-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AfN+uJT0jTHADU1oQT0j/BUoiX67s+EjjOZSuz2tigEQsEQOkiU62bZETFPyEx2w zRdzcmuYAX1wINb+cc/F1w== 0000950168-99-000537.txt : 19990226 0000950168-99-000537.hdr.sgml : 19990226 ACCESSION NUMBER: 0000950168-99-000537 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990225 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990225 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BB&T CORP CENTRAL INDEX KEY: 0000092230 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560939887 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10853 FILM NUMBER: 99549699 BUSINESS ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 3367332000 MAIL ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NATIONAL CORP /NC/ DATE OF NAME CHANGE: 19920703 8-K 1 BB&T CORPORATION 8-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) Of the Securities Exchange Act of 1934 FEBRUARY 25, 1999 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 35 pages. ================================================================================ Item 5. Other Events The purpose of this Current Report on Form 8-K is to announce that BB&T Corporation ("BB&T") has entered into a definitive agreement to acquire Matewan BancShares of Williamson, West Virginia, ("Matewan") and to file certain analyst presentation materials related to this transaction as Exhibit 99.1. Matewan, with $676 million in assets, operates 22 banking offices and one mortgage loan office in southwestern Virginia, southern West Virginia and eastern Kentucky. The transaction is a tax-free exchange of stock valued at $157.9 million based on the February 23, 1999, closing price of BB&T's common stock. The transaction, approved by the directors of both companies, will give Matewan shareholders .9333 BB&T shares per Matewan share, worth $33.89 based on BB&T's closing price on February 23, 1999. The final exchange ratio will be based on a pricing period prior to closing the transaction. When the Matewan acquisition is completed, BB&T will have banking offices in seven states and Washington, D.C. Matewan customers will be introduced to a broad BB&T product line that includes insurance, mutual funds, annuities, leasing, trust, retail brokerage and investment banking. Matewan operates through banking subsidiaries Matewan National Bank and Matewan FSB. The corporation also owns insurance and investment subsidiaries. Its market area includes Mingo, Logan, Boone, Lincoln and Wayne counties in West Virginia; Pike, Floyd, Johnson, Martin and Letcher counties in Kentucky; and Buchanan, Tazewell, Wise, Russell and Washington counties in Virginia. The merger, which is subject to the approval of Matewan shareholders and banking regulators, is expected to be completed in the third quarter of 1999. 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: February 25, 1999. BB&T and Matewan BancShares, Inc. Williamson, West Virginia Expanding a Great Franchise Analyst Presentation February 25, 1999 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 Matewan's fee income ratio, 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 Matewan, the amount of general and administrative expense consolidation, costs relating to converting Matewan'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 Matewan, 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 Matewan are engaged; (8) adverse changes may occur in the securities markets; and (9) competitors of BB&T and Matewan may have greater financial resources and develop products that enable such competitors to compete more successfully than BB&T and Matewan. 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. 2 Outline o Background and transaction terms o Financial data o Rationale and strategic objectives o Investment criteria o Summary 3 BB&T Corporation (BBT) o $38.1 billion bank holding company* o 620 branch locations in NC, SC, VA, MD, GA and the District of Columbia* For Year Ended 12/31/98** ---------------- o ROA 1.58% o Cash Basis ROA 1.67% o ROE 20.16% o Cash Basis ROE 23.70% o Efficiency ratio 51.57% * Includes the pending acquisitions of Scott & Stringfellow Financial, Inc., MainStreet Financial Corporation, First Citizens Corporation (GA), and Mason-Dixon Bancshares, Inc. ** Recurring earnings 4 Matewan BancShares, Inc. (MATE) o $676 million bank holding company o 22 banking offices in western Virginia, southern West Virginia and eastern Kentucky o 1 mortgage loan production office in West Virginia For Year Ended 9/30/98** ---------------- o ROA 1.05% o ROE 10.33% o Efficiency ratio 62.47% *Recurring earnings 5 Pro Forma Company Profile o Size: $38.8 billion in assets* $11.7 billion in market capitalization** o Offices NC: 347 VA: 114 SC: 90 MD: 55 GA: 13 KY: 10 WV: 7 DC: 6 --- Total: 642 * Includes total assets for Scott & Stringfellow Financial, Inc., MainStreet Financial Corporation, Mason-Dixon Bancshares, Inc. and First Citizens Corporation ** Based on BB&T's 2/23/99 closing price of $36.3125 and includes shares outstanding for Scott & Stringfellow Financial, Inc., MainStreet Financial Corporation, Mason-Dixon Bancshares, Inc., First Citizens Corporation and Matewan BancShares, Inc. 6 Terms of the Transaction 7 Terms of the Transaction o Purchase price: $33.89 per share* o Aggregate value: $157.9 million* o Consideration: Fixed price of $35.00 per MATE share if BB&T's price is between $37.50 and $40.4375. If BB&T's price is above $40.4375 the exchange ratio is fixed at .8655. If BB&T's price is below $37.50 the exchange ratio is fixed at .9333. o Structure: Tax-free exchange of stock equal to 100% of purchase price o Accounting treatment: Transaction will be accounted for as a purchase o Lock-up provision: Stock option agreement *Based on February 23, 1999 BB&T closing stock price of $36.3125. 8 Pricing o Purchase price $33.89 o Premium / market 24.37% o Price / 9-30-98 stated book 2.32 x o Price / LTM EPS 23.2 x o BB&T shares issued 4.3 million* *BB&T shares issued based on MATE common and preferred shares outstanding. BB&T plans to repurchase the shares to be issued in the transaction. 9 Acquisition Comparables(1) Bank Acquisitions with Deal Values between $50 and $500 Million Announced Since 11/01/98
- ------------------------------------------------------------------------------------------------------------------ TOTAL DATE DEAL DEAL DEAL PR/ DEAL PR/ BUYER SELLER ASSETS ANNOUNCED VALUE PR/BK TG BK 4-QTR EPS - ------------------------------------------------------------------------------------------------------------------ ($000) ($M) (%) (%) (X) Independence Cmty Broad National Bncp 622,276 02/01/99 138.3 296.1 297.4 18.7 BB&T Corp. Mason-Dixon Bcshs 1,083,283 01/28/99 247.2 299.2 326.4 23.4 BB&T Corp. First Citizens Corp. 385,582 01/27/99 126.7 297.9 360.6 23.4 First Security Corp. Comstock Bancorp 226,862 01/13/99 65.0 352.2 352.2 20.0 BOK Financial Corp. First Bancshares 233,104 12/29/98 56.1 328.7 328.7 NA First Finl Bancorp Sand Ridge Finl Corp. 503,894 12/17/98 140.7 330.6 330.6 24.6 Valley Natl Bancorp Ramapo Finl Corp. 327,779 12/17/98 105.3 293.4 297.7 29.5 Chittenden Corp. Vermont Financial 2,110,300 12/16/98 454.2 208.2 285.6 27.9 Sky Financial Group First Western Bncp 2,203,139 12/14/98 424.5 280.0 479.9 22.0 BT Financial Corp. First Philson Finl 213,742 12/10/98 80.6 318.8 318.8 29.5 M&T Bank Corp. FNB Rochester Corp. 567,896 12/09/98 128.8 316.2 316.2 25.2 Lakeland Bancorp High Point Finl Corp. 252,746 12/07/98 72.5 293.4 293.4 32.1 - ----------------------------------------------------------------------------------------------------------------- Maximum 2,203,139 454.2 352.2 479.9 32.1 Minimum 213,742 56.1 208.2 285.6 18.7 - ----------------------------------------------------------------------------------------------------------------- AVERAGE 727,550 170.0 301.2 332.3 25.1 - ----------------------------------------------------------------------------------------------------------------- Median 444,738 127.8 298.5 322.6 24.0 - ----------------------------------------------------------------------------------------------------------------- BB&T Corp Matewan * 676,907 157.9 232.2 274.0 23.2 Above/(Below) Comparables (69.1) (58.3) (1.9) - -----------------------------------------------------------------------------------------------------------------
* Based on September 30, 1998 financial statements. Book value multiples include Matewan's preferred stock. (1) Source for Acquisition Comparables: SNL Securities 10 Financial Data 11 Financial Summary FOR THE FOR THE 9-MONTHS YEAR ENDED ENDED 12/31/98 9/30/98 BB&T* MATE* ----- ----- ROA 1.58% 1.05% ROE 20.16 10.33 Net interest margin (FTE) 4.34 5.15 Efficiency ratio 51.57 62.47 Net charge-offs / avg. loans .28 .97 Allowance / nonperf. loans 367.75 89.24 Nonperf. assets / total assets .33 1.01 *Recurring earnings 12 Capital Strength BB&T* MATE* 12/31/98 9/30/98 -------- ------- Shareholders' equity / total assets 8.0% 10.1% Leverage capital ratio 6.8% 8.5% Total risk-based capital ratio 14.7% 14.1% 13 Rationale for Acquisition o BB&T has an announced strategy to pursue in-market (Carolinas/Virginia/Maryland/Metro DC) and contiguous state (Georgia/West Virginia/Tennessee) acquisitions of high quality banks and thrifts in the $250 million to $10 billion range. The acquisition of Matewan is consistent with this strategy. o This acquisition is very consistent with past acquisitions which we have successfully executed, i.e. it fits our model. o BB&T and Matewan share similar cultures. o Matewan's branch network overlaps BB&T's western Virginia franchise and expands BB&T into the economically attractive markets in southern West Virginia and eastern Kentucky. 14 Strategic Objectives o The key strategic objectives in this acquisition are: - Improve efficiency o Cost savings equal to 20% of MATE's noninterest expenses, fully realized in the year 2000 - Expand and strengthen BB&T's existing western Virginia franchise o Entry into the contiguous markets of southern West Virginia and eastern Kentucky - 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 ---------------------------- $4.3 million or approximately 20% of MATE's expense base 16 Franchise Enhancement o Extends our western Virginia franchise acquired through the MainStreet transaction o Market expansion into southern West Virginia and eastern Kentucky 17 Grow Fee Income BB&T* MATE* 12/31/98 9/30/98 -------- ------- Fee income ratio 28.4% 14.3% Goal to raise MATE's fee income ratio by leveraging BB&T's sales management system and broader product selection 18 Economic Vitality [MAP OF ECONOMIC VITALITY BY COUNTY] 19 Branch Locations [MAP OF BRANCH LOCATIONS] 20 BB&T Investment Criteria o EPS and Cash Basis EPS (accretive by year 2) o Internal rate of return (15% or better) o Return on equity and Cash Basis ROE (accretive by year 3) o Return on assets and Cash Basis ROA (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. 21 Assumptions o BB&T's 1999 and 2000 EPS numbers are based on First Call estimates of $1.93 and $2.17 respectively, and subsequent years are based on 9% income statement and balance sheet growth. o $4.3 million in cost savings (20% of MATE's expense base). Cost savings will be recognized over 2 years with 25% of total cost savings achieved in 1999 and the remaining 75% in 2000. o Fee income improvement - MATE's fee income is assumed to grow by 15% annually by leveraging BB&T's sales management system and expanded product offerings. o MATE's net interest margin (non-FTE) is maintained annually at 4.50%. o For MATE, we have assumed income statement and balance sheet growth of 9% annually except for the enhancements cited above. 22 Impact on Earnings Per Share Accretion Accretion (Dilution) Pro Forma (Dilution) Pro Forma Pro Forma Cash Basis Pro Forma EPS Shares EPS Shares --- ------ --- ------ 1999* $ 1.92 $ (0.01) $ 2.05 $ 0.01 2000 2.16 (0.00) 2.30 0.02 2001 2.36 0.00 2.50 0.02 2002 2.58 0.01 2.71 0.03 2003 2.82 0.01 2.95 0.03 2004 3.08 0.02 3.19 0.04 2005 3.36 0.03 3.47 0.05 2006 3.67 0.04 3.78 0.06 2007 4.00 0.05 4.11 0.07 2008 4.37 0.06 4.48 0.08 2009 4.77 0.07 4.88 0.09 Internal rate of return 17.65% *Recurring earnings 23 Impact on ROE* Pro Forma Pro Forma Cash Basis ROE(%) Change ROE(%) Change --- ------ ---- ------ 1999** 19.99 (0.05) 25.60 0.91 2000 19.89 (0.02) 24.58 0.94 2001 19.34 0.02 23.07 0.77 2002 18.87 0.05 21.85 0.65 2003 18.45 0.07 20.84 0.55 2004 18.08 0.11 19.92 0.48 * The decrease in ROE results from the build up in equity relative to assets. ** Recurring earnings 24 Impact on ROA Pro Forma Pro Forma Cash Basis ROA(%) Change ROA(%) Change --- ------ ---- ------ 1999* 1.49 (0.04) 1.61 (0.03) 2000 1.54 (0.03) 1.66 (0.02) 2001 1.55 (0.03) 1.65 (0.01) 2002 1.55 (0.03) 1.64 (0.01) 2003 1.56 (0.02) 1.64 (0.01) 2004 1.56 (0.02) 1.63 (0.01) *Recurring earnings 25 Impact on Book Value / Leverage Ratio Pro Forma Book Value Per Share ------------------------- Pro Forma Accretion Leverage Accretion Stated (Dilution) Ratio (Dilution) ------ ---------- ----- ---------- 1999 $ 10.23 $ 0.00 6.79% (0.37) 2000 11.51 (0.00) 7.25 (0.34) 2001 12.91 (0.00) 7.66 (0.32) 2002 14.43 0.00 8.03 (0.29) 2003 16.10 0.01 8.36 (0.27) 2004 17.94 0.03 8.66 (0.25) 2005 19.97 0.05 8.94 (0.23) 2006 22.22 0.08 9.21 (0.21) 2007 24.71 0.12 9.47 (0.19) 2008 27.47 0.16 9.73 (0.17) 2009 30.68 0.21 10.02 (0.15) 26 Summary o The acquisition of Matewan BancShares, Inc. is a strong strategic fit: - It helps accomplish our goal of expansion into contiguous markets - It fits culturally and geographically - This is the type of merger we have consistently successfully executed o Overall Investment Criteria are met: - EPS accretive in 2001; Cash Basis EPS accretive in 1999 - IRR 17.65% - ROE positive in 2001; Cash Basis ROE positive in 1999 - ROA and Cash Basis ROA are permanently, but not materially, dilutive due to the effect of the share buyback - Book value accretive in 2002 - Combined leverage ratio in excess of 7% in 2000 - Accelerated dividend growth potential beginning in 2000 27 Appendix o Historical Financial Data o Glossary 28 MATEWAN BANCSHARES, INC. FINANCIAL SUMMARY
For 9 Months YTD September 30 1996 1997 1998 -------------------------------------------- EARNINGS SUMMARY (IN THOUSANDS) INTEREST INCOME (FTE) Interest on loans & leases $ 36,583 $ 41,146 $ 33,106 Interest & dividends on securities 8,667 9,686 7,148 Interest on temporary investments 1,134 1,165 859 ------- -------- ------- Total interest income (FTE) 46,384 51,997 41,113 INTEREST EXPENSE Interest expense on deposit accounts 17,875 21,376 17,692 Interest on short-term borrowings 994 1,149 729 Interest on long-term debt - - - ------- -------- ------- Total interest expense 18,869 22,525 18,421 ------- -------- ------- Net interest income (FTE) 27,515 29,472 22,692 Less taxable equivalency adjustment - - - ------- -------- ------- Net interest income 27,515 29,472 22,692 Provision for loan losses 2,945 2,609 2,321 ------- -------- ------- Net interest income after provision 24,570 26,863 20,371 ------- -------- ------- NONINTEREST INCOME Service charges on deposit accounts 3,011 4,096 2,941 Non-deposit fees and commissions 484 338 494 G / (L) on sale of real estate & securities - - - Other operating income 1,204 932 348 ------- -------- ------- Total noninterest income 4,699 5,366 3,783 ------- -------- ------- NONINTEREST EXPENSE Personnel 7,877 8,759 6,362 Occupancy & equipment 2,368 2,849 2,190 FDIC premiums 206 411 - Other operating expenses 8,649 10,100 7,989 ------- -------- ------- Total noninterest expense 19,100 22,119 16,541 ------- -------- ------- Net income before taxes 10,169 10,110 7,613 Income taxes 3,707 3,495 2,485 ------- -------- ------- Net income before nonrecurring charges 6,462 6,615 5,128 ------- -------- ------- Nonrecurring charges - - - ------- -------- ------- Net income $ 6,462 $ 6,615 $ 5,128 ======= ======== ======= Basic EPS $ 1.30 $ 1.31 $ 1.07 Diluted EPS 1.30 1.31 1.07 Diluted EPS before nonrecurring charges 1.30 1.31 1.07 EOP shares 4,026 3,998 3,982 Basic shares 4,030 4,011 3,991 Diluted shares 4,030 4,011 3,991
29 MATEWAN BANCSHARES, INC. FINANCIAL SUMMARY
For 9 Months YTD September 30 1996 1997 1998 ------------------------------------ AVERAGE BALANCE SHEET (IN THOUSANDS) ASSETS Loans $345,062 $386,502 $412,646 Securities 140,354 153,096 157,619 Other earning assets 21,387 23,062 19,677 -------------------------------------- Total interest-earning assets 506,803 562,660 589,942 -------------------------------------- Goodwill & other intangibles 8,716 10,659 10,393 Other assets 45,818 49,328 51,434 -------------------------------------- Total assets $561,337 $622,647 $651,769 ====================================== Net interest margin 5.43% 5.24% 5.15% Securities as a percent of earning assets 28% 27% 27% LIABILITIES & SHAREHOLDERS' EQUITY Interest-bearing deposits: Money Market & NOW $ 67,256 $ 79,719 $ 90,816 Savings 76,906 76,510 90,941 CD's and other time 262,271 301,376 298,205 -------------------------------------- Total interest-bearing deposits 406,433 457,605 479,962 Short-term borrowed funds 23,119 22,116 14,320 Long-term debt -- -- 13,536 -------------------------------------- Total interest-bearing liabilities 429,552 479,721 507,818 Demand deposits 62,931 69,212 72,342 Other liabilities 6,533 7,162 5,233 -------------------------------------- Total liabilities 499,016 556,095 585,393 -------------------------------------- Preferred equity 805 805 805 Common equity 61,516 65,747 65,571 -------------------------------------- Total equity 62,321 66,552 66,376 -------------------------------------- Total liabilities & shareholders' equity $561,337 $622,647 $651,769 ====================================== Other int-liab. as a percent of total assets 4% 4% 4%
30 MATEWAN BANCSHARES, INC. FINANCIAL SUMMARY
($ IN THOUSANDS) For 9 Months YTD September 30 1996 1997 1998 ------------------------------------------- RATIO ANALYSIS ROA 1.15% 1.06% 1.05% ROE 10.50% 10.06% 10.33% Efficiency ratio 59.3% 63.5% 62.5% Adj. noninterest income / Adj. revenues 14.6% 15.4% 14.3% Average equity / Average assets 11.1% 10.7% 10.3% CREDIT QUALITY (IN THOUSANDS) Beginning $ 2,973 $ 5,9863 $ 5,478 ----------- -------- -------- Provision 2,945 2,609 2,321 Acquired allowance 3,152 -- -- Net charge-offs (3,084) 3,117) (2,374) ----------- -------- -------- Ending allowance $ 5,986 $ 5,478 $ 5,425 ----------- -------- -------- Allowance 1.59% 1.36% 1.23% Charge-off rate 0.89% 0.81% 0.97% Period end loans & leases $ 376,787 $ 403,111 $ 439,591 Period end equity $ 67,578 $ 65,763 $ 68,038
31 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. 32 -----END PRIVACY-ENHANCED MESSAGE-----