As Filed with the Securities and Exchange Commission on January 30, 2007

Registration No. 333-      

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

 

BB&T CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

 

200 West Second Street

Winston-Salem, North Carolina 27101

(336) 733-2000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

 

 

M. Patricia Oliver, Esq.

Executive Vice President, General Counsel,

Secretary and Chief Corporate Governance Officer

BB&T Corporation

200 West Second Street

Winston-Salem, North Carolina 27101

Phone: (336) 733-2000

Fax: (336) 733-2189

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

The Commission is requested to send copies of

all communications to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

 

 

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  o

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

SUBJECT TO COMPLETION, DATED JANUARY 30, 2007

 

[Coastal Financial LOGO]

 

2619 Oak Street
Myrtle Beach, South Carolina 29577
Telephone: (843) 205-2000
Facsimile: (843) 205-2475

 

To the Shareholders of Coastal Financial Corporation:

 

The Board of Directors of Coastal Financial Corporation has unanimously approved a merger agreement between Coastal Financial and BB&T Corporation. In the merger, you will receive .385 of a share of BB&T common stock for each share of Coastal Financial common stock that you own plus cash instead of any fractional shares.

 

BB&T common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol “BBT.” On December 20, 2006, the last full NYSE trading day before public announcement of the merger, the closing price of BB&T common stock was $44.27. On [          ], 2007, the latest practicable date prior to the printing of this document, the closing price of BB&T common stock was $[     ].  Based on the .385 exchange ratio, the closing price of BB&T common stock on December 20, 2006, and the number of fully diluted shares of Coastal Financial common stock outstanding on that date, the implied dollar value of the BB&T merger consideration was approximately $17.04 per share of Coastal Financial common stock, and the implied transaction value was approximately $394.6 million. BB&T expects to issue approximately 8.4 million shares of common stock in the merger (excluding any shares of BB&T common stock that may be issued as a result of the exercise of Coastal Financial stock options prior to the merger), which will represent approximately 1.5% of the outstanding BB&T common stock following completion of the merger.

 

The price of BB&T common stock will fluctuate prior to completion of the merger. Coastal Financial shareholders do not have the right to seek an appraisal of the value of their Coastal Financial shares in the merger.

 

We expect the merger to generally be tax-free with respect to the BB&T common stock you receive and taxable with respect to cash you receive for fractional shares.

 

At the special meeting you will consider and vote on the merger agreement. The merger cannot be completed unless holders of at least a majority of the shares of Coastal Financial common stock entitled to vote approve the merger agreement.

 

The special meeting will be held at [          ], Eastern time, on [          , 2007] at [          ]. You are cordially invited to attend.

 

This proxy statement/ prospectus provides you with detailed information about the proposed merger. We encourage you to read this entire document carefully, including “Risk Factors” beginning on page [  ] for a discussion of the risks related to the merger.

 

Your vote is very important.  Whether or not you plan to attend the meeting, please take the time to vote by completing and mailing the enclosed proxy card. If your shares are held in “street name,” you must instruct your broker to vote, or your shares will not be voted by your broker. If you fail to vote, the effect will be the same as a vote against the merger agreement.

 

The Coastal Financial Board of Directors has unanimously determined that the merger is advisable and in the best interests of Coastal Financial and its shareholders, and has unanimously approved the merger agreement. Accordingly, on behalf of the Coastal Financial Board of Directors, I urge you to vote “FOR” approval and adoption of the merger agreement.

 

Sincerely,

 

Michael C. Gerald
President and Chief Executive Officer

 

This proxy statement/ prospectus is dated [          , 2007] and is expected to be first mailed to shareholders of Coastal Financial on or about [          , 2007].

 

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the merger or BB&T common stock to be issued in the merger or determined if this proxy statement/ prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

 

The shares of BB&T common stock to be issued in the merger are not savings or deposit accounts or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

ADDITIONAL INFORMATION

 

This proxy statement/ prospectus incorporates important business and financial information about BB&T and Coastal Financial from other documents that are not included in or delivered with this proxy statement/ prospectus. This information is available to you without charge upon your written or oral request. You may obtain copies of those documents by accessing the Securities and Exchange Commission’s Internet website maintained at “http://www.sec.gov” or by requesting copies in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

 

If you would like to request documents, please do so by          , 2007 in order to receive them before the special meeting. If you request any documents incorporated by reference from us, we will mail them to you promptly by first class mail or similar means.

 

See “Where You Can Find More Information” on pages [  ].

 

[Coastal Financial LOGO]

 

2619 Oak Street
Myrtle Beach, South Carolina 29577
Telephone: (843) 205-2000
Facsimile: (843) 205-2475

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On [     ], 2007

 

Coastal Financial Corporation will hold its special meeting of shareholders on [          ], 2007 at [          ] Eastern time, at [     ], for the following purposes:

 

 

Additional information about the proposals set forth above may be found in the accompanying proxy statement/ prospectus. Please carefully review the accompanying proxy statement/ prospectus and the merger agreement attached as Appendix A to the accompanying proxy statement/ prospectus.

 

Holders of shares of Coastal Financial common stock as of the close of business on [     ], 2007, the record date, are entitled to notice of the meeting and to vote at the meeting or any adjournments or postponements of the meeting. If your shares are not registered in your own name, you will need additional documentation from the record holder in order to vote personally at the meeting.

 

The Coastal Financial Board of Directors has unanimously determined that the merger is advisable and in the best interests of Coastal Financial and its shareholders, and has unanimously approved the merger agreement. Accordingly, on behalf of the Coastal Financial Board of Directors, I urge you to vote “FOR” approval and adoption of the merger agreement.

 

You are strongly urged to vote “FOR” the above proposals.  All Coastal Financial shareholders, whether or not they expect to attend the special meeting in person, are requested to complete, date, sign, and return the enclosed form of proxy in the accompanying envelope, which requires no postage if mailed in the United States. You may revoke your proxy at any time before the vote is taken by filing with Coastal Financial’s Secretary an instrument of revocation or a duly executed form of proxy bearing a later date, or by voting in person at the special meeting. Attendance at the meeting, however, will not by itself revoke a proxy.

 

By Order of the Board of Directors

 

Michael C. Gerald
President and Chief Executive Officer

 

Myrtle Beach, South Carolina

[          ], 2007

 

Regardless of the number of shares you hold, your vote is very important. Please complete, sign, date and promptly return the proxy card in the enclosed envelope so that your shares will be represented, whether or not you plan to attend the special meeting. Failure to secure a quorum on the date set for the special meeting will require an adjournment that will cause us to incur considerable additional expense.

 

TABLE OF CONTENTS

 

 

This summary highlights selected information from this proxy statement/ prospectus and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire document and the documents to which we refer you. See “Where You Can Find More Information” on page [     ] .

Holders of Coastal Financial Common Stock Will Receive Shares of BB&T Common Stock in the Merger (see page [  ] ).

 

Under the merger agreement, if the merger is completed, you will receive .385 of a share of BB&T common stock in exchange for each of your shares of Coastal Financial common stock.

 

No fractional shares of BB&T common stock will be issued in connection with the merger. Instead, cash will be paid for any fractional share of BB&T common stock to which you would otherwise be entitled.

 

The table below shows the closing price of BB&T common stock, Coastal Financial common stock and the equivalent price per share of Coastal Financial common stock on December 20, 2006 (the last full NYSE and NASDAQ Capital Market (“NASDAQ”) trading day before public announcement of the merger) and on [          ], 2007 (the last practicable trading date prior to the date of this proxy statement/ prospectus). The equivalent price per share of Coastal Financial common stock is calculated by multiplying the BB&T per share closing price by the exchange ratio of .385, which is the portion of a share of BB&T common stock that Coastal Financial shareholders will receive in the merger for each share of Coastal Financial common stock that they own.

 

 

Because the .385 exchange ratio is fixed, but the market price of BB&T will fluctuate prior to the merger, the equivalent price per share of Coastal Financial common stock will also fluctuate prior to the merger, and you will not know the final equivalent price per share of Coastal Financial common stock when you vote upon the merger.

 

Set forth below is a table showing a range of prices for a share of BB&T common stock and the corresponding equivalent price per share of Coastal Financial common stock that is to be converted into BB&T common stock in the merger. The table does not reflect the fact that cash will be paid instead of fractional shares.

 

BB&T common stock is traded on the NYSE under the symbol “BBT.” Coastal Financial common stock is traded on the NASDAQ under the symbol “CFCP.” We urge you to obtain information on the market value of BB&T and Coastal Financial common stock that is more recent than that provided in this proxy statement/ prospectus. You should obtain current stock price quotations from a newspaper, the Internet or your broker. The merger agreement does not include a price based-termination right or other protection against declines in the market value of BB&T common stock.

 

Each Coastal Financial shareholder should complete, date and sign the enclosed proxy and return it promptly in the prepaid, pre-addressed envelope provided.

 

Please do not send in your Coastal Financial stock certificates at this time. You will receive instructions from BB&T shortly after the merger is completed telling you how to exchange your Coastal Financial common stock certificates for merger consideration.

 

For federal income tax purposes, the merger will be treated as a “reorganization” under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). As a result, except for cash paid instead of fractional shares, you generally will not recognize any taxable gain or loss on the conversion of your shares of Coastal Financial common stock into shares of BB&T common stock in the merger. Tax matters are complicated, and the tax consequences of the merger may vary among shareholders. We urge you to contact your own tax advisor for assistance in understanding fully how the merger will affect you.

 

BB&T currently pays regular quarterly cash dividends of $0.42 per share of its common stock, or approximately $0.16 per equivalent share of Coastal Financial common stock, and, over the past five years, has had a dividend payout ratio typically in the range of 40% to 50% of earnings and a compound annualized dividend growth rate of 10.3%. BB&T has increased its quarterly cash dividend payments for 35 consecutive years. BB&T expects that it will continue to pay quarterly dividends consistent with this payout ratio, but may change that policy based on business conditions, BB&T’s financial condition, earnings, regulatory limitations or other factors.

 

The Coastal Financial Board of Directors believes that the merger is advisable and in the best interests of Coastal Financial shareholders and unanimously recommends that you vote “FOR” approval and adoption of the merger agreement.

 

Coastal Financial’s financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”), has given an opinion to the Coastal Financial Board of Directors that, as of December 20, 2006 (the date the merger agreement was executed) and based on and subject to the considerations described in its opinion, the merger consideration was fair from a financial point of view to holders of shares of Coastal Financial common stock. The full text of this opinion is attached as Appendix B to this proxy statement/ prospectus. We encourage you to read the opinion carefully to understand the assumptions made, matters considered and limitations of the review undertaken by KBW in rendering its fairness opinion. The opinion of KBW has not been updated prior to the date of this document and does not reflect any change in circumstances after December 20, 2006. Upon completion of the merger, KBW will be entitled to a fee in the amount of 0.9% of the market value of the aggregate consideration, determined by reference to the closing price of BB&T’s common stock as of December 21, 2006, payable by BB&T to the Coastal Financial shareholders in the merger plus reimbursement of its reasonable expenses. Based on the closing price of BB&T common stock as of December 21, 2006, KBW would be entitled to a fee of approximately $3.5 million as of the closing date of the merger.

 

Coastal Financial shareholders do not have the right to dissent from the merger and demand an appraisal of the fair value of their shares in connection with the merger.

 

Coastal Financial will hold a special shareholders’ meeting at [          ], Eastern time, on [          , 2007] at [          ]. At the meeting, you will vote on the merger agreement, the proposal to adjourn the special meeting, if necessary, to solicit additional proxies to approve the matters being voted upon at the meeting and any other business that properly arises.

 

BB&T Corporation

200 West Second Street

Winston-Salem, North Carolina 27101

(336) 733-2000

 

BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations primarily through its commercial bank subsidiaries, which have offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama, Florida, Indiana and Washington, D.C. Substantially all of the loans by BB&T’s bank and nonbank subsidiaries are to businesses and individuals in these market areas. At September 30, 2006, BB&T’s principal bank subsidiaries were Branch Banking and Trust Company (“Branch Bank”), Branch Banking and Trust Company of South Carolina (“Branch Bank-SC”), Branch Banking and Trust Company of Virginia (“Branch Bank-VA”), and BB&T Bankcard Corporation. On December 31, 2006, BB&T completed the merger of its banking subsidiaries, Branch Bank-SC and Branch Bank-VA into Branch Bank. BB&T’s principal assets are all of the issued and outstanding shares of common stock of its subsidiary banks and its nonbank subsidiaries. As of September 30, 2006, BB&T had consolidated total assets of $118.5 billion, consolidated net loans of $80.5 billion, consolidated deposits of $80.1 billion and consolidated shareholders’ equity of $11.7 billion.

 

Coastal Financial Corporation

2619 Oak Street

Myrtle Beach, South Carolina 29577

Telephone: (843) 205-2000

 

Coastal Financial Corporation is a unitary thrift holding company incorporated in Delaware with one wholly owned banking subsidiary, Coastal Federal Bank. Coastal Financial also owns Coastal Planners Holding Corporation, whose subsidiary, Coastal Retirement, Estate and Tax Planners, Inc., offers fee-based financial planning and tax preparation services. Coastal Financial’s primary business activities are conducted by Coastal Federal Bank. Coastal Financial and Coastal Federal Bank’s principal executive offices are located in Myrtle Beach, South Carolina. Coastal Federal Bank is a full service financial services company with 24 branches located in four counties throughout the coastal regions of South Carolina and North Carolina. Coastal Federal Bank’s primary market areas are located along the coastal regions of South Carolina and North Carolina and predominately center around the Metro regions of Myrtle Beach, South Carolina and Wilmington, North Carolina, and their surrounding counties. As of September 30, 2006, Coastal Financial had consolidated total assets of $1.66 billion, consolidated net loans of $1.09 billion, consolidated deposits of $1.06 billion and consolidated shareholders’ equity of $112.8 million.

 

If Coastal Financial shareholders approve the merger agreement at the special meeting, subject to the receipt of necessary regulatory approvals, Coastal Financial will merge into BB&T, with BB&T being the surviving corporation in the merger. Coastal Financial’s banking and other subsidiaries, through which it

operates, will become wholly owned subsidiaries of BB&T. We currently expect to complete the merger in the second quarter of 2007.

 

We have included the merger agreement as Appendix A to this proxy statement/ prospectus. We encourage you to read the merger agreement in full, as it is the legal document that governs the merger.

 

In addition, following the effective time of the merger, Coastal Federal Bank will be merged with and into Branch Bank, subject to regulatory approvals. See “Regulatory Approvals Must be Obtained for the Merger to Occur”, below.

 

Approval of the merger agreement requires the affirmative vote of the holders of at least a majority of the outstanding shares of Coastal Financial common stock entitled to vote. If you fail to vote or abstain, it will have the effect of a vote against the merger agreement. At the record date, the directors and executive officers of Coastal Financial and their affiliates together owned approximately [     ]% of the Coastal Financial common stock entitled to vote at the meeting. At the record date, the directors and officers of BB&T, their affiliates, BB&T and its subsidiaries owned less than 1% of the outstanding shares of Coastal Financial common stock.

 

Brokers who hold shares of Coastal Financial common stock as nominees will not have authority to vote those shares on the merger agreement unless the beneficial owners of those shares provide voting instructions. If you hold your shares in street name, please see the voting form provided by your broker for additional information regarding the voting of your shares. If your shares are not registered in your name, you will need additional documentation from your record holder to vote the shares in person. Shares that are not voted because you do not instruct your broker will have the effect of a vote against the merger agreement.

 

The merger does not require the approval of BB&T’s shareholders.

 

If you owned shares of Coastal Financial common stock at the close of business on [          ], 2007, which is the record date, you are entitled to vote on the merger agreement, the proposal to adjourn the special meeting, if necessary, to solicit additional proxies to approve the matters being voted upon at the meeting and any other matters that properly may be considered at the meeting.

 

On the record date, there were [          ] shares of Coastal Financial common stock outstanding. At the meeting, you will have one vote for each share of Coastal Financial common stock that you owned on the record date.

 

Some of Coastal Financial’s directors and executive officers have interests in the merger that differ from, or are in addition to, their interests as Coastal Financial shareholders. In the case of some executive officers and directors of Coastal Financial, these interests exist because of rights under existing employment agreements with, and benefit and compensation plans of, Coastal Financial. Michael C. Gerald, President and Chief Executive Officer of Coastal Financial, has entered into an employment agreement with Branch Bank, a wholly owned subsidiary of BB&T, that will become effective upon completion of the merger that will provide him with compensation and rights in addition to his interests as a shareholder of Coastal Financial. The employment agreement between Mr. Gerald and Branch Bank was a condition of BB&T’s entering into the merger agreement.

 

Existing Employment Agreements with Coastal Financial.  Existing employment agreements between Coastal Financial and eight of its key employees, including Michael C. Gerald, President and Chief Executive

Officer, Jerry L. Rexroad, Executive Vice President and Chief Financial Officer, Jimmy R. Graham, Executive Vice President, Steven J. Sherry, Executive Vice President, and Philip G. Stalvey, Executive Vice President, will be terminated upon completion of the merger. The termination of each employment agreement will obligate Coastal Financial to make certain payments to each executive, which in the aggregate are estimated to total approximately $6.8 million.

 

Employment/Consulting Agreement with Branch Bank.  Coastal Financial’s President and Chief Executive Officer, Michael C. Gerald, has entered into an employment/consulting agreement with Branch Bank. The employment/consulting agreement provides that Mr. Gerald will serve as an Executive Vice President of Branch Bank for a term lasting up to seven years following the completion of the merger. However, on the later of the one-year anniversary of the completion of the merger or the three-month anniversary of the completion of the merger of Coastal Federal Bank with and into Branch Bank, Mr. Gerald may elect to relinquish his position as an employee and become an independent consultant to Branch Bank. Whether Mr. Gerald remains an employee of Branch Bank or elects to become an independent consultant, the maximum term of the employment/consulting agreement will be seven years, unless the parties agree in writing to extend the term of the agreement.

 

For his services as an Executive Vice President, Mr. Gerald will receive a minimum annual base salary of $288,750. In addition, while Mr. Gerald is employed by Branch Bank, he will be eligible to receive incentive compensation (such as stock options, restricted stock and other equity awards) and employee retirement benefits on the same terms as similarly situated officers of Branch Bank.

 

If Mr. Gerald elects to become an independent consultant to Branch Bank, he will be paid $288,750 annually in exchange for providing consulting services and as consideration for noncompetition and other covenants contained in the employment/consulting agreement. As an independent consultant, Mr. Gerald will not be eligible to participate in any of Branch Bank’s employee benefit plans, except for elective coverage under group health plan benefits. Branch Bank and Mr. Gerald each will have certain rights to terminate the employment/consulting agreement and Mr. Gerald may be entitled to certain payments following termination. For a complete discussion please see page [     ].

 

Advisory Board.  Following completion of the merger, BB&T will ask each member of the Coastal Financial Board of Directors to serve on the BB&T local advisory board serving the region formerly served by Coastal Financial. BB&T will pay compensation to such directors for their service on the BB&T local advisory board for a period of two years after completion of the merger consistent with the existing fee structure offered by Coastal Financial to such directors. After the expiration of such two-year period, if a director continues to serve on the local advisory board, BB&T will pay compensation to such director for his service on the BB&T local advisory board consistent with BB&T’s fee policies and age limits for advisory board members.

 

The Coastal Financial Board of Directors was aware of these and other interests and considered them when it approved and adopted the merger agreement. The material terms and financial provisions of these arrangements are described under the heading “Certain Interests of Coastal Financial’s Directors and Officers in the Merger” on page [     ].

 

When the merger is completed, outstanding options to purchase Coastal Financial common stock, whether or not then exercisable, granted to Coastal Financial employees and directors under Coastal Financial’s equity-based plans will be assumed by BB&T and become options with respect to BB&T common stock (or substitute options to acquire BB&T common stock will be granted). At its election, BB&T may substitute, as of the effective time of the merger, options under the BB&T Corporation 2004 Stock Incentive Plan or any other duly adopted comparable plan for all or a part of the Coastal Financial stock options, subject to certain conditions provided for in the merger agreement. The number of shares subject to these options (and the exercise price thereof), will be adjusted to reflect the exchange ratio.

 

The merger is subject to the approval of, or notice to, certain regulatory authorities, including the Board of Governors of the Federal Reserve (“Federal Reserve”), the South Carolina Board of Financial Institutions, the Georgia Department of Banking and Finance and the Virginia Bureau of Financial Institutions. In addition, following the effective time of the merger, Coastal Federal Bank is expected to be merged with and into Branch Bank, subject to the approval of, or notice to, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision and the North Carolina Commissioner of Banks. Although BB&T does not know of any reason why it would not obtain regulatory approval in a timely manner, BB&T cannot be certain when such approval will be obtained or if it will be obtained.

 

A number of other conditions must be met for us to complete the merger, including:

 

 

We can mutually agree at any time to terminate the merger agreement without completing the merger. Either company also can unilaterally terminate the merger agreement if:

 

 

Generally, the company seeking to terminate cannot itself be in violation of the merger agreement in a way that would allow the other party to terminate.

 

BB&T may also terminate the merger agreement if, prior to the completion of the merger, the Coastal Financial Board of Directors:

 

 

At any time before the effective date of the merger, BB&T and Coastal Financial can agree to amend the merger agreement in any way, unless any such amendment would violate applicable law or require resubmission of the merger agreement to Coastal Financial’s shareholders for approval. Either company can waive any of the requirements of the other company contained in the merger agreement, except that neither company can waive any required regulatory approval.

 

Under the limited circumstances described below, Coastal Financial will be required to pay to BB&T a termination fee of $15 million.

 

The termination fee would be payable if the merger agreement is terminated for one of the following reasons:

 

 

AND

 

 

AND

 

 

The termination fee also would be payable by Coastal Financial to BB&T IF:

 

 

AND

 

 

The termination fee, which was a condition of BB&T’s willingness to enter into the merger agreement, limits the ability of Coastal Financial to pursue competing acquisition proposals and discourages other companies from offering to acquire Coastal Financial.

 

BB&T will account for the merger using the purchase method of accounting. Under the purchase method, BB&T will record, at fair value, the acquired assets and assumed liabilities of Coastal Financial. To the extent the total purchase price exceeds the fair value of tangible and identifiable intangible assets acquired over the liabilities assumed, BB&T will record goodwill. Based on a closing price of $[     ] of BB&T common stock on the NYSE on [     ], 2007, management of BB&T estimates that the total merger consideration (including issuance of common stock and assumption of options on common stock) if the closing occurred on such date

would be approximately $[     ] million (based on the number of fully diluted shares of Coastal Financial outstanding on that date). Utilizing information as of September 30, 2006, estimated goodwill and other intangibles are currently expected to total approximately $281.5 million. BB&T will include in its consolidated results of operations the results of Coastal Financial’s operations after the merger is completed. Due to the fact that the proposed transaction is not material to BB&T, no pro forma financial information is included in this proxy statement/ prospectus, except to the extent included under “Comparative Per Share Data” on page [     ] of this proxy statement/ prospectus.

 

BB&T common stock is traded on the NYSE under the symbol “BBT.” On December 20, 2006, the last full NYSE trading day before public announcement of the merger, BB&T common stock closed at $44.27. On [          ], 2007, BB&T common stock closed at the end of regular trading at [$     ].  The market price of BB&T will fluctuate prior to the merger. You should obtain current stock price quotations from a newspaper, the Internet or your broker.

 

Coastal Financial’s common stock is publicly traded on the NASDAQ under the symbol “CFCP.” On December 20, 2006, the last full NASDAQ trading day before public announcement of the merger, Coastal Financial common stock closed at $14.44. On [          ], 2007, Coastal Financial common stock closed at [$     ].

 

The rights of Coastal Financial shareholders are currently governed by Coastal Financial’s Certificate of Incorporation, Bylaws and the Delaware General Corporation Law. Following the merger, Coastal Financial shareholders will become BB&T shareholders, and their rights will be governed by BB&T’s Articles of Incorporation, Bylaws and the North Carolina Business Corporation Act. There are differences between the rights of BB&T shareholders and the rights of Coastal Financial shareholders. A discussion of the rights of BB&T and Coastal Financial shareholders is set forth in “Comparison of the Rights of BB&T Shareholders and Coastal Financial Shareholders” on page [     ].

 

BB&T will list the shares of its common stock to be issued in the merger on the NYSE.

 

After you have carefully read this document, please vote your shares of Coastal Financial common stock by completing, signing, dating and mailing the enclosed proxy form in the return envelope provided as soon as possible so that your shares will be represented at the special meeting. If you sign and send in your proxy and do not indicate how you want to vote, your proxy will be counted as a vote in favor of the proposals. If you do not vote or you abstain, it will have the effect of a vote against the merger proposal.

 

After the merger, you will have to surrender your Coastal Financial common stock certificates in order to receive new certificates representing the number of shares of common stock of BB&T or any cash you are entitled to receive in the merger. Please do not send certificates until after receipt of written instructions from BB&T following completion of the merger.

 

BB&T common stock is listed on the NYSE under the symbol “BBT,” and Coastal Financial common stock is listed on the NASDAQ under the symbol “CFCP.” The table below shows the high and low sales prices of BB&T common stock and Coastal Financial common stock and cash dividends paid per share for the periods indicated. The merger agreement restricts Coastal Financial’s ability to increase dividends; however, in accordance with the terms of the merger agreement, Coastal Financial paid a quarterly dividend in its first

quarter of fiscal 2007 (for the period ended December 31, 2006) of $0.05 per share of Coastal Financial common stock.

 

 

 

 

The table below shows the closing price of BB&T common stock and Coastal Financial common stock on December 20, 2006, the last full NYSE and NASDAQ trading day before public announcement of the proposed merger.

 

 

 

 

We are providing the following information to help you analyze the financial aspects of the merger. With respect to BB&T, we derived this information from BB&T’s audited financial statements for each of its fiscal years ended December 31, 2001 through December 31, 2005, and from BB&T’s unaudited financial statements at and for the nine months ended September 30, 2006 and 2005. With respect to Coastal Financial, we derived this information from Coastal Financial’s audited financial statements for each of its fiscal years ended September 30, 2002 through September 30, 2006. This information is only a summary. You should read this information in conjunction with BB&T’s and Coastal Financial’s historical financial statements and the related notes contained in the annual and quarterly reports and other documents that have been filed with the Securities and Exchange Commission and are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” on page [     ].  You should not rely on the historical

information as being indicative of results expected for any future period whether with respect to BB&T and Coastal Financial individually or as a combined company.

 

BB&T — Historical Financial Information
(Dollars in thousands, except for per share amounts)

 

 

Coastal Financial — Historical Financial Information
(Dollars in thousands, except for per share amounts)

 

 

 

 

We have summarized below the per share information for our companies on a historical, pro forma combined and equivalent basis. You should read this information in conjunction with the historical financial statements (and related notes) contained in the annual and quarterly reports and other documents that have been filed with the Securities and Exchange Commission. See “Where You Can Find More Information” on page [     ].

 

The pro forma combined information gives effect to the merger accounted for as a purchase. The pro forma calculations reflect that all Coastal Financial shareholders will receive per share stock consideration of .385 of a share of BB&T common stock for each outstanding share of Coastal Financial common stock. We assume that the merger occurred as of the beginning of the fiscal periods presented (or in the case of shareholders’ equity, as of the date specified). You should not rely on the pro forma information as being indicative of the historical results that we would have had if we had been combined or the future results that we will experience after the merger.

 

 

 

 

One Bank Merger

 

On December 31, 2006, BB&T completed the merger of its banking subsidiaries, Branch Bank-SC and Branch Bank-VA into Branch Bank, effectively consolidating these three bank subsidiaries into one bank subsidiary.

 

BB&T Fourth Quarter 2006 Earnings

 

On January 18, 2007, BB&T reported unaudited earnings for the fourth quarter and full year of 2006. Net income for the fourth quarter of 2006 totaled $250.8 million, a decrease of 41.6% compared to $429.6 million earned in the fourth quarter of 2005. On a diluted per share basis, net income for the fourth quarter of 2006 was $.46, a decrease of 41.0% compared to $.78 earned in the fourth quarter of 2005. For the twelve months ended December 31, 2006, net income was $1.53 billion, a decrease of 7.6% compared to $1.65 billion earned for 2005. On a diluted per share basis, net income was $2.81 for 2006, a decrease of 6.3% compared to $3.00 earned for 2005. For the fourth quarter of 2006, the annualized return on average assets and average shareholders’ equity were .84% and 8.33%, respectively, compared to 1.58% and 15.32% for the fourth quarter of 2005. For the twelve months ended December 31, 2006, the returns on average assets and average shareholders’ equity were 1.34% and 13.35%, respectively, compared to 1.58% and 14.95% for 2005. BB&T’s fourth quarter and full year results were negatively affected by an additional tax provision of $139.1 million after-tax, or approximately $.25 per diluted share and securities losses resulting from a portfolio restructuring of $46.9 million after-tax, or approximately $.09 per diluted share. BB&T recorded the additional tax reserves as a result of a summary judgment issued by the United States District Court for the Middle District of North Carolina on January 4, 2007 in favor of the Internal Revenue Service related to BB&T Corporation’s treatment of a leveraged lease transaction. The amount of the additional tax reserves relates to the potential impact of the District Court’s ruling on BB&T’s entire leveraged lease portfolio. BB&T’s management disagrees with the District Court’s decision and intends to appeal the matter to the United States Appeals Court for the Fourth Circuit, based in Richmond, Virginia. BB&T’s complete earnings announcement is included in the Form 8-K furnished by BB&T on January 18, 2007. As of December 31, 2006, BB&T had consolidated total assets of $121.4 billion, consolidated net loans of $82.0 billion, consolidated deposits of $81.0 billion and consolidated shareholders’ equity of $11.7 billion.

 

Coastal Financial First Quarter Fiscal 2007 Earnings

 

On January 24, 2007, Coastal Financial reported unaudited earnings for the first fiscal quarter of 2007 ended December 31, 2006. Net income for the first quarter of fiscal 2007 increased 9.9% to $4.9 million or $0.23 per share ($0.22 per share diluted), as compared to $4.4 million or $0.21 per share ($0.20 per share diluted) for the same period of fiscal 2006. At December 31, 2006, assets totaled $1.66 billion, an increase of 5.1% from $1.58 billion at December 31, 2005. During the same period, customer deposits (excluding brokered deposits) increased 3.5%, from $861.7 million to $891.4 million, and net loans receivable increased 11.1%, from $981.9 million to $1.1 billion. In comparing the first quarters of fiscal 2006 and 2007, net interest income after provision for loan losses grew 5.9% from $12.9 million to $13.6 million. Returns on average assets and average equity were 1.18% and 17.1%, respectively, for the three months ended December 31, 2006, as compared to 1.14% and 18.1% for the comparable period in fiscal 2006. At December 31, 2006, net interest margin was 3.54% compared to 3.70% at December 31, 2005. At December 31, 2006, nonperforming assets represented 0.33% of total assets compared to 0.21% at September 30, 2006 and 0.31% at December 31, 2005. At December 31, 2006, consolidated shareholders’ equity was $116.0 million.

 

In addition to the other information included in this proxy statement/prospectus, you should carefully consider the matters described below in determining whether to approve the merger agreement. Please also refer to the additional risk factors identified in “A Warning About Forward-Looking Information” on page [     ] and in the periodic reports and other documents of BB&T and Coastal Financial incorporated by reference into this document and listed in “Where You Can Find More Information” on page [     ].

 

Because the Market Price of BB&T Common Stock May Fluctuate, You Cannot be Sure of the Market Value of the BB&T Common Stock that You Will Receive in the Merger.

 

You will receive .385 of a share of BB&T common stock for each share of Coastal Financial common stock if the merger is completed. The merger agreement does not provide for any adjustment to the exchange ratio for changes in the stock price of either of Coastal Financial’s or BB&T’s stock. Changes in the price of BB&T common stock from the date of the merger agreement, from the date of this proxy statement/prospectus and from the date of the special meeting will affect the value of the merger consideration that you receive in the merger. On December 20, 2006, the day before the merger was announced, the per share closing price for BB&T common stock on the New York Stock Exchange was $44.27, or an equivalent price per share of Coastal Financial common stock of $17.04. On [          ], 2007, the most recent practicable date before the mailing of this proxy statement/prospectus, the closing price was [$     ], or an equivalent price per share of Coastal Financial common stock of [$     ].  BB&T’s common stock price may increase or decrease before and after the merger due to a variety of factors, including, without limitation, general market and economic conditions, changes in BB&T’s businesses, operations and prospects and regulatory considerations. Many of these factors are beyond BB&T’s control.

 

Coastal Financial’s Executive Officers and Directors Have Interests in the Merger in Addition to or Different from Your Interests as a Coastal Financial Shareholder.

 

Coastal Financial’s board of directors directed the negotiation of the merger agreement with BB&T, approved the merger agreement and is recommending that Coastal Financial shareholders vote for the merger agreement. In considering these facts and the other information contained in this proxy statement/prospectus, you should be aware that certain of Coastal Financial’s executive officers and directors have economic interests in the merger in addition to the interests that they share with you as a Coastal Financial shareholder. As described in detail under the heading “The Merger — Certain Interests of Coastal Financial’s Directors and Officers in the Merger” on page [     ], there are substantial financial interests to be conveyed to certain executive officers of Coastal Financial under the terms of certain existing employment agreements. In addition, as a condition to BB&T’s willingness to enter into the merger agreement, Michael C. Gerald, Coastal Financial’s President and Chief Executive Officer, has entered into an employment agreement with Branch Bank to be effective following the merger. Each director of Coastal Financial is expected to serve on a Branch Bank local advisory board following the merger and will receive compensation for the two years following the effective time of the merger for such service equal to the compensation they have received from their service on the Coastal Financial board of directors. See “The Merger — Certain Interests of Coastal Financial’s Directors and Officers in the Merger — Advisory Boards.”

 

The Fairness Opinion Obtained by Coastal Financial From its Financial Advisor Will not Reflect Changes in Circumstances Prior to the Merger.

 

Keefe, Bruyette & Woods, Inc., the financial advisor to Coastal Financial, has delivered a “fairness opinion” to the Board of Directors of Coastal Financial. The opinion states that as of December 20, 2006, and subject to the limitations and qualifications set forth in the opinion, the exchange ratio in the merger is fair from a financial point of view to Coastal Financial’s shareholders. The opinion does not reflect changes that may occur or may have occurred after December 20, 2006, including changes to the operations and prospects

of Coastal Financial or BB&T, changes in general market and economic conditions or other factors. Because Coastal Financial does not plan to ask KBW to update its opinion, the December 20, 2006 opinion may not accurately address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed.

 

Coastal Financial’s Shareholders Will Not Control BB&T’s Future Operations.

 

Following the merger, Coastal Financial shareholders in the aggregate will become the owners of approximately 1.5% of the outstanding shares of BB&T common stock. Accordingly, former Coastal Financial shareholders will not have a significant impact on the election of directors or on whether future BB&T proposals to its shareholders are approved or rejected.

 

BB&T and Coastal Financial have each made forward-looking statements in this document and in other documents to which this document refers that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of the managements of BB&T and Coastal Financial and on information currently available to them or, in the case of information that appears under the heading “The Merger — Background of and Reasons for the Merger” on page [     ], information that was available to the managements of BB&T and Coastal Financial as of the date of the merger agreement, and should be read in conjunction with the notices about forward-looking statements made by BB&T and Coastal Financial in their reports filed under the Securities Exchange Act of 1934, as amended. Forward-looking statements include the information concerning possible or assumed future results of operations of BB&T or Coastal Financial set forth under “Summary” and “The Merger — Background of and Reasons for the Merger” and statements preceded by, followed by or that include the words “believes,” “expects,” “assumes,” “indicates,” “anticipates,” “intends,” “plans,” “projects,” “estimates” or other similar expressions. See “Where You Can Find More Information” on page [     ].

 

BB&T and Coastal Financial have made statements in this document and in other documents to which this document refers regarding expected cost savings from the merger, estimated merger or restructuring charges, estimated increases in Coastal Financial’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 merger or restructuring charges, BB&T has made assumptions about, among other things, the extent of operational overlap between BB&T and Coastal Financial, the amount of general and administrative expense consolidation, costs relating to converting Coastal Financial’s bank operations and data processing to BB&T’s systems, the size of anticipated reductions in fixed labor costs, the amount of severance expense, the extent of the charges that may be necessary to align the companies’ respective accounting policies and the costs related to the merger. The realization of cost savings and the amount of merger or restructuring charges are subject to the risk that the foregoing assumptions are inaccurate and actual results may be materially different from those expressed or implied by the forward-looking statements. Any statements in this document about 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:

 

 

Management of each of BB&T and Coastal Financial believes the forward-looking statements about its company in this document are reasonable; however, shareholders of Coastal Financial should not place undue reliance on them. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results and stock valuations of BB&T following completion of the merger may differ materially from those expressed or implied in these forward-looking statements. Many of the factors that will determine these results and values are beyond BB&T’s and Coastal Financial’s ability to control or predict.

 

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this document and attributable to BB&T or Coastal Financial or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Neither BB&T nor Coastal Financial undertakes any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

 

This proxy statement/ prospectus is being furnished to you in connection with the solicitation of proxies by the Coastal Financial Board of Directors from holders of Coastal Financial common stock, for use at the special meeting of shareholders to be held at [          ] on [          ], 2007 at [          ], Eastern time, and at any adjournments or postponements of the special meeting. At the special meeting of shareholders, holders of Coastal Financial common stock will be asked to vote upon the following proposals:

 

 

Proxies may be voted on other matters that may properly come before the special meeting, if any, at the discretion of the proxy holders. The Coastal Financial Board of Directors knows of no such other matters except those incidental to the conduct of the special meeting.

 

The Coastal Financial Board of Directors has fixed the close of business (5:00 p.m., Eastern Standard Time) on [          ], 2007 as the record date for determining the holders of Coastal Financial common stock entitled to notice of, and to vote at, the special meeting. Only holders of record of Coastal Financial common stock at the close of business on the record date will be entitled to notice of, and to vote at, the special meeting.

 

On the record date, there were [          ] shares of Coastal Financial common stock issued and outstanding and entitled to vote at the special meeting, held by approximately [          ] holders of record. Holders of record of Coastal Financial common stock are entitled to one vote per share on any matter which may properly come before the special meeting. Votes may be cast at the special meeting in person or by proxy.

 

The presence at the special meeting, either in person or by proxy, of the holders of a majority of the outstanding Coastal Financial common stock entitled to vote, is necessary to constitute a quorum in order to transact business at the special meeting. However, in the event that a quorum is not present at the special

meeting, it is expected that the special meeting will be adjourned or postponed in order to solicit additional proxies.

 

If you are a beneficial owner of Coastal Financial common stock held by a broker, bank or other nominee (i.e., in “street name”), you will need proof of ownership to be admitted to the special meeting. A recent brokerage statement or letter from a bank or broker are examples of proof of ownership.

 

The presence, in person or by properly executed proxy, of a majority of the Coastal Financial common stock entitled to vote is necessary to constitute a quorum at the special meeting. All votes “for” or “against,” as well as all abstentions, will be counted for the purpose of determining whether a quorum is present. Brokers who hold shares of Coastal Financial common stock as nominees will not have discretionary authority to vote such shares in the absence of instructions from the beneficial owners of those shares. Any shares which are not voted because the nominee-broker lacks such discretionary authority (“broker non-votes”) will nevertheless be counted for the purpose of determining whether a quorum is present.

 

Approval and adoption of the merger agreement will require the affirmative vote of holders of a majority of the shares of Coastal Financial common stock entitled to vote on the record date. In determining whether the proposal to approve and adopt the merger agreement has received the requisite number of affirmative votes, broker non-votes and abstentions will have the same effect as a vote against the proposal.

 

Approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, and action on any other matter that is properly presented at the special meeting for consideration of the shareholders require the affirmative vote of a majority of the votes cast at the special meeting. Because the required vote is based on the affirmative vote of a majority of the votes cast, failures to vote, abstentions and broker non-votes will not be treated as votes cast and, therefore, will have no effect on either the proposal to adjourn the special meeting, if necessary, to solicit additional proxies, or any other matter that is properly presented. The Coastal Financial Board of Directors is not aware of any other business to be presented at the special meeting other than as described above and other than matters incidental to the conduct of the special meeting.

 

As noted above, failures to vote, abstentions and broker non-votes will have the same effect as votes against the merger agreement. Accordingly, the Coastal Financial Board of Directors urges you to complete, date and sign the accompanying proxy and return it promptly in the enclosed postage prepaid envelope or to otherwise vote your shares in another approved manner.

 

You should not return your stock certificates with your proxy cards. The procedure for surrendering your stock certificates is described under “The Merger — Exchange of Coastal Financial Stock Certificates” on page [     ].

 

As of the record date, Coastal Financial’s directors and executive officers and their affiliates may be deemed to be the beneficial owners of approximately [     ]% of the outstanding shares of Coastal Financial common stock (not including shares that may be acquired upon the exercise of stock options). As of the record date, the directors and officers of BB&T, their affiliates, BB&T and its subsidiaries owned less than 1% of the outstanding shares of Coastal Financial common stock. Coastal Financial expects that its directors and executive officers who are able to vote their shares in favor of the merger agreement will do so, although none of them has entered into any agreements obligating them to vote their shares in favor of the merger agreement.

 

If your shares are registered directly in your name, you are considered the shareholder of record, and you may vote in person at the special meeting. If you want to vote your shares of Coastal Financial common stock held in street name in person at the special meeting, you will have to get a written proxy in your name from

the broker, bank or other nominee who holds your shares. The grant of a proxy on the enclosed proxy card does not preclude a shareholder from voting in person.

 

Whether you hold shares directly as the shareholder of record or beneficially in street name, you may direct how your shares are voted without attending the special meeting. If you are a shareholder of record, you may vote as described below. If you hold shares beneficially in street name, you may vote by submitting voting instructions to your broker, trustee or nominee. For directions on how to vote, please refer to the instructions below and those included on your proxy card. For shares of Coastal Financial common stock held beneficially in street name, please review the voting instruction card provided by your bank or brokerage firm.

 

Shareholders of record of Coastal Financial common stock may submit proxies by completing, signing and dating the enclosed proxy card and mailing them in the accompanying pre-addressed envelopes. Coastal Financial’s shareholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instruction cards provided by their bank or brokerage firm and mailing them in the accompanying pre-addressed envelopes.

 

Shares represented by properly submitted proxies received in time for the special meeting will be voted at the special meeting in the manner specified by such proxies unless the proxies are revoked as described below. If your proxy is properly executed but does not contain voting instructions, your proxy will be voted “FOR” approval of the merger agreement and “FOR” approval of the proposal to adjourn the special meeting, if necessary, to solicit additional proxies.

 

If other matters are properly presented before the special meeting, the persons named in such proxy will have authority to vote in accordance with their judgment on any other such matters. It is not expected that any matter other than as described in this proxy statement/ prospectus will be brought before the special meeting.

 

You may revoke a proxy at any time prior to your proxy being voted at the special meeting by:

 

 

Attendance at the special meeting will not by itself constitute revocation of a proxy; you must specifically revoke as described above.

 

BB&T and Coastal Financial will each pay 50% of the cost of printing this proxy statement/ prospectus, and Coastal Financial will pay all other costs of soliciting proxies from record and beneficial owners of Coastal Financial common stock. Directors, officers and other employees of Coastal Financial or its subsidiaries may solicit proxies personally, by telephone, by facsimile or otherwise. None of these people will receive any special compensation for solicitation activities. Coastal Financial has hired Georgeson Shareholder Services, a proxy solicitation firm, to assist in soliciting proxies for a fee of $7,500 plus $4.75 per call made or received by the firm and reimbursement of reasonable expenses. Coastal Financial will arrange with brokerage firms and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such brokerage firms and other custodians, nominees and fiduciaries, and Coastal Financial will reimburse these record holders for their reasonable out-of-pocket expenses.

 

If Coastal Financial’s shareholders vote to adjourn the special meeting, if necessary, to solicit additional proxies, the special meeting may be adjourned without notice, other than by an announcement made at the special meeting. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow Coastal Financial shareholders who have already sent in their proxies to revoke them at any time prior to their use.

 

The Coastal Financial Board of Directors has unanimously approved the merger agreement and believes that the proposed transaction is advisable and in the best interests of Coastal Financial and its shareholders. The Coastal Financial Board of Directors unanimously recommends that Coastal Financial’s shareholders vote “FOR” approval of the merger agreement. See “The Merger — Background of and Reasons for the Merger” on page [     ].  Members of Coastal Financial’s Board of Directors will receive benefits from the merger that are in addition to those received by other Coastal Financial shareholders. These benefits are described in the “Certain Interests of Coastal Financial’s Directors and Officers in the Merger” section beginning on page [     ].

 

The following information describes the material aspects of the merger. This description does not purport to be complete, and is qualified in its entirety by reference to the appendices to this proxy statement/ prospectus, including the merger agreement, which is attached to this proxy statement/ prospectus as Appendix A and incorporated herein by reference. All shareholders are urged to read the appendices in their entirety.

 

The merger agreement provides for the merger of Coastal Financial into BB&T, with BB&T being the surviving corporation in the merger. Coastal Financial is a Delaware corporation which is governed by the Delaware General Corporation Law (“DGCL”), Coastal Financial’s Certificate of Incorporation and Coastal Financial’s Bylaws. BB&T is a North Carolina corporation which is governed by the North Carolina Business Corporation Act (“NCBCA”), BB&T’s Articles of Incorporation and BB&T’s Bylaws. On the effective date of the merger, each share of Coastal Financial common stock then issued and outstanding will be converted into, and exchanged for, the right to receive .385 of a share of BB&T common stock. Shares held by Coastal Financial or BB&T, other than shares held in a fiduciary capacity or as collateral for debts previously contracted, will not be converted to BB&T common stock.

 

Early in the Fall of 2006, Coastal Financial’s senior management began work on Coastal Financial’s Fiscal 2007 Budget and was finalizing Coastal Financial’s Vision 2010 Strategic Plan. In the process of formulating the Fiscal 2007 Budget and finalizing the Vision 2010 Strategic Plan, senior management became aware of the potential range of value that could be realized per share of Coastal Financial common stock in a merger or acquisition transaction based on the pricing of recent merger and acquisition transactions involving companies comparable to Coastal Financial.

 

On October 9, 2006, Michael C. Gerald, Coastal Financial’s President and Chief Executive Officer, and Jerry L. Rexroad, Coastal Financial’s Executive Vice President and Chief Financial Officer, telephoned Muldoon Murphy & Aguggia LLP, Coastal Financial’s special legal counsel, to discuss the processes by which Coastal Financial could obtain a more complete understanding of the prevailing mergers and acquisitions market as it proceeded with formulating the Fiscal 2007 Budget and completing the Vision 2010 Strategic Plan. Special legal counsel discussed and reviewed with Messrs. Gerald and Rexroad the general parameters of such processes and the important role that an independent financial advisor to Coastal Financial would play in the processes.

 

On October 11, 2006, Messrs. Gerald and Rexroad telephoned special legal counsel to follow-up on their October 9, 2006, telephone conversation. After further discussion with special legal counsel, Messrs. Gerald and Rexroad directed special legal counsel to contact Keefe, Bruyette & Woods, Inc. (“KBW”) to schedule a meeting to discuss the prevailing mergers and acquisitions environment, potential business combination partners for Coastal Financial, and the potential value that Coastal Financial could realize in a merger or acquisition transaction. Mr. Gerald, a member of the Executive Committee of Coastal Financial’s Board of Directors, informed special legal counsel that he had consulted with two of the other three members of the Executive Committee (James P. Creel and James T. Clemmons), both of whom were in favor of such an informational meeting. James H. Dusenbury, the other member of the Executive Committee, was out of town.

 

On October 19, 2006, Messrs. Gerald, Creel, Clemmons and Rexroad, along with special legal counsel, met with representatives of KBW in Raleigh, North Carolina. Mr. Dusenbury was unable to attend because he was out of town. KBW reviewed and discussed the current mergers and acquisitions environment, a financial overview of Coastal Financial, a valuation analysis of Coastal Financial based on recent transaction pricing involving institutions comparable to Coastal Financial, and an overview of the process Coastal Financial could undertake should its Board of Directors decide to explore a potential merger or acquisition transaction. Following extensive discussion, it was unanimously decided that a meeting of the full Board of Directors was warranted to review the Fiscal 2007 Budget and Vision 2010 Strategic Plan in light of KBW’s presentation

and to determine the Board of Directors’ interest in exploring a potential merger or acquisition transaction. When Mr. Dusenbury returned to town, Mr. Gerald fully briefed Mr. Dusenbury regarding the subject matter of the meeting and Mr. Dusenbury expressed his support of the decision to convene a meeting of the full Board of Directors.

 

On October 27, 2006, a special meeting of the Coastal Financial Board of Directors was held at an off-site location in Myrtle Beach, South Carolina. All directors were present other than E. Lawton Benton and W. Cecil Worsley, III who were unable to attend because of scheduling conflicts. Mr. Rexroad, special legal counsel and KBW also were present. Mr. Gerald fully briefed the directors regarding the events leading up to the meeting. KBW gave an extensive presentation that focused on, among other things, KBW’s qualifications, the current market environment, a financial overview of Coastal Financial, a list of potential merger and acquisition partners, and an analysis of processes that Coastal Financial could undertake to explore a potential merger or acquisition transaction. Extensive discussion and questions and answers followed the presentation, after which KBW was excused.

 

Following a brief recess, Mr. Rexroad presented an overview of the Vision 2010 Strategic Plan and extensive discussion ensued regarding Coastal Financial’s prospects as embodied in the Vision 2010 Strategic Plan. While the directors in attendance shared senior management’s current optimism regarding Coastal Financial’s prospects despite increasingly competitive pressures and the increasing regulatory and compliance burden confronting mid-size, independent, community financial institutions, particularly compliance with the requirements of the Sarbanes-Oxley Act, it was the consensus of the directors present that it might be in the best interests of Coastal Financial’s shareholders to initiate a process to explore a potential merger or acquisition transaction. After special legal counsel gave a presentation that focused on the fiduciary duties of directors and the relevant legal issues associated with conducting an exploratory process, and following additional discussion and questions and answers, the directors in attendance unanimously adopted resolutions authorizing an exploratory process, appointing Messrs. Gerald, Creel, Clemmons, Dusenbury and Rexroad (ex officio member) as the Strategic Planning Committee to undertake the exploratory process, and authorizing the formal engagement of KBW as exclusive financial advisor and Muldoon Murphy & Aguggia LLP as special legal counsel. Mr. Gerald informed the directors present that Messrs. Benton and Worsley had been fully briefed regarding the subject matter of the meeting and had expressed their support of undertaking an exploratory process. Special legal counsel also advised those present regarding their confidentiality obligations and the restrictions on insider trading, noting specifically that the topics that had been discussed and the actions authorized by the Board of Directors at the meeting constitute material, non-public information and that Coastal Financial’s insider trading policy requires the imposition of appropriate trading black-outs. The directors present, in consultation with special legal counsel, also discussed the possible adoption of a proposed Coastal Federal Bank Change in Control Severance Compensation Plan, noting that its adoption would serve the best interests of Coastal Financial by promoting employee stability and continuity in connection with the exploratory process and any resulting merger or acquisition transaction that may be consummated. No formal action was taken on the plan at the meeting.

 

In the evening of October 27, 2006, special legal counsel telephoned KBW to inform it of the Board of Directors’ decision to initiate an exploratory process and to retain KBW as Coastal Financial’s exclusive financial advisor. Over the ensuing days, KBW, in consultation with Coastal Financial’s senior management and special legal counsel, prepared a Confidential Memorandum containing financial and other information regarding Coastal Financial for distribution to interested parties following their execution of confidentiality agreements. While the Confidential Memorandum was being prepared, KBW contacted twenty-eight (28) institutions, without revealing Coastal Financial’s identity, to determine their interest in receiving confidential information regarding a company with Coastal Financial’s financial and demographic characteristics.

 

On November 8, 2006, the Strategic Planning Committee met, with special legal counsel and Mr. Creel participating by telephone. The Strategic Planning Committee reviewed and discussed the proposed engagement letters of special legal counsel and KBW and unanimously authorized Mr. Gerald to execute the agreements on behalf of Coastal Financial as directed. The Strategic Planning Committee also reviewed the proposed Coastal Federal Bank Change in Control Severance Compensation Plan that had been introduced at the Board of Directors’ meeting on October 27, 2006, and discussed a “Retention Bonus” program to be

incorporated as part of any merger or acquisition negotiations. The Strategic Planning Committee discussed the pros and cons of each matter with special legal counsel and unanimously concluded that each would be in the best interest of Coastal Financial because it would promote employee stability and continuity in connection with the exploratory process and any resulting merger or acquisition transaction that may be consummated in the future. The Strategic Planning Committee directed that the Coastal Federal Bank Change in Control Severance Compensation Plan be submitted to the full Board of Directors for approval at the earliest practicable time. The Board of Directors unanimously approved the Coastal Federal Bank Change in Control Severance Compensation Plan on November 22, 2006.

 

As discussed above, KBW had contacted twenty-eight (28) institutions, without revealing Coastal Financial’s identity, to determine their interest in receiving confidential information regarding a company with Coastal Financial’s financial and demographic characteristics. Of those institutions, eight (8) institutions, all large regional financial institution holding companies, expressed interest, of which seven (7) institutions executed confidentiality agreements during mid-November and thereafter received a copy of the Confidential Memorandum. BB&T executed a confidentiality agreement on November 14, 2006. The Confidential Memorandum instructed recipients to submit non-binding written indications of interest to KBW by November 30, 2006. On that date, BB&T and another institution submitted their respective indication of interest. The other five (5) institutions did not submit indications of interest.

 

On December 4, 2006, Coastal Financial’s Board of Directors held a special meeting at an off-site location in Myrtle Beach, South Carolina. All directors, Mr. Rexroad, special legal counsel and KBW were present. KBW reviewed the results of the exploratory process and the indications of interest submitted by BB&T and the other institution. BB&T proposed an all-stock transaction that valued Coastal Financial stock at $16.36 per share based on a proposed exchange ratio of 0.38 shares of BB&T common stock for each share of Coastal Financial common stock and BB&T’s closing stock price of $43.04 per share on November 29, 2006. The other institution proposed an aggregate transaction value of $370 million, which implied a value of $16.06 per share of Coastal Financial common stock based on an all-stock transaction, but the institution indicated pricing flexibility. Mr. Gerald reported that, at the request of Burney S. Warren, BB&T’s Executive Vice President/Mergers & Acquisitions, he met with Mr. Warren on November 29, 2006, to discuss BB&T’s indication of interest and related matters. Mr. Gerald stated that, during their meeting, he and Mr. Warren discussed the perceived merits of a merger between BB&T and Coastal Financial given their cultural similarities and complementary business and market areas, among other things, integration issues, including with respect to Coastal Financial’s employees, as well as BB&T’s desire to negotiate an employment contract with Mr. Gerald in connection with any definitive merger agreement. There was extensive discussion regarding the indications of interest as well as Coastal Financial’s prospects if it remained independent and pursued its Vision 2010 Strategic Plan in the current and expected business and regulatory compliance environments. Following extensive discussion, the representatives of KBW and Mr. Rexroad were excused from the meeting to allow all the directors to discuss the matters under consideration in consultation with special legal counsel. Thereafter, Mr. Gerald excused himself so that the non-employee directors could continue such discussion without any members of management present. Among other matters, the non-employee directors considered the various business risks associated with Coastal Financial remaining independent, including senior management succession planning.

 

Following this discussion among the non-employee directors, Messrs. Gerald and Rexroad rejoined the meeting. It was the consensus of the Board of Directors to pursue a proposed merger with BB&T provided that BB&T reconsider the proposed 0.38 exchange ratio given that the other competing party had expressed pricing flexibility. At the direction of the Board of Directors, the KBW representative telephoned BB&T and reported to the Board of Directors later in the day that BB&T had agreed to increase the exchange ratio to 0.385 of a share of BB&T common stock for each share of Coastal Financial common stock. Following further discussion, the Board of Directors unanimously adopted resolutions authorizing senior management, in consultation with special legal counsel and KBW, to negotiate a definitive merger agreement with BB&T consistent with the terms of BB&T’s indication of interest letter, as revised by BB&T’s verbal agreement to increase the exchange ratio.

 

On December 12, 2006, BB&T provided Coastal Financial’s special counsel with a draft of the merger agreement and the parties negotiated the terms of the agreement over the following days. Both BB&T and Coastal Financial conducted their respective due diligence reviews during that week.

 

On December 20, 2006, Coastal Financial held its regular monthly meeting of its Board of Directors. All directors were present. In the late afternoon, all officers, other than Mr. Rexroad, were excused from the meeting and representatives of special legal counsel and of KBW joined the meeting. A copy of the definitive merger agreement that had been negotiated, as well as the ancillary documents, had been sent to each director on December 18, 2006. KBW made a presentation regarding the fairness of the proposed merger consideration to Coastal Financial’s shareholders from a financial point of view and delivered its written opinion that, as of December 20, 2006, and subject to the limitations and qualifications set forth in the opinion, the proposed merger consideration was fair to Coastal Financial’s shareholders from a financial point of view. The Board of Directors considered KBW’s opinion carefully, as well as KBW’s experience, qualifications and interest in the proposed transaction. Special legal counsel reviewed in detail the terms of the merger agreement and ancillary documents. The results of the due diligence review of BB&T were reported to the Board of Directors. Among other matters, the directors discussed the value of severance obligations under various employment and change in control agreements that Coastal Financial had entered into with members of management. Following these presentations and discussion, the directors unanimously determined that execution of the merger agreement was advisable and in the best interests of Coastal Financial and its shareholders and authorized Mr. Gerald to execute and deliver the merger agreement on behalf of Coastal Financial and to take all actions necessary to effect the proposed transaction according to the terms of the definitive merger agreement.

 

On December 21, 2006, before opening of the stock market, Coastal Financial and BB&T issued a joint press release announcing the execution of the merger agreement.

 

Coastal Financial’s Reasons for the Merger

 

Coastal Financial’s full Board of Directors approved the merger agreement by a unanimous vote. In addition, Coastal Financial’s Board of Directors has unanimously recommended that Coastal Financial’s shareholders vote “FOR” approval of the merger agreement.

 

Coastal Financial’s Board of Directors has determined that the merger is advisable and in the best interests of Coastal Financial and its shareholders. In approving the merger agreement, Coastal’s Board of Directors consulted with KBW regarding the fairness of the transaction to Coastal Financial’s shareholders from a financial point of view and with Coastal Financial’s special legal counsel regarding its legal duties and the terms of the merger agreement and ancillary documents. In determining to approve the merger agreement and recommend that shareholders approve the merger agreement, Coastal Financial’s Board of Directors, in consultation with Coastal Financial’s senior management and financial and legal advisors, considered a number of factors, including the following material factors:

 

 

 

The foregoing information and factors considered by Coastal Financial’s Board of Directors is not exhaustive, but includes all material factors that the Board of Directors considered and discussed in approving the merger agreement and recommending that Coastal Financial’s shareholders vote to approve the merger agreement. In view of the wide variety of factors considered and discussed by Coastal Financial’s Board of Directors in connection with its evaluation of the merger and the complexity of these factors, the Board of Directors did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign any specific or relative weights to the specific factors that it considered in reaching its decision; rather it considered all of the factors as a whole. Coastal Financial’s Board of Directors discussed and considered the foregoing factors and reached general consensus that the merger was in the best interests of Coastal Financial and its shareholders. In considering the foregoing factors, individual directors of Coastal Financial may have assigned different weights to different factors. Coastal Financial’s Board of Directors relied on the experience and expertise of KBW for quantitative analysis of the financial terms of the merger agreement. See “The Merger — Opinion of Coastal Financial’s Financial Advisor” on page [  ]. It should be noted that this explanation of the reasoning of Coastal Financial’s Board of Directors and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “A Warning About Forward-Looking Statements” on page [  ].

 

For the reasons set forth above, the Coastal Financial Board of Directors has unanimously approved and adopted the merger agreement as advisable and in the best interests of Coastal Financial and its shareholders and unanimously recommends that the Coastal Financial shareholders vote “FOR” the approval and adoption of the merger agreement.

 

BB&T’s Reasons for the Merger

 

One of BB&T’s announced objectives is to pursue in-market and contiguous state acquisitions of banks and thrifts in the $500 million to $15 billion asset size range. BB&T’s management believes that the acquisition of Coastal Financial is consistent with this strategy, and will enable BB&T to accomplish its goal of expanding its presence in South Carolina and North Carolina and increasing BB&T market share in the Myrtle Beach, South Carolina and Wilmington, North Carolina metropolitan areas. The merger also provides BB&T with an opportunity to sell its array of banking and insurance products to Coastal Financial’s client base.

 

In evaluating the merger, BB&T analyzed the projected financial effects of the merger against established investment criteria that BB&T consistently applies. BB&T does not require that every individual investment criterion be met, and a failure to meet one of the criteria may be offset or compensated for by favorable results in evaluating other criteria. The BB&T Board of Directors determined that its established investment criteria were met. Below are BB&T’s seven investment criteria (listed in order of importance) and the projected results of the Coastal Financial merger with respect to each as presented to BB&T:

 

 

None of the above information has been updated since the date of the merger agreement. There can be no certainty that actual results will be consistent with the results described above. For more information concerning the factors that could affect actual results, see “A Warning About Forward-Looking Information” on page [     ].

 

In reaching its determination that the merger agreement is fair to, and in the best interests of, BB&T and its shareholders, the BB&T Board of Directors considered the above factors, as well as the following:

 

 

 

The terms of the merger, including the exchange ratio, were the result of arms’ length negotiations between representatives of Coastal Financial and representatives of BB&T. The BB&T Board of Directors did not assign any specific weight to the factors in its consideration. The Board collectively made its determination with respect to the merger based on the conclusion reached by its members, in light of the factors that each of them considered appropriate, that the merger is in the best interests of the shareholders of BB&T.

 

Coastal Financial engaged Keefe, Bruyette & Woods, Inc. (“KBW”) to act as its exclusive financial advisor to render financial advisory and investment banking services to Coastal Financial in connection with the possible sale of Coastal Financial or an interest in Coastal Financial to another business organization, whether by merger or a sale of all or substantially all of Coastal Financial’s assets. KBW agreed to assist Coastal Financial in analyzing and effecting a transaction with BB&T. Coastal Financial selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger and is familiar with Coastal Financial and its business and with Southeastern financial institutions and their respective businesses, particularly BB&T and its business. As part of its investment banking business, KBW is continually engaged in the valuation of financial businesses and their securities in connection with mergers and acquisitions.

 

On December 20, 2006, Coastal Financial’s Board of Directors held a meeting to consider the proposed merger with BB&T. At this meeting, KBW reviewed the financial aspects of the proposed merger and rendered a written opinion that, as of that date, the merger consideration was fair to the shareholders of Coastal Financial from a financial point of view.

 

The full text of KBW’s written opinion is attached as Appendix B to this document and is incorporated herein by reference. Coastal Financial’s shareholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW.

 

KBW’s opinion is directed to the Coastal Financial Board of Directors and addresses only the fairness, from a financial point of view, of the merger consideration to the Coastal Financial shareholders. It does not address the underlying business decision to proceed with the merger and does not constitute a recommendation to any Coastal Financial shareholder as to how the shareholder should vote at the Coastal Financial special meeting on the merger agreement or any related matter.

 

In rendering its opinion, KBW:

 

 

 

 

 

 

In conducting its review and analyses and in arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to or otherwise made available to KBW or that was discussed with, or reviewed by KBW, or that was publicly available. KBW did not attempt or assume any responsibility to verify such information independently. KBW relied upon the management of Coastal Financial as to the reasonableness and achievability of the financial and operating forecasts and projections (and assumptions and bases therefor) provided to KBW. KBW assumed, without independent verification, that the aggregate allowances for loan and lease losses for BB&T and Coastal Financial are adequate to cover those losses. KBW did not make or obtain any evaluations or appraisals of any assets or liabilities of BB&T or Coastal Financial, and KBW did not examine any books and records (except as noted herein) or review individual credit files.

 

The projections furnished to KBW and used by it in certain of its analyses were prepared by Coastal Financial’s senior management. Coastal Financial does not publicly disclose internal management projections of the type provided to KBW in connection with its review of the merger. As a result, such projections were not prepared with a view towards public disclosure. The projections were based on numerous variables and assumptions which are inherently uncertain, including factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in the projections.

 

For purposes of rendering its opinion, KBW assumed that, in all respects material to its analyses:

 

 

KBW further assumed that the merger will be accounted for as a purchase transaction under U.S. generally accepted accounting principles. KBW’s opinion is not an expression of an opinion as to the prices at which shares of Coastal Financial common stock or shares of BB&T common stock will trade following the announcement of the merger and is not an expression of an opinion as to the actual value of the shares of common stock of BB&T when issued pursuant to the merger, or the prices at which the shares of common stock of BB&T will trade following the completion of the merger.

 

In performing its review and analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of KBW, Coastal Financial and BB&T. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors relied upon by the Coastal Financial Board of Directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Coastal Financial Board of Directors with respect to the approval of the merger agreement.

 

The following is a summary of the material analyses performed by KBW in connection with its December 20, 2006 opinion. The summary is not a complete description of the analyses underlying the KBW opinion or the presentation made by KBW to the Coastal Financial Board of Directors, but summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses.

 

Transaction Summary

 

KBW calculated the merger consideration to be paid as a multiple of Coastal Financial’s book value per share, tangible book value per share and latest twelve months’ earnings per share. KBW also calculated the merger consideration to be paid as a “Core Deposit Premium.” Core Deposit Premium equals the difference between the aggregate merger consideration and Coastal Financial’s tangible equity divided by core deposits. Additionally, KBW has adjusted throughout its analyses the financial data to exclude any non-recurring income and expenses and any extraordinary items. The merger consideration was based on a fixed exchange ratio of 0.385 of a share of BB&T for each share of Coastal Financial, with 100% of the merger consideration being paid in BB&T common stock. These computations were based on Coastal Financial’s stated book value per share of $5.20 as of September 30, 2006, tangible book value per share of $5.20 as of September 30, 2006, Coastal Financial’s latest twelve months’ diluted earnings per share of $0.85 as of September 30, 2006 and core deposits of $795.6 million as of September 30, 2006. Based on those assumptions and BB&T’s closing price per share of $44.32 on December 19, 2006, this analysis indicated Coastal Financial shareholders would receive BB&T common stock worth $17.06 for each share of Coastal Financial common stock held. Assuming 100% stock consideration, the per share merger consideration of $17.06 would represent 328% of

book value per share, 328% of tangible book value per share, 20.1 times latest twelve months’ earnings per share and a Core Deposit Premium of 35.5%.

 

Selected Transaction Analysis

 

KBW reviewed certain financial data related to a set of comparable bank and thrift transactions announced in Florida, Georgia, North Carolina, South Carolina and Virginia since December 31, 2003 with deal values between $150 million and $1 billion (15 transactions).

 

KBW compared multiples of price to various factors for the BB&T-Coastal Financial merger to the same multiples for the comparable group’s mergers at the time those mergers were announced. The results were as follows:

 

Comparable Transactions:

 

 

KBW also analyzed the financial data for the period ended September 30, 2006 for Coastal Financial and reporting periods prior to the announcement of each transaction for each target in the Selected Transactions Analysis. The results were as follows:

 

Comparable Targets:

 

 

No company or transaction used as a comparison in the above analysis is identical to BB&T, Coastal Financial or the merger. Accordingly, an analysis of these results is not purely mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the value of the companies to which they are being compared.

 

Discounted Cash Flow Analysis

 

Using discounted dividends analysis, KBW estimated the present value of the future stream of dividends that Coastal Financial could produce over the next five years, under various circumstances, assuming Coastal Financial performed in accordance with management’s earnings forecasts for 2007, earnings are grown 15.0% annually in 2008-2012, and Coastal Financial maintains a dividend payout ratio of 20.0% annually in all years. KBW then estimated the terminal values for Coastal Financial common stock at the end of the period by applying multiples ranging from 12.0x to 14.0x projected earnings in year six. The terminal values were then discounted to present values using different discount rates (ranging from 12.0% to 16.0%) chosen to reflect different assumptions regarding the required rates of return to holders or prospective buyers of Coastal Financial common stock. This discounted dividend analysis indicated reference ranges of between $12.86 and $17.30 per share of Coastal Financial common stock. These values compare to the merger consideration

offered by BB&T to Coastal Financial in the merger of $17.06 per share of Coastal Financial common stock as of December 19, 2006.

 

Relative Stock Price Performance

 

KBW also analyzed the price performance of BB&T common stock from December 31, 2003 to December 19, 2006 and compared that performance to the performance of the Philadelphia Exchange/Keefe, Bruyette & Woods Bank Index (“Keefe Bank Index”) over the same period. The Keefe Bank Index is a market cap weighted price index composed of 24 major bank and thrift holding company stocks. The Keefe Bank Index is traded on the Philadelphia Exchange under the symbol “BKX”. This analysis indicated the following cumulative changes in price over the period:

 

 

Selected Peer Group Analysis

 

KBW compared the financial performance and market performance of BB&T to those of a group of comparable bank holding companies (13 companies). The comparisons were based on:

 

 

 

 

 

To perform this analysis, KBW used the financial information as of and for the quarter ended September 30, 2006 and market price information as of December 19, 2006. The companies in the peer group included select publicly traded bank holding companies with assets between $30.0 billion and $220.0 billion. This peer group includes Comerica Incorporated, Fifth Third Bancorp, Huntington Bancshares Incorporated, KeyCorp, M&T Bank Corporation, Marshall & Ilsley Corporation, National City Corporation, PNC Financial Services Group, Inc., Popular, Inc., Regions Financial Corporation, SunTrust Banks, Inc., UnionBanCal Corporation and U.S. Bancorp. KBW adjusted throughout its analysis the financial data to exclude certain non-recurring income and expenses and any extraordinary items.

 

KBW’s analysis showed the following concerning BB&T’s financial performance:

 

Selected Peer Group:

 

 

KBW’s analysis showed the following concerning BB&T’s market performance:

 

Selected Peer Group:

 

 

KBW also compared the financial performance of Coastal Financial to those of a group of comparable bank and thrift holding companies (13 companies). The comparisons were based on:

 

 

 

 

 

To perform this analysis, KBW used the financial information as of and for the quarter ended September 30, 2006. The companies in the peer group included publicly traded bank and thrift holding companies in Florida, Georgia, North Carolina, South Carolina and Virginia with assets between $1.5 billion and $2.5 billion. This peer group includes Ameris Bancorp, Cardinal Financial Corporation, First Bancorp,

First Community Bancshares, Inc., FNB Corporation, FNB United Corp., GB&T Bancshares, Inc., SCBT Financial Corporation, Seacoast Banking Corporation of Florida, Security Bank Corporation, Union Bankshares Corporation, Virginia Commerce Bancorp, Inc. and Virginia Financial Group, Inc. KBW adjusted throughout its analysis the financial data to exclude certain non-recurring income and expenses and any extraordinary items.

 

KBW’s analysis showed the following concerning Coastal Financial’s financial performance:

 

Selected Peer Group:

 

 

KBW’s analysis showed the following concerning Coastal Financial’s market performance:

 

Selected Peer Group:

 

Contribution Analysis

 

KBW analyzed the relative contribution of each of Coastal Financial and BB&T to the pro forma balance sheet and income statement items of the combined entity, including assets, gross loans, deposits, equity, tangible equity and latest twelve months’ earnings. This analysis excluded any purchase accounting adjustments. The pro forma ownership analysis assumed the aggregate deal value was in the form of 100% BB&T common stock and was based on BB&T’s closing price per share of $44.32 on December 19, 2006. The results of KBW’s analysis are set forth in the following table:

 

 

Financial Impact Analysis

 

KBW performed pro forma merger analyses that combined projected income statement and balance sheet information. Assumptions regarding the accounting treatment, acquisition adjustments and cost savings were used to calculate the financial impact that the merger would have on certain projected financial results of the pro forma company. This analysis indicated that the merger is expected to be neutral to BB&T’s estimated 2007 GAAP and Cash earnings per share and accretive to BB&T’s estimated 2008 GAAP and Cash earnings per share. This analysis was based on First Call’s 2007 and 2008 published earnings estimate for BB&T and Coastal Financial’s 2007 earnings projections provided by Coastal Financial’s senior management. “First Call” is a data service that monitors and publishes a compilation of earnings estimates produced by selected research analysts regarding companies of interest to institutional investors. KBW assumed 15% earnings growth over management’s 2007 projections to estimate Coastal Financial’s 2008 earnings and estimated cost savings equal to 40.0% of Coastal Financial’s projected non-interest expenses. For all of the above analyses, the actual results achieved by pro forma company following the merger may vary from the projected results and any variations may be material.

 

Other Analyses

 

KBW reviewed the relative financial and market performance of BB&T and Coastal Financial to a variety of relevant industry peer groups and indices. KBW also reviewed earnings estimates, historical stock performance, stock liquidity and research coverage for BB&T.

 

The Coastal Financial Board of Directors retained KBW as an independent contractor to act as exclusive financial adviser to Coastal Financial regarding the merger. As part of its investment banking business, KBW is continually engaged in the valuation of banking and thrift businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. As specialists in the securities of banking and thrift companies, KBW has experience in, and knowledge of, the valuation of banking and thrift enterprises. In the ordinary course of its business as a broker-dealer, KBW may, from time to time, purchase securities from, and sell securities to Coastal Financial and BB&T. As a market maker in securities, KBW may from time to time have a long or short position in, and buy or sell, debt or equity securities of Coastal Financial and BB&T for KBW’s own account and for the accounts of its customers.

 

Coastal Financial and KBW have entered into an agreement relating to the services to be provided by KBW in connection with the merger. Coastal Financial has agreed to pay KBW at the time of closing a cash

fee equal to 0.9% of the market value of the aggregate consideration offered in exchange for the outstanding shares of common stock of Coastal Financial in the transaction. Pursuant to the KBW engagement agreement, Coastal Financial also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify KBW against certain liabilities, including liabilities under the federal securities laws.

 

Under the merger agreement, you will receive .385 of a share of BB&T common stock in exchange for each of your shares of Coastal Financial common stock.

 

No fractional shares of BB&T common stock will be issued in connection with the merger. Instead, cash will be paid for any fractional share of BB&T common stock to which you would otherwise be entitled.

 

BB&T common stock is listed for quotation on the NYSE under the symbol “BBT.” On December 20, 2006, which was the last trading day prior to the announcement of the merger, the price of BB&T common stock closed at $44.27 per share, and on [          ], 2007, the price of BB&T common stock closed at [$     ] per share. The value of the BB&T common stock you receive in the merger at the effective time of the merger will depend on the market value of BB&T common stock at that time.

 

You should be aware that the market value of a share of BB&T common stock will fluctuate, and neither BB&T nor Coastal Financial can give you any assurance as to what the price of BB&T common stock will be when the merger becomes effective or when certificates for those shares are delivered following surrender in exchange of your certificates for shares of BB&T common stock. We urge you to obtain information on the market value of BB&T common stock that is more recent than that provided in this proxy statement/ prospectus. See “Summary — Comparative Market Prices and Dividends” on page [     ].

 

When the merger is completed, without any action on the part of Coastal Financial or the Coastal Financial shareholders, shares of Coastal Financial common stock will be converted into and will represent the right to receive, upon surrender of the certificate representing such shares as described below, the merger consideration described above, including cash instead of any fractional share of BB&T common stock that would otherwise be issued. Promptly after the merger becomes effective, BB&T will deliver or mail to you a form of letter of transmittal and instructions for surrender of your Coastal Financial stock certificates. When you properly surrender your certificates, or provide other satisfactory evidence of ownership, and return the letter of transmittal duly executed and completed in accordance with its instructions and any other documents as may be reasonably requested, BB&T will promptly deliver to you the merger consideration and cash in lieu of a fractional share, if any, to which you are entitled, subject to any applicable escheat laws.

 

You should not send in your stock certificates until you receive the letter of transmittal and instructions.

 

After the merger is completed, and until surrendered as described above, each outstanding Coastal Financial stock certificate will be deemed for all purposes to represent only the right to receive the merger consideration. No interest will be paid or accrued on any cash payable for fractional shares as part of the merger consideration. With respect to any Coastal Financial stock certificate that has been lost or destroyed, BB&T will pay the merger consideration attributable to the shares represented by such certificate upon receipt of a surety bond or other adequate indemnity, as required in accordance with BB&T’s standard policy, and evidence reasonably satisfactory to BB&T of ownership of the shares in question. When the merger is completed, Coastal Financial’s transfer books will be closed and no transfer of the shares of Coastal Financial stock outstanding immediately before the time that the merger becomes effective will be made on BB&T’s stock transfer books.

 

To the extent permitted by law, after the merger becomes effective, you will be entitled to vote at any meeting of BB&T shareholders the number of whole shares of BB&T common stock into which your shares of Coastal Financial stock are converted, regardless of whether you have exchanged your Coastal Financial

stock certificates for BB&T stock certificates. Whenever BB&T declares a dividend or other distribution on the BB&T common stock which has a record date after the merger becomes effective, the declaration will include dividends or other distributions on all shares of BB&T common stock issuable under the merger agreement. However, no dividend or other distribution payable to the holders of record of BB&T common stock will be delivered to you until you surrender your Coastal Financial stock certificate for exchange as described above. Upon surrender of your Coastal Financial stock certificate, the certificate representing the BB&T common stock into which your shares of Coastal Financial stock have been converted, together with cash instead of any fractional share of BB&T common stock to which you would otherwise be entitled and any undelivered dividends, will be delivered and paid to you, without interest.

 

The merger agreement provides that the merger will be completed on a date selected by BB&T that is no later than the 30 days following the satisfaction or waiver of the conditions to the completion of the merger (other than conditions that by their nature are to be satisfied on the closing date); or a later date mutually acceptable to the parties. The merger will become effective at the time and date specified in the articles of merger to be filed with the North Carolina Secretary of State and the certificate of merger to be filed with the Delaware Secretary of State. It is currently anticipated that the merger will become effective in the second quarter of 2007, assuming all conditions to the respective obligations of BB&T and Coastal Financial to complete the merger have been satisfied or, if permissible, waived.

 

The obligations of BB&T and Coastal Financial to complete the merger are subject to satisfaction (or, if permissible, waiver) of the following conditions at or before the time the merger becomes effective:

 

 

The obligations of Coastal Financial to carry out the transactions contemplated by the merger agreement are subject to the satisfaction of the following additional conditions at or before the time the merger becomes effective, unless, where permissible, waived by Coastal Financial:

 

 

 

The obligations of BB&T to carry out the transactions in the merger agreement are subject to satisfaction of the following additional conditions at or before the time the merger becomes effective, unless, where permissible, waived by BB&T:

 

 

The merger agreement contains representations and warranties by Coastal Financial and by BB&T regarding various legal, financial, business and regulatory matters. The representations and warranties will not survive after the merger.

 

Each of BB&T and Coastal Financial has made representations and warranties to the other regarding, among other things:

 

 

In addition, Coastal Financial has made other representations and warranties about itself to BB&T as to:

 

 

 

The full text of these representations and warranties can be found in the merger agreement attached as Appendix A. This proxy statement/ prospectus contains descriptions of the representations, warranties and covenants made in the merger agreement, and in other agreements, some of which are attached or filed as exhibits to the registration statement of which this proxy statement/ prospectus is a part or are incorporated by reference into this proxy statement/ prospectus. These representations, warranties and agreements have been made solely for the benefit of the other party to such agreements, may be subject to important qualifications, exceptions and limitations agreed to by the contracting parties, and may not be complete, and such representations, warranties and agreements therefore should not be relied on by any other person. Any such covenants, representations or warranties may have been qualified or superseded by disclosures contained in separate schedules or exhibits not filed with or incorporated by reference in this proxy statement/ prospectus, may reflect the parties’ negotiated risk allocation in the particular transaction rather than facts, may be qualified by materiality standards that differ from those that you may consider material, may not be true as of the date of this proxy statement/ prospectus or any other date, and are subject to amendments, changes or waivers by the parties.

 

Each of Coastal Financial and BB&T has agreed:

 

 

Except with the prior written consent of BB&T, until the merger is effective, neither Coastal Financial nor any of its subsidiaries may:

 

 

Coastal Financial may not solicit or encourage inquiries or proposals with respect to, or engage in any negotiations concerning, or provide any confidential information to, or have any discussions with, any person relating to any acquisition proposal, except to the extent that the Coastal Financial Board, after consultation with independent legal counsel, determines in good faith that it is probable that the failure to take such action would be a breach of its fiduciary duties under applicable Delaware law. Upon execution of the merger agreement, Coastal Financial agreed to immediately cease and cause to be terminated any activities, discussions or negotiations conducted prior to the date of the merger agreement with any parties other than BB&T with respect to any acquisition proposal and to use its reasonable best efforts to enforce any confidentiality or similar agreement relating to any acquisition proposal. Coastal Financial must promptly advise BB&T of the receipt by Coastal Financial of any acquisition proposal and the substance thereof

(including the identity of the person making such acquisition proposal), and advise BB&T of any material developments with respect to such acquisition proposal promptly.

 

“Acquisition proposal” means any tender or exchange offer, proposal for a merger, consolidation or other business combination involving Coastal Financial or any of its subsidiaries, or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets or deposits of, Coastal Financial or any of its subsidiaries, other than the transactions contemplated by the merger agreement.

 

Except with respect to any required regulatory approval and the requirement for Coastal Financial’s shareholders to approve the merger agreement, BB&T or Coastal Financial may at any time (whether before or after approval of the merger agreement by the Coastal Financial shareholders) extend the time for the performance of any of the obligations or other acts of the other party and may waive:

 

 

The parties may also mutually amend or supplement the merger agreement in writing at any time unless any such amendment or supplement would violate applicable law or require resubmission of the merger agreement to Coastal Financial’s shareholders for approval. In order to be valid, the waiving party must provide a written waiver to the other party.

 

The merger agreement may be terminated, and the merger may be abandoned:

 

 

If the merger agreement is terminated pursuant to any of the provisions described above, the merger agreement will become void and have no effect, except that (a) provisions in the merger agreement relating to confidentiality, the termination fee and expenses will survive the termination and (b) a termination for an uncured breach of a covenant or agreement or inaccuracy in a representation or warranty will not relieve the breaching party from liability or damages for that breach or inaccuracy.

 

Each party will pay the expenses it incurs in connection with the merger agreement and the merger, except that printing expenses and Securities and Exchange Commission filing fees incurred in connection with the registration statement and this proxy statement/ prospectus will be paid 50% by BB&T and 50% by Coastal Financial.

 

Under the circumstances described below, Coastal Financial will be required to pay to BB&T a termination fee of $15 million.

 

The termination fee would be payable IF the merger agreement is terminated for one of the following reasons:

 

 

AND

 

 

AND

 

 

The termination fee also would be payable to BB&T IF

 

 

AND

 

 

The termination fee, which was a condition of BB&T’s willingness to enter into the merger agreement, limits the ability of Coastal Financial to pursue competing acquisition proposals and discourages other companies from offering to acquire Coastal Financial.

 

Some of Coastal Financial’s directors and executive officers have interests in the merger that differ from, or are in addition to, their interests as Coastal Financial shareholders. In the case of some executive officers of Coastal Financial, these interests exist because of rights under existing employment agreements with and benefit and compensation plans of Coastal Financial, as well as under an employment agreement that Michael C. Gerald has entered into with Branch Bank, a wholly owned subsidiary of BB&T, that will become effective upon completion of the merger. The employment agreement between Mr. Gerald and Branch Bank was a condition of BB&T’s willingness to enter into the merger agreement.

 

Existing Employment Agreements with Coastal Financial

 

Existing employment agreements between Coastal Financial and eight of its key employees, including Michael C. Gerald, President and Chief Executive Officer, Jerry L. Rexroad, Executive Vice President and Chief Financial Officer, Jimmy R. Graham, Executive Vice President, Steven J. Sherry, Executive Vice President, and Philip G. Stalvey, Executive Vice President, will be terminated upon completion of the merger. The termination of each employment agreement will obligate Coastal Financial to make certain payments to each executive, which in the aggregate are estimated to total approximately $6.8 million. In accordance with the foregoing, each of Messrs. Gerald, Rexroad, Graham, Sherry and Stalvey are estimated to receive lump-sum payments of approximately $2,400,000, $1,300,000, $331,000, $345,000, and $1,700,000 respectively.

 

New Employment/Consulting Agreement with Branch Bank

 

Coastal Financial’s President and Chief Executive Officer, Michael C. Gerald, has entered into an employment/consulting agreement with Branch Bank. The employment/consulting agreement provides that Mr. Gerald will serve as an Executive Vice President of Branch Bank for a term lasting up to seven years following the completion of the merger. However, on the later of the one-year anniversary of the completion of the merger or the three-month anniversary of the completion of the merger of Coastal Federal Bank with and into Branch Bank, Mr. Gerald may elect to relinquish his position as an employee and become an independent consultant to Branch Bank. Whether Mr. Gerald remains an employee of Branch Bank or elects to become an independent consultant, the maximum term of the employment/consulting agreement will be seven years, unless the parties agree in writing to extend the term of the agreement.

 

During any period that Mr. Gerald serves as an Executive Vice President of Branch Bank, he will perform his assigned duties in the Myrtle Beach, South Carolina metropolitan area and he will report to the Coastal Regional President of Branch Bank. While Mr. Gerald is employed by Branch Bank, he will receive a minimum annual base salary of $288,750 and will be eligible to receive incentive compensation (such as stock options, restricted stock and other equity awards) on the same terms as similarly situated officers of Branch Bank. As an employee, Mr. Gerald also will be eligible to receive employee retirement benefits (including deferred compensation) and group employee benefits such as sick leave, vacation, group disability and health, life, and accident insurance and similar indirect compensation that Branch Bank may from time to time extend to similarly situated officers of Branch Bank.

 

If, on the later of the one-year anniversary of the completion of the merger or the three-month anniversary of the completion of the merger of Coastal Federal Bank with and into Branch Bank, Mr. Gerald elects to become an independent consultant to Branch Bank, he will be paid $288,750 annually in exchange for providing consulting services and as consideration for noncompetition and other covenants contained in the employment/consulting agreement. As an independent consultant, Mr. Gerald will not be eligible to participate in any of Branch Bank’s employee benefit plans, except for elective coverage under group health plan benefits.

 

In the event that, in accordance with the terms of the employment/consulting agreement, Mr. Gerald’s employment or consulting relationship is terminated by Branch Bank for “just cause,” or if Mr. Gerald voluntarily terminates his employment or consulting relationship, Mr. Gerald shall have no right to render services or to receive compensation or other benefits under the employment/consulting agreement for any period after such termination.

 

In the event that Branch Bank terminates Mr. Gerald’s employment/consulting agreement due to Mr. Gerald’s disability or other than for “just cause,” or in the event Mr. Gerald terminates his employment/consulting agreement due to a material breach by Branch Bank of the employment/consulting agreement that is not remedied by Branch Bank within 30 days following written notice of such breach, Mr. Gerald will continue to receive his base salary and annual cash bonuses for the remaining period of the employment/consulting agreement, and the cash bonuses will equal the highest amount of cash bonus paid to Mr. Gerald during his employment by Branch Bank. Mr. Gerald’s termination compensation will not include any equity-based compensation and in order to receive the termination compensation, Mr. Gerald must comply with noncompetition, nonsolicitation, confidentiality and other covenants in the employment/consulting agreement. Mr. Gerald would continue to participate in Branch Bank’s group health plan and group life insurance plan for all periods Mr. Gerald receives termination compensation.

 

Mr. Gerald’s employment/consulting agreement also contains noncompetition, nonsolicitation and confidentiality provisions that are effective for a period of nine years after the completion of the merger (which includes the seven year term of the employment/consulting agreement). Pursuant to these provisions, Mr. Gerald has agreed that he will not, directly or indirectly, render services to any competitive banking business that operates in the counties in which Coastal Financial operates and in any counties that are contiguous to those counties. Mr. Gerald has also agreed that he will not directly or indirectly solicit any depositor or client of BB&T, Branch Bank or their affiliates to become a client of any other financial institution, provided that the foregoing is limited to clients with whom he has had material contact through Coastal Financial or as an employee of or consultant to Branch Bank. Similarly, Mr. Gerald has agreed that he will not directly or indirectly solicit any employee of BB&T, Branch Bank or their affiliates to become an employee of any other financial institution. Mr. Gerald has also agreed to not at any time disclose confidential information obtained by him through his employment with Coastal Financial or the period in which he is an employee or consultant under the agreement. In all events, if Mr. Gerald were to breach the noncompetition, nonsolicitation, confidentiality and other covenants in the employment/consulting agreement during the period that he is receiving termination compensation, Mr. Gerald would not be entitled to receive any further termination compensation or benefits.

 

Equity-Based Awards

 

The merger agreement provides that, upon completion of the merger, each then outstanding and unexercised stock option to acquire shares of Coastal Financial common stock, whether or not then exercisable, will cease to represent the right to acquire or receive shares of Coastal Financial common stock. Each such stock option will be converted into, and become a right to acquire or receive, the number of shares of (or, in the case of stock appreciation rights, a payment in respect of) BB&T common stock equal to the product of the number of shares of Coastal Financial common stock subject to such option and the exchange ratio, with the exercise price of each converted stock option per share of BB&T common stock equaling the per share exercise price of the Coastal Financial stock option divided by the exchange ratio. See “Effect on Employee Benefit Plans and Options — Stock Options” on page [  ].

 

Advisory Boards

 

Following completion of the merger, each member of the Coastal Financial Board of Directors will be offered a position on the BB&T local advisory board serving the region formerly served by Coastal Financial. BB&T will pay compensation to such directors for their service on such BB&T local advisory board for a period of two years after completion of the merger consistent with the existing fee structure offered by Coastal Financial to such directors. Currently, each member of the Board of Directors of Coastal Financial receives $2,500 annually. After the expiration of such two-year period, if a director continues to serve on the local advisory board, BB&T will pay compensation to such director for his or her service on the BB&T local advisory board consistent with BB&T’s fee policies and age limits for advisory board members. Membership on any advisory board is conditioned upon execution of a two-year noncompetition agreement with BB&T.

 

Indemnification of and Advancement of Expenses to Directors and Officers; Insurance

 

BB&T has also agreed to indefinitely indemnify and advance expenses to all individuals who are officers, directors or employees of Coastal Financial or a Coastal Financial subsidiary before the merger becomes effective from any acts or omissions in such capacities on or before the date on which the merger becomes effective to the extent such indemnification and advancement of expenses are permitted by Delaware law, the Coastal Financial certificate of incorporation and the Coastal Financial bylaws. The merger agreement provides that BB&T will maintain directors’ and officers’ liability insurance covering directors and officers of Coastal Financial for acts or omissions or alleged acts or omissions occurring before the merger becomes effective for a period of three years from the completion of the merger. This insurance will provide at least the same coverage and amounts as contained in Coastal Financial’s policy on the date of the merger agreement, unless the annual premium on the policy would exceed 125% of the annual premium payments on Coastal Financial’s policy, in which case BB&T would maintain the most advantageous policies of directors’ and officers’ liability insurance obtainable for a premium equal to that amount.

 

The following is a summary of the material anticipated U.S. federal income tax consequences of the merger generally applicable to holders of Coastal Financial common stock and to BB&T and Coastal Financial. This summary is not intended to be a complete description of all of the U.S. federal income tax consequences of the merger, and no information is provided with respect to the tax consequences of the merger under any other tax laws, including applicable state, local and foreign tax laws. In addition, the following discussion may not be applicable to certain specific categories of shareholders, including but not limited to:

 

 

This discussion is based on the Internal Revenue Code, applicable Department of Treasury regulations, judicial authority, and administrative rulings and practice, all as in effect as of the date of this document, as well as representations, covenants, and assumptions as to factual matters provided by BB&T and Coastal Financial to Womble Carlyle Sandridge & Rice, PLLC, special tax counsel to BB&T. Future legislative, judicial, or administrative changes or interpretations, which may or may not be retroactive, or the failure of any such factual representations, covenants or assumptions to be true, accurate, and complete in all material respects, may adversely affect the accuracy of the statements and conclusions described in this discussion.

 

No ruling has been or will be requested from the Internal Revenue Service with respect to the tax consequences of the merger. Moreover, the opinion of Womble Carlyle Sandridge & Rice, PLLC, special tax counsel to BB&T, described in this discussion is not binding on the Internal Revenue Service, and the opinion would not prevent the Internal Revenue Service from challenging the U.S. federal income tax treatment of the merger. The U.S. federal income tax laws are complex, and a shareholder’s individual circumstances may affect the shareholder’s tax consequences. Consequently, each Coastal Financial shareholder is urged to consult his or her own tax advisor regarding the tax consequences, including the applicable U.S. federal, state, local and foreign tax consequences, of the merger to him or her.

 

Material Tax Consequences of the Merger

 

In the opinion of Womble Carlyle Sandridge & Rice, PLLC, special tax counsel to BB&T:

 

 

Cash Received Instead of a Fractional Share of BB&T Common Stock.  A shareholder of Coastal Financial who receives cash instead of a fractional share of BB&T common stock will be treated as having received the fractional share pursuant to the merger and then as having exchanged the fractional share for cash in a redemption by BB&T subject to Section 302 of the Internal Revenue Code. As a result, a Coastal Financial stockholder will generally recognize gain or loss equal to the difference between the amount of cash received and the portion of the basis of the shares of BB&T common stock allocable to his or her fractional interest. This gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the Coastal Financial common stock was held by the shareholder as a capital asset for more than one year as of the effective date of the merger.

 

Backup Withholding

 

Backup withholding at the applicable rate will generally apply to merger consideration that includes cash if the exchanging Coastal Financial shareholder fails to properly certify that it is not subject to backup withholding, generally on a substitute Internal Revenue Service Form W-9. Certain holders, including, among others, U.S. corporations, are not subject to backup withholding, but they may still need to furnish a substitute Internal Revenue Service Form W-9 or otherwise establish an exemption. Any amount withheld as backup withholding from payments to an exchanging Coastal Financial shareholder will be creditable against the shareholder’s U.S. federal income tax liability, provided that it timely furnishes the required information to the Internal Revenue Service. Coastal Financial shareholders should consult their tax advisors as to their qualifications for exemption from backup withholding and the procedure for obtaining such an exemption.

 

Tax matters are very complicated, and the tax consequences of the merger to each holder of Coastal Financial common stock will depend on the facts of that shareholder’s particular situation. The United States federal income tax discussion set forth above does not address all United States federal income tax consequences that may be relevant to a particular holder and may not be applicable to holders in special situations. Each holder of Coastal Financial common stock is urged to consult his or her own tax advisor regarding the specific tax consequences of the merger in the context of the holder’s individual tax situation.

 

The Merger

 

The merger is subject to approval by the Federal Reserve under the Bank Holding Company Act (the “BHC Act”) and where a transaction, such as the merger, is the acquisition by a bank holding company of a bank located in a state other than the home state of the bank holding company (in this case North Carolina), the BHC Act authorizes the Federal Reserve to approve the transaction without regard to whether such transaction is prohibited under state law, as long as certain limitations are met. In considering the approval of the merger, the BHC Act requires the Federal Reserve to review the financial condition and future prospects of BB&T and Coastal Financial and their respective subsidiary banks, the managerial resources, the convenience and needs of the communities to be served, and the merging parties’ effectiveness in combating money laundering activities.

 

The Federal Reserve is also required to evaluate whether the merger would result in a monopoly or would be in furtherance of any combination or conspiracy or attempt to monopolize the business of banking in any part of the United States or otherwise would substantially lessen competition or tend to create a monopoly which in any manner would be in restraint of trade. If the Federal Reserve determines that an acquisition would substantially lessen competition, it will not approve the transaction unless it finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served.

 

The merger is also subject to the approval of the South Carolina Board of Financial Institutions under South Carolina banking law, which allows a bank holding company, such as BB&T, to acquire a savings and loan company in South Carolina, such as Coastal Financial. When evaluating the merger, the Board will consider the safety and soundness of the acquisition and compliance with the laws of South Carolina.

 

BB&T also must provide notice of the merger to the Georgia Department of Banking and Finance and the Virginia Bureau of Financial Institutions thirty days prior to consummating the merger.

 

BB&T has filed the required applications and notices with the Federal Reserve and the South Carolina Board of Financial Institutions and will file the required notices with the Georgia Department of Banking and Finance and the Virginia Bureau of Financial Institutions. Although BB&T does not know of any reason why it would not obtain regulatory approval in a timely manner, BB&T cannot be certain when such approval will be obtained or if it will be obtained.

 

The Subsidiary Bank Merger

 

BB&T expects to effect the merger of Coastal Federal Bank with and into Branch Bank (which we refer to as the “subsidiary bank merger”) following the effective time of the merger. The subsidiary bank merger is subject to approval of the Federal Deposit Insurance Corporation under the Bank Merger Act. In granting its approval, the Federal Deposit Insurance Corporation must consider the competitive effect of the contemplated transactions, the financial and managerial resources and future prospects of the existing and proposed institutions and the convenience and needs of the communities to be served. In addition, the Federal Deposit Insurance Corporation must take into account the record of performance of the existing and proposed institution under the Community Reinvestment Act in meeting the credit needs of the community, including low- and moderate-income neighborhoods, served by such institution. Applicable regulations also require publication of notice of the application for approval of the subsidiary bank merger and an opportunity for the public to comment on the applications in writing and to request a hearing.

 

Branch Bank must also give notice to the Office of Thrift Supervision of the subsidiary bank merger. The Office of Thrift Supervision will evaluate the notification to determine if there are any pending or potential supervisory concerns or enforcement actions involving Coastal Federal Bank and whether Branch Bank has complied with applicable shareholder approval requirements. If there are any concerns, the Office of Thrift Supervision will notify the Federal Deposit Insurance Corporation.

The North Carolina Commissioner of Banks also must approve the subsidiary bank merger under the bank merger act provisions of the North Carolina General Statutes. In its review of the subsidiary bank merger, the North Carolina Commissioner of Banks is required to consider whether the interests of the depositors, creditors and shareholders of each institution are protected, whether the merger is in the public interest and whether the merger is for legitimate purposes.

 

BB&T will account for the merger using the purchase method of accounting. Under this accounting method, BB&T would record the acquired identifiable assets and liabilities assumed at their fair market value at the time the merger is completed. Any excess of the cost of Coastal Financial over the sum of the fair values of tangible and identifiable intangible assets less liabilities assumed would be recorded as goodwill. Based on information as of [          ], management of BB&T estimates that the total merger consideration (including issuance of common stock and assumption of options on common stock) will be approximately $[     ] million. Utilizing information as of September 30, 2006, estimated goodwill and other intangibles would total approximately $281.5 million. BB&T’s reported income would include the operations of Coastal Financial after the merger. Financial statements of BB&T issued after completion of the merger would reflect the impact of the merger with Coastal Financial. Financial statements of BB&T issued before completion of the merger would not be restated retroactively to reflect Coastal Financial’s historical financial position or results of operations. The unaudited pro forma financial information contained in this proxy statement/ prospectus has been prepared using the purchase method of accounting. See “Summary — Comparative Per Share Data” on page [     ].

 

Employee Benefit Plans

 

No later than the effective date of the merger, Coastal Financial will take such steps as may be necessary to fully vest all participants in the Coastal Financial 401(k) plan. As of a date (“the benefit plan determination date”) determined by BB&T, BB&T will cause Coastal Financial’s 401(k) plan either to be merged with BB&T’s 401(k) plan or to be frozen or to be terminated, as determined by BB&T and subject to receipt of applicable governmental approvals. Each employee of Coastal Financial at the time the merger becomes effective who: (a) is a participant in Coastal Financial’s 401(k) plan; (b) becomes an employee of BB&T or a BB&T subsidiary (a “BB&T employer”) immediately following the time the merger becomes effective (a “transferred employee”), and (c) continues in the employment of a BB&T employer until the benefit plan determination date, will be eligible to participate in BB&T’s 401(k) plan as of the benefit plan determination date. Any other former employee of Coastal Financial that is employed by a BB&T employer on or after the benefit plan determination date will be eligible to participate in BB&T’s 401(k) plan upon complying with the eligibility requirements. All rights to participate in BB&T’s 401(k) plan are subject to BB&T’s right to amend or terminate the plan. BB&T will maintain Coastal Financial’s 401(k) plan for the benefit of participating employees until the benefit plan determination date. For purposes of administering the BB&T 401(k) plan, service with Coastal Financial and its subsidiaries will be deemed to be service with BB&T for participation and vesting, but not benefit accrual, purposes. Additionally, former employees of Coastal Financial will be eligible to receive from BB&T in the administration of the BB&T 401(k) plan any matching contribution received by such employees as a participant in Coastal Financial’s 401(k) plan.

 

Each transferred employee will be eligible to participate in group hospitalization, medical, dental, life, disability and other welfare benefit plans and programs available to employees of the BB&T employer as of the benefit plan determination date with respect to each such plan or program, conditional upon the transferred employee’s being employed by the BB&T employer as of the benefit plan determination date and subject to complying with eligibility requirements of the respective plans and programs. With respect to any welfare benefit plan or program of Coastal Financial that the BB&T employer determines, in its sole discretion, provides benefits of the same type or class as a corresponding plan or program maintained by the BB&T employer, BB&T will cause the BB&T employer to continue such Coastal Financial plan or program in effect for the benefit of the transferred employees so long as they remain eligible to participate and until they

become eligible to participate in the corresponding plan or program maintained by the BB&T employer (and, with respect to any such plan or program, subject to complying with eligibility requirements and subject to the right of the BB&T employer to terminate the plan or program). For purposes of administering these plans and programs, service with Coastal Financial will be deemed to be service with the BB&T employer for the purpose of determining eligibility to participate and vesting (if applicable) in such welfare plans and programs, but not for the purpose of computing benefits, if any, determined in whole or in part with reference to service.

 

Except to the extent of commitments in the merger agreement or other contractual commitments specifically made or assumed by BB&T, no BB&T employer will have any obligation arising from the merger to continue any transferred employees in its employ or in any specific job or to provide to any transferred employee any specified level of compensation or any incentive payments, benefits or perquisites. Each transferred employee who is terminated by a BB&T employer after the merger becomes effective, excluding any employee who has a then-existing contract explicitly providing for severance in lieu of severance plan benefits, will be entitled to severance pay in accordance with the Coastal Federal Bank Change in Control Severance Compensation Plan (the “bank severance plan”), if and to the extent that the employee is entitled to severance pay under the bank severance plan. Such employee’s service with BB&T will be treated as service with Coastal Financial for purposes of determining the amount of severance pay, if any, under the bank severance plan.

 

BB&T has agreed to honor all employment agreements, severance agreements and deferred compensation agreements and plans that Coastal Financial and its subsidiaries have with or in place for their current and former employees and directors and which have been disclosed to BB&T pursuant to the merger agreement, except to the extent any agreements are superseded or terminated when the merger becomes effective or thereafter. Each former Coastal Financial employee covered by a previously disclosed employment agreement of Coastal Financial or a Coastal Financial subsidiary will be entitled to a severance payment and continuation of employee benefits under the applicable change in control severance provisions of such agreement without regard to whether such employee continues employment with BB&T after the completion of the merger as a transferred employee, provided each such former Coastal Financial employee executes an acknowledgment of payment and release of obligations under his or her existing employment agreement. Any such payment shall be made by BB&T no later than the first to occur of such employee’s voluntary or involuntary termination of employment or 120 days after the completion of the merger without regard to whether such employee is still employed by BB&T as of such date. However, any such payment shall not apply to an employee who enters into a new employment agreement with BB&T. Except as these agreements may provide otherwise, and except as otherwise described above, the employee benefit plans of Coastal Financial shall, in the sole discretion of BB&T, be frozen, terminated or merged into comparable plans of BB&T, effective as BB&T shall determine in its sole discretion. BB&T will continue in effect any short-term bonus plans of Coastal Financial (the “Coastal Financial bonus arrangements”) until the later of (i) the date of completion of conversion of the data services systems of Coastal Financial and its subsidiaries to the data services systems of BB&T and its subsidiaries, (ii) the date that former Coastal Financial executives are made parties to the BB&T Amended and Restated Short Term Incentive Plan, or (iii) the date the former Coastal Financial employees are made parties to the applicable line of business incentive plan (each of the BB&T Amended and Restated Short Term Incentive Plan and the applicable line of business incentive plan shall be referred to as a “BB&T bonus plan”). If any former employee of Coastal Financial would earn amounts under both the Coastal Financial bonus arrangements and the applicable BB&T bonus plan for any calendar year, BB&T shall make appropriate adjustments in the amounts earned under such programs to avoid duplication and to pro-rate the amount earned by such employee under the Coastal Financial bonus arrangements and the applicable BB&T bonus plan for the portion of the year in which such employee participated in each such plan.

 

Coastal Financial will also enter into retention bonus arrangements (in such amounts and upon such terms and conditions as BB&T shall specify) with such key employees of CFC and its subsidiaries as are requested or approved by BB&T.

 

Stock Options

 

At the time the merger becomes effective, whether or not then exercisable, each outstanding option to purchase shares of Coastal Financial Common Stock under the Coastal Financial stock option plans shall be converted into and become rights with respect to BB&T common stock, and BB&T shall assume each Coastal Financial stock option in accordance with the terms of the Coastal Financial stock option plans, except that (i) BB&T and its Compensation Committee shall be substituted for Coastal Financial and the relevant committee of Coastal Financial’s Board of Directors for purposes of administering the Coastal Financial stock option plans, (ii) each Coastal Financial stock option assumed by BB&T may be exercised solely for shares of BB&T common stock, (iii) the number of shares of BB&T common stock subject to each such Coastal Financial stock option shall be the number of whole shares of BB&T common stock (omitting any fractional share) determined by multiplying the number of shares of Coastal Financial common stock subject to such Coastal Financial stock option immediately prior to merger by the exchange ratio, and (iv) the per share exercise price under each such Coastal Financial stock option shall be adjusted by dividing the per share exercise price under each such Coastal Financial stock option by the exchange ratio and rounding up to the nearest cent.

 

As an alternative, BB&T may, at its election, as of the effective time of the merger substitute options under the BB&T Corporation 2004 Stock Incentive Plan or any other duly adopted comparable plan for all or a part of the Coastal Financial stock options, subject to the following conditions: (A) the requirements of (iii) and (iv) in the preceding paragraph shall be met; (B) such substitution shall not constitute a modification, extension or renewal of any of the Coastal Financial stock options and shall be tax neutral to the option holder; and (C) the substituted options shall continue in effect on the same terms and conditions as provided in the Coastal Financial stock option agreements and the Coastal Financial stock option plans governing each Coastal Financial stock option.

 

BB&T shall cause each grant of a converted or substitute option to any individual who subsequent to the merger will be a director or officer of BB&T (as construed under SEC Rule 16b-3), as a condition to such conversion or substitution, to be approved in accordance with the provisions of Rule 16b-3. Each Coastal Financial stock option that is an incentive stock option shall be adjusted as required by Section 424 of the Internal Revenue Code, and the related Treasury Regulations, so as to continue as an incentive stock option under Section 424(a) of the Internal Revenue Code, and so as not to constitute a modification, extension or renewal of the option within the meaning of Section 424(h) of the Internal Revenue Code. Each Coastal Financial stock option that is intended to be exempt from the application of Code Section 409A and related regulations or other guidance shall be subject to adjustment as necessary in order to comply with Prop. Reg. § 1.409A-1(b)(5)(v)(D), or any successor provisions. BB&T and Coastal Financial have agreed to take all necessary steps to effectuate the foregoing as set forth in the merger agreement.

 

BB&T has reserved and shall continue to reserve adequate shares of BB&T common stock for delivery upon exercise of any converted or substitute options. Within five business days after the completion of the merger, if BB&T has not already done so, BB&T shall file a registration statement on Form S-3 or Form S-8, as the case may be, with respect to the shares of BB&T common stock subject to converted or substitute options and shall use its reasonable efforts to maintain the effectiveness of such registration statement for so long as such converted or substitute options remain outstanding. With respect to those individuals, if any, who subsequent to the merger may be subject to the reporting requirements under Section 16(a) of the Securities Exchange Act of 1934, BB&T shall administer the Coastal Financial stock option plans assumed pursuant to the merger agreement (or the BB&T option plan, if applicable) in a manner that complies with Rule 16b-3 promulgated under the Securities Exchange Act to the extent necessary to preserve for such individuals the benefits of Rule 16b-3 to the extent such benefits were available to them prior to the merger.

 

BB&T will deliver to each Coastal Financial employee who receives converted or substitute options an appropriate written notice setting forth the employee’s rights with respect to the converted or substitute options.

 

As of [          ], 2007, options to purchase an aggregate of approximately [          ] shares of Coastal Financial common stock may be outstanding at the effective time of the merger. Any shares of Coastal

Financial common stock issued pursuant to the exercise of stock options under the Coastal Financial stock option plans before the effective time of the merger will be converted into shares of BB&T common stock in the same manner as other outstanding shares of Coastal Financial common stock.

 

Eligibility to receive stock option grants after the merger will be determined by BB&T in accordance with its plans and procedures and subject to any contractual obligations.

 

The shares of BB&T common stock to be issued in the merger will be registered under the Securities Act of 1933 (the “Securities Act”) and will be freely transferable, except any shares received by any shareholder who may be deemed to be an “affiliate” of Coastal Financial at the effective time of the merger for purposes of Rule 145 under the Securities Act. Affiliates of Coastal Financial may sell their shares of BB&T common stock acquired in the merger only in transactions registered under the Securities Act or permitted by the resale provisions of Rule 145 under the Securities Act or as otherwise permitted by the Securities Act. Persons who may be deemed affiliates of Coastal Financial generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by or are under common control with Coastal Financial and include directors and executive officers of Coastal Financial. In addition, any executive officer or director of Coastal Financial who becomes an affiliate of BB&T will be required to comply with the resale requirements under Rule 144 of the Securities Act. The restrictions on resales by an affiliate extend also to related parties of the affiliate, including parties related by marriage who live in the same home as the affiliate.

 

Coastal Financial has caused each of its affiliates to deliver to BB&T a written agreement to the effect generally that he or she will not offer to sell, transfer or otherwise dispose of any shares of BB&T common stock issued to that person in the merger, except in compliance with the Securities Act and the related rules and regulations.

 

Coastal Financial shareholders do not have any right to dissent from the merger and demand an appraisal of their shares of Coastal Financial common stock. See “Comparison of the Rights of BB&T Shareholders and Coastal Financial Shareholders — Shareholders’ Rights of Dissent and Appraisal — Coastal Financial” on page [     ].

 

BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations primarily through its commercial bank subsidiaries, which have offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama, Florida, Indiana and Washington, D.C. Substantially all of the loans by BB&T’s bank and nonbank subsidiaries are to businesses and individuals in these market areas. At September 30, 2006, BB&T’s principal bank subsidiaries were Branch Banking and Trust Company (“Branch Bank”), Branch Banking and Trust Company of South Carolina (“Branch Bank-SC”), Branch Banking and Trust Company of Virginia (“Branch Bank-VA”), and BB&T Bankcard Corporation. BB&T’s principal assets are all of the issued and outstanding shares of common stock of its subsidiary banks and its nonbank subsidiaries.

 

As of September 30, 2006, BB&T had consolidated total assets of $118.5 billion, consolidated net loans of $80.5 billion, consolidated deposits of $80.1 billion and consolidated shareholders’ equity of $11.7 billion.

 

At September 30, 2006, the principal operating subsidiaries of BB&T included the following:

 

 

Branch Bank

 

Branch Bank, BB&T’s largest subsidiary, was chartered in 1872 and is the oldest bank headquartered in North Carolina. As of September 30, 2006, Branch Bank operated banking offices in the following geographic markets:

 

Branch Bank provides a wide range of banking and trust services for retail and commercial clients in its geographic markets, including small and mid-size businesses, public agencies, local governments and individuals. Branch Bank’s principal operating subsidiaries include:

 

 

Branch Bank-SC, Branch Bank-VA and BB&T Bankcard Corporation

 

At September 30, 2006, Branch Bank-SC provided a wide range of banking and trust services to retail and commercial clients, including small and mid-size businesses, public agencies, local governments and individuals through 99 banking offices located in the State of South Carolina. At September 30, 2006, Branch Bank-VA offered a full range of commercial and retail banking services through 402 banking offices located in the Commonwealth of Virginia. BB&T Bankcard Corporation is a special purpose credit card bank.

 

Recent Developments

 

On December 31, 2006, BB&T completed the merger of its banking subsidiaries, Branch Bank-SC and Branch Bank-VA into Branch Bank, effectively consolidating these three bank subsidiaries into one bank subsidiary. Effective January 1, 2007, the name of BB&T Leasing Corporation was changed to BB&T Equipment Finance Corporation.

 

Major Nonbank Subsidiaries

 

BB&T also has a number of nonbank subsidiaries, including:

 

 

 

Services

 

The primary services offered by BB&T’s subsidiaries include: