425 1 0001.txt ACQUISITION OF FCNB CORP Filed by BB&T Corporation Pursuant to Rule 425 under the Securities Act of 1933 Commission File No.: 001-10853 Subject Company: BB&T Corporation BB&T and FCNB Corp Frederick, MD Expanding a Great Franchise Analyst Presentation July 27, 2000 1 Forward-Looking Information 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 in 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 FCNB Corp'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 FCNB Corp, the amount of general and administrative expense consolidation, costs relating to converting FCNB Corp's 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 FCNB Corp, 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 FCNB Corp are engaged; (8) adverse changes may occur in the securities markets; and (9) competitors of BB&T and FCNB Corp may have greater financial resources and develop products that enable such competitors to compete more successfully than BB&T and FCNB Corp. 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 value 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. 2 The analyst package as originally distributed on July 27, 2000 omitted the following disclosure which is being made in accordance with Rule 165 of the Securities and Exchange Commission. The foregoing may be deemed to be offering materials of BB&T Corporation in connection with BB&T's proposed acquisition of FCNB Corp ("FCNB") of Frederick, Maryland, on the terms and subject to the conditions in the Agreement and Plan of Reorganization, dated July 26, 2000, between BB&T and FCNB. This filing is being made in connection with Regulation of Takeovers and Security Holder Communications (Release Nos. 33-7760 and 34-42055) adopted by the Securities and Exchange Commission ("SEC"). Shareholders of FCNB and other investors are urged to read the proxy statement/prospectus that will be included in the registration statement on Form S-4, which BB&T will file with the SEC in connection with the proposed merger because it will contain important information about BB&T, FCNB, the merger, the persons soliciting proxies in the merger and their interests in the merger and related matters. After it is filed with the SEC, the proxy statement/prospectus will be available for free, both on the SEC's web site (http://www.sec.gov) and from FCNB and BB&T as follows: FCNB Corp Shareholder Reporting 7200 FCNB Court BB&T Corporation Fredrick, Maryland 21703 Post Office Box 1290 (301) 662-2191 Winston-Salem, North Carolina 27102 Phone: (336) 733-3021 In addition to the proposed registration statement and proxy statement/prospectus, BB&T and FCNB file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information filed by either company at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the SEC's other public reference rooms in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. BB&T's and FCNB's filings with the SEC are also available to the public from commercial document-retrieval services and on the SEC's web site at http://www.sec.gov. Outline - Background and transaction terms - Financial data - Rationale and strategic objectives - Investment criteria - Summary 3 BB&T Corporation (BBT) - $55.2 billion financial holding company* - 831 branch locations in NC, SC, VA, GA, MD, WV, KY, and the District of Columbia* For 3 months ended 6/30/00** --------------- - ROA 1.62% - Cash Basis ROA 1.76% - ROE 21.33% - Cash Basis ROE 27.57% - Cash Basis Efficiency Ratio 50.23% * Includes the acquisition of One Valley Bancorp, Inc. on July 6, 2000 ** Recurring earnings 4 FCNB Corp (FCNB) - $1.6 billion bank holding company - 31 banking offices in Maryland - 2 banking offices in DC - 1 banking office in Virginia For 3 months ended 6/30/00 ------------- - ROA 0.92% - Cash Basis ROA 0.95% - ROE 16.45% - Cash Basis ROE 17.08% - Cash Basis Efficiency Ratio 67.75% 5 Pro Forma Company Profile - Size: $56.8 billion in assets $10.3 billion in market capitalization - Offices: NC: 336 VA: 152 GA: 102 SC: 90 WV: 84 MD: 83 KY: 10 DC: 8 ---------- Total 865 Data as of July 21, 2000. 6 Terms of the Transaction 7 Terms of the Transaction - Purchase price: $18.125 per share* - Aggregate value: $226.5 million* - Consideration: Fixed exchange ratio of .725 of a share of BB&T common stock for each FCNB share - Structure: Tax-free exchange of stock equal to 100% of purchase price - Accounting treatment: Transaction will be accounted for as a pooling-of-interests - Lock-up provision: Stock option agreement - Expected closing: First quarter 2001 * Based on BB&T's closing stock price of $25.00 as of 07/26/00. 8 Pricing - Purchase Price $18.125 - Premium/market (8.8)%* - Price/6-30-00 stated book 2.43x - Price/LTM EPS 19.5x - Price/LTM Core EPS 15.4x - BB&T shares issued 9.1 million** * Based on FCNB's closing stock price of $19.875 as of 07/26/00. ** BB&T shares issued based on FCNB shares outstanding adjusted for stock options. 9 Acquisition Comparables* Acquisitions Announced since February 1, 2000 with Deal Values between $100 Million and $2 Billion
Seller Deal Deal/Pr Deal Pr/ Date Total Deal Value/ Deal Pr/ Deal Deal/Pr LTM LTM Core Buyer Seller Announced Assets Value Assets Stock Pr Pr/Bk Tg Bk EPS EPS ----- ------ --------- ------ ----- ------ -------- ----- ------- ------- ---- ($M) ($M) (%) (%) (%) (%) (x) (x) Wells Fargo & Company First Commerce & Company Bancshares Inc. 2/2/2000 2,545.6 479.7 18.8 8.9 191.7 197.2 16.2 18.3 BB&T Corporation One Valley Bancorp Inc. 2/7/2000 6,413.0 1,202.2 18.8 30.1 211.4 232.5 15.1 15.4 Huntington Empire Banc Bancshares Inc. Corporation 2/7/2000 505.9 138.7 27.4 39.5 304.0 306.1 19.8 25.9 BancorpSouth Inc First United Bancshares Inc. 4/17/2000 2,666.0 455.7 17.1 42.6 175.3 186.7 13.6 13.7 M&T Bank Corporation Keystone Financial Inc. 5/17/2000 7,012.3 1,026.7 14.6 33.4 184.5 204.0 21.2 12.5 U.S. Bancorp Scripps Financial Corporation 6/27/2000 643.3 155.2 24.1 29.5 325.6 325.6 32.9 32.4 Maximum 7,012.3 1,202.2 27.4 42.6 325.6 325.6 32.9 32.4 Minimum 505.9 138.7 14.6 8.9 175.3 186.7 13.6 12.5 Average 3,297.7 576.4 20.1 30.7 232.1 242.0 19.8 19.7 Median 2,605.8 467.7 18.8 31.7 201.6 218.3 18.0 16.8 Deal Price: $18.125 BB&T Corp FCNB Corp 1,593.1 226.5 14.2 (8.8) 243.3 259.7 19.5 15.4 Over/(Under) Average Comparables (349.8) (5.9) (39.5) 11.2 17.7 (0.3) (4.3) * Source for Acquisition Comparables: SNL Securities 10
BB&T Comparables Average Comparable Multiples for All BB&T Deals Announce since January 1, 1999 BB&T's
BB&T's Deal Pr/ Deal Pr/ Stock Price Deal Value Deal Value/ Deal Pr/ Deal Deal Pr/ LTM LTM Core At Annc. in Millions Assets Stock Pr Pr/Bk Tg Bk EPS EPS -------- ----------- ------ -------- ----- ----- --- --- ($) (%) (%) (%) (%) (x) (x) Average based on original deal price $ 35.12 390.6 27.1 32.1 277.9 304.4 22.8 22.1 Average of individual deals based on adjusted deal price 300.5 19.4 22.4 197.3 215.6 16.2 15.6 ---- BB&T Corp/FCNB 266.5 14.2 (8.8) 243.3 259.7 19.5 15.4 ---- Over/(Under) Average Adjusted Comparables (74.0) (5.2) (31.2) 46.0 44.1 3.3 (0.3) 11
Financial Data 12 Financial Summary For Quarter Ended: 6/30/00 6/30/00 BB&T* FCNB ------- ------- ROA 1.62% 0.92% ROE 21.33 16.45 Net interest margin (FTE) 4.22 3.54 CB Efficiency ratio 50.23 67.75 Net charge-offs .22 .09 Reserve/NPLs 384.28 117.76 NPAs/assets .29 .59 * Recurring earnings 13 Capital Strength BB&T FCNB (6/30/00) (6/30/00) --------- --------- Equity/assets 7.6% 5.6% Leverage capital ratio 7.1% 8.4% Total risk-based capital 12.7% 12.2% 14 Rationale for Acquisition - BB&T has an announced strategy to pursue in-market (Carolinas/Virginia/West Virginia/DC/Maryland/Georgia) and contiguous state acquisitions of high quality banks and thrifts in the $250 million to $10 billion range. The acquisition of FCNB Corp is consistent with this strategy. - This acquisition is very consistent with past acquisitions which we have successfully executed, i.e. it fits our model. 15 Strategic Objectives The key strategic objectives achieved in this acquisition: - Enhances franchise value with an additional $1.6 billion in assets in Central Maryland and Metro DC and an increased market presence in Central Maryland - Carroll, Frederick and Howard counties. - Improves efficiency - 35.0% annual cost savings fully realized in the first 12 months of operations following conversion. - Supplements FCNB's strong banking franchise with BB&T's stronger fee income product lines (such as Investment Sales, Capital Markets Activities and Cash Management Services). - Increases product and market penetration through the use of BB&T's world standard sales system. 16 Franchise Enhancement - Acquisition of a successful $1.6 billion community bank that has an operating philosophy and core values very similar to those of BB&T. - Moves BB&T from the number six market share position in economically attractive Central Maryland to the number one position with a 20.8% market share.* - Improves BB&T's market presence in the strategically important Metro DC area. - Provides BB&T's insurance agency network with a market leader position in Frederick, Maryland, and two additional agency locations, one in the Baltimore suburb of Pikesville and one in Carroll County. * Based on June 30, 1999 Deposit Information. 17 Efficiency Improvement Targeted Annual Cost Savings ---------------------------- $16.5 million or approximately 35.0% of FCNB's expense base Assumes closing of 8 of 34 locations or 23% of FCNB's branches 18 One-Time Charges After-tax merger-related charges $22.5 million 19 Branch Locations [Map showing location of both existing and pending BB&T branches throughout MD, VA, WV, KY, NC, SC and GA inserted here] 20 Branch Locations [Map showing location of FCNB branches throughout MD, VA and DC inserted here] 21 Market Characteristics [Graphic of State of Maryland with Metro Washington DC region indicated by two concentric circles inserted on left side of slide] - Maryland has the 2nd highest median household income and 5th highest per capita personal income in the U.S. - Maryland is the 5th most densely populated state in the U.S. - Maryland has an advanced high tech industrial base concentrated in biotechnology, telecommunications, and computer science. - Maryland has the highest concentration of federal research and development facilities in the nation. 22 Market Characteristics [Graphic of State of Maryland with Metro Washington DC region indicated by two concentric circles inserted on left side of slide] - With 5 million residents, the Metro DC market is the nation's 5th largest MSA. - Metro DC is the nation's leader in per capita income; 44.2% above the national average. - Total employment in Metro DC is projected to expand 19.9% (1993-2005). - The Washington-Baltimore CMSA is the nation's 4th largest CMSA and contains 90% of Maryland's population. 23 BB&T Investment Criteria - EPS and Cash Basis EPS (accretive by year 2) - Internal rate of return (15% or better) - Return on equity and Cash Basis ROE (accretive by year 3) - Return on assets and Cash Basis ROA (accretive by year 3) - Book value per share (accretive by year 5) - 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. 24 Assumptions - BB&T's 2000 and 2001 EPS are based on the First Call estimates of $2.17 and $2.47 and subsequent years are based on 12% income statement and balance sheet growth. - FCNB's 2000 EPS is based on the First Call estimate of $1.19 and subsequent years are based on 12% income statement and balance sheet growth except for the enhancements cited below. - 35% annual cost savings ($16.5 million) fully realized in the first 12 months of operations following conversion. - FCNB's core net interest margin (non-FTE) is incrementally increased over years 2-6 from a projected 3.46% in 2001 to 4.20% in 2006 and held constant thereafter. - FCNB's noninterest income is grown at approximately 18% in years 1-5 and then grown at 12% in the remaining periods. - FCNB's net charge-off rate for loan losses is raised to 0.28% in 2001, 0.35% in 2002 and is held constant thereafter. - FCNB's loan loss allowance is raised to 1.30% to match BB&T's reserve philosophy. - Depending upon economic conditions, FCNB may choose, premerger, to restructure their bond portfolio. Any benefit that may be derived from this restructuring has not been included in our projections. 25 Earnings Per Share Impact Accretion Accretion (Dilution) Pro Forma (Dilution) Pro Forma Pro Forma Cash Basis Pro Forma EPS Shares EPS Shares --------- --------- ---------- ---------- 2001* $2.47 $0.00 $2.61 $0.00 2002 2.77 0.01 2.91 0.01 2003 3.11 0.02 3.25 0.02 2004 3.50 0.03 3.63 0.03 2005 3.93 0.05 4.06 0.05 2006 4.40 0.06 4.54 0.06 2007 4.93 0.07 5.07 0.07 2008 5.52 0.08 5.66 0.07 2009 6.19 0.09 6.32 0.08 2010 6.93 0.10 7.07 0.09 Internal rate of return 23.70% ------ * Recurring earnings 26 ROE Impact 1 Pro Forma Pro Forma Cash Basis ROE (%) Change ROE (%) Change ------- ------ ------- ------ 2001 2 21.66 0.11 26.38 0.08 2002 21.88 0.14 25.78 0.12 2003 21.42 0.16 24.46 0.14 2004 20.96 0.17 23.34 0.15 2005 20.55 0.19 22.42 0.17 1 The decrease in ROE results from the build up in equity relative to assets. If consistent with attaining and maintaining a leverage capital ratio of at least 7%, BB&T may choose to leverage the balance sheet further through future purchase acquisitions. 2 Recurring earnings 27 ROA Impact Pro Forma Pro Forma Cash Basis ROA (%) Change ROA (%) Change ------- ------ ------- ------ 2001* 1.64 (0.01) 1.75 (0.01) 2002 1.65 (0.00) 1.74 (0.01) 2003 1.65 0.00 1.74 (0.00) 2004 1.66 0.00 1.73 0.00 2005 1.67 0.01 1.73 0.01 * Recurring earnings 28 Book Value/Capital Impact Pro Forma Book Value Per Share ---------------------- Pro Forma Accretion Leverage Accretion Stated (Dilution) Ratio (Dilution) ------ ---------- ------- ---------- 2001 $11.96 $(0.04) 7.21% 0.00 2002 13.71 (0.02) 7.55 0.00 2003 15.73 (0.00) 7.88 0.00 2004 18.04 0.03 8.19 0.01 2005 20.64 0.08 8.46 0.02 2006 23.56 0.14 8.70 0.03 2007 26.83 0.20 8.91 0.04 2008 30.49 0.28 9.09 0.04 2009 34.60 0.37 9.25 0.05 2010 39.19 0.46 9.38 0.06 29 Summary - The acquisition of FCNB Corp is a strong strategic fit: - Significantly improves our existing franchise in Central Maryland with a resulting market share percentage of 20.8%. - It helps accomplish our goal of expanding and strengthening our position in the Metro DC market. - It fits culturally and geographically. - Overall Investment Criteria are met: - EPS and Cash Basis EPS accretive in year 1 - IRR 23.70% - ROE and Cash ROE accretive in year 1 - ROA accretive in year 3 and Cash ROA accretive in year 4 - Book value accretive in year 4 - Combined leverage ratio remains above 7% 30 Appendix - Historical Financial Data - Glossary 31 FCNB Corp Financial Summary
1997 1998 1999 6/30/00 YTD ---------------------------------------------------------- Earnings Summary (In thousands) Interest Income (FTE) Interest on loans & leases ................ $ 64,824 $ 71,131 $ 75,100 $ 40,807 Interest & dividends on securities ........ 16,977 22,092 27,616 14,841 Interest on temporary investments ......... 1,332 1,802 1,398 717 --------- --------- --------- --------- Total interest income (FTE) ........... 83,133 95,025 104,114 56,365 --------- --------- --------- --------- Interest Expense Interest expense on deposit accounts ...... 29,424 33,175 34,518 19,171 Interest on short-term borrowings ......... 9,757 13,151 15,974 10,024 Interest on long-term debt ................ 257 1,527 3,378 1,689 --------- --------- --------- --------- Total interest expense ................ 39,438 47,853 53,870 30,884 --------- --------- --------- --------- Net interest income (FTE) ................. 43,695 47,172 50,244 25,481 Less taxable equivalency adjustment .. 273 385 391 164 --------- --------- --------- --------- Net interest income ....................... 43,422 46,787 49,853 25,317 Provision for loan losses ................. 1,809 2,097 2,110 950 --------- --------- --------- --------- Net interest income after provision ....... 41,613 44,690 47,743 24,367 --------- --------- --------- --------- Noninterest Income Service charges on deposit accounts ....... 3,763 4,617 5,544 2,936 Non-deposit fees and commissions .......... 5,668 5,332 5,999 3,250 G / (L) on sale of real estate & securities 1,076 2,271 1,798 425 Other operating income .................... 2,472 4,872 5,743 2,885 --------- --------- --------- --------- Total noninterest income .............. 12,979 17,092 19,084 9,496 --------- --------- --------- --------- Noninterest Expense Personnel ................................. 20,353 23,553 25,603 13,256 Occupancy & equipment ..................... 6,972 8,574 9,852 4,913 FDIC premiums ............................. 403 690 387 105 Other operating expenses .................. 9,529 10,233 10,885 5,270 --------- --------- --------- --------- Total noninterest expense ............. 37,257 43,050 46,727 23,544 --------- --------- --------- --------- Net income before taxes ................... 17,335 18,732 20,100 10,319 Income taxes .............................. 5,882 6,145 6,580 3,280 --------- --------- --------- --------- Net income before nonrecurring charges .... 11,453 12,587 13,520 7,039 --------- --------- --------- --------- Nonrecurring charges * .................... (285) (3,161) (3,091) (26) --------- --------- --------- --------- Net income ............................ $ 11,168 $ 9,426 $ 10,429 $ 7,013 ========= ========= ========= ========= Basic EPS ................................. $ 0.97 $ 0.82 $ 0.89 $ 0.59 Diluted EPS ............................... 0.95 0.79 0.87 0.59 Diluted EPS before nonrecurring charges ... 0.97 1.06 1.13 0.59 Book value ................................ $ 8.32 $ 8.52 $ 7.53 $ 7.45 EOP shares ................................ 11,572 11,599 11,924 11,925 Basic shares .............................. 11,497 11,561 11,720 11,925 Diluted shares ............................ 11,738 11,871 11,954 11,950 * Nonrecurring charges from merger-related expenses. 32
FCNB Corp Financial Summary
1997 1998 1999 6/30/00 YTD ------------------------------------------------------------------ Average Balance Sheet (In thousands) Assets Loans .................................. $ 698,966 $ 779,389 $ 855,623 $ 934,397 Securities ............................. 261,095 343,361 441,821 465,654 Other earning assets ................... 24,735 31,978 26,684 23,455 ---------- ---------- ---------- ---------- Total interest-earning assets ...... 984,796 1,154,728 1,324,128 1,423,506 ---------- ---------- ---------- ---------- Goodwill & other intangibles ........... -- -- 3,625 5,444 Other assets ........................... 79,547 100,889 102,099 89,291 ---------- ---------- ---------- ---------- Total assets ....................... $1,064,343 $1,255,617 $1,429,852 $1,518,241 ========== ========== ========== ========== Net interest margin .................... 4.44% 4.09% 3.79% 3.58% Liabilities & Shareholders' Equity Interest-bearing deposits: Money Market & NOW ..................... $ 185,696 $ 223,765 $ 255,801 $ 273,592 Savings ................................ 93,827 92,874 111,850 127,010 CD's and other time .................... 399,168 436,283 453,225 469,458 ---------- ---------- ---------- ---------- Total interest-bearing deposits .... 678,691 752,922 820,876 870,060 Short-term borrowed funds .............. 179,001 246,772 309,218 343,609 Long-term debt ......................... -- 18,069 40,250 40,250 ---------- ---------- ---------- ---------- Total interest-bearing liabilities . 857,692 1,017,763 1,170,344 1,253,919 Demand deposits ........................ 108,417 127,193 151,229 163,947 Other liabilities ...................... 8,622 11,213 14,705 14,601 ---------- ---------- ---------- ---------- Total liabilities .................. 974,731 1,156,169 1,336,278 1,432,467 ---------- ---------- ---------- ---------- Common equity .......................... 89,612 99,448 93,574 85,774 ---------- ---------- ---------- ---------- Total equity ....................... 89,612 99,448 93,574 85,774 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total liabilities & shareholders' equity $1,064,343 $1,255,617 $1,429,852 $1,518,241 ========== ========== ========== ========== 33
FCNB Corp Financial Summary
1997 1998 1999 6/30/00 YTD ------------------------------------------------------------------ Ratio Analysis ROA 1.08% 1.00% 0.95% 0.93% ROCE 12.78% 12.66% 14.45% 16.41% Efficiency ratio 67.0% 69.4% 69.2% 68.5% Adj. noninterest income / Adj. revenues 21.4% 23.9% 25.6% 26.4% Average equity / Average assets 8.4% 7.9% 6.5% 5.6% Credit Quality (In thousands) Beginning $ 6,816 $ 7,611 $ 8,237 $ 10,043 ------------- ------------- -------------- -------------- Provision 1,809 2,097 2,110 950 Allowance adjustment - - 2,898 (1) - Net charge-offs (1,014) (1,471) (3,202) (2) (1,702) ------------- ------------- -------------- -------------- Ending allowance $ 7,611 $ 8,237 $ 10,043 $ 9,291 ------------- ------------- -------------- -------------- Allowance 1.02% 1.01% 1.11% 0.95% Charge-off rate 0.15% 0.19% 0.38% 0.18% Period end loans & leases $ 749,273 $ 818,061 $ 903,072 $ 979,079 Period end common equity $ 96,236 $ 98,855 $ 89,765 $ 88,825 (1) Provision adjustment of $2.9 million attributable to the acquisition of First Frederick. (2) $1.5 million attributable to the acquisition of First Frederick. 34
Glossary Return on Assets - recurring earnings for the period as a percentage of average assets for the period. Return on Equity - recurring earnings for the period as a percentage of average common equity for the period. Cash Basis Performance Results and Ratios - These calculations exclude the effect on net income of amortization expense applicable to certain intangible assets. The ratios also exclude the effect of the unamortized balances of these intangibles from assets and equity. Efficiency Ratio - calculated as recurring noninterest expense as a percentage of the sum of recurring net interest income on a fully taxable equivalent basis and recurring noninterest income. Leverage Capital Ratio - Common shareholders' equity excluding unrealized securities gains and losses and certain intangible assets as a percentage of average assets for the most recent quarter less certain intangible assets. Total Risk-Based Capital Ratio - The sum of shareholders' equity, a qualifying portion of subordinated debt and a qualifying portion of the allowance for loan and lease losses as a percentage of risk-weighted assets. Net Charge-Off Ratio - Loan losses net of recoveries as a percentage of average loans and leases. Internal Rate of Return - The interest rate that equates the present value of future returns to the investment outlay. An investment is considered acceptable if its IRR exceeds the required return. The investment is defined as the market value of the stock and/or other consideration to be received by the selling shareholders. Recurring Results or Ratios - earnings excluding charges and expenses principally related to completing mergers and acquisitions. Certain of the ratios discussed above may be annualized if the applicable periods are less than a full year. 35