[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
PRESENTATION TO
DARLINGTON COUNTY BANCSHARES, INC.
JULY 12, 2004
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
1. AGENDA
2. TRADING MARKET
3. VALUATION ANALYSIS
4. PRO FORMA ANALYSIS
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
TRIANGLE CAPITAL PARTNERS
- --------------------------------------------------------------------------------
TRIANGLE CAPITAL PARTNERS,
LLC 3600 GLENWOOD
AVENUE, SUITE 104
RALEIGH, NC 27612
FAX: (919) 719-4777
WWW.TRIANGLECAPITALPARTNERS.COM
FINANCIAL INSTITUTIONS
John Schramm Bill Wagner Mike Patterson
Managing Director Managing Director Managing Director
Phone:(919)719-4783 Phone: (919) 719-4782 Phone:(919) 719-4786
jschramm@trianglecapitalpartners.com wwagner@trianglecapitalpartners.com mpatterson@trianglecapitalpartners.com
PRIVATE EQUITY
Garland Tucker Tarlton Long David Parker
Managing Director Managing Director Managing Director
Phone: (919) 719-4779 Phone: (919) 719-4780 Phone: (919) 719-4781
gtucker@trianglecapitalpartners.com tlong@trianglecapitalpartners.com dparker@trianglecapitalpartners.com
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
- --------------------------------------------------------------------------------
1. AGENDA
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
AGENDA FOR MEETING
- --------------------------------------------------------------------------------
- Review progress to date
- Review current trading market conditions for bank stocks
- Review valuation methodologies for determining range of fair value of
Darlington County Bancshares' common stock
- Review the pro-forma financial impact of alternative cash-out merger
or reverse stock split scenarios
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
1
PROGRESS TO DATE
- --------------------------------------------------------------------------------
At the May 10, 2004 board meeting, Triangle Capital Partners reviewed the
pros and cons of going private and the alternative methods available
to go private:
- Odd lot tender offer
- Tender offer
- Stock repurchase
- Reverse stock split
- Cash-out merger
- At the same meeting, the board also reviewed various strategic
alternatives:
- Internal growth/de-novo branching
- Acquisition of another bank
- Acquisition of a bank branch
- Sale of the company
- Triangle Capital Partners was asked to prepare an analysis of the
range of fair value of Darlington County Bancshares' common stock and
a pro-forma impact of both a reverse stock split and a cash-out merger
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
2
CASH OUT MERGER VS. REVERSE STOCK SPLIT
- --------------------------------------------------------------------------------
Both are legal techniques designed to reduce the number of shareholders
below a certain "threshold level"
- Both require shareholder approval
- Reverse stock splits eliminate all fractional shares created
- Typically followed by a forward stock split to return
shareholders to as close as possible to their pre-split holdings
- Cash out mergers only eliminate shareholders with less than the
threshold amount and allow shareholders to own all shares in excess of
the threshold amount
- Example
- 100:1 cash out merger / reverse stock split followed by forward
1:100 stock split
- $31.00 price/share
- Shareholder A owns 10 shares
- Reverse stock split - receives $310.00 cash and no shares
- Cash-out merger - receives $310.00 cash and no shares
- Shareholder B owns 110 shares
- Reverse stock split - receives 100 shares plus $310.00 cash
- Cash out merger - keeps 110 shares and receives no cash
(position unchanged)
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
3
- --------------------------------------------------------------------------------
2. TRADING MARKET
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
TRADING MARKET CONDITIONS
- --------------------------------------------------------------------------------
BANKS
ALL U.S. SOUTHEAST <$100MM
BANKS BANKS ASSETS
- ----------------------------------------------------------------
PRICING RATIOS 898 BANKS 197 BANKS 70 BANKS
--------------
PRICE/BOOK VALUE % 181% 174% 135%
PRICE/TANGIBLE BV % 196% 189% 135%
PRICE/LTM EARNINGS X 17.1X 16.6X 20.7X
PRICE/LTM CORE EARNINGS X 17.5X 17.5X 22.6X
PRICE/2004E EARNINGS X 15.4X 15.0X NA
DIVIDEND YIELD % 2.3% 2.3% 2.4%
MARKET VALUE ($MIL) $78 $63 $11
COMPANY FINANCIALS
------------------
TOTAL ASSETS ($MIL) $408 $367 $78
TANGIBLE EQUITY/ASSETS % 8.3% 8.2% 11.0%
NPAS/ASSETS % 0.41% 0.43% 0.06%
ROA % 1.02% 1.00% 0.61%
ROE % 11.7% 11.1% 5.5%
EFFICIENCY RATIO % 65% 64% 79%
- ----------------------------------------------------------------
*MEDIAN RATIOS FOR PUBLICLY TRADED BANKS
SOURCE: SNL FINANCIAL, LC AS OF 07/02/2004
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
1
TRADING MARKET CONDITIONS BY ASSET SIZE
- --------------------------------------------------------------------------------
PRICE / LTM REPORTED EARNINGS PRICE / LTM CORE EARNINGS
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
PRICE / BOOK VALUE PRICE / TANGIBLE BOOK VALUE
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Pricing based on medians as of 07/02/2004.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
2
- --------------------------------------------------------------------------------
3. VALUATION ANALYSIS
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
METHODOLOGIES
- --------------------------------------------------------------------------------
- To establish a range of fair value for the common stock of Darlington
County Bancshares, Triangle Capital Partners utilized three valuation
methodologies:
- Comparison to market multiples of selected peer groups
- Merger premium analysis
- Discounted dividend analysis
- Triangle Capital Partners reconciled the results of these analyses to
establish a range of fair values for Darlington County Bancshares
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
1
PEER GROUP SELECTION
- --------------------------------------------------------------------------------
- To help establish the range of fair value for common stock of
Darlington County Bancshares, Triangle Capital Partners selected the
following peer groups:
- All publicly traded banks nationwide as identified by SNL
Securities
- All Southeast banks
- All banks nationwide with assets less than $100 million
- A selected group of peer banks
- The following pricing ratios for each peer group were reviewed:
- Price / book value
- Price / tangible book value
- Price / earnings - reported last twelve months
- Price / earnings - core last twelve months
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
2
TRADING MARKET CONDITIONS
- --------------------------------------------------------------------------------
BANKS
ALL U.S. SOUTHEAST <$100MM
BANKS BANKS ASSETS
- ----------------------------------------------------------------
PRICING RATIOS 898 BANKS 197 BANKS 70 BANKS
--------------
PRICE/BOOK VALUE % 181% 174% 135%
PRICE/TANGIBLE BV % 196% 189% 135%
PRICE/LTM EARNINGS X 17.1X 16.6X 20.7X
PRICE/LTM CORE EARNINGS X 17.5X 17.5X 22.6X
PRICE/2004E EARNINGS X 15.4X 15.0X NA
DIVIDEND YIELD % 2.3% 2.3% 2.4%
MARKET VALUE ($MIL) $78 $63 $11
COMPANY FINANCIALS
------------------
TOTAL ASSETS ($MIL) $408 $367 $78
TANGIBLE EQUITY/ASSETS % 8.3% 8.2% 11.0%
NPAS/ASSETS % 0.41% 0.43% 0.06%
ROA % 1.02% 1.00% 0.61%
ROE % 11.7% 11.1% 5.5%
EFFICIENCY RATIO % 65% 64% 79%
- ----------------------------------------------------------------
*MEDIAN RATIOS FOR PUBLICLY TRADED BANKS
SOURCE: SNL FINANCIAL, LC AS OF 07/02/2004
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
3
TRADING COMP GROUP SELECTION
- --------------------------------------------------------------------------------
- Searched all banks and thrifts east of the Mississippi under $70MM in
assets and identified by SNL Financial, LC as "Public" companies. We
limited our search to companies east of the Mississippi.
- Search found 34 companies
- Removed all companies without pricing information or that reported a
loss for the last twelve month period
- Group culled to 9 companies
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
4
COMPARABLE PUBLICLY TRADED COMPANIES
- --------------------------------------------------------------------------------------------------------------------------
COMPANY TRADING MARKET PRICING MULTIPLES
- ----------------------------------------------------------- ----------------------- ------------------------------------
PRICE TO
EARNINGS RATIOS
AVG ------------------ PRICE/
TOTAL CLSG DAILY MKT. LTM PRICE/ TANG.
BANK/ ASSETS PRICE VOL. CAP. ------------------ BOOK BOOK
STATE/COMPANY ST SYMBOL THRIFT ($MIL) $ (000S) ($MIL) REP CORE % %
=========================================================== ======================= ====================================
PEER COMPANIES AS OF 07/02/2004
- -------------------------------
Citizens NB of Meyersdale PA CZNS B 56 159.00 - 8 20.2 20.4 105 105
CommerceFirst Bancorp Inc. MD CMFB B 56 9.45 - 8 NM NM 133 133
Globe Bancorp Inc. LA GLBP T 31 16.25 - 4 29.6 29.6 80 80
Home Building Bancorp IN HBBI T 53 24.00 - 6 17.0 17.0 91 91
Home Financial Bancorp IN HWEN T 60 6.29 1 9 25.2 18.6 121 121
People's Bank of Commerce OR PBCO B 56 16.60 - 12 13.1 13.5 140 140
SFB Bancorp Inc. TN SFBK T 58 22.50 - 12 16.4 16.4 102 102
Sistersville Bancorp Inc. WV SVBC T 47 19.25 - 8 8.8 21.7 91 91
WebFinancial Corp. NY WEFN B 26 2.50 7 11 6.4 7.8 81 90
HIGH 9 60 7 12 29.6 29.6 140 140
MEDIAN 9 56 4 8 16.7 17.8 102 102
LOW 9 26 1 4 6.4 7.8 80 80
FINANCIAL RATIOS
----------------------------------------
DIVID. LTM LTM EFFIC. TANG. NPAS/
YIELD ROAA ROAE RATIO CAPITAL ASSETS
STATE/COMPANY % % % % % %
========================== ======= ========================================
PEER COMPANIES AS OF 07/0
- --------------------------
Citizens NB of Meyersdale 1.8 0.75 5.2 73 14.1 0.86
CommerceFirst Bancorp Inc. - 0.39 3.4 81 10.5 0.49
Globe Bancorp Inc. 2.2 0.43 2.5 78 17.8 -
Home Building Bancorp 1.8 0.75 5.8 65 13.0 0.55
Home Financial Bancorp 1.9 0.54 4.8 76 11.8 2.57
People's Bank of Commerce - 1.72 11.2 70 14.8 NA
SFB Bancorp Inc. 0.9 1.37 6.1 53 NA NA
Sistersville Bancorp Inc. 2.6 1.91 10.5 71 17.6 0.21
WebFinancial Corp. - NM 13.4 78 50.2 NA
HIGH 2.6 1.91 13.4 81 50.2 2.57
MEDIAN 1.9 0.75 5.8 73 14.5 0.55
LOW 0.9 0.39 2.5 53 10.5 0.21
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
5
FINANCIAL COMPARISON
- --------------------------------------------------------------------------------
BANKS
DARLINGTON PEER <$100MM
CO. GROUP ASSETS
- -------------------------------------------------------------------
BALANCE SHEETS RATIOS 9 Banks 70 Banks
---------------------
Total Assets ($MM) $37 $55 $78
Net Loans / Assets 53.0% 62.9% 64.7%
Deposits / Assets 89.1% 75.0% 86.4%
Borrowings / Assets 0.0% 5.8% 0.0%
GAAP Tangible Equity 10.5% 14.5% 11.0%
/ Assets
Profitability Ratios
--------------------
Interest Rate Spread 4.11% 3.83% 3.92%
Interest Rate Margin 4.42% 4.22% 4.43%
Efficiency Ratio 69.4% 73.0% 78.7%
ROA 0.83% 0.75% 0.61%
ROE 7.4% 5.8% 5.5%
Reserves & Asset Quality
------------------------
LLR / Loans 1.13% .89% 1.21%
NPL's / Loan 0.30% .76% 0.03%
NPA's / Assets 0.16% .52% 0.06%
LLR / NPA's 383.1% NM NM
Other
-----
Insider Ownership 14.3% 29.5% 32.7%
Institutional Ownership NA 3.7% 1.6%
Deposits / Branch ($MM) $33 $39 $36
- -------------------------------------------------------------------
*Median ratios for publicly traded banks (LTM 3/31/2004)
Source: SNL Financial, LC as of 07/02/2004
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
6
Pricing Implied by National Peer Group Medians
- --------------------------------------------------------------------------------
PRICE / LTM REPORTED EARNINGS PRICE / LTM CORE EARNINGS
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
PRICE / BOOK VALUE PRICE / TANGIBLE BOOK VALUE
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Pricing based on medians as of 07/02/2004.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
7
SELECTED PEER GROUP PRICING
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
P/E LTM Rep P/E LTM Core Price/Book Price/Tang. Book
- ---------------------------------------------------------------
High 29.6 29.6 140% 140%
Median 16.7 17.8 102% 102%
Low 6.4 7.8 80% 80%
- ---------------------------------------------------------------
Pricing for Darlington Co. implied by ratios of
similar companies. Medians boxed.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
8
TRADING MARKET CONCLUSIONS
- --------------------------------------------------------------------------------
- Most publicly traded banks are much larger that Darlington County
- The availability and quality of trading data diminishes significantly
for small banks
- Market data clearly indicates that smaller banks trade at lower price
to book value and tangible book value ratios than larger banks while
trading slightly higher in terms of price to earnings ratios
- Based on a review the trading data, Triangle Capital Partners selected
the following pricing ratios to apply to Darlington County Bancshares:
- -------------------------------------------------------------------------------------------
SELECTED PRICING RATIOS
DARLINGTON ---------------------------
CO. LOW HIGH INDICATED PRICE RANGE
- -------------------------------------------------------------------------------------------
PRICE/BOOK VALUE $ 24.74 105% 125% $ 25.98 $ 30.93
PRICE/TANGIBLE BV $ 24.74 105% 125% $ 25.98 $ 30.93
PRICE/LTM EARNINGS $ 1.84 14X 18X $ 25.76 $ 33.12
PRICE/LTM CORE EARNINGS $ 1.84 15X 19X $ 27.60 $ 34.96
- -------------------------------------------------------------------------------------------
- RANGE IMPLIED BY TRADING MARKET ANALYSIS - $26.00 - $31.00
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
9
MERGER PREMIUM ANALYSIS
- --------------------------------------------------------------------------------
- Shareholders of publicly traded banks typically receive a premium over
the trading price upon the announcement of a merger
- Premiums vary over time and by the size of the target company
- By studying the merger premiums received, a range of expected premiums
can be established for Darlington County Bancshares
- By estimating a range of acquisition values for Darlington County
Bancshares and reducing it by the expected range of merger premiums, a
range of trading values can be established
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
10
MERGER MARKET CONDITIONS
- --------------------------------------------------------------------------------
ALL U.S. SOUTHEAST BANKS < $70MM
BANKS BANKS ASSETS
- ----------------------------------------------------------------------
PRICING RATIOS 375 DEALS 54 DEALS 114 DEALS
--------------
PRICE/BOOK VALUE % 208% 230% 161%
PRICE/TANGIBLE BV % 219% 231% 163%
PRICE/LTM EARNINGS X 20.3X 22.3X 18.7X
PRICE/LTM CORE EARNINGS X 23.0X 23.3X NA
PRICE/ESTIMATED EARNINGS X 18.5X 18.4X NA
PREMIUM TO TANG BV/
CORE DEPOSITS % 13.9% 15.8% 8.0%
MARKET PRICE PREMIUM % 31 26 NM
DEAL VALUE ($MIL) $26.0 $31.6 $6.0
COMPANY FINANCIALS
------------------
TOTAL ASSETS ($MIL) $122 $159 $37
TANGIBLE EQUITY/ASSETS % 8.4% 8.5% 9.6%
NPAS/ASSETS % 0.39% 0.41% 0.42%
ROA % 0.86% 0.90% 0.67%
ROE % 9.6% 10.4% 5.8%
EFFICIENCY RATIO % 69% 65% 81%
*Median ratios for bank mergers and acquisitions announced in the last two years
Source: SNL Financial, LC as of 07/02/2004
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
11
HISTORICAL BANK M&A PRICING
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] Price/ Tang. Book
[GRAPHIC OMITTED] Price/ LTM Reported Earnings
[GRAPHIC OMITTED]
YTD as of 07/02/2004.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
12
ANALYSIS OF DEALS UNDER $70MM IN ASSETS
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------
1ST QUARTILE MEDIAN 3RD QUARTILE
Price / Book Value 135% 161% 190%
Price / Tangible Book Value 138% 163% 190%
Price / LTM Reported EPS 15.1x 19.3x 25.8x
Premium to Tangible Book Value 5.0% 8.0% 11.8%
/ Core Deposits
- ---------------------------------------------------------------------
IMPLIED PRICING FOR DARLINGTON CO.
- ---------------------------------------------------------------------
Price / Book Value $33.31 $39.77 $46.90
Price / Tangible Book Value $34.12 $40.35 $46.89
Price / LTM Reported EPS $27.77 $35.46 $47.50
Premium to Tangible Book Value $35.03 $41.06 $48.97
/ Core Deposits
- ---------------------------------------------------------------------
MEDIAN $33.72 $40.06 $47.20
INDICATED ACQUISITION RANGE $34.00 $47.00
- ---------------------------------------------------------------------
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
13
PREMIUM STUDY
- --------------------------------------------------------------------------------
LAST 90 DAYS LAST 12 MONTHS LAST 24 MONTHS
----------------- ----------------- -----------------
DEALS PREMIUM DEALS PREMIUM DEALS PREMIUM
# % # % # %
- --------------------------------------------------------------------------------
Banks < $50mm 0 NA 0 NA 1 NM
Banks $50 <$100mm 1 19 5 39 7 39
Banks$100 < $250mm 4 34 15 36 22 37
Banks $250 < $500 mm 2 46 8 46 15 39
Banks $500 mm < $1b 1 38 8 15 14 22
Banks $1b <$5b 2 24 14 19 19 20
Banks $5b < $10b 0 NA 1 13 1 13
Banks $10b < $25b 1 19 2 17 3 19
Banks $25b < $50b 1 25 2 12 2 12
Banks $50b + 1 20 3 20 3 20
- --------------------------------------------------------------------------------
High 46 46 39
Median 24 19 20
Low 19 12 12
This study included all deals announced as reported by SNL
Financial, LC from 7/22/2002 to 7/2/2004 for which trading
premium data was available.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
14
MERGER PREMIUM ANALYSIS CONCLUSIONS
- --------------------------------------------------------------------------------
- Merger premium data for smaller banks is limited as few are publicly
traded
- Smaller banks tend to sell for lower price to book value and tangible
book value ratios than larger Banks and higher ratios based on
earnings
- Merger premiums vary over time and based on the size of the selling
bank, with smaller banks typically receiving a larger premium over
their trading price
- Based on a review of the data, Triangle Capital Partners has selected
the following applicable valuation ratios:
- Applicable merger premium 30%-40%
- Applicable merger valuation range $34.00 to $47.00 per share
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
15
MERGER PREMIUM SENSITIVITY ANALYSIS
- -----------------------------------------------------------------------------------------------
Merger Consideration / (% of Book Value)
--------------------------------------------------------------------------------------
$25.00 $28.00 $31.00 $34.00 $37.00 $40.00 $43.00 $47.00 $51.00 $55.00 $59.00
Premium 101% 113% 125% 137% 150% 162% 174% 190% 206% 222% 238%
- -----------------------------------------------------------------------------------------------
5% $23.81 $26.67 $29.52 $32.38 $35.24 $38.10 $40.95 $44.76 $48.57 $52.38 $56.19
10% $22.73 $25.45 $28.18 $30.91 $33.64 $36.36 $39.09 $42.73 $46.36 $50.00 $53.64
15% $21.74 $24.35 $26.96 $29.57 $32.17 $34.78 $37.39 $40.87 $44.35 $47.83 $51.30
20% $20.83 $23.33 $25.83 $28.33 $30.83 $33.33 $35.83 $39.17 $42.50 $45.83 $49.17
25% $20.00 $22.40 $24.80 $27.20 $29.60 $32.00 $34.40 $37.60 $40.80 $44.00 $47.20
- -----------------------------------------------------------------------------------------------
30% $19.23 $21.54 $23.85 $26.15 $28.46 $30.77 $33.08 $36.15 $39.23 $42.31 $45.38
35% $18.52 $20.74 $22.96 $25.19 $27.41 $29.63 $31.85 $34.81 $37.78 $40.74 $43.70
40% $17.86 $20.00 $22.14 $24.29 $26.43 $28.57 $30.71 $33.57 $36.43 $39.29 $42.14
- -----------------------------------------------------------------------------------------------
45% $17.24 $19.31 $21.38 $23.45 $25.52 $27.59 $29.66 $32.41 $35.17 $37.93 $40.69
50% $16.67 $18.67 $20.67 $22.67 $24.67 $26.67 $28.67 $31.33 $34.00 $36.67 $39.33
55% $16.13 $18.06 $20.00 $21.94 $23.87 $25.81 $27.74 $30.32 $32.90 $35.48 $38.06
60% $15.63 $17.50 $19.38 $21.25 $23.13 $25.00 $26.88 $29.38 $31.88 $34.38 $36.88
- -----------------------------------------------------------------------------------------------
- Range implied by merger premium analysis - $24.00 - $36.00
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
16
DIVIDEND DISCOUNT ANALYSIS
- --------------------------------------------------------------------------------
- A range of fair value for a common stock can be determined based on
the present value of the expected future dividends to be received
- To determine the present value of future dividends, the following
assumptions need to be made:
- Expected future growth rate of earnings
- Expected future dividend payout ratio
- Required rate of return of shareholders
- Based on the above assumptions, the expected future dividends can be
discounted to present value.
- For example, a shareholder who requires a 12% return would be
willing to pay $25.00 for a stock that earns $2.00 and pays a
$1.00 dividend (50% dividend payout ratio) which is expected to
grow 8% annually
- Darlington County Bancshares - Assumptions
- Earnings growth rate 5%-8%
- Dividend payout ratio 54%
- Required rate of return 11 %-13%
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
17
DIVIDEND DISCOUNT ANALYSIS
- --------------------------------------------------------------------------------
IMPLIED VALUE PER SHARE (1)
DISCOUNT GROWTH RATE
RATE 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
-----------------------------------------------------------------------
10.0% $15.63 $18.23 $21.88 $27.35 $36.46 $54.69 $109.38 NA
10.5% $14.58 $16.83 $19.89 $24.31 $31.25 $43.75 $ 72.92 $218.77
11.0% $13.67 $15.63 $18.23 $21.88 $27.35 $36.46 $ 54.69 $109.38
11.5% $12.87 $14.58 $16.83 $19.89 $24.31 $31.25 $ 43.75 $72.92
12.0% $12.15 $13.67 $15.63 $18.23 $21.88 $27.35 $ 36.46 $54.69
12.5% $11.51 $12.87 $14.58 $16.83 $19.89 $24.31 $ 31.25 $43.75
13.0% $10.94 $12.15 $13.67 $15.63 $18.23 $21.88 $ 27.35 $36.46
13.5% $10.42 $11.51 $12.87 $14.58 $16.83 $19.89 $ 24.31 $31.25
14.0% $ 9.94 $10.94 $12.15 $13.67 $15.63 $18.23 $ 21.88 $27.35
14.5% $ 9.51 $10.42 $11.51 $12.87 $14.58 $16.83 $ 19.89 $24.31
15.0% $ 9.12 $ 9.94 $10.94 $12.15 $13.67 $15.63 $ 18.23 $21.88
-----------------------------------------------------------------------
Implied P/E Multiples
DISCOUNT Growth Rate
RATE 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
------------------------------------------------------------
10.0% 7.8x 9.1x 10.9x 13.6x 18.1x 27.2x NA NA
10.5% 7.2x 8.4x 9.9x 12.1x 15.5x 21.7x 36.2x NA
11.0% 6.8x 7.8x 9.1x 10.9x 13.6x 18.1x 27.2x 54.3x
11.5% 6.4x 7.2x 8.4x 9.9x 12.1x 15.5x 21.7x 36.2x
12.0% 6.0x 6.8x 7.8x 9.1x 10.9x 13.6x 18.1x 27.2x
12.5% 5.7x 6.4x 7.2x 8.4x 9.9x 12.1x 15.5x 21.7x
13.0% 5.4x 6.0x 6.8x 7.8x 9.1x 10.9x 13.6x 18.1x
13.5% 5.2x 5.7x 6.4x 7.2x 8.4x 9.9x 12.1x 15.5x
14.0% 4.9x 5.4x 6.0x 6.8x 7.8x 9.1x 10.9x 13.6x
14.5% 4.7x 5.2x 5.7x 6.4x 7.2x 8.4x 9.9x 12.1x
15.0% 4.5x 4.9x 5.4x 6.0x 6.8x 7.8x 9.1x 10.9x
------------------------------------------------------------
(1) Based on a payout ratio of 54% for the twelve month
period from 3/30/2004 to 3/30/2005.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
18
DIVIDEND DISCOUNT CONCLUSIONS
- --------------------------------------------------------------------------------
- The dividend discount model typically yields the widest range of
values given the number of assumptions necessary
- The dividend discount model does not work well for high-growth,
low-dividend companies or for low-growth, over-capitalized companies
- RANGE IMPLIED BY DIVIDEND DISCOUNT ANALYSIS - $14.00 TO $36.00
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
19
RECONCILIATION OF VALUATION METHODOLOGIES
- --------------------------------------------------------------------------------
- --------------------------------------------------
PRICE RANGE INDICATED BY LOW HIGH
- --------------------------------------------------
Trading market analysis $26.00 $31.00
Merger premium analysis $24.00 $36.00
Dividend discount analysis $14.00 $36.00
- --------------------------------------------------
Final range of fair value selected $26.00 $31.00
- --------------------------------------------------
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
20
SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
- -------------------------------------------------------------
PRICE TOTAL PRICE/ PRICE/ PRICE/ PRICE/ PRICE/
PER VALUE BOOK TANGIBLE LTM LTM MRQ
SHARE ($MIL) VALUE BOOK EPS CORE EPS EPS
$22.00 $ 3.5 89% 89% 12.0x 12.0x 9.3x
$23.00 $ 3.6 93% 93% 12.5x 12.5x 9.8x
$24.00 $ 3.8 97% 97% 13.1x 13.1x 10.2x
$25.00 $ 4.0 101% 101% 13.6x 13.6x 10.6x
$26.00 $ 4.1 105% 105% 14.1x 14.1x 11.0x
$27.00 $ 4.3 109% 109% 14.7x 14.7x 11.5x
$28.00 $ 4.4 113% 113% 15.2x 15.2x 11.9x
$29.00 $ 4.6 117% 117% 15.8x 15.8x 12.3x
$30.00 $ 4.7 121% 121% 16.3x 16.3x 12.7x
$31.00 $ 4.9 125% 125% 16.9x 16.9x 13.2x
$32.00 $ 5.1 129% 129% 17.4x 17.4x 13.6x
$33.00 $ 5.2 133% 133% 18.0x 18.0x 14.0x
$34.00 $ 5.4 137% 137% 18.5x 18.5x 14.4x
$35.00 $ 5.5 141% 141% 19.0x 19.0x 14.9x
$36.00 $ 5.7 146% 146% 19.6x 19.6x 15.3x
$37.00 $ 5.8 150% 150% 20.1x 20.1x 15.7x
- -------------------------------------------------------------
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
21
- --------------------------------------------------------------------------------
4. PRO FORMA ANALYSIS
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
SHAREHOLDER LIST ANALYSIS
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Stratification of Ownership Total
---------------------------- -----------------------------------------
CUMULATIVE REMAINING
SHARES SHARE- SHARE- SHARE-
HELD HOLDERS % SHARES % HOLDERS % HOLDERS SHARES %
- ------------------------------------------------------------------------------------
0-24 115 24% 1,214 1% 115 24% 372 1,214 1%
25-49 41 8% 1,225 1% 156 32% 331 2,439 2%
50-74 52 11% 2,686 2% 208 43% 279 5,125 3%
75-99 1 0% 80 0% 209 43% 278 5,205 3%
100 100 21% 10,000 6% 309 63% 178 15,205 10%
101-124 6 1% 700 0% 315 65% 172 15,905 10%
125-149 1 0% 125 0% 316 65% 171 16,030 10%
150-174 13 3% 2,002 1% 329 68% 158 18,032 11%
175-199 2 0% 365 0% 331 68% 156 18,397 12%
200-500 106 22% 36,318 23% 437 90% 50 54,715 35%
501-1000 27 6% 23,619 15% 464 95% 23 78,334 50%
1001+ 23 5% 62,081 39% 487 100% 0 140,415 89%
------- ---- ------- ----
CEDE Shares ? 17,585 11%
Total 487 100% 158,000 100%
======= ==== ======= ====
- ------------------------------------------------------------------------------------
Note: At the time this analysis was prepared, we did not have a security
position listing report and thus were unable to determine the number of
shareholders represented by CEDE & Co. However, in discussions with management,
the number of shareholders represented by CEDE & Co. is expected to be
relatively few, and thus is immaterial to this analysis.
Based on the stockholder list provided by the Company.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
1
Transaction Analysis
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Cash-out Merger at Reverse Stock Split at
--------------------------- -------------------------------
Total 100:1 125:1 100:1 125:1
Registered Shareholders (Does not include CEDE)
Cashed Out 487 209 315 209 315
Remaining 487 278 172 278 172
Shares Cashed Out (Does not include CEDE)
Registered 140,415 5,205 15,905 8,415 22,540
Percent of Outstanding Shares Cashed Out (Does not include CEDE)
Registered 140,415 3.3% 10.1% 5.3% 14.3%
Total Shares 158,000
Estimated Cost
$ 26.00 $ 135,330 $ 413,530 $ 218,790 $ 586,040
$ 27.00 $ 140,535 $ 429,435 $ 227,205 $ 608,580
$ 28.00 $ 145,740 $ 445,340 $ 235,620 $ 631,120
$ 29.00 $ 150,945 $ 461,245 $ 244,035 $ 653,660
$ 30.00 $ 156,150 $ 477,150 $ 252,450 $ 676,200
$ 31.00 $ 161,355 $ 493,055 $ 260,865$
- -------------------------------------------------------------------------------------
Based on the stockholder list provided by the Company.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
2
Pro Forma Analysis -$31.00 Per Share
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
100:1 Threshhold 125:1 Threshhold
-------------------------- ---------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
As of Cash-Out Reverse Cash-Out Reverse
3/31/2004 Merger Stock Split Merger Stock Split
- ---------------------------------------------------------------------------------------------
Shares Purchased 5,205 8,415 15,905 22,540
Cost ($000s) 161 261 493 699
Shares Outstanding 158,000 152,795 149,585 142,095 135,460
Shareholders Remaining 278 278 172 172
Assets ($000's) 37,379 37,218 37,118 36,886 36,680
Equity ($000's) 3,909 3,748 3,648 3,416 3,210
Equity / assets 10.46% 10.07% 9.83% 9.26% 8.75%
Net Income ($000's) (1) 290 287 285 281 277
EPS $ 1.84 $ 1.88 $ 1.91 $ 1.98 $ 2.04
ROA 0.84% 0.84% 0.83% 0.83% 0.82%
ROE 7.49% 7.73% 7.88% 8.29% 8.70%
Book Value $ 24.74 $ 24.53 $ 24.39 $ 24.04 $ 23.70
- ---------------------------------------------------------------------------------------------
(1) Assumes a 3% interest rate and 35% tax rate to compute the income lost by
using cash to purchase shares.
[GRAPHIC OMITTED] TRIANGLE CAPITAL PARTNERS
-------------------------
Investment Bankers
3