% of mission-critical distributed systems had been as well. The company expected full completion by June 30, 1999, with total projected costs of about $30 million, of which $19.4 million had been spent through December 31, 1998, funded from operating cash flow.

TFC 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 19, 1999. Cited figures are marked; the original filing is the authoritative source.

BB&T Corporation (NYSE: BBT), a multi-bank holding company headquartered in Winston-Salem, North Carolina, reported 1998 net income of $501.8 million^a, or $1.71 per diluted share, up from $360.4 million ($1.23) in 1997.

Excluding $11.0 million^b in after-tax nonrecurring merger charges, net income rose 19.7% to $512.8 million. Return on average assets was 1.55% and return on average equity was 19.73% for the year. Total assets reached $34.4 billion at December 31, 1998, up 10% from $31.3 billion, and deposits grew 7.8% to $23.0 billion.

Growth was driven substantially by acquisitions, including Life Bancorp, Franklin, Maryland Federal, Dealers' Credit, and W.E. Stanley, and by mortgage origination volume that rose 186% to $5.6 billion^c. Asset quality improved during the year.

Net charge-offs fell to 0.28% of average loans from 0.40% in 1997, nonperforming assets declined 16.7% to $113.4 million^d, and the allowance for loan and lease losses stood at 1.33% of loans. The net interest margin compressed to 4.34% from 4.46% as the loan mix shifted toward lower-yielding mortgages and as the company repurchased shares issued in acquisitions. The efficiency ratio, excluding nonrecurring items, was 51.6%.

Capital remained strong, with a Tier 1 risk-based ratio of 10.0%, total risk-based capital of 14.8%, and a Tier 1 leverage ratio of 6.8%, all well above regulatory minimums. Looking ahead, BB&T disclosed a pipeline of pending poolings and purchases, including MainStreet (completed March 5, 1999), First Citizens, Mason-Dixon, Matewan, and Scott & Stringfellow, and said it expects to continue consolidating through acquisitions paid in stock.

Management also reported that Year 2000 remediation was substantially complete on core systems, with total projected costs of about $30 million. Investors should weigh the earnings growth and credit quality improvement against the dilution risk and integration costs inherent in the company's acquisition-driven strategy.

02—Key points

Key Highlights

Net income of $501.8 million in 1998 (diluted EPS $1.71), up 39% from $360.4 million in 1997; excluding nonrecurring charges, net income rose 19.7%
Total assets of $34.4 billion at year-end 1998, up 10% year over year; deposits of $23.0 billion, up 7.8%
Net charge-offs improved to 0.28% of average loans from 0.40%; nonperforming assets fell 16.7% to $113.4 million
Return on average equity of 19.73% and return on average assets of 1.55%; dividend increased 13.8% to $0.66 per share, the 26th consecutive annual increase
Net interest margin declined to 4.34% from 4.46%, partly due to mix shift toward mortgages and share repurchases tied to acquisitions
Capital well above requirements: Tier 1 risk-based ratio 10.0%, total risk-based ratio 14.8%, leverage ratio 6.8%
Pending pooling-of-interests mergers (First Citizens, Mason-Dixon) and purchase deals (Matewan, Scott & Stringfellow) expected to close in 1999, with the MainStreet merger completed March 5, 1999

03—Questions

Frequently Asked Questions

How did BB&T's earnings perform in 1998?
Net income was $501.8 million, or $1.71 per diluted share, compared with $360.4 million, or $1.23 per diluted share, in 1997. Excluding $11.0 million of after-tax nonrecurring merger charges in 1998 and $68.1 million in 1997, net income grew 19.7% year over year, and return on average equity was 19.73%.
Is BB&T's loan portfolio showing signs of credit stress?
Credit quality improved in 1998. Net charge-offs dropped to 0.28% of average loans from 0.40%, nonaccrual loans fell to $85.0 million, and nonperforming assets declined 16.7% to $113.4 million. Loans 90 days or more past due and still accruing rose to $50.0 million, however, and the allowance covered nonaccrual and restructured loans 3.68 times.
What risks does BB&T's acquisition strategy pose for shareholders?
BB&T says acquisitions paid in stock or with debt may be dilutive to earnings per share or book value, and purchase-accounted deals can produce front-end charges. Goodwill amortization rose sharply, to $48.7 million in 1998 from $24.5 million, and the net interest margin fell partly because of share repurchases tied to pooled acquisitions. Management nonetheless plans to keep consolidating the industry through in-market and niche acquisitions.
How exposed is BB&T to interest rate changes?
Management's simulation shows net interest income falling 2.29% under a 300-basis-point rate increase and changing little under decreases of up to 300 basis points. The company uses swaps, caps and floors with $3.7 billion in notional value, which generated net interest income of $878,100 in 1998, and its internal limits cap the impact at 3% for a 150-basis-point move over six months.
What is the status of BB&T's Year 2000 readiness?
As of March 19, 1999, 97% of remediated core mainframe business systems had been returned to production, and 91% of mission-critical distributed systems had been as well. The company expected full completion by June 30, 1999, with total projected costs of about $30 million, of which $19.4 million had been spent through December 31, 1998, funded from operating cash flow.

04—Continue

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