[LETTERHEAD OF KPMG PEAT MARWICK APPEARS HERE]
EXHIBIT 8.5
January 31, 1994
Board of Directors
Asheville Savings Bank, S.S.B.
11 Church Street
Asheville, North Carolina 28802
Board of Directors
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Gentlemen:
You have requested our opinion as to the federal and North Carolina income tax
consequences resulting from a plan pursuant to which there will be offered
shares of newly issued common stock of BB&T Financial Corporation ("BB&T
Financial") in simultaneous subscription and community offerings (the
"Offerings"). Under the plan, Asheville Savings Bank, S.S.B., Asheville, North
Carolina ("Asheville Savings") will convert from a North Carolina-chartered
mutual savings bank to a North Carolina-chartered stock savings bank (the
"Conversion") and will concurrently become a wholly-owned subsidiary of BB&T
Financial (the "Acquisition"). The Conversion and the Acquisition will be
referred to herein as the Conversion/Acquisition. After the Conversion/
Acquisition, and after any interim steps as may be necessary or advisable,
Asheville Savings will be merged or otherwise combined with and into Branch
Banking and Trust Company ("BB&T-NC"), a North Carolina chartered commercial
bank and a wholly-owned subsidiary of BB&T Financial (the "Bank Merger").
You have submitted for our consideration certain representations as to the
proposed transaction and copies of the Plan of Conversion (the "Plan"), as
amended, the Agreement and Plan of Reorganization, dated as of June 22, 1993,
(the "Reorganization Agreement"), the Form S-3 Registration Statement filed with
the Securities and Exchange Commission ("SEC") on July 9, 1993, Pre-Effective
Amendment No. 1 to the Form S-3, as filed with the SEC on August 9, 1993,
Post-Effective Amendment No. 1 to the Form S-3, as filed with the SEC on October
29, 1993, Post-Effective Amendment No. 2 to the Form S-3 as filed with the SEC
on January 10, 1994 and Post-Effective Amendment No. 3 to the Form S-3 to be
filed with the SEC on or about January 31, 1994. Our opinion is based on a
review of the information above and certain assumptions of fact. It is also
based on existing tax law and authorities that are subject to change. We have
not
Board of Directors
January 31, 1994
Page 2
reviewed the legal documents necessary to effectuate the steps to be undertaken
and we assume that all steps will be effectuated under state and federal law
and will be consistent with the legal documentation and with the list of steps
submitted to us.
FACTS
BB&T Financial, a North Carolina corporation, is a registered bank holding
company under federal and North Carolina law, a registered savings institution
holding company under North Carolina law and the parent holding company of BB&T-
NC, and through BB&T Financial Corporation of South Carolina (which is wholly-
owned by BB&T Financial), Branch Banking and Trust Company of South Carolina
("BB&T-SC"). BB&T Financial has authorized two classes of capital stock,
consisting of common and nonvoting preferred. Common stockholders are entitled
to one vote for each share of stock held.
Asheville Savings is a North Carolina-chartered mutual savings bank. As a mutual
savings bank, Asheville Savings has no authorized capital stock. Instead, the
residual proprietary interest in Asheville Savings' reserves and undivided
profits belong to all of its depositors. Each depositor is entitled to interest
on his or her account balance that is declared and paid by Asheville Savings. In
addition, each depositor has an intangible ownership interest in the net
proceeds on liquidation of the institution equal to the proportion that his or
her deposit balance bears to the aggregate deposit balances of all depositors.
However, liquidation of the institution requires approval by the Administrator
of the North Carolina Savings Institutions Division (the "NC Administrator").
Voting rights in Asheville Savings are held by the depositors and by certain
borrowers on outstanding loans. All voting and ownership interests of a
depositor cease when he or she closes his or her account(s) with Asheville
Savings.
The Conversion/Acquisition will enable Asheville Savings to offer a wider range
of services and products to its existing customers and market area due to the
stronger financial and managerial resources of BB&T Financial. BB&T Financial
will be acquiring all of the capital stock of Asheville Savings and the combined
resources of Asheville Savings and BB&T Financial will enable BB&T Financial to
maintain and expand the business of Asheville Savings.
Board of Directors
January 31, 1994
Page 3
In the Conversion/Acquisition, Asheville Savings will convert from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank and simultaneously become a wholly-owned subsidiary of BB&T
Financial. After the Conversion/Acquisition, and after any interim steps as may
be necessary or advisable, Asheville Savings will be merged or otherwise
combined with and into BB&T-NC in the Bank Merger.
In accordance with the NC Administrator's regulations regarding conversions,
upon completion of the Conversion/Acquisition, a liquidation account will be
established by Asheville Savings for the benefit of the depositors who held
accounts in Asheville Savings at February 28, 1993 in an amount equal to the net
worth of Asheville Savings as shown on its statement of financial condition as
of December 31, 1992. Each depositor would be entitled to his or her pro rata
interest in the liquidation account in the event of a complete liquidation of
Asheville Savings following the Conversion/Acquisition. Each depositor would
have an initial interest in such liquidation account for each deposit account
held at Asheville Savings on February 28, 1993. A depositor's interest as to the
liquidation account will be in the same proportion to the total liquidation
account as the balance of his or her deposit account was to the balance in all
deposit accounts held by depositors of Asheville Savings as of the eligibility
record date (February 28, 1993). However, if the amount in the deposit account
on any subsequent measurement date is less than the amount in such account on
the eligibility record date, or the amount in such account on any previous
measurement date, then such depositor's interest in the liquidation account
would be reduced from time to time by an amount proportionate to any such
reduction and his or her interest would cease to exist if such deposit account
were closed. The interest in the liquidation account would never be increased
despite any subsequent increase in the related deposit account after the
Conversion/Acquisition.
Pursuant to the Plan, shares of BB&T Financial Common Stock (the "Conversion
Stock") are being offered through nontransferable subscription rights granted
first to an employee stock ownership plan and trust established for the benefit
of employees of Asheville Savings (the "Asheville Savings ESOP") and then to
holders of qualifying deposit accounts of Asheville Savings as of the
eligibility record date ("Eligible Member Subscribers") and to certain other
members of Asheville Savings who are eligible to vote on the Plan ("Voting
Members"), in a subscription offering (the "Subscription Offering"). Shares
offered but not sold in the Subscription Offering are being offered
simultaneously to residents of Buncombe, Henderson, Madison and McDowell
counties, North Carolina in a community offering (the "Community Offering").
Board of Directors
January 31, 1994
Page 4
The number of shares of Conversion Stock to be offered will be determined based
upon an independent appraisal of the pro forma market value of Asheville Savings
and the price of the Conversion Stock. The price of the Conversion Stock will be
equal to a percentage (85% in the case of Eligible Member Subscribers
participating in the Subscription Offering that consent to a four month holding
period restriction, subject to certain purchase limitations, 95% in the case of
Eligible Member Subscribers participating in the Subscription Offering that do
not consent to a four month holding period restriction, 95% in the case of
participants in the Community Offering, 85% or 95% in the case of the Asheville
Savings ESOP and 100% in the case of Voting Members) of the last sale price of
the common stock of BB&T Financial as reported on the NASDAQ National Market
System (trading symbol "BBTF) on the Community Expiration Date, as defined in
the Plan, rounded to the nearest cent, with any amount equal to $.0050 rounded
to the next higher $.01.
In exchange for all of the net proceeds from the sale of the Conversion Stock,
BB&T Financial will be issued all of the capital stock of Asheville Savings.
Irrespective of the amount of Conversion Stock sold in the Subscription and
Community Offerings, BB&T Financial will invest cash or other qualified assets
in Asheville Savings equal to the appraised value of Asheville Savings less the
expenses of the Conversion/Acquisition, but in no event less than the current
net worth of Asheville Savings. BB&T Financial does not anticipate selling any
shares that are not sold in the Offerings, in a public offering or otherwise
pursuant to the Plan. The Conversion/Acquisition is subject to the receipt of
regulatory approval from appropriate parties, including the NC Administrator and
the Board of Governors of the Federal Reserve System.
In connection with the Conversion/Acquisition, the Eligible Member Subscribers
of Asheville Savings will receive a one-time bonus interest payment ("Bonus
Interest") in an amount equal to two and one-half (2.50) additional percentage
points of the balance in each deposit account on February 28, 1993. The Bonus
Interest will be paid to depositors within thirty days of the closing of the
Conversion/Acquisition (the "Closing Date").
Immediately after the Conversion/Acquisition, BB&T has agreed to grant to the
directors and certain officers of Asheville Savings shares of restricted stock
of BB&T Financial in a manner designed to encourage such individuals to remain
with BB&T Financial following the Conversion/Acquisition.
Board of Directors
January 31, 1994
Page 5
The shares of restricted stock vest in equal increments over a five year period
beginning on the first anniversary of the date of grant, subject to acceleration
with 100% vesting at the individual's earlier retirement from the director or
officer position due to mandatory retirement, health reasons, death or
disability, and also subject to approval by the BB&T Financial Compensation
Committee that vesting be accelerated in the event of termination of employment
by BB&T Financial other than for cause. In addition, BB&T Financial will pay
cash bonuses to the individuals receiving awards of restricted stock to
compensate those individuals for a portion of the tax liability associated with
the awards granted. The cash bonus would equal 53.9% of the market price of the
restricted stock awarded at the date of grant, payable as the tax liability is
incurred. If the individual elects not to incur all of the tax liability in the
year the restricted stock is awarded, 20% of the cash bonus will be paid in each
year as the stock vests. The grants of restricted stock and related cash awards
are referred to herein as the "Restricted Stock Plan."
In addition to the foregoing statement of facts, the following representations
have been made:
(a) The fair market value of the deposits in the stock savings bank plus
interests in the liquidation account and subscription rights to acquire
BB&T Financial stock to be received in the Conversion will be
approximately equal to the fair market value of the deposits and
proprietary interests in the mutual savings bank surrendered in the
Conversion.
(b) There is no plan or intention for the depositors of Asheville Savings
to sell, exchange or otherwise dispose of any of the deposits received
in the Conversion.
(c) Immediately following the Conversion, the depositors of Asheville
Savings on the eligibility record date will own all of the outstanding
interests in the liquidation account, and will own such interests
solely by reason of their ownership of deposits at the mutual savings
bank (including the rights to liquidation proceeds). As a matter of
law, additional interests in the liquidation account may not be issued
following the Conversion.
(d) Immediately following the Conversion/Acquisition, Asheville Savings
will possess the same assets and liabilities that it held immediately
prior to the transaction, except for the addition of cash paid by BB&T
Financial for the shares of Asheville Savings issued in the
Conversion/Acquisition.
Board of Directors
January 31, 1994
Page 6
(e) Except for Asheville Savings' agreement to sell all of its stock to BB&T
Financial in the Conversion/Acquisition, at the time of the Conversion/
Acquisition, Asheville Savings will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to
which any person could acquire stock in Asheville Savings.
(f) Asheville Savings has no plan or intention to reacquire any of the stock
issued to BB&T Financial in the Acquisition.
(g) Except for the Bank Merger, Asheville Savings has no plan or intention
to sell or otherwise dispose of any of the assets of the mutual savings
bank, except in the ordinary course of business.
(h) The liabilities to be assumed by the stock savings bank, plus the
liabilities, if any, to which the transferred assets are subject, were
incurred by Asheville Savings in the ordinary course of its business and
are associated with the assets transferred.
(i) Immediately following the Conversion/Acquisition, BB&T Financial will
continue the historic business of Asheville Savings or will use a
significant portion of Asheville Savings' historic business assets in a
business.
(j) The depositors of Asheville Savings will pay their expenses, if any,
incurred in connection with the Conversion.
(k) Asheville Savings is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368 (a) (3) (A) of the
Internal Revenue Code.
(l) No depositor of Asheville Savings who is eligible to receive an interest
in the liquidation account will be excluded from participating in the
liquidation account.
(m) BB&T Financial will pay all of the expenses of the Conversion/
Acquisition, except for expenses of the depositors of Asheville Savings.
(n) BB&T Financial has no plan or intention to redeem or otherwise acquire
any of the Conversion Stock to be issued pursuant to the Conversion/
Acquisition.
Board of Directors
January 31, 1994
Page 7
(o) At the time of the Conversion, the fair market value of the assets of the
mutual savings bank (on a going-concern basis) to be transferred to the
stock savings bank will equal or exceed the liabilities to be assumed by
the stock savings bank plus the liabilities to which such assets are
subject. Immediately prior to the Conversion, Asheville Savings will have
a positive net worth.
(p) None of the shares of the Conversion Stock to be issued to or purchased
by depositors who are also employees of Asheville Savings will be issued
or acquired at a discount from the price offered to any other depositor
or as compensation. Compensation to be paid to depositors who are also
employees of Asheville Savings will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(q) Except for the Bank Merger, BB&T Financial has no plan or intention to
sell or otherwise dispose of the stock of Asheville Savings received by
it in the Conversion/Acquisition and there is no plan or intention for
Asheville Savings to liquidate or merge into another corporation
following the Conversion/Acquisition.
(r) BB&T Financial and Asheville Savings are corporations within the meaning
of Section 7701 (a) (3) of the Code.
(s) No cash or property will be given to depositors of Asheville Savings or
others in lieu of non-transferable subscription rights or an interest in
the liquidation account of Asheville Savings.
Board of Directors
January 31, 1994
Page 8
Opinion
FEDERAL INCOME TAX CONSEQUENCES
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Based solely on the above facts and representations, it is our opinion that:
(1) The proposed conversion of Asheville Savings from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank will constitute a reorganization within the meaning of Section
368(a) of the Code, and no gain or loss will be recognized by Asheville
Savings as a result of the Conversion. Rev. Rul. 80-105, 1980-1 C.B. 78.
The mutual savings bank and the stock savings bank will each be a "party to
the reorganization" within the meaning of Section 368(b) of the Code.
(2) No gain or loss will be recognized by Asheville Savings upon the receipt of
money from BB&T Financial in exchange for shares of common stock of
Asheville Savings. In addition, no gain or loss will be recognized by BB&T
Financial upon the receipt of money in exchange for its common stock.
Section 1032(a).
(3) Asheville Savings will not recognize any gain or loss with respect to its
assets as a result of the Conversion; the basis of Asheville Savings in its
assets will not change as a result of the Conversion and the holding period
of the assets will include the period during which such assets were held by
Asheville Savings prior to the Conversion.
(4) No gain or loss will be recognized by a depositor of Asheville Savings upon
the deemed issuance to him or her of deposit accounts in the stock savings
bank in exchange for, and in the same amount as, his or her deposit
accounts in the mutual savings bank.
(5) Gain, if any, will be recognized by an Eligible Member Subscriber upon the
exchange of his or her membership interest in the mutual savings bank for
subscription rights and an interest in the liquidation account. Any gain
resulting therefrom will be recognized, but only in an amount not in excess
of the fair market value of the subscription rights and the interests in
the liquidation account. However, the interests in the liquidation account
will have nominal, if any, fair market value. Section 1001;
Paulsen v. Commissioner, 469 U.S. 131 (1985).
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Board of Directors
January 31, 1994
Page 9
(6) A Voting Member will be in receipt of taxable income upon the receipt
of nontransferable subscription rights to the extent of the fair market
value, if any, of the subscription rights received.
(7) A depositor will be in receipt of taxable income in the amount of the Bonus
Interest paid to the depositor, at the time such amount is paid or made
available.
(8) A depositor's basis in his or her deposit accounts will not change as a
result of the Conversion. An Eligible Member Subscriber will have a basis
of zero in his or her interest in the liquidation account, increased by the
amount of gain, if any, recognized on receipt of such interest. Finally,
an Eligible Member Subscriber or Voting Member will have a basis in any
subscription rights received equal to zero, increased by the amount of
income or gain, if any, recognized on receipt of such rights.
(9) No taxable income will be recognized by an Eligible Member Subscriber or
Voting Member as a result of the exercise of his or her subscription
rights. Rev. Rul. 56-572,1956-2 C.B. 182.
(10) An Eligible Member Subscriber or Voting Member will be entitled to claim,
for the year in which any subscription rights expire unexercised, a loss in
an amount equal to his or her basis in such rights. Such loss will be a
capital loss provided the common stock of BB&T Financial that would have
been acquired upon the exercise of such subscription rights would have
constituted a capital asset in the hands of the Eligible Member Subscriber
or Voting Member.
(11) No income, gain or loss will be recognized by the purchasers of BB&T
Financial stock pursuant to the Community Offering. A purchaser of
Conversion Stock will have a basis in such stock equal to the purchase
price of such stock, increased (in the case of stock acquired pursuant to
the Subscription Offering) by the basis, if any, of the subscription
rights exercised. Section 1012.
(12) The holding period for BB&T Financial stock acquired pursuant to the
Subscription Offering will commence on the date the subscription rights are
exercised. Section 1223(6). The holding period for BB&T Financial stock
acquired pursuant to the Community Offering will commence on the date
following the date on which such stock is purchased. Rev. Rul. 70-598,
1970-2 C.B. 168; Rev. Rul. 66-97, 1966-1, C.B. 190.
Board of Directors
January 31, 1994
Page 10
(13) The tax attributes enumerated in Section 381(c), including any earnings
and profits or a deficit of earnings and profits, will be taken into
account by Asheville Savings following the Conversion. Section 381.
(14) The Conversion/Acquisition will not require the bad debt reserves of
Asheville Savings to be restored to gross income (Section 381(c) (4),
Treas. Reg. Sec. 1.381(c) (4)-1(a) (1) (ii)), nor will it affect deductions
for additions to reserves for bad debts under Section 593 or distributions
to shareholders under Section 593 (e). Because the Conversion will be a
transaction to which Section 381 applies, Section 593 (e) will not apply.
NORTH CAROLINA INCOME TAX CONSEQUENCES
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It is our opinion that the State of North Carolina will, for North Carolina
income tax purposes, treat the Conversion/Acquisition in an identical manner
as it is treated by the Internal Revenue Service for federal income tax
purposes. N.C.G.S. 105-130.2, 105-130.3, 105-130.5, 105-134.1, 105-134.2, 105-
134.5, 105-134.6, 105-134.7 and 105-228.23.
THE BANK MERGER
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Nothing in the foregoing opinion is to be construed either explicitly or
implicitly as opining on the federal or North Carolina income tax consequences
of the Bank Merger.
THE RESTRICTED STOCK PLAN
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Nothing in the foregoing opinion is to be construed either explicitly or
implicitly as opining on the federal or North Carolina income tax consequences
of the Restricted Stock Plan.
Sincerely,
KPMG Peat Marwick
Sheldon M. Fox, Partner
SMF:jr