================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
Of the Securities Exchange Act of 1934
AUGUST 27, 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 47 pages.
================================================================================
Item 5. Other Events
The purpose of this amendment to BB&T Corporation's ("BB&T") Current
Report on Form 8-K, originally filed August 27, 1998, is to include analyst
presentation materials related to BB&T's proposed merger with MainStreet
Financial Corporation ("MainStreet"). These materials are attached as Exhibit
99.1 to this amendment.
Forward-Looking Statements
BB&T has made forward-looking statements in the accompanying analyst
presentation materials that are subject to risks and uncertainties. These
statements are based on the beliefs and assumptions of the management of BB&T,
and on the information available to management at the time the analyst
presentation materials were prepared. In particular, the analyst materials and
this report include statements regarding estimated earnings per share of BB&T on
a stand alone basis, expected cost savings from the merger, estimated
restructuring charges relating to the merger, estimated increases in
MainStreet's fee income ratio and net interest margin, the anticipated accretive
effect of the merger, and BB&T's anticipated performance in future periods. With
respect to estimated cost savings and restructuring charges, BB&T has made
assumptions about, among other things, the extent of operational overlap between
BB&T and MainStreet, the amount of general and administrative expense
consolidation, costs relating to converting MainStreet bank operations and data
processing to BB&T's systems, the size of anticipated reductions in fixed labor
costs, the amount of severance expenses, the extent of the charges that may be
necessary to align the companies' respective accounting reserve policies, and
the cost related to the merger. The realization of cost savings and the amount
of restructuring charges are subject to the risk that the foregoing assumptions
are inaccurate.
Any statements in the accompanying exhibit regarding the anticipated
accretive effect of the merger and BB&T's anticipated performance in future
periods are subject to risks relating to, among other things, the following
possibilities: (1) expected cost savings from this merger or other
previously-announced mergers may not be fully realized or realized within the
expected time frame; (2) deposit attrition, customer loss or revenue loss
following proposed mergers may be greater than expected; (3) competitive
pressure among depository and other financial institutions may increase
significantly; (4) costs or difficulties related to the integration of the
businesses of BB&T and its merger partners, including MainStreet, may be greater
than expected; (5) changes in the interest rate environment may reduce margins;
(6) general economic or business conditions, either nationally or regionally,
may be less favorable than expected, resulting in, among other things, a
deterioration in credit quality, or a reduced demand for credit; (7) legislative
or regulatory changes, including changes in accounting standards, may adversely
affect the businesses in which BB&T and MainStreet are engaged; (8) adverse
changes may occur in the securities markets; and (9) competitors of BB&T and
MainStreet may have greater financial resources and develop products that enable
such competitors to compete more successfully than BB&T and MainStreet.
BB&T believes these forward-looking statements are reasonable; however,
undue reliance should not be placed on such forward-looking statements, which
are based on current expectations. Such statements are not guarantees of
performance. They involve risks, uncertainties and assumptions. The future
results and shareholder values of BB&T following completion of the merger may
differ materially from those expressed in these forward-looking statements. Many
of the factors that will determine these results and values are beyond
management's ability to control or predict.
Description of Exhibit
In connection with BB&T's consideration of the merger, management of BB&T
analyzed certain investment criteria designed to assess the impact of the merger
on BB&T and its shareholders. For purposes of this analysis, the results of
which are contained in the accompanying exhibit, BB&T made the following
assumptions:
* BB&T's 1998 and 1999 earnings per share on a stand alone basis would be
in line with the mean estimates published by First Call Corporation,
* BB&T's earnings per share on a stand alone basis for periods after 1999
would increase at an assumed annual rate, determined solely for the
purpose of assessing the impact of the merger as described above, of
approximately 9%,
* MainStreet's 1998 earnings on a stand alone basis would be in line with
the mean estimates of earnings per share published by First Call
Corporation,
* MainStreet's earnings on a stand alone basis for periods after 1998
would increase at an assumed rate, determined solely for the purpose
of assessing the impact of the merger as described above, of
approximately 9% before applying the effect of the assumptions
described below,
* annual cost savings of approximately $15 million, or 30% of
MainStreet's expense base, would be realized as a result of the merger,
* MainStreet's fee income ratio would ratably increase from 18.9% to 23%
of total revenue by the fifth year after the merger, and
* MainStreet's net interest margin would ratably increase from 3.61% to
4.00% of average earning assets by the third year after the merger.
Using the above assumptions, BB&T analyzed the merger to determine whether it
would have an accretive or dilutive effect on estimated earnings per share,
return on equity, return on assets and book value per share. This analysis
indicated that the merger would be accretive to estimated earnings per share,
return on assets and book value in the first year and accretive to return on
equity by the third year.
In addition to the analysis described above, BB&T performed an internal rate of
return analysis for this transaction, the results of which are contained in the
accompanying exhibit. The purpose of this analysis was to determine if the
projected performance of MainStreet, after applying the assumptions described
above, would conform to BB&T's criteria. BB&T's current minimum internal rate of
return requirement for this type of investment is 15%. The analysis performed in
conjunction with the MainStreet merger indicated that the projected internal
rate of return is 16.02%.
Item 7. Exhibits
99.1 Analyst Presentation Materials
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: January 8, 1999
BB&T
and
MainStreet Financial Corporation
Expanding a Great Franchise
Analyst Presentation
August 26, 1998
FORWARD-LOOKING INFORMATION
This presentation contains certain forward-looking statements with respect to
the financial condition, results of operations and business of BB&T following
the consummation of proposed mergers, including statements relating to the cost
savings and revenue enhancements that are expected to be realized from these
mergers and the expected impact of the mergers on BB&T's financial performance.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) expected cost savings from proposed mergers cannot
be fully realized; (2) deposit attrition, customer loss or revenue loss
following proposed mergers are greater than expected; (3) competitive pressure
in the banking industry increases significantly; (4) costs or difficulties
related to the integration of the businesses of BB&T and its merger partners are
greater than expected; (5) changes in the interest rate environment reduce
margins; (6) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (7) changes occur in the regulatory environment; (8) changes
occur in business conditions and inflation; and (9) changes occur in the
securities markets. The forward-looking earnings estimates included in this
presentation have not been examined or compiled by the independent public
accountants of BB&T, nor have such accountants applied any procedures thereto.
Accordingly, such accountants do not express an opinion or any other form of
assurance on them.
2
OUTLINE
o Background and transaction terms
o Financial data
o Rationale and strategic objectives
o Investment criteria
o Summary
3
BB&T CORPORATION
(BBK)
o $33.4 billion bank holding company*
o 540 branch locations in NC, SC, VA, MD and the District of Columbia*
For Quarter
Ended 6/30/98
-------------
o ROA 1.56%
o Cash Basis ROA 1.63%
o ROE 20.23%
o Cash Basis ROE 23.29%
o Efficiency ratio 51.7 %
*Includes recently completed acquisitions of Life Bancorp, Inc. and Franklin
Bancorporation, Inc., and the pending acquisition of Maryland Federal Bancorp,
Inc.
4
MAINSTREET FINANCIAL CORP.
(MSBC)
o $2.0 billion bank holding company
o 46 banking offices in Virginia
o 3 banking offices in Maryland
o $728 million in Trust assets
For Quarter
Ended 6/30/98
-------------
o ROA 1.03%
o ROE 12.94%
o Efficiency ratio 57.6 %
5
Pro Forma Company Profile
June 30, 1998
o Size: $35.4 billion in assets
$10.0 billion in market capitalization1
o Offices2 NC: 350
SC: 92
VA: 109
DC: 6
MD: 32
-------------
Total: 589
1 Based on shares outstanding following the pending acquisition of Maryland
Federal Bancorp, Inc., which will be accounted for as a purchase, and BB&T's
8/25/98 closing price of $32.94.
2 Includes 28 branches from Maryland Federal Bancorp, Inc. pending acquisition.
6
TERMS OF THE TRANSACTION
o Purchase price: $38.87 per share*
o Aggregate value: $554.3 million* (INCLUDING OPTIONS)
o Consideration: Fixed exchange ratio of 1.18 BB&T
shares for each MainStreet share
o Structure: Tax-free exchange of stock equal to
100% of purchase price
o Accounting treatment: Transaction will be accounted for as
a pooling-of-interests
*Based on August 25, 1998 BB&T closing stock price of $32.94.
7
PRICING
o Purchase price $38.87
o Premium/market 52.42%
o Price/6-30-98 stated book 3.25x
o Price/First Call
1998 EPS estimate 24.0x
o BB&T shares issued (fixed exchange ratio of 1.18) 16.8 million*
o Lock-up provision Stock option agreement
*BB&T shares issued based on MSBC shares outstanding adjusted for stock options.
8
ACQUISITION COMPARABLES
Announced After 12/31/97
Deal Values over $250 Million
SELLER DATE DEAL DEAL PR/ DEAL PR/
BUYER SELLER ASSETS ANNOUNCED PR/BK TG BK 4-QTR EPS
- ------------------------------------------------------------------------------------------------------------
($000) (%) (%) (X)
City Holding Company Horizon Bancorp Inc. 1,043,327 08/07/98 360.9 378.8 29.4
Banknorth Group Evergreen Bancorp 1,048,307 07/31/98 351.3 352.0 26.9
SunTrust Banks, Inc Crestar Financial 26,161,173 07/20/98 427.2 469.7 28.3
First Commonwealth Southwest Natl Corp. 742,106 07/16/98 325.5 326.2 30.8
First American Corp Pioneer Bancshares 993,087 05/28/98 284.3 300.8 29.7
Old Kent Financial First Evergreen Corp 1,933,096 04/21/98 243.5 247.8 26.7
Star Banc Corp Trans Financial 2,115,011 04/09/98 433.8 461.9 27.9
Union Planters Corp Magna Group 7,074,969 02/22/98 299.2 391.6 27.8
First Security Corp California St Bk 849,232 02/19/98 324.4 402.2 31.3
Cullen/Frost Bankers Overton Bancshares 819,620 02/15/98 465.0 465.0 28.2
Regions Financial First Commercial 6,887,252 02/08/98 397.3 422.4 26.1
Mercantile Bancorp Firstbank of IL 2,170,047 02/02/98 289.5 325.7 22.7
Maximum 26,161,173 465.0 469.7 31.3
Minimum 742,106 243.5 247.8 22.7
AVERAGE 4,319,769 350.1 378.7 28.0
Median 1,490,702 338.4 385.2 28.1
BB&T Corp MainStreet Financial 2,014,648 325.2 346.1 27.4
Above / (Below) Average Comparables (2,305,121) (24.9) (32.6) (0.6)
Based on a Purchase Price of $38.87 per share and June 30, 1998
financials.
9
Financial Data
10
Financial Summary
For The Quarter Ended: 6/30/98 6/30/98
BB & T MSBC
------ ----
ROA 1.56% 1.03%
ROE 20.23 12.94
Net interest margin (FTE) 4.27 3.69
Efficiency ratio 51.7 57.6
Net charge-offs .28 .32
Reserve/NPLs 367.00 155.09
NPAs/assets .36 .52
11
Capital Strength
BB & T MSBC
(6/30/98) (6/30/98)
--------- ---------
Equity/assets 7.7% 7.7%
Leverage capital ratio 6.8% 9.2%
Total risk-based capital 16.0% 17.7%
12
Rationale
and
Strategic Objectives
13
Rationale for Acquisition
[ ]BB&T has an announced strategy to pursue in-market
(Carolinas/Virginia/Maryland/Metro DC) and contiguous state acquisitions of
high quality banks and thrifts in the $250 million to $10 billion range. The
acquisition of MainStreet is consistent with this strategy.
[ ]This acquisition is very consistent with past acquisitions which we have
successfully executed, i.e. it fits our model.
[ ]BB&T and MainStreet share similar cultures.
[ ]MainStreet's headquarters in Martinsville, Va. is only 60 miles from
BB&T's headquarters in Winston-Salem, NC.
[ ]MainStreet has built insurance, trust, and brokerage relationships with
their customer base which can be supported through BB&T's subsidiaries.
14
Strategic Objectives
o The key strategic objectives in this acquisition are:
- Improve efficiency
o Cost savings $15.4 million annually
- Improve margins
o Reduce MainStreet's overall funding costs
o Grow consumer and small business loans
- Grow fee income using BB&T's wider array of fee-based services
- Develop additional commercial relationships using BB&T's product
offerings
15
Efficiency Improvement
Targeted Annual Cost Savings
----------------------------
$15.4 million or approximately
30% of MSBC's expense base
16
Improve Margins
o Grow transaction accounts through added products & services
o Grow small business and consumer loans
o Reduce MSBC's overall funding costs
17
Grow Fee Income
BB & T MSBC
(6/30/98) (6/30/98)
--------- ---------
Fee income ratio 28.3% 18.9%
Goal to raise MSBC's fee income ratio by leveraging BB&T's sales
management system and broader product selection
18
One-Time Charges
One-time merger-related charges
-------------------------------
$12.5 million
19
Franchise Enhancement
o Great market
o Pro forma Virginia and Metro DC total assets will now exceed $7.4 billion
o Pro forma Virginia deposits will now exceed $3.4 billion
o Pro forma Metro DC deposits will now exceed $1.4 billion
o Pro forma Richmond deposits will now exceed $744 million
20
[Map appears here depicting branch locations for BB & T, MainStreet Financial,
and Maryland Federal]
21
Market Characteristics
Virginia
[Map appears here of a geographic location]
o 1998 unemployment rate - 3.6% (23% below national rate).
o 12th most populated state.
o Highest per capita income in the Southeast.
o Total employment is projected to expand 19.9% (1993 - 2005).
o High-tech economy: 2nd largest computer software and 3rd largest advanced
telecommunication industries.
o 76 major corporations with revenues of $200 million or more, including 16
Fortune 500 companies, are headquartered in Virginia.
o Since 1995, more than 600 companies chose Virginia as the location for
their new and expanding facilities -- announcing investments of $11.4
billion and the creation of 135,000 new jobs.
22
Market Characteristics
Strategic
[Map appears here of Metro DC, Lynchburg, and Richmond locations]
o With 5 million residents, the Metropolitan D.C. market is the 5th largest
metropolitan statistical area in the Nation.
o 12 Fortune 500 companies are headquartered in Metro DC.
o PLACES RATED ALMANAC'S 1997 edition selected Metro DC as the #4 metro area
in the country to live and the #1 place to start a career.
o DUN & BRADSTREET rates Richmond, Va. as the best mid-sized city in America
for small business in its 1998 survey.
o 8 Fortune 500 companies are headquartered in Richmond.
o MONEY MAGAZINE rates Lynchburg, Va. the 2nd best small city in the south
in its 1998 'Best Places to Live' survey.
o Since 1995, Lynchburg was ranked second in Virginia in total capital
investment with $209.5 million in new investments.
23
Investment Criteria
24
BB&T Investment Criteria
o Cash Basis EPS (accretive by year 2)
o Internal rate of return (15% or better)
o Cash Basis return on equity (accretive by year 3)
o Cash Basis return on assets (accretive by year 3)
o Book value per share (accretive by year 5)
o Must not cause combined leverage capital ratio to go below 7%
Criteria are listed in order of importance. There are sometimes trade-offs among
criteria.
25
Assumptions
o BB&T base EPS for 1998 $1.72 using First Call Estimates.
o $15.4 million cost savings (30% of MSBC's expense base).
o Fee income improvement - raise MSBC's fee income ratio from 18.9% for June
YTD 1998 to 23% for full-year 2003 by leveraging BB&T's sales management
system and expanded product offerings.
o Net interest income is increased annually to achieve a net interest margin
of 4.00% by year 2001.
o We have assumed earnings growth rates of 9%, except where indicated to
increase the fee income ratio and net interest margin.
26
Earnings Per Share Impact*
Accretion Accretion
(Dilution) Pro Forma (Dilution)
Pro Forma Pro Forma Cash Basis Pro Forma
EPS Shares EPS Shares
----------- ---------- ---------- ----------
Year 1 $ 1.94 $ 0.01 2.04 0.01
Year 2 2.12 0.03 2.23 0.02
Year 3 2.32 0.04 2.42 0.03
Year 4 2.54 0.04 2.64 0.04
Year 5 2.78 0.06 2.87 0.05
Year 6 3.03 0.06 3.11 0.06
Year 7 3.30 0.07 3.38 0.06
Year 8 3.60 0.07 3.68 0.07
Year 9 3.93 0.08 4.01 0.08
Year 10 4.29 0.09 4.36 0.08
Internal rate of return 16.02%
*Impact excludes one-time acquisition-related charges of $12.5 million.
27
ROE Impact*
Pro Forma
Pro Forma Cash Basis
ROE**(%) Change ROE**(%) Change
-------- ------ -------- ------
Year 1 20.12 (0.13) 24.02 (0.34)
Year 2 19.53 (0.03) 22.61 (0.19)
Year 3 18.98 0.01 21.45 (0.12)
Year 4 18.50 0.02 20.47 (0.08)
Year 5 18.07 0.04 19.65 (0.04)
* Impact excludes one-time acquisitions-related charges of $12.5 million.
** The decrease in ROE results from the build up in equity relative to assets.
28
ROA Impact*
Pro Forma
Pro Forma Cash Basis
ROA(%) Change ROA(%) Change
-------- ------ -------- ------
Year 1 1.54 .00 1.64 .00
Year 2 1.55 .01 1.64 .01
Year 3 1.56 .02 1.64 .01
Year 4 1.57 .02 1.64 .02
Year 5 1.57 .02 1.63 .02
*Impact excludes one-time acquisition-related charges of $12.5 million.
29
Book Value/Capital Impact*
Pro Forma
Book Value Per Share
-------------------- Pro Forma
Accretion Leverage Accretion
Stated (Dilution) Ratio (Dilution)
------ ---------- ----- ----------
Year 1 $ 10.22$ 0.14 7.35% .10
Year 2 11.53 0.17 7.77 .10
Year 3 12.95 0.20 8.15 .11
Year 4 14.51 0.25 8.51 .12
Year 5 16.23 0.30 8.83 .13
Year 6 18.12 0.36 9.12 .14
Year 7 20.20 0.43 9.40 .15
Year 8 22.51 0.50 9.67 .16
Year 9 25.06 0.58 9.92 .16
Year 10 27.89 0.67 10.17 .17
*Impact excludes one-time acquisition-related charges of $12.5 million.
30
Summary
31
Summary
o The acquisition of MainStreet Financial Corporation is a strong strategic
fit:
- It helps accomplish our goal of expanding the Virginia and
Metropolitan D.C. franchises
- It fits culturally and geographically
- This is the type of merger we have consistently successfully executed
o Overall Investment Criteria are met:
- Cash Basis EPS accretive in year 1
- EPS accretive in year 1
- IRR 16.02%
- ROE positive by year 3
- ROA and Cash Basis ROA positive in year 1
- Book value accretive in year 1
- Combined leverage ratio remains above 7%
- Accelerated dividend growth potential in year 1
32
Appendix
o MSBC historical data
o BB&T financial model
33
MainStreet Financial Corp
Financial Summary
June YTD
1995* 1996* 1997* 1998
-----------------------------------------------------------------------
Earnings Summary (In thousands)
Interest Income (FTE)
Interest on loans & leases $ 64,398 $ 73,737 $ 80,166 $ 44,835
Interest & dividends on securities 21,560 24,763 36,023 29,107
Interest on temporary investments 799 959 460 596
----------------- ------------------ ---------------- -----------------
Total interest income (FTE) 86,757 99,459 116,649 74,538
----------------- ------------------ ---------------- -----------------
Interest Expense
Interest expense on deposit accounts 34,489 35,219 37,870 21,683
Interest on short-term borrowings 3,461 6,402 16,373 7,324
Interest on long-term debt 454 3,154 4,536 11,284
----------------- ------------------ ---------------- -----------------
Total interest expense 38,404 44,775 58,779 40,291
----------------- ------------------ ---------------- -----------------
Net interest income (FTE) 48,353 54,684 57,870 34,247
Less taxable equivalency adjustment 1,343 1,258 1,224 917
----------------- ------------------ ---------------- -----------------
Net interest income 47,010 53,426 56,646 33,330
Provision for loan losses 1,725 3,451 4,011 2,163
----------------- ------------------ ---------------- -----------------
Net interest income after provision 45,285 49,975 52,635 31,167
----------------- ------------------ ---------------- -----------------
Noninterest Income
Service charges on deposit accounts 6,585 8,065 9,430 6,093
Non-deposit fees and commissions 2,441 2,942 3,370 1,880
G / (L) on sale of real estate & securities 43 610 926 145
Other operating income - - - -
----------------- ------------------ ---------------- -----------------
Total noninterest income 9,069 11,617 13,726 8,118
----------------- ------------------ ---------------- -----------------
Noninterest Expense
Personnel 18,201 20,150 22,294 13,266
Occupancy & equipment 5,576 5,825 5,810 3,356
FDIC premiums 1,062 22 121 61
Other operating expenses 9,451 11,257 12,727 7,776
----------------- ------------------ ---------------- -----------------
Total noninterest expense 34,290 37,254 40,952 24,459
----------------- ------------------ ---------------- -----------------
Net income before taxes 20,064 24,338 25,409 14,826
Income taxes 5,934 7,685 8,152 4,771
----------------- ------------------ ---------------- -----------------
Net income before nonrecurring charges 14,130 16,653 17,257 10,055
----------------- ------------------ ---------------- -----------------
Nonrecurring charges - - - -
================= ================== ================ =================
Net income $ 14,130 $ 16,653 $ 17,257 $ 10,055
================= ================== ================ =================
Basic EPS $ 1.26 $ 1.39 $ 1.44 $ 0.77
Diluted EPS 1.17 1.38 1.44 0.76
Diluted EPS before nonrecurring charges 1.17 1.38 1.44 0.76
Book value $ 9.13 $ 9.57 $ 10.72 $ 11.95
EOP shares 11,357 11,915 11,996 13,396
Basic shares 11,208 11,970 11,962 13,129
Diluted shares 12,323 12,033 12,001 13,173
* Not restated for pooling and purchase acquisitions completed in 1998.
34
MainStreet Financial Corp
Financial Summary
June YTD
1995 * 1996 * 1997 * 1998
------------------------------------------------------------------------
Average Balance Sheet
(In thousands)
Assets
Loans $ 667,035 $ 774,218 $ 855,535 $ 973,566
Securities 308,303 367,348 537,770 860,893
Other earning assets 14,117 17,671 7,907 11,739
----------------- ------------------ ---------------- ------------------
Total interest-earning assets 989,455 1,159,237 1,401,212 1,846,198
----------------- ------------------ ---------------- ------------------
Goodwill & other intangibles 1,062 - 690 9,651
Other assets 57,649 59,516 79,366 91,293
================= ================== ================ ==================
Total assets $ 1,048,166 $ 1,218,753 $ 1,481,268 $ 1,947,142
================= ================== ================ ==================
Net interest margin 4.89% 4.72% 4.13% 3.71%
Securities as a percent of earning assets 31% 32% 38% 47%
Liabilities & Shareholders' Equity
Interest-bearing deposits:
Money Market & NOW $ 181,851 $ 188,604 $ 194,569 $ 242,802
Savings 143,132 126,766 116,534 119,120
CD's and other time 438,078 471,878 520,366 595,309
----------------- ------------------ ---------------- ------------------
Total interest-bearing deposits 763,061 787,248 831,469 957,231
Short-term borrowed funds 64,625 127,234 297,314 271,258
Long-term debt 6,666 58,678 77,464 380,426
----------------- ------------------ ---------------- ------------------
Total interest-bearing liabilities 834,352 973,160 1,206,247 1,608,915
Demand deposits 117,038 126,410 139,026 169,210
Other liabilities 7,816 8,978 12,586 16,099
----------------- ------------------ ---------------- ------------------
Total liabilities 959,206 1,108,548 1,357,859 1,794,224
----------------- ------------------ ---------------- ------------------
Preferred equity - - - -
Common equity 88,960 110,205 123,409 152,918
----------------- ------------------ ---------------- ------------------
Total equity 88,960 110,205 123,409 152,918
----------------- ------------------ ---------------- ------------------
Total liabilities & shareholders' $ 1,048,166 $ 1,218,753 $ 1,481,268 $ 1,947,142
equity ================= ================== ================ ==================
Other int-liab. as a percent of total assets 7% 15% 25% 33%
* Not restated for pooling and purchase acquisitions completed in 1998.
35
MainStreet Financial Corp
Financial Summary
June YTD
1995 * 1996 * 1997 * 1998
------------------------------------------------------------------------
Ratio Analysis
ROA 1.35% 1.37% 1.17% 1.03%
ROCE 15.88% 15.11% 13.98% 13.15%
Efficiency ratio 59.8% 56.7% 57.9% 57.9%
Adj. noninterest income / Adj. revenues 15.7% 16.8% 18.1% 18.9%
Average equity / Average assets 8.5% 9.0% 8.3% 7.9%
Credit Quality
(In thousands)
Beginning $ 9,547 $ 9,605 $ 10,903 $ 12,3753
----------------- ------------------ ---------------- ------------------
Provision 1,725 3,451 4,011 2,163
Acquired allowance - - - 952
Net charge-offs (1,667) (2,153) (3,128) (1,369)
----------------- ------------------ ---------------- ------------------
Ending allowance $ 9,605 $ 10,903 $ 11,786 $ 14,121
----------------- ------------------ ---------------- ------------------
Allowance 1.43% 1.31% 1.34% 1.41%
Charge-off rate 0.25% 0.28% 0.37% 0.28%
Period end loans & leases $ 673,678 $ 829,979 $ 878,777 $ 1,001,568
Period end common equity $ 103,632 $ 114,069 $ 128,652 $ 160,105
* Not restated for pooling and purchase acquisitions completed in 1998.
36
MainStreet Financial Corp
Ticker MSBC
Recent price (Aug.25, 1998) $ 25.50
Offer price (per fully diluted share) 38.87
Premium 13.37
Percent Premium 52.42%
Estimated shares to be converted 14,261,743
Deal value $ 554,300,469
Current dividend per MSBC share $ 0.60
Post merger dividend 0.83
Increase 0.23
Percent Increase 37.67%
Book multiple (6/30/98) 3.25 x
Book multiple (6/30/98 tangible) 3.46 x
Earnings multiple (LTM) 27.37 x
Earnings multiple (1998 estimate) 23.96 x
BBK stock price (Aug. 21, 1998) $ 32.94
Exchange ratio 1.18 BBK shares for every 1 MSBC share
EPS Analysis Pooling
---------------------------------------------------------------------
Year one (dilution) accretion $ 0.01
Year two (dilution) accretion 0.03
Internal rate of return 16.02%
Net present value at 15% $ 39,329,747
37
Merger Evaluation Model
MainStreet Financial Corp
BB&T share price: $ 32.94
Purchase price: $ 554,300,469
POOLING ACCOUNTING
Earnings Analysis on Marginal Shares Earnings Analysis on Pro Forma Shares
------------------------------------- --------------------------------------------
BB&T Accretion Percent Accretion Percent
BB&T Base EPS on (Dilution) Accretion (Dilution) Accretion
Base Growth Marginal on Marginal (Dilution) on Pro Forma on Pro Forma (Dilution) on
Year EPS Percent Shares Shares Marginal Shares EPS Shares Pro Forma Shares
- ------------------- ------------------- -------- ----------- --------------- --------- ------------ ----------------
Pre-merger 1995 $ 1.15
Pre-merger 1996 1.36 19.1 %
Pre-merger 1997 1.48 8.3
Current year 1998 1.72 16.6 $ 1.92 $ 0.19 11.25% $ 1.73 $ 0.01 0.61 %
1 1999 1.92 11.6 2.19 0.27 13.90 1.94 0.01 0.76
2 2000 2.10 9.1 2.58 0.48 23.11 2.12 0.03 1.26
3 2001 2.29 9.1 2.95 0.66 28.79 2.32 0.04 1.56
4 2002 2.50 9.1 3.31 0.82 32.67 2.54 0.04 1.77
5 2003 2.72 9.1 3.74 1.02 37.38 2.78 0.06 2.03
6 2004 2.97 9.1 4.09 1.12 37.58 3.03 0.06 2.04
7 2005 3.24 9.1 4.46 1.22 37.72 3.30 0.07 2.05
8 2006 3.53 9.1 4.87 1.33 37.74 3.60 0.07 2.05
9 2007 3.85 9.1 5.31 1.45 37.76 3.93 0.08 2.05
10 2008 4.20 9.1 5.79 1.59 37.77 4.29 0.09 2.05
Cash Flow Analysis on Marginal Shares Cash Flow Analysis on Pro Forma Shares
------------------------------------- --------------------------------------------
BB&T BB&T Cash Flow Accretion Percent Cash Flow Accretion Percent
Base Base EPS on (Dilution) Accretion EPS on (Dilution) Accretion
Cash Flow Growth Marginal on Marginal (Dilution) on Pro Forma on Pro Forma (Dilution) on
Year EPS Percent Shares Shares Marginal Shares Shares Shares Pro Forma Shares Cash Flows
- ------------------- ------------------- -------- ----------- --------------- --------- ------------ ---------------- ----------
Pre-merger 1995 $1.16
Pre-merger 1996 1.40 20.7%
Pre-merger 1997 1.53 9.3 $(554,300)
Current year 1998 1.81 18.4 $ 1.96 $ 0.16 8.63% 1.81 $ 0.01 0.47% 33,027
1 1999 2.03 12.3 2.24 0.21 10.46 2.04 0.01 0.57 37,710
2 2000 2.20 8.5 2.63 0.43 19.54 2.23 0.02 1.06 44,301
3 2001 2.39 8.6 3.00 0.61 25.34 2.42 0.03 1.38 50,437
4 2002 2.60 8.6 3.35 0.76 29.13 2.64 0.04 1.58 56,447
5 2003 2.82 8.6 3.78 0.96 34.07 2.87 0.05 1.85 63,640
6 2004 3.05 8.2 4.12 1.07 35.10 3.11 0.06 1.91 69,374
7 2005 3.32 8.8 4.49 1.18 35.41 3.38 0.06 1.92 75,624
8 2006 3.61 8.8 4.90 1.29 35.61 3.68 0.07 1.93 82,437
9 2007 3.93 8.8 5.34 1.41 35.81 4.01 0.08 1.95 89,863
10 2008 4.28 8.9 5.82 1.54 35.99 4.36 0.08 1.96 97,957
1,665,264
|
|
Terminal
Value
Note - 1: One-time acquisition related charges of $12.5 million are excluded
from the figures above.
Note - 2: The calculation of Cash Flow has not been adjusted to include
depreciation expense. Depreciation is assumed to approximate the
capital investment needed each year to maintain the business.
Merger Evaluation Model
MainStreet Financial Corp
BB&T share price: $ 32.94
Purchase price: $ 554,300,469
POOLING ACCOUNTING
ROA Analysis Cash ROA Analysis
---------------------------------------------------- --------------------------------------------------
Target Only Pro Forma Target Only Pro Forma
--------------------- --------------------- -------------------- ---------------------
BB&T Target Pro Forma
BB&T Target BP Difference Pro Forma BP Change Cash Cash BP Difference Cash BP Change
Year ROA ROA in ROA ROA in ROA ROA ROA in ROA ROA in ROA
- ------------------- ----- ------ ------------- --------- --------- ---- ------ ------------- --------- ----------
Pre-merger 1995 1.29% 1.35% 1.33% 1.36%
Pre-merger 1996 1.48 1.37 1.53 1.37
Pre-merger 1997 1.52 1.17 1.57 1.17
Current year 1998 1.56 1.55 (0.02) 1.56% (0.00) 1.65 1.15 (0.51) 1.62% (0.03)
1 1999 1.54 1.60 0.06 1.54 0.00 1.64 1.64 0.00 1.64 0.00
2 2000 1.54 1.73 0.18 1.55 0.01 1.63 1.76 0.13 1.64 0.01
3 2001 1.55 1.80 0.25 1.56 0.02 1.63 1.83 0.21 1.64 0.01
4 2002 1.55 1.85 0.30 1.57 0.02 1.62 1.87 0.25 1.64 0.02
5 2003 1.55 1.90 0.35 1.57 0.02 1.62 1.93 0.31 1.63 0.02
6 2004 1.55 1.90 0.35 1.58 0.02 1.60 1.92 0.32 1.62 0.02
7 2005 1.56 1.89 0.34 1.58 0.02 1.60 1.91 0.31 1.62 0.02
8 2006 1.56 1.89 0.33 1.58 0.02 1.60 1.90 0.31 1.62 0.02
9 2007 1.56 1.88 0.32 1.58 0.02 1.60 1.90 0.30 1.61 0.02
10 2008 1.56 1.88 0.31 1.58 0.02 1.59 1.89 0.29 1.61 0.02
Note - 1: One-time acquisition related charges of $12.5 million are excluded
from the figures above.
Note - 2: The calculation of Cash Flow has not been adjusted to include
depreciation expense. Depreciation is assumed to approximate the
capital investment needed each year to maintain the business.
Merger Evaluation Model
MainStreet Financial Corp
BB&T share price: $ 32.94
Purchase price: $ 554,300,469
POOLING ACCOUNTING
ROE Analysis Cash ROE Analysis
---------------------------------------------------- --------------------------------------------------
Target Only Pro Forma Target Only Pro Forma
--------------------- --------------------- -------------------- ---------------------
BB&T Target Pro Forma
BB&T Target BP Difference Pro Forma BP Change Cash Cash BP Difference Cash BP Change
Year ROE ROE in ROE ROE in ROE ROE ROE in ROE ROE in ROE
- ------------------- ----- ------ ------------- --------- --------- ---- ------ ------------- --------- ----------
Pre-merger 1995 16.39% 15.88% 17.50% 16.16%
Pre-merger 1996 18.38 15.11 19.43 15.11
Pre-merger 1997 19.31 13.98 21.29 14.10
Current year 1998 20.60 19.29 (1.31) 20.51% (0.08) 24.19 15.09 (9.09) 23.58% (0.61)
1 1999 20.25 18.36 (1.90) 20.12 (0.13) 24.36 19.64 (4.72) 24.02 (0.34)
2 2000 19.56 19.07 (0.49) 19.53 (0.03) 22.81 20.15 (2.66) 22.61 (0.19)
3 2001 18.98 19.08 0.11 18.98 0.01 21.56 19.95 (1.61) 21.45 (0.12)
4 2002 18.48 18.78 0.30 18.50 0.02 20.55 19.44 (1.11) 20.47 (0.08)
5 2003 18.03 18.58 0.54 18.07 0.04 19.69 19.10 (0.59) 19.65 (0.04)
6 2004 17.63 17.80 0.17 17.65 0.01 18.89 18.20 (0.69) 18.84 (0.05)
7 2005 17.26 17.13 (0.13) 17.25 (0.01) 18.28 17.43 (0.85) 18.21 (0.06)
8 2006 16.91 16.52 (0.38) 16.88 (0.03) 17.74 16.76 (0.98) 17.67 (0.07)
9 2007 16.57 15.99 (0.58) 16.53 (0.04) 17.26 16.18 (1.07) 17.17 (0.08)
10 2008 16.25 15.51 (0.74) 16.20 (0.06) 16.81 15.66 (1.14) 16.72 (0.09)
Note - 1: One-time acquisition related charges of $12.5 million are excluded
from the figures above.
Note - 2: The calculation of Cash Flow has not been adjusted to include
depreciation expense. Depreciation is assumed to approximate the
capital investment needed each year to maintain the business.
Merger Evaluation Model
MainStreet Financial Corp
BB&T share price: $ 32.94
Purchase price: $ 554,300,469
POOLING ACCOUNTING
Stated Book Value Analysis
-------------------------------------------------------------------------------------
On Marginal Shares On Pro Forma Shares
------------------------------------ -----------------------------------
BB&T Stated Stated Percent Stated Stated Percent
Stated Book Value BV Accretion Accretion Book Value BV Accretion Accretion
Year Book Value Per Share (Dilution) (Dilution) Per Share (Dilution) (Dilution)
- ----------------- ---------- ---------- ------------ ---------- ---------- ------------ ---------
Pre-merger 1995 $ 7.52
Pre-merger 1996 7.91
Pre-merger 1997 8.22
Current year 1998 8.90 $11.20 $ 2.31 25.9% $ 9.02 $0.13 1.4%
1 1999 10.08 12.65 2.57 25.5 10.22 0.14 1.4
2 2000 11.36 14.42 3.06 26.9 11.53 0.17 1.5
3 2001 12.75 16.46 3.71 29.1 12.95 0.20 1.6
4 2002 14.26 18.79 4.53 31.8 14.51 0.25 1.7
5 2003 15.93 21.47 5.55 34.8 16.23 0.30 1.9
6 2004 17.76 24.42 6.66 37.5 18.12 0.36 2.0
7 2005 19.77 27.66 7.89 39.9 20.20 0.43 2.2
8 2006 22.01 31.22 9.22 41.9 22.51 0.50 2.3
9 2007 24.48 35.15 10.67 43.6 25.06 0.58 2.4
10 2008 27.22 39.48 12.26 45.0 27.89 0.67 2.4
Tangible Book Value Analysis
-------------------------------------------------------------------------------------
On Marginal Shares On Pro Forma Shares
------------------------------------ -----------------------------------
BB&T Tangible Tangible Percent Tangible Tangible Percent
Tangible Book Value BV Accretion Accretion Book Value BV Accretion Accretion
Year Book Value Per Share (Dilution) (Dilution) Per Share (Dilution) (Dilution)
- ----------------- ---------- ---------- ------------ ---------- ---------- ------------ ---------
Pre-merger 1995 $ 7.28
Pre-merger 1996 7.60
Pre-merger 1997 7.44
Current year 1998 7.68 $10.66 $ 2.98 38.8% $ 7.84 $0.16 2.1%
1 1999 8.97 12.16 3.19 35.6 9.14 0.17 1.9
2 2000 10.34 13.97 3.63 35.1 10.54 0.20 1.9
3 2001 11.83 16.07 4.24 35.8 12.06 0.23 1.9
4 2002 13.45 18.44 5.00 37.2 13.72 0.27 2.0
5 2003 15.20 21.16 5.96 39.2 15.53 0.32 2.1
6 2004 17.11 24.15 7.04 41.1 17.49 0.38 2.2
7 2005 19.20 27.42 8.22 42.8 19.65 0.45 2.3
8 2006 21.51 31.02 9.51 44.2 22.03 0.52 2.4
9 2007 24.06 34.98 10.92 45.4 24.65 0.59 2.5
10 2008 26.88 39.34 12.46 46.4 27.55 0.68 2.5
Note - 1: One-time acquisition related charges of $12.5 million are excluded
from the figures above.
Merger Evaluation Model
MainStreet Financial Corp
BB&T share price: $ 32.94
Purchase price: $ 554,300,469
POOLING ACCOUNTING
Stated Book Equity Capital Analysis Leverage Capital Analysis Dividend Analysis
-------------------------------------------- ----------------------------- --------------------------------------
BB&T Pro Forma BP Change BB&T Pro Forma BP Change BB&T Dividends Dividends
Stated Stated Stated Leverage Leverage Leverage Dividend on Marginal Paid/Acquiree
Year Equity/Assets Equity/Assets Equity/Assets Ratio Ratio Ratio Per Share Shares (000) Net Income
- ----------------- -------------- ------------- ------------- ----- ----- ----- --------- ------------ ------------
Pre-merger 1995 7.86% 7.81% $0.43
Pre-merger 1996 8.07 8.11 0.50
Pre-merger 1997 7.86 7.58 0.58
Current year 1998 7.59 7.62% 0.03 6.99 7.09% 0.10 0.66 $11,107 34.3%
1 1999 7.60 7.67 0.07 7.25 7.35 0.10 0.74 12,453 33.8
2 2000 7.89 7.96 0.07 7.67 7.77 0.10 0.82 13,800 31.8
3 2001 8.15 8.23 0.08 8.05 8.15 0.11 0.90 15,146 30.5
4 2002 8.39 8.47 0.09 8.39 8.51 0.12 0.98 16,492 29.6
5 2003 8.61 8.71 0.10 8.70 8.83 0.13 1.06 17,839 28.3
6 2004 8.82 8.93 0.11 8.99 9.12 0.14 1.14 19,185 27.9
7 2005 9.02 9.14 0.12 9.25 9.40 0.15 1.22 20,531 27.4
8 2006 9.22 9.35 0.14 9.51 9.67 0.16 1.30 21,878 26.7
9 2007 9.41 9.56 0.15 9.76 9.92 0.16 1.38 23,224 26.0
10 2008 9.61 9.76 0.15 10.00 10.17 0.17 1.46 24,570 25.2
Note - 1: One-time acquisition related charges of $12.5 million are excluded
from the figures above.