BB&T of Winston-Salem, NC, has accelerated its northeasterly push, this time into the Washington, DC, metropolitan area. Not the gritty city where the nation has its capitol, mind you, so much as the wealthy suburbs and thriving exurbs that fan out into Maryland and Virginia.

With its $226.5 million acquisition of Frederick, MD-based FCNB Corp., BB&T jumps from sixth-place to first in market share in central Maryland, an area it considers "the most economically attractive part of the state."

This latest purchase comes even as BB&T is digesting its $1.2 billion acquisition of One Valley Bancorp, based in Charleston, W.V. It had agreed in February to buy the $6.6 billion-asset bank, and the deal was completed in early July.

Although FCNB is a far smaller institution than One Valley, it clearly helps BB&T close in on its target area. Founded in 1818, FCNB has $1.6 billion in assets and operates 31 branches in seven Maryland counties, in addition to two in Washington and one in Farifax County, VA. But it's not the profit engine that BB&T is. FCNB's return on average equity was 16.3% in the second quarter of 2000, compared with 27.6% for BB&T.

And although the deal--technically a pooling-of-interests merger--was not the most richly priced of July's few bank mergers and acquisitions, many BB&T shareholders were none too happy. That goes double for recent FCNB investors, many of whom seemed to have piled in at high prices just before the deal was announced.

BB&T offered 2.5 times FCNB's book value and 20.4 times its trailing 12-month earnings.

In the six weeks before the announcement, FCNB stock had run up about 58%, trading heavily in mid- to late July. It closed at a peak of $19.88 on Wednesday, July 26, the day before the two banks announced their agreement. Yet BB&T agreed to pay the equivalent of $18.13 a share, based on its own closing price of $25 Wednesday. FCNB plummeted the day of the announcement, but by mid-August was trading at about $18.88.

BB&T stock dropped after the announcement--it went as low as $24.06--but in mid-August was up close to $27.

Regional bank analyst Rosalind Looby of Donaldson, Lufkin & Jenrette says that, at first, some BB&T investors felt that it was paying too much for FCNB. "Some people were upset about the multiple," she says. "Takeover pricing has rationalized, and BB&T has paid up in the past."

Yet she thinks the price is no problem for the profitable and well-capitalized North Carolina bank. Referring to projecting earnings, Looby says, "If they can handle an acquisition at 22 times earnings and three times book, then the certainly can at 12 times earnings and 2 times book."

She expects BB&T to continue to bring its own highly focused breed of retail banking to the mid-Atlantic region. "They've really targeted the northern Virginia, Maryland and metro DC area," she says.


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