Exhibit 99.1
Operating Segments
BB&T’s operations are divided into seven reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Insurance Services, Specialized Lending, Investment Banking and Brokerage, and Treasury. These operating segments have been identified based on BB&T’s organizational structure. The segments require unique technology and marketing strategies and offer different products and services. While BB&T is managed as an integrated organization, individual executive managers are held accountable for the operations of these business segments.
BB&T measures and presents information for internal reporting purposes in a variety of different ways. Information for BB&T’s reportable segments is available based on organizational structure, product offerings and customer relationships. The internal reporting system presently utilized by management in the planning and measuring of operating activities, as well as the system to which most managers are held accountable, is based on organizational structure.
BB&T emphasizes revenue growth by focusing on client service, sales effectiveness and relationship management. The segment results contained herein are presented based on internal management accounting policies that were designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. Therefore, the performance of the segments is not necessarily comparable with BB&T’s consolidated results or with similar information presented by any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, BB&T allocates capital, funding charges and credits, an economic provision for loan and lease losses, certain noninterest expenses and income tax provisions to each segment, as applicable. Also, to promote revenue growth and provide a basis for employee incentives, certain revenues of Mortgage Banking, Trust Services, Insurance Services, Specialized Lending, and the Investment Banking and Brokerage segments are reflected in the individual segment results and also allocated to the Banking Network. This double counting of revenue is reflected in intersegment noninterest revenues and eliminated to arrive at consolidated results. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and business or product lines within the segments change. Also, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised.
BB&T’s overall objective is to maximize shareholder value by optimizing return on equity and managing risk. Allocations of capital and the economic provision for loan and lease losses are designed to address this objective. Capital is assigned to each segment on an economic basis, using management’s assessment of the inherent risks associated with the segment. Economic capital allocations are made to cover the following risk categories: credit risk, funding risk, interest rate risk, option risk, basis risk, market risk and operational risk. Each segment is evaluated based on a risk-adjusted return on capital. Capital assignments are not equivalent to regulatory capital guidelines and the total amount assigned to all segments typically varies from total consolidated shareholders’ equity. All unallocated capital is retained in the Treasury segment.
The economic provision for loan and lease losses is also allocated to the relevant segments based on management’s assessment of the segments’ risks as described above. Unlike the provision for loan and lease losses recorded pursuant to generally accepted accounting principles, the economic provision adjusts for the impact of expected credit losses over the effective lives of the related loans and leases. Any unallocated provision for loan and lease losses is retained in the Corporate Office.
BB&T has implemented an extensive noninterest expense allocation process to support organizational profitability measurement. BB&T allocates expenses to the reportable segments based on various methodologies, including the number of items processed, overall percentage of time spent, full-time equivalent employees assigned to functions, functional position surveys and activity-based costing. A portion of corporate overhead expense is not allocated, but is retained in corporate accounts reflected as other expenses in the accompanying tables. Income taxes are allocated to the various segments using effective tax rates.
BB&T utilizes a funds transfer pricing (“FTP”) system to eliminate the effect of interest rate risk from the segments’ net interest income because such risk is centrally managed within the Treasury segment. The FTP system credits or charges the segments with the true value or cost of the funds the segments create or use. The FTP system provides a funds credit for sources of funds and a funds charge for the use of funds by each segment. The net FTP credit or charge is reflected as net intersegment interest income (expense) in the accompanying tables.
Banking Network
BB&T’s Banking Network serves individual and business clients by offering a variety of loan and deposit products and other financial services. The Banking Network is primarily responsible for serving client relationships, and, therefore, is credited with revenue from the Mortgage Banking, Trust Services, Insurance Services, Investment Banking and Brokerage, Specialized Lending and other segments, which is reflected in intersegment noninterest income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in BB&T’s 2002 Annual Report on Form 10-K for additional discussion concerning the functions of the Banking Network.
Mortgage Banking
The Mortgage Banking segment retains and services mortgage loans originated by the Banking Network as well as those purchased from various correspondent originators. Mortgage loan products include fixed- and adjustable-rate government and conventional loans for the purpose of constructing, purchasing or refinancing owner-occupied properties. Fixed-rate mortgage loans are typically sold to government agencies with servicing rights retained by BB&T, while adjustable-rate loans are typically held in the portfolio. The Mortgage Banking segment earns interest on loans held in the warehouse and portfolio, fee income from the origination and servicing of mortgage loans and recognizes gains or losses from the sale of mortgage loans. The Banking Network receives an interoffice credit for the origination of loans and servicing rights, with the corresponding charge remaining in the Corporate Office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results.
Trust Services
BB&T’s Trust Services segment provides personal trust administration, estate planning, investment counseling, asset management, employee benefits services, and corporate trust services to individuals, corporations, institutions, foundations and government entities. The Banking Network receives an interoffice credit for trust fees in the initial year the account is referred, with the corresponding charge remaining in the Corporate Office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results.
Insurance Services
BB&T operates the 8th largest independent insurance agency network in the nation. BB&T Insurance Services provides property and casualty, life and health insurance to businesses and individuals. It also provides small business and corporate products, such as workers compensation and professional liability, as well as provides surety coverage and title insurance. The Banking Network receives credit for insurance commissions on referred accounts, with the corresponding charge retained in the Corporate Office. These revenues and expenses are reflected in the accompanying tables as intersegment noninterest income and expense.
Specialized Lending
BB&T’s Specialized Lending segment consists of seven wholly-owned subsidiaries that provide specialty finance alternatives to consumers and businesses including: commercial factoring services, indirect financing of equipment for both small businesses and consumers, commercial fleet vehicle and equipment leasing, direct consumer finance, insurance premium finance, nonconforming mortgage lending, indirect sub-prime automobile finance, and full service commercial mortgage banking. Bank clients as well as non-bank clients within and outside BB&T’s primary geographic market area are served by these companies. The Banking Network receives credit for referrals to these companies with the corresponding charge retained in the Corporate Office. These revenues and expenses are reflected in the accompanying tables as intersegment noninterest income and expense.
Investment Banking and Brokerage
BB&T’s Investment Banking and Brokerage segment offers clients investment alternatives, including discount brokerage services, fixed-rate and variable-rate annuities, and mutual funds through BB&T Investment Services, Inc., a subsidiary of Branch Bank. The Investment Banking and Brokerage segment includes Scott & Stringfellow, Inc., a full-service brokerage and investment banking firm headquartered in Richmond, Virginia. Scott & Stringfellow specializes in the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. Scott & Stringfellow also has a public finance department that provides investment banking services, financial advisory services and municipal bond financing to a variety of regional tax-exempt issuers. The Banking Network is credited for investment service revenues on referred accounts, with the corresponding charge retained in the Corporate Office, which is reflected as part of other net income in the accompanying tables reconciling segment results to consolidated results. These revenues and expenses are reflected in the accompanying tables as intersegment noninterest income and expense.
Treasury
BB&T’s Treasury segment is responsible for the management of the securities portfolios, overall balance sheet funding and liquidity, and overall management of interest rate risk.
The following tables present selected financial information for BB&T’s reportable business segments for the years ended December 31, 2002, 2001 and 2000:
BB&T Corporation
Reportable Segments
For the Years Ended December 31, 2002, 2001 and 2000
| Banking Network | Mortgage Banking | Trust Services | Agency Insurance | Specialized Lending | ||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income (expense) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| from external customers | $ | 1,521,868 | $ | 1,429,954 | $ | 1,441,523 | $ | 636,212 | $ | 613,891 | $ | 484,295 | $ | (20,445 | ) | $ | (36,357 | ) | $ | (39,785 | ) | $ | 1,763 | $ | 825 | $ | (16 | ) | $ | 185,873 | $ | 142,948 | $ | 106,230 | ||||||||||||||||
| Net intersegment interest income (expense) | 660,390 | 585,737 | 486,591 | (327,161 | ) | (454,908 | ) | (368,873 | ) | 47,908 | 48,723 | 53,566 | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||||
| Net interest income | 2,182,258 | 2,015,691 | 1,928,114 | 309,051 | 158,983 | 115,422 | 27,463 | 12,366 | 13,781 | 1,763 | 825 | (16 | ) | 185,873 | 142,948 | 106,230 | ||||||||||||||||||||||||||||||||||
| Provision for loan and lease losses | 215,769 | 213,924 | 148,913 | 3,271 | 3,158 | 3,183 | -- | -- | -- | -- | -- | -- | 62,927 | 42,833 | 27,480 | |||||||||||||||||||||||||||||||||||
| Noninterest income from external customers | 702,427 | 544,381 | 455,755 | 140,773 | 111,100 | 81,487 | 97,914 | 92,172 | 80,232 | 288,658 | 170,006 | 122,241 | 58,083 | 52,066 | 35,782 | |||||||||||||||||||||||||||||||||||
| Intersegment noninterest income | 346,111 | 239,608 | 120,410 | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | |||||||||||||||||||||||||||||||||||
| Noninterest expense | 1,068,163 | 1,029,806 | 942,662 | 143,830 | 66,594 | 55,299 | 79,896 | 60,068 | 51,960 | 221,051 | 123,385 | 87,249 | 108,354 | 104,951 | 79,255 | |||||||||||||||||||||||||||||||||||
| Intersegment noninterest expense | 579,017 | 504,080 | 325,185 | 29,525 | 26,390 | 22,983 | 8,565 | 3,165 | 3,730 | 23,732 | 4,236 | 4,107 | 12,716 | 2,346 | 2,513 | |||||||||||||||||||||||||||||||||||
| Income before income taxes | 1,367,847 | 1,051,870 | 1,087,519 | 273,198 | 173,941 | 115,444 | 36,916 | 41,305 | 38,323 | 45,638 | 43,210 | 30,869 | 59,959 | 44,884 | 32,764 | |||||||||||||||||||||||||||||||||||
| Provision for income taxes | 366,204 | 302,801 | 352,660 | 76,949 | 54,020 | 32,124 | 10,428 | 11,476 | 10,559 | 18,175 | 17,105 | 12,315 | 21,360 | 15,925 | 11,562 | |||||||||||||||||||||||||||||||||||
| Net income | $ | 1,001,643 | $ | 749,069 | $ | 734,859 | $ | 196,249 | $ | 119,921 | $ | 83,320 | $ | 26,488 | $ | 29,829 | $ | 27,764 | $ | 27,463 | $ | 26,105 | $ | 18,554 | $ | 38,599 | $ | 28,959 | $ | 21,202 | ||||||||||||||||||||
| Identifiable segment assets | $ | 47,796,060 | $ | 38,122,329 | $ | 37,544,996 | $ | 10,709,260 | $ | 8,985,056 | $ | 8,258,045 | $ | 78,673 | $ | 62,723 | $ | 39,508 | $ | 551,659 | $ | 126,803 | $ | 100,852 | $ | 1,780,414 | $ | 1,414,943 | $ | 1,189,681 | ||||||||||||||||||||
| Investment Banking and | |||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Brokerage | Treasury | All Other Segments (1) | Total Segments | ||||||||||||||||||||||||||||||||||||||||||||
| 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income (expense) | |||||||||||||||||||||||||||||||||||||||||||||||
| from external customers | $ | 7,474 | $ | 8,789 | $ | 11,659 | $ | 205,301 | $ | 237,725 | $ | 160,043 | $ | 173,427 | $ | 160,907 | $ | 150,678 | $ | 2,711,473 | $ | 2,558,682 | $ | 2,314,627 | |||||||||||||||||||||||
| Net intersegment interest income (expense) | -- | -- | -- | 16,848 | 36,591 | 79,197 | -- | 50 | -- | 397,985 | 216,193 | 250,481 | |||||||||||||||||||||||||||||||||||
| Net interest income | 7,474 | 8,789 | 11,659 | 222,149 | 274,316 | 239,240 | 173,427 | 160,957 | 150,678 | 3,109,458 | 2,774,875 | 2,565,108 | |||||||||||||||||||||||||||||||||||
| Provision for loan and lease losses | -- | -- | -- | 142 | 133 | 121 | 31,228 | 21,891 | 19,177 | 313,337 | 281,939 | 198,874 | |||||||||||||||||||||||||||||||||||
| Noninterest income from external customers | 215,747 | 180,976 | 164,023 | 250,179 | 48,588 | (188,841 | ) | 121,550 | 101,167 | 85,053 | 1,875,331 | 1,300,456 | 835,732 | ||||||||||||||||||||||||||||||||||
| Intersegment noninterest income | -- | -- | -- | -- | -- | -- | -- | -- | -- | 346,111 | 239,608 | 120,410 | |||||||||||||||||||||||||||||||||||
| Noninterest expense | 191,638 | 180,730 | 159,598 | 15,054 | 7,606 | 6,154 | 38,111 | 16,348 | 12,357 | 1,866,097 | 1,589,488 | 1,394,534 | |||||||||||||||||||||||||||||||||||
| Intersegment noninterest expense | 14,771 | 1,591 | 1,497 | 1,691 | 1,945 | 555 | 11,419 | 9,398 | 6,404 | 681,436 | 553,151 | 366,974 | |||||||||||||||||||||||||||||||||||
| Income before income taxes | 16,812 | 7,444 | 14,587 | 455,441 | 313,220 | 43,569 | 214,219 | 214,487 | 197,793 | 2,470,030 | 1,890,361 | 1,560,868 | |||||||||||||||||||||||||||||||||||
| Provision for income taxes | 6,474 | 2,527 | 3,195 | 124,764 | 79,250 | 733 | 48,927 | 24,418 | 47,468 | 673,281 | 507,522 | 470,616 | |||||||||||||||||||||||||||||||||||
| Net income | $ | 10,338 | $ | 4,917 | $ | 11,392 | $ | 330,677 | $ | 233,970 | $ | 42,836 | $ | 165,292 | $ | 190,069 | $ | 150,325 | $ | 1,796,749 | $ | 1,382,839 | $ | 1,090,252 | |||||||||||||||||||||||
| Identifiable segment assets | $ | 982,755 | $ | 702,050 | $ | 751,722 | $ | 20,482,087 | $ | 16,209,134 | $ | 17,084,443 | $ | 5,767,429 | $ | 3,286,582 | $ | 2,861,339 | $ | 88,148,337 | $ | 68,909,620 | $ | 67,830,586 | |||||||||||||||||||||||
(1) Includes financial data from subsidiaries below the quantitative and qualitative thresholds requiring disclosure.
The following table presents a reconciliation of segment results to consolidated results:
| For the Years Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | |||||||||||
| 2002 | 2001 | 2000 | |||||||||
| ($ in thousands) | |||||||||||
| Net Interest Income | |||||||||||
| Net interest income from segments | $ | 3,109,458 | $ | 2,774,875 | $ | 2,565,108 | |||||
| Other net interest income (expense) (1) | (366,980 | ) | (545,679 | ) | 153,649 | ||||||
| Elimination of net intersegment interest income (2) | 4,982 | 204,483 | (404,260 | ) | |||||||
| Consolidated net interest income | $ | 2,747,460 | $ | 2,433,679 | $ | 2,314,497 | |||||
| Net income | |||||||||||
| Net income from segments | $ | 1,796,749 | $ | 1,382,839 | $ | 1,090,252 | |||||
| Other net income (loss) (1) | 857,575 | 245,514 | 2,721 | ||||||||
| Elimination of intersegment net income (2) | (1,351,315 | ) | (654,715 | ) | (394,485 | ) | |||||
| Consolidated net income | $ | 1,303,009 | $ | 973,638 | $ | 698,488 | |||||
| December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2000 | |||||||||
| Total Assets | |||||||||||
| Total assets from segments | $ | 88,148,337 | $ | 68,909,620 | $ | 67,830,586 | |||||
| Other assets (1) | 27,674,337 | 14,280,339 | 4,232,050 | ||||||||
| Elimination of intersegment assets (2) | (35,605,858 | ) | (12,320,014 | ) | (5,509,813 | ) | |||||
| Consolidated total assets | $ | 80,216,816 | $ | 70,869,945 | $ | 66,552,823 | |||||
| (1 | ) | Other net interest income, other net income (loss) and other assets include amounts incurred by or applicable to BB&T's support functions that are not allocated to the various segments. | |||
| (2 | ) | BB&T's reconciliation of total segment results to consolidated results requires the elimination of the internal management accounting practices. These adjustments include the elimination of the funds transfer pricing credits and charges and the elimination of intersegment noninterest income and noninterest expense described above. These amounts are allocated to the various segments using BB&T's internal accounting methods. | |||
