BB&T, in Giants' Shadow, Develops Glow of Its Own

The shadow of superregional neighbors has not darkened prospects at all for BB&T Financial Corp. of Wilson, N.C.

On the strength of record earnings for the second quarter, thriving BB&T recently chalked up a stock price of $21.75, a 52-week high that has bank analysts praising the bank and its unusual approach to acquiring troubled thrifts.

"This is a clean little company that nobody knows about," said one analyst. "As the thing gets bigger, it is hitting people's radar screens." The bigger blips are Wachovia Corp. and NCNB, also based in North Carolina.

Eight Years of Growth

Continuing an eight-year pattern of earnings growth, BB&T earned $14.6 million in the second quarter, a 5.6% increase from profits in the period a year earlier. Meanwhile, the bank also achieved a 1.08% return on $5.6 billion of assets.

But analysts said the quarterly results are just part of a broader picture promising future gains.

The most recent three acquisitions were dilutive to the shareholders by 3% to 4%. But the two pending deals are designed to offset that.

A string of successful acquisitions has fostered growth. By putting together deals that do not dilute interests of existing shareholders, BB&T has pioneered an approach that should appeal to other expansion-minded banks that are willing to deal with an unfamiliar bureaucracy in the Office of Thrift Supervision.

Two Deals in the Works

The bank is poised to close two innovative mergers with healthy thrifts that will increase share earnings rather than dilute them, the usual drawback in mergers.

The key is that the thrifts, Gates City Savings and Loan in Greensboro, and Albemarle Savings and Loan, of Elizabeth City, are owned by depositors. By converting the thrifts to stock form and paying less than book value to acquire the assets, the acquirer gets what it wants, as does the acquiree.

The depositors accept a discount to book value because the conversion transform's their illiquid stake into publicly traded shares, meaning BB&T gets a price that is good for its existing depositor-owners.

Officials of BB&T were pitching the deal Wednesday to analysts at Interstate Johnson Lane, where Kathryn H. Bissette noted that the sale at a discount will create "negative goodwill that, instead of hitting earnings, accretes."

BB&T already has closed acquisitions of three stock S&Ls with assets of $678 million. With closing of the final two deals it will have increased market share in North Carolina while adding $1.2 billion of assets - and improving its capital strength and credit quality.

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