Filed by BB&T Corporation Commission File No. 001-10853 Pursuant to Rule 425 Under the Securities Act of 1933 And Deemed Filed Pursuant to Rule 14a-12 Under the Securities Exchange Act of 1934
Subject Company: National Penn Bancshares, Inc. Commission File No. 000-22537-01
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BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call | ||
EVENT DATE/TIME: AUGUST 18, 2015 / 12:00PM GMT | ||
OVERVIEW: Co. announced that it entered into a definitive agreement to acquire National Penn for total consideration valued at approx. $1.8b.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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CORPORATE PARTICIPANTS
Alan Greer BB&T Corporation - IR
Kelly King BB&T Corporation - Chairman and CEO
Daryl Bible BB&T Corporation - CFO
Chris Henson BB&T Corporation - COO
CONFERENCE CALL PARTICIPANTS
Ken Houston Jefferies & Co. - Analyst
Mike Mayo CLSA Limited - Analyst
John Pancari Evercore ISI - Analyst
Jack Micenko Susquehanna Financial Group - Analyst
Jason Goldberg Barclays Capital - Analyst
Gerard Cassidy RBC Capital Markets - Analyst
Matt Burnell Wells Fargo Securities, LLC - Analyst
Andrew Schenker Morgan Stanley - Analyst
Vivek Juneja JPMorgan - Analyst
Geoffrey Elliot Autonomous Research - Analyst
PRESENTATION
Operator
Greetings, ladies and gentlemen, and welcome to the BB&T Corporation to acquire National Penn Bancshares conference call.
(Operator Instructions)
As a reminder, this event is being recorded. It is now my pleasure to introduce your host, Alan Greer of Investor Relations for BB&T Corporation. Please go ahead.
Alan Greer - BB&T Corporation - IR
Thank you, Anthony, and good morning, everyone. Thank you to all of our listeners for joining us today. The acquisition of National Penn is an exciting transaction for BB&T. Here to discuss its strategic importance and acquisition criteria we have with us Kelly King, our Chairman and Chief Executive Officer. Also to participate in the Q&A session that will follow Kellys remarks, we have Chris Henson, our Chief Operating Officer; Ricky Brown, the President of Community Banking; Daryl Bible, our Chief Financial Officer; and Clarke Starnes, our Chief Risk Officer. We will be referencing a slide presentation during our comments today. A copy of the presentation is available on the BB&T website.
Before we begin, let me remind you that BB&T does not provide public earnings predictions or forecasts; however there may be statements made during the course of this call that express managements intentions, beliefs, or expectations. BB&Ts actual results may differ materially from those contemplated by these forward-looking statements. Ill refer you to the forward-looking cautionary statements in our presentation and in our SEC filings. And with that, I will turn the call over to Kelly.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Kelly King - BB&T Corporation - Chairman and CEO
Thank you, Alan. Good morning, everybody, and thank you for joining our call. Were very excited this morning about our combination with National Penn. This is a tremendous opportunity for us to strength our Pennsylvania franchise, but also to continue to build a scale thats necessary to operate efficiently and with high quality. So its a really good strategic move.
Its very compelling. Obviously a nice expansion in our mid-Atlantic region. Leaves us a number four pro forma market share in Pennsylvania, and of course its very, very synergistic with our recently announced and closed acquisition with Susquehanna, which is another outstanding Pennsylvania institution. It meets all of our acquisition criteria, so its financially attractive. Its approximately $1.8 billion in aggregate deal value. It is EPS accretive in the first full year, excluding merger charges, and it does exceed our internal return requirements. It is a compelling use of capital. As you know, we had approved in our capital plan for this year, $820 million of buybacks and/or acquisitions. And in this case, will be using about $410 million of the $820 million as part of the consideration for this, which makes a very attractive for our shareholders.
Its a really nice expansion in Eastern Pennsylvania, Philadelphia market. I would point out that we are very well prepared to successfully execute on this. As you know, we have a long-standing history of acquisitions and successful integrations. We have done over 80 in the last 30 or so years, and so, were very accustomed to doing these. And we do it at a very measured pace. I know it may seem like a lot here, all of sudden recently, but its a very measured pace. Were basically trying to do about two a year, and thats about the way this is working out. Weve done extensive due diligence with regard to this. Weve had over 150 BB&T Associates involved for several weeks into due diligence. This is a really squeaky clean Company. Its extremely well managed. We expect absolutely no difficulties with regard to this combination.
Its going to be a really nice integration, because there is a really tight cultural fit between National Penn and BB&T. Ive gotten to know Scott Fainor, their CEO, very well over the last couple of years in some various industry-affiliated activities that we are involved in. And the more Ive gotten to know him and his team, I can tell you that its a very experienced management team with deep knowledge. Importantly, Scott, with over 30 years of leadership service in the Pennsylvania market, will be a Group Executive for us, having responsibility for our Pennsylvania regions and Maryland and Washington, DC area. And hes bringing along his very experienced successful group executives, most of whom have large bank experience. And now they have had some small bank experience, so theyre extremely well-rounded. Were excited about having Sandy Bodnyk head up a group credit operation force. Dave Kennedy will be our new regional president in Allentown, and Sean Kehoe will join our legal team in a very experienced position. Not only do we get a very experienced long-term CEO to lead our group in that area, but also a very strong team to join him.
If you are joining in the slide presentation, I am on slide 4. Some key transaction terms. [As I said] is $1.8 billion in aggregate consideration, $13 per common share. That is about 16 times 2016 street earnings, so its very moderately priced with regard to earnings. Its a little high with regard to tangible book at 2.2, but [escrow], this is just a really high performance, high earnings Company. It is structured with 70% stock, 30% cash. The Nat Penn holders can elect whatever portion of cash they prefer, but at the end, it will be proportionalized so that we end up with 30% cash and 70% stock, and of course the stock portion will be tax-free. We will have $65 million in full-time fully phased-in pretax cost savings, which is about 30% of National Penns expense base. We have been very thorough in projecting that; we dont just [swag] any number. We go in all of our execs, take ownership of the areas. They have identified these savings with the support of our National Penn partners. This is not just a number we pulled out; we feel like its conservative and can be accomplished.
Remember that there is overlap in this case; well probably consolidate around 25 or so locations so that helps drive the savings. And so we think its very attainable. We will have merger and integration costs by $100 million pretax, which is very reasonable relative to the run-rate savings. We will have a credit mark of about 3% that we judge to be conservative, but we try to be conservative in these deals. We would rather be conservative and beat it than not be conservative and miss it. We feel really good about the credit mark. We do expect to close this in mid-2016. Of course, this is subject to National Penns shareholder approval and all the other customary and regulatory approvals. I would point out to you, that weve had extensive discussions with our regulators, and they are very well informed with regard to this proposed transaction.
If you will look at page 5, just a little color with regard to the nice combination of how Susquehanna and National Penn combines. Its almost a hand-in-glove type of fit. It does move us from number seven BB&T, number nine National Penn, up to number four, a strong number four position in the Pennsylvania market. And of course as you know, the Pennsylvania market is a very strong and large market. I call your attention to the boxes at the bottom, in terms of the combined market shares, where we are really number one or number two in most of the markets. We are in the number 13 position in Philadelphia proper, but with the counties around it, were in a much stronger position in the greater Philadelphia market. Overall, really good market positioning, and still plenty of really good opportunity, particularly in Philadelphia proper. So we feel good about the combined franchise.
If youll look at page 6, in terms of National Penns revenue, this is a very good, clean, straightforward commercial retail bank. They have about 74% of their business is in net interest income. And so, that does give us a lot of opportunity, frankly, in terms of expanding their fee income business. They have solid fee income business, but its not as high as BB&Ts. Our fee-income ratio is about 46%, so this is one of the attractive aspects of this. They have really well-grounded foundation long-term standing in the community. Recall that this bank started in 1874, just a couple of years after BB&T started in 1872. They have great deep roots in terms of relationships, which we will be able to lever as we bring our more robust product line to them.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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They do have a nice wealth management been called National Penn Wealth Management. They have $2.6 billion in assets under management. They offer private banking services for high net worth individuals. Well be able to build that really naturally into our wealth management private banking strategies. They have a nice insurance operation called National Penn Insurance Services Group with 11,000 customers. Interestingly, they are the top 20th bank-owned insurance brokerage firm in the country, with $13 million in revenue. So again, that will fit very nicely into our insurance operation. We will get some synergies there, but mostly have lots of opportunities in the future. So the revenue opportunities for this combination is very, very attractive.
If you look at slide 7, just to put our recent acquisitions in perspective, recall that we did two acquisitions or tranches of branches in Texas from Citibank. They have both closed, been converted, going very, very well. We created two regions in Texas, very consistent with our long-term community banking structure. We recently closed and converted our acquisition and North Kentucky and metro Cincinnati area. Thats going extremely well. I was there just a couple of weeks ago for our first all-day regional visit, and you would have thought that they had been a part of the bank for 10 years. They are already off and running extremely well. Of course, we closed recently the Susquehanna acquisition and we accreted three regions there with three existing long-term Susquehanna regional presidents running those regions. Now we are adding one in Allentown with a long-term experience, National Penn.
So you see, we are very fortunate to have really long-term market players driving these regions. And of course, was Scott as the Group Executive supporting them, its just a really, really good situation in terms of market presence. But also, the ability to [market] integrate. Scott is very, very familiar with Susquehanna. He and Bill Reuter, whos the CEO of Susquehanna, have been very close over the years. They lots of common knowledge, lots of common interest in business activities. And so this is a merger thats really, really very attractive and is going to be relatively easy to execute, not that anythings ever easy, but it will be relatively easy. We feel great about how that fits in. A little more color with regard to that on slide 8.
Weve said to you consistently for seven or eight years how important diversification is. We said you should expect to see us do mergers and organic growth activities in large markets, small markets, rural markets, metro markets, fast-growing markets, slower growing markets, high net worth markets, not as high net worth markets. All of that is by design. Its served us very well through the great recession; it continues to serve us very well. And as you see on slide 8, you will see this is just more of the same. Philadelphia is large, Allentown is midsize, Lancaster is midsize, and you can see that generally, they have a little slower growth rates than some markets like Dallas or Washington. But high-end, very high median household incomes and so you get a lot of long-term wealth in those markets, which is excellent for us. So you trade off a little bit of growth in those markets for the long-term established wealth that is available for us.
And then into other markets, we have faster growth rates in some cases, its not as high a level of income. Fortunately in somewhere like Dallas you get both, you get fast growth rates and higher income. But all of it fits together very, very nicely, and we really like this combination. If you could have set out seven or eight years ago and laid out some strategic plan and made it exactly the way you wanted it, this has been about as close as I could have possibly projected it, in terms of how its happened.
The key, of course, to all of this is execution, which is all of our community bank model. So if you look at slide 9, weve said repeatedly over 30 years, our community banking model, which Ricky Brown drives, is our key to our success. Its designed, as you know, to focus on collaboration, integration, local visible leadership; thats why Im so excited about these local regional presidents. Local decision-making, knowing your client, making sure that we focus on the voice of the client, thats why its important to have local leadership. Partnering across the bank, our integrated relationship process we call IRM, allows us to naturally from day one start penetrating the needs of our clients across all of our fee-income businesses, and so that is exactly the way it has worked out.
Thats the way its working out in Texas and Kentucky, already off to a great start in Susquehanna. Weve been working Susquehanna now for a year or more, and so its not like it just started a few weeks ago when we closed. We are well along the way in terms of Ricky and his team working with the team up there. And, as I say, when you travel up there today, its not like theyve been with us 20 years, but its not like its been just a little more than a year. Were really good at this, I say, not in a braggadocious way, but just in an assuring of confidence way, we know how to work hard on this. It is hard work, but our people do it really, really well.
I would then call your attention to slide 10, just to make the point that youve heard me say many times before. Overarching all of this is the long-term culture of BB&T. BB&Ts culture is nonnegotiable. Thats about our vision, our mission, and our values. I will tell you that one of the things that attracted me to National Penn and discussions with Scott and the general reputation of this organization is their culture is almost tit-for-tat just like our culture. This Company looks exactly like BB&T and Susquehanna as well. So while its three companies coming together in a fairly short period of time, its three that are very, very, very common in looks and culture, and style. And so youll see this fold together very, very naturally. And with Scotts leadership, I think it will go extremely well.
And then finally, I call your attention to slide 11, just to share some recent recognitions that prove the point that our strategy works. Keynote Magazine recognized us recently as the best overall customer experience in retail banking websites, third straight year, by the way. We were recently listed by Bloomberg as one of the strongest top 15 banks globally, and one of only three in the United States. So we were very, very proud of that. TNS recognized as outstanding awards in commercial banking. Greenwich continues to give us outstanding recognitions; last year we got 22 regional and national awards in small business and middle market commercial business. Retirement income, our institutional services area, youve got 33 best-in-class awards. And the one that I would call out as being really more important than any of these long term is that Training Magazine ranked us as number one among banks and number 13 in their top 125 list of best training and educational institutions. And so, we feel really good about our ability to train and educate our folks to execute on our quality service model.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Finally, on page 12, just to summarize, again its very, very exciting. Its been a nice build out of our mid-Atlantic markets. Solidifies our position in Pennsylvania with a fantastic market, number four market share, compatible culture, compatible community banking model. Excellent combination in terms of synergies with Susquehanna and National Penn. Value accretive to our shareholders short term and long term, consistent with all of our acquisition criteria. Community banking model will drive the success, and were already off to a good start with that, and Susquehanna; we will be moving quickly with regard to National Penn. Culture has been and will continue to be a critical part of all of our acquisitions, and of course that is built around, as Ive said, the fact that our vision, mission, and values are nonnegotiable.
I would point out to you in closing, before we go to questions, that we have been pretty busy lately. And this is our third Bank acquisition in a fairly relatively short period of time. And so you can expect to see us take a bit of a pause now and be tightly focused on executing on these acquisitions. They are outstanding, huge opportunities for our shareholders and so, were not going to take any risk around execution. But if you dont execute well, then you dont get the benefits. And so were going to take a pause in terms of bank acquisitions for a while now and focus on executing on these acquisitions, which were very excited about and we believe will generate very good long-term returns to our shareholders.
So Alan, let me stop now and turn it back to you.
Alan Greer - BB&T Corporation - IR
Thank you, Kelly. Anthony, at this time, if you would come back on the line and explain how our participants can ask questions.
QUESTION AND ANSWER
Operator
(Operator Instructions)
Ken Houston, Jefferies.
Ken Houston - Jefferies & Co. - Analyst
Thank you, good morning guys. I was wondering if you could fill us in a little bit on some of the numbers behind can you talk a little bit about any tangible book and capital CET-1 dilution, first of all?
Daryl Bible - BB&T Corporation - CFO
Yes, Ken. This is Daryl. What I would want to emphasize on this transaction, if you look at their earnings estimates for 2016, we are buying it at a 16 multiple. When you factor in 30% cost saves, that brings the multiple down to 11. And then if you look at a strong capital that National Penn has theyre at over 12% common equity tier one; if you factor that in, thats well over $100 million. That gets the multiple down under 10. So we think that we are buying their earnings stream at a very reasonable price.
Ken Houston - Jefferies & Co. - Analyst
Okay. But, no is there explicit numbers you can give us on TBV and CET-1 for BB&T?
Daryl Bible - BB&T Corporation - CFO
So when we model this transaction, assuming it was 100% stock transaction, so no cash. You actually have tangible book solution of around 1%. If you do an earn back versus those numbers, its a little bit less than five years; we think thats a very reasonable period for the earn back. Now that we put 30% cash in the transaction, that in essence is using two quarters of our repurchase, as Kelly said. So our repurchase goes down $410 million. Each $200 million of our repurchase added about $0.02 on an earnings-per-share basis. So this deal is accretive on an all stock deal, $0.02. And then when you add in the 30% cash, which is basically two quarters of repurchase, you can do the math, but it is very accretive.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Ken Houston - Jefferies & Co. - Analyst
All right, so the cash makes it, obviously, more accretive because there are less stock, but that overwhelms thats more than overwhelming the loss of the buyback?
Daryl Bible - BB&T Corporation - CFO
Yes. Compared to a buyback, this is definitely better than a buyback. Its a great institution, as Kelly said, its a great earning stream, so were very optimistic about it. But the combination of all that really fits together great.
Ken Houston - Jefferies & Co.- Analyst
Okay, and my second question is just on the buyback then, so the having it is turning it off for the next two quarters effectively? And then would you look to turn it back on either after the vote or after close? And then also what does it mean for next year [secar], might be too early but I know were getting that question ready?
Daryl Bible - BB&T Corporation - CFO
Yes, I think the way we think about it Ken is that we are basically committing half our buyback with this transaction, so you wont see us have a repurchase for the third and fourth quarter of this year. Assuming, nothing else goes on, then you would see us hit our start our repurchase in the first quarter of next year. This transaction allows us still to our capital targets with secor 15, just by adjusting with the buyback [sell]. Overall, this fits really well with our capital plan that we submitted.
Kelly King - BB&T Corporation - Chairman and CEO
And then, Ken, obviously, its too early to have any specific numbers with regard to 2016, but with the kind of profitability we have and the [caliber of] generation we have, you could expect 2016 probably to look like 2015 where well have excess capacity for buybacks and/or acquisitions. And we always are going top prioritize our capital utilization, as weve said, consistently in terms of organic growth, dividends, M&A, and buybacks. But, sometimes it works out for all of them. In this case, its really a combination if you think about it, this is a combination of M&A and buybacks, which is a very efficient way to do it. And, so that would be probably what you would expect as you look into 2016.
Ken Houston - Jefferies & Co. - Analyst
Understood. Thank you guys.
Daryl Bible - BB&T Corporation - CFO
Thank you.
Operator
Mike Mayo, CLSA.
Mike Mayo - CLSA Limited - Analyst
Hi. Kelly, you talked about fishing on the side of the boat where theres fish; you caught another fish on the same side of the boat. How was this process conducted? Was it just a one-on-one negotiated? Was it a bid? And if you can elaborate more on the slower growth aspect on Pennsylvanias. You mentioned its not as fast as Washington DC, or Dallas. And whats the performance like in your slower growth markets versus your faster growth markets? In other words, you cant have it both ways. Like, hey, BB&T has a great footprint in fast growing markets, and now this is your second acquisition in a slower growing market.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Kelly King - BB&T Corporation - Chairman and CEO
Yes, so Mike, the fishing analogy is still a good one. Its hard to know exactly which side of the boat the fish are on, but when youve been around 43 years like me, you get some experience in fishing. So we are glad that we were able to find a great one on that side of the boat. So, what were really trying to do is were trying to keep orchestrating, its not a perfect science, but were trying to orchestrate these acquisitions so that we will continually keeping diversification around the nature of the markets, which includes the wealth factor and the growth factor. And so and that combined with the fact that wherever you go, you want to have large scale and density, as you know, matters a lot. So when we decided to go to Pennsylvania, which is a very contiguous part of our markets, its the third most popular state in our area. If you went to a really slow, really tiny little area, that wouldnt make much sense. But when you go to a really large state, one of the largest in the country, with one of the largest NSAs in the country in Philadelphia, and you go in and you can immediately within two years become the fourth largest bank; then all of a sudden, you go to a place where you have the skill to be able to execute on a large still existing business. Its growing; its just not growing as fast.
But keep in mind, and you know this well, Mike, but a lot of people get enamored with this fast-growth markets and these fast-growth markets are really exciting until they are not growing real fast anymore and they start tanking in the middle of a big correction. We have been through that, and so we like a lot of comfort of the slower growth, because theyre not nearly as likely to bust in the boom times. They dont boom in their boom times, but they dont bust in the bad times. So weve got some boomers and weve got some ones that wont bust, and that works together really, really well for us. And, I think the proof is in the pudding in what we just did through the last recession. I think it will work that well way for us in the future.
Mike Mayo - CLSA Limited - Analyst
And then one follow-up. You mentioned growth, wealth, and I would add competition. How is the competitive environment in Pennsylvania? I guess PNC has expanded down south and youre expanding more in their headquarter state. How is competition in Pennsylvania?
Kelly King - BB&T Corporation - Chairman and CEO
Its very similar to where we compete everywhere else. We will be heads up against PNC and Wells Fargo and PNC. Although, PNC is were not over there in their home territory. And so, we think that the competition well see there, based on what weve already seen with Susquehanna is exactly what we see in other parts of our market. So, no better, no worse about the same. And to be honest, Mike, we like it when you compete with good companies like PNC and Wells Fargo. If you give us good rational competition out here every day, we feel great because then it gets down to execution. Truth is, everybody has about the same general strategies, and it gets down to who executes the best. And I think our track record shows that we execute very well.
Mike Mayo - CLSA Limited - Analyst
All right. Thank you.
Operator
John Pancari, Evercore ISI.
John Pancari - Evercore ISI - Analyst
Good morning.
Kelly King - BB&T Corporation - Chairman and CEO
Good morning.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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John Pancari - Evercore ISI - Analyst
Just regarding the accretion again, I just want to clarify, with the 70% stock, 30% cash, 30% cost saves, you mentioned nicely accretive. What does that come out to? Is that are you talking 2% to 3%? I just want to be able to get what youre viewing as the actual accretion from this deal?
Daryl Bible - BB&T Corporation - CFO
So John, if you looked at it on an all-stock basis, the deal is accretive $0.02. If you factor in the 30% cash, which is in essence two quarters of a repurchase program, each quarter of our repurchase programs added about $0.02.
John Pancari - Evercore ISI - Analyst
Right. Okay. Im just trying to clarify exactly what that interprets in to. By my math, it is still low single-digit percentage accretion, but I just want to make sure thats consistent with what you mentioned, because you mentioned nicely accretive.
Daryl Bible - BB&T Corporation - CFO
So if you factor the two together, its close to 3% in the first full year.
John Pancari - Evercore ISI - Analyst
Yes, okay. All right, and then in terms of the timeline for the expected cost saves, can you just give us a little bit of color around the expectation there?
Daryl Bible - BB&T Corporation - CFO
Yes, we usually model that we get about half of it in the first year and half the second year. A lot of times we do better than that, but thats what we put into the model and load out there. And each deal is a little bit different in how it plays out, but we put pretty conservative estimates in our models when we run them.
John Pancari - Evercore ISI - Analyst
Okay. All right, and then lastly, Kelly, I know you had indicated that you expect a bit of a pause. I know this might be nitpicking, but just trying to understand how do you define pause? How long of a time frame should we be thinking here?
Kelly King - BB&T Corporation - Chairman and CEO
As soon as I decide what that is, you will be the first to know.
John Pancari - Evercore ISI - Analyst
All right.
Kelly King - BB&T Corporation - Chairman and CEO
The truth is I dont have an exact date on that. But heres the concept. So, the way these work, we announced Susquehanna a year ago. We closed it several weeks ago. We will convert it probably in November. So by the time we get to converting National Penn, it will be about a year, stretching it out, nine months to a year kind of a part. And so if we were to announce another one say, in two or three months, we would end up having to close it and be a long time out before we converted it and we dont like to do that. So part of it is you dont want to have an institution that you announce one day and it hangs out there a long time before you convert it. But the most important part is we want to stay tightly focused on executing on what we just announced. And so, if I had to guess what pause means, I would guess it means 6 to 12 months, but its not five years and its not 90 days.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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John Pancari - Evercore ISI - Analyst
Got it. All right, thank you.
Operator
Jack Micenko, Susquehanna International Group.
Jack Micenko - Susquehanna Financial Group - Analyst
Good morning. On the $100 million in merger costs, assuming a mid-year 2016 closing, should we think about that evenly spread over the back half 2016? Or, like, the cost savings is that also more drawn out into the second year? How should we think about putting that in the model?
Daryl Bible - BB&T Corporation - CFO
Yes, typically the bulk of the one-time costs come when the conversion occurs. Right now, if we had to guess on when this conversion would occur, it would probably be mid-year, so June, July, timeframe. So I would say our $100 million will be heavy second, third quarter next year will be my best guess from what I know today.
Jack Micenko - Susquehanna Financial Group - Analyst
Okay great. And then, looking at the market and opportunity obviously, theyve got a lower fee income mix, but a lot of the same businesses. Kelly, could you force rank how you think about the opportunity? Is it balance sheet growth in new products? Is it really getting that fee income number up to something comparable to BB&T? How do you think about the first year or two where the revenue potential lies more?
Kelly King - BB&T Corporation - Chairman and CEO
Yes, let me give a general answer, and then I will ask Chris Henson to give you little more detail on that. So because they have a good foundation in, for example, wealth management and insurance, but their offerings are not nearly as robust as ours, those are two cases where you expect to accelerate their revenue immediately, simply because youve got people on the ground. Theyre used to doing it, theyre used to selling it. We just give them more arrows in their quiver. So that will move very quickly. Other areas, investment products and things that we have that we sell, our broader credit line offerings. All that again, you are selling them through people that are very comfortable selling those products, so there is not a big ramp-up time in terms of learning. So frankly, I think the whole fee income area will move up quickly, because they have really good people on the ground. They know what to do, they just havent had the products. We will have the products, and so it will move fast. We didnt model it getting up to BB&Ts 46% like in two years or something. But I think we modeled, Daryl, that within a couple years it would get up to 30% or something like that.
Daryl Bible - BB&T Corporation - CFO
I think we get to the mid-30s in a five-year time frame, here again, very conservative estimate.
Kelly King - BB&T Corporation - Chairman and CEO
But in all honesty, we could get much closer to the BB&T level within a five-year period. What do you think, Chris?
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Chris Henson - BB&T Corporation - COO
Yes, again this is Chris. I think thats exactly right. One thing to remember about both Susquehanna and National Penn thats different from most acquisitions is they come to us with a foundation; they have insurance agencies. Thats atypical from what we would normally acquire, so we have combined, about $25 million in revenue between the two and it gives us a platform actually to start bringing our specialized products in, like assurity products, any specialty that we offer in insurance, plus we have we can bring life insurance to them day one that they dont really have the opportunity to offer today. So there are new lines that we have. We will also likely have to go to that market and build out a little bit more in terms of an insurance franchise. So its possible we could do an acquisition in that market in a reasonable period of time. So insurance is a great opportunity for us to both immediately begin to cross-sell existing products and bolt-on additional opportunity later, in terms of capacity.
Wealth, as Kelly said, is another great opportunity. They have in these markets, very large incomes in terms of household incomes, so it provides a real upside we think. And well be able to bring our lending platform to them right away, which will be a we think a really nice start. Plus, if youll recall, we have (inaudible) capital of about $50 billion in assets under management. They have, in both cases, Susquehanna and National Penn, asset management companies, well be able to bring our product array to them that hopefully will help them be able to penetrate their distribution, which is another really nice opportunity. So, I think those would be the two I would highlight and really good opportunities for us to scale up pretty quickly.
Jack Micenko - Susquehanna Financial Group - Analyst
Okay. Thank you, good luck.
Daryl Bible - BB&T Corporation - CFO
Thank you.
Operator
Jason Goldberg, Barclays
Jason Goldberg - Barclays Capital - Analyst
Thank you, good morning. With this deal and Susquehanna here approaching the $250-billion asset mark, just maybe talk to, as that brings on things with advanced approaches, as you organically and potentially want to do other deals in terms of incremental costs, that potentially have to factor into this. And when you start making those preparations or theres a lot of the systems work youve done over the prior years gets you ready for that threshold.
Kelly King - BB&T Corporation - Chairman and CEO
Yes, so, Jason, the $250-billion Basel level is one thats getting a lot of discussion today, as you know. In fact, the Federal Reserve just recently announced that they have deferred indefinitely any consideration of Basel III events and approaches with regard to secar planning. I dont know that there will be a push out or deferral in terms of actual execution on Basel advance purchases in general or not, but there could be. In any event, though, we are assuming that the $250 billion is a firm level, and weve already started our planning and executing towards being ready for that. We have a Basel III office. We have a very, very experienced Basel III person to lead that. Daryls got a work stream working on that, forecaster work stream, others have workstreams. We have a very well thought-out planned strategy in terms of moving towards that.
We get a little leeway until we actually hit it, because until we hit it, we havent hit it. And you do have a couple of years after you hit it to be fully compliant, actually three years. And so weve got plenty of time, but we are assuming that were going to bust through it. But I will tell you, Jason, that when as we this ones fairly easy, $210 [billion] to $220 [billion], maybe $230 billion $220 billion to $230 billion, but when you really get to where the next couple of years organically, or the next deal is going to take you over, thats when we do some really serious math in terms of all the cost. And likely, we wouldnt just slide over if we werent we wouldnt go from $249 billion to $251 billion. So well assess where we are in terms of our organic strategy of building out that infrastructure. And then, if we have a large acquisition that throws us way over, then we throw it into high gear and we get it moving really, really fast. If not, then we do it on a measured basis and that allows us to manage our cost effectively.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Jason Goldberg - Barclays Capital - Analyst
Great. And as a follow-up call, (inaudible) looks to be a fairly efficient bank and youre looking for I think 30% cost saves. Maybe just expand upon in terms of where you think you get the cost saves. I know you touched on some branch consolidations, but it seems like theres got to be a bit of other stuff in there in order to get you to that figure?
Kelly King - BB&T Corporation - Chairman and CEO
Yes, Jason, we have an itemized list of every one of our executive team has done a pretty meticulous projection in terms of what staffing they will need, post-acquisition; its built up literally by dollar to where know we can hit the 30% number. A meaningful amount comes out of 25 or so closing branches, but there is an awful lot of backroom expenses that go away on a deal like this. Weve done enough weve got a methodology where we dont just slag it; we literally go in and look at how many people they have and how their expense structure is. And then we lay it on top of what the combined operation will look like. And we pro forma what the expense structure will look like and we arrive at the level and then we add a conservative factor. So the 30% is based on that calculated build up with a conservative factor.
Jason Goldberg - Barclays Capital - Analyst
Got it. Thank you.
Operator
Gerard Cassidy, RBC.
Gerard Cassidy - RBC Capital Markets - Analyst
Thank you, good morning, guys. Kelly, how is the digital strategy factoring in to these acquisitions? Obviously, today its considerably different than when you were very active acquiring before the financial crisis. But with the advent of the smartphone and the use of people accessing their deposit, accessing their accounts through these digital channels, how are you blending that into this strategy of acquisitions?
Kelly King - BB&T Corporation - Chairman and CEO
So Gerard, the whole digital transformation of the industry is as you know, is very, very interesting, and it is a really, really high priority for us. We are focusing an enormous amount of attention on that. In fact, not very long ago, I took a trip to Australia for several days to focus on some companies that are doing some digital transforming investments. Chris Henson and the group went to London recently, and so were doing a lot of work in terms of our digital strategy, which is well-developed, but we are trying to make sure were really on top of how its moving.
But let me tell what it is and what its not. What it is, is the latest advancement in a 50-year paradigm shift. Theres only been one real paradigm shift in my career and beyond, and that is the paradigm shift towards convenience of banking. There are basically only two aspects of banking: one is the relationship, the trust and the other is transactional convenience. Over the years, as you know, Gerard, theres been lots of stages. The first stage was the drive in branch, and then there was ATMs, and then there was home banking, and then there was debit cards, and now theres digital banking. And so, all of that is just one more step in the form of how we do transactions with our clients. Really, really important, but it doesnt change the paradigm.
Importantly, to that point, when you do market research today, young and older clients still tell you, that having access to a good branch is either number one or number two reason they select a bank. So today, we do have to invest in the digital transformational infrastructure, but youve really still got to have branches. Anybody that believes today that they can just truncate their branch structure and go all the way to digital banking is making a big mistake, in my humble opinion. Over time, processing activity is changing. Theres less text being written, more debit cards being used, et cetera. That allows Ricky to do a good job in downsizing, right-sizing his staffing and his branches over time.
Over time, you will see less big branches, more hub branches, that kind of thing. But, its not a 90-day one to fix. Its a double decade kind of fix. We think 20 years from now, there will still be branches, but there will be a lot more transactional activity occurring on peoples watches and phones and who knows what else will happen by then. But its a big deal for us. We dont think it changes the fundamental nature of the fact that when you can combine with a really good company of National Penn with 124 branches, now you net down to 100 branches. And over time, you extract the cost savings that are available from more digital transactional activity, it gets to be really good long-term investment and it solidifies your relationship with the clients.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Gerard Cassidy - RBC Capital Markets - Analyst
I appreciate that. And as a follow-up question, two important markets in Pennsylvania I would guess are Philadelphia and then Bucks County. You mentioned youll take a pause. Youll integrate these transactions that you have recently have done. Is there further interest in trying to build up that market share in Pennsylvania in counties and maybe cities that youre not in for additional acquisitions down the road?
Kelly King - BB&T Corporation - Chairman and CEO
I dont want to try to move the market up there, Gerard, in terms of what we will or wont do, in terms of other acquisitions. But as I said, we are number four in market share today in Pennsylvania with this combination. We have really strong confidence in our ability to grow organically. And, so I would not be sitting around waiting for us to do another acquisition in Pennsylvania anytime soon.
Gerard Cassidy - RBC Capital Markets - Analyst
Thank you.
Operator
Matt Burnell, Wells Fargo Securities.
Matt Burnell - Wells Fargo Securities, LLC - Analyst
Good morning, folks. Daryl, maybe a question for you. It looks like the net interest margin of National Penn is pretty close to yours at this point. So presumably, the transaction doesnt have a material effect on your margin going forward. But Im just curious if the acquisition has any effect on your thinking about LCR or has any material effect on your asset sensitivity going forward?
Daryl Bible - BB&T Corporation - CFO
Yes, Matt, I think you made a good assessment on the margin. I think we have very similar margins, and I think that is a good assessment that our margin forecast shouldnt really change a whole lot with this transaction. As far as the LCR goes, Nat Penn has very high-quality securities, they also have a very large municipal book. Were going to try to retain as much of that as we can and fit into our credit parameters. So I dont anticipate any big changes at all in our LCR calculations. I think all of that should come through fairly well. Their deposits are good, high-quality deposits. It will get treated very kindly in the LCR calculations, because of their operating accounts and a lot of transaction accounts. I think all thats very positive.
Matt Burnell - Wells Fargo Securities, LLC - Analyst
Okay. And Kelly, maybe a question a follow-up question for you. How long did this transaction percolate before getting announced? And another part of the question is a number of other executives, bank executives have suggested pricing has to be adjusted to a certain extent for potential long-tail considerations when theyre looking at buying other banks. And Im just curious how you think about that in the context of both the Susquehanna transactions and now this National Penn transaction.
Kelly King - BB&T Corporation - Chairman and CEO
Well, its hard to define percolation with regard to mergers. Ive known Scott for a couple of years, and like I said, we are both involved in the Federal Advisory Council of the Federal Reserve. So weve gotten to know each other very well over the past couple of years, because we meet several days every quarter. But, in terms
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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of actually structuring the deal and talking about a deal and all, its been over the last 60, 90 days. And but this was a negotiated transaction. I thought Scott was very smart in terms of recognizing that BB&T was in a position to offer share price for his shareholders. And, so there was not a negotiated process; it was a negotiation between us, and we think arrived at a good combination that make sense for all the parties.
In terms of pricing and the long tail, well we havent had long tail, so we dont anticipate a long tail. So, if you were to go into a deal, anticipating that it was going to take you two or three years to do it, I wouldnt go into it. So unless I felt we could do it within about the one-year timeframe, I wouldnt go into it, because the implicit price effect then becomes enormous, in my view. Because, when a company is hanging out there a long time, lots of not-so-good things happen, sometimes, not always. But, its just a risk that would be really, really hard to take.
So, before we announce a proposition, you can rest assured we have been a lot of discussing at every level to make sure that there is a very high probability that we would be able to execute within a reasonable timeframe, not that something couldnt change. I cant promise anything. But because if you thought it was a high a reasonable expectation of a really long tail, trying to price that into a deal would probably make it an unacceptable deal that you couldnt do, because the seller wouldnt sell for a price that you discount back because you just thought it would be really big long tail. Okay. Thank you.
Operator
Betsy Graseck, Morgan Stanley.
Andrew Schenker - Morgan Stanley - Analyst
This is Andrew Schenker speaking on behalf of Betsy. So BB&T has been very clear about its acquisition strategy, with 5% to 10% of its asset size and growth each year, which makes sense. But the deal seems a little early, since Susquehanna hasnt converted yet. Does it matter that Susquehanna hasnt been converted or fully integrated before getting regulatory approval?
Kelly King - BB&T Corporation - Chairman and CEO
No, not really Andrew. I would say so, you have to think about the lag effect on these. So when we say 5% to 10% a year, thats what we end up doing that year. So, we announced like last November, Kentucky and Susquehanna, were doing those now. We are announcing this now. It will be done mid-next year, so this is when you announce it, its for the next year deal. So we announced in 2014 the deals that made up our 5% to 10%, which turned out to be 10% in 2015. Were now announcing about 5% that will be a 2016 deal. There may or may not be another one to take would take you up to about the 10% level.
But because of the way its staggered out, as you know, weve already closed and converted Bank of Kentucky; its running very smoothly already as a BB&T region. Susquehanna has already closed period and will be converted in November. A lot of the work for the conversion has already been done. It will close pretty naturally then. So by the time you get around to thinking about closing and converting National Penn, well be way down the road, a year down the road with regard to Susquehanna. And the really hard work is up for six months or so, to be honest. Once you get all the planning and programming and the computer integrations and the training, and all that. By the time you get them up and running and converted and opened, 90% of all the hard work is done. Now, the magic is in what Ricky has to do after the conversion, where he goes out and moves that fee income ratio up from 24 to 36 to 44 over a few years. But the actual risk of the transaction is in the first several months, up to nine months or so.
Andrew Schenker - Morgan Stanley - Analyst
Thank you. Thank you for answering my question.
Operator
Vivek Juneja, JPMorgan.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Vivek Juneja - JPMorgan - Analyst
Kelly and Daryl, when I look your acquisition price and adjust it for the loan mark, youre paying 2.5 times tangible book. Its a pretty rich multiple, and Im not even adjusting for the upfront merger charges. And when I do the math on the EPS accretion dilution, without any Daryl, with your 100% stock, but with no revenue enhancement, youre actually 1% dilutive. So you really have to give them all of your revenue enhancements to be able to make this deal breakeven. And why would you do that? Why would you give it all away to the selling shareholder? Why such a rich price?
Daryl Bible - BB&T Corporation - CFO
Hey, Vivek. Im not sure I agree and follow your calculations on
Vivek Juneja - JPMorgan - Analyst
Daryl, its very simple. Its just 30% cost savings, its CBI and its and thats how and its shares issued and its using projected consensus EPS for National Penn; theres really nothing more complicated about it.
Daryl Bible - BB&T Corporation - CFO
When we run our models, Vivek, on an all-stock basis, it is accretive about 1%.
Vivek Juneja - JPMorgan - Analyst
But with revenue enhancements.
Daryl Bible - BB&T Corporation - CFO
We did say that we had the fee income going from the mid-20%s to mid-30% over five years. Still well below BB&Ts mid-40%s.
Kelly King - BB&T Corporation - Chairman and CEO
But you should also know that in that same model, it is very conservative in terms of deposit growth and loan growth. So when we run these models, its very conservative on fee income. Its very conservative on loan deposit growth and appropriately conservative with regard to expenses. So listen, we been running these models for a long, long time. You may have different model; thats okay. But Im telling you our model is well established, weve run it a lot, we back test it as we do deals, and our model is right.
Daryl Bible - BB&T Corporation - CFO
And Ill get back to the original comments we made at the start of the call, and that you look at it on a percentage of earnings. Were buying it at 16 times their 2016 earnings. You factor in the cost saves, and that gets you down to 11%, and if you look at the excess capital that they have, because they have over 12% tier one common, you basically are buying it at less than 10 times earnings for that.
Vivek Juneja - JPMorgan - Analyst
Yes, but youre also taking marks, Daryl, that you have to adjust for. Youre taking an upfront market and youve got merger charges, so those also need to be factored in into those numbers. And then that 12% will come down quite a bit in terms of the excess that you have. Kelly and Daryl, the other thing Id like to get a sense for is buybacks. Since youve said youre on hold for 6 to 12 months, that puts you into first quarter of next year. That means that even next year, the secar, the second half of it, so to speak could may not happen if you do another deal in six months.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Kelly King - BB&T Corporation - Chairman and CEO
No, if we do another deal, that may or may not use some of the capital, but assume we dont do another deal, we can certainly in the back half of the secar period, we can definitely execute on the remaining $410 million.
Daryl Bible - BB&T Corporation - CFO
Thats right.
Operator
Geoffrey Elliott, Autonomous Research.
Geoffrey Elliot - Autonomous Research - Analyst
Hello there, thank you for taking the question. Youve done several of these $0 billion to $20 billion asset type acquisitions. How do you think about the attractiveness of that size versus something larger?
Kelly King - BB&T Corporation - Chairman and CEO
Im not really thinking of larger deals today, to be honest. As Ive said, I think the opportunity set for us is the $5 billion to $20 billion asset size. Im not really thinking that theres going to be any real larger deals done, and were not planning on any.
Geoffrey Elliot - Autonomous Research - Analyst
When you talk about something larger to cross the $250 billion, are you talking about the high-end of that $5 billion or $20 billion, or are you talking about something that meaningfully bigger?
Kelly King - BB&T Corporation - Chairman and CEO
Im saying, if we say $240 billion and all that was available was a $10-billion transaction, we probably wouldnt do it. For 545 and theres a good 20 or 25 available, we might do it. It just depends on the math. All Im saying is when you get that close and that really nails you and begins the clock ticking in terms of your three-year period to be fully compliant. Then you could just run the math in terms of how much have you already done in terms of being ready, how much more have you got to do. You would factor that back in and actually build it into the model of the then considered acquisition. And if it worked, it worked. If it didnt, we would just pass.
Geoffrey Elliot - Autonomous Research - Analyst
Great. Thank you very much.
Operator
It appears we have no further questions in queue at this time.
Alan Greer - BB&T Corporation - IR
Okay. Thank you, everyone, for joining our call and we hope you have a good day.
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AUGUST 18, 2015 / 12:00PM GMT, BBT - BB&T Corp Acquisition of National Penn Bancshares Inc Call
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Operator
That does conclude our conference for today. Thank you for your participation.
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Forward-Looking Statements
This communication contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 giving National Penns and BB&Ts expectations or predictions of future financial or business performance or conditions. Forward-looking statements are typically identified by words such as believe, expect, anticipate, intend, target, estimate, continue, positions, prospects or potential, by future conditional verbs such as will, would, should, could or may, or by variations of such words or by similar expressions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made and we assume no duty to update forward-looking statements. Actual results may differ materially from current projections.
In addition to factors previously disclosed in National Penns and BB&Ts reports filed with the U.S. Securities and Exchange Commission (the SEC) and those identified elsewhere in this document, the following factors among others, could cause actual results to differ materially from forward-looking statements or historical performance: ability to obtain regulatory approvals and meet other closing conditions to the merger, including approval by National Penn shareholders; delay in closing the merger; difficulties and delays in integrating the National Penn business or fully realizing cost savings and other benefits; business disruption following the merger; changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer acceptance of BB&T products and services; customer borrowing, repayment, investment and deposit practices; customer disintermediation; the introduction, withdrawal, success and timing of business initiatives; competitive conditions; the inability to realize cost savings or revenues or to implement integration plans and other consequences associated with mergers, acquisitions and divestitures; economic conditions; and the impact, extent and timing of technological changes, capital management activities, and other actions of the Federal Reserve Board and other legislative and regulatory actions and reforms.
Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.
Important Additional Information and Where to Find It
In connection with the proposed merger, BB&T will file with the SEC a Registration Statement on Form S-4 that will include a Proxy Statement of National Penn and a Prospectus of BB&T, as well as other relevant documents concerning the proposed transaction. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. SHAREHOLDERS OF NATIONAL PENN ARE URGED TO READ THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.
A free copy of the Proxy Statement/Prospectus, as well as other filings containing information about BB&T and National Penn, may be obtained at the SECs Internet site (http://www.sec.gov). You will also be able to obtain these documents, free of charge, from BB&T at www.bbt.com under the heading About BB&T and then under the heading Investor Relations and then under BB&T Corporations SEC Filings or from National Penn at www.nationalpennbancshares.com under the heading SEC Filings and then under Documents. Copies of the Proxy Statement/Prospectus can also be obtained, free of charge, by directing a request to BB&T Corporation, 150 South Stratford Road, Suite 300, Winston-Salem, North Carolina 27104, Attention: Shareholder Services, Telephone: (336) 733-3065 or to National Penn Bancshares, Inc., 645 Hamilton Street, Suite 1100, Allentown, PA 18101, Attention: Shareholder Services, Telephone: (610) 861-3983.
National Penn and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of National Penn in connection with the proposed merger. Information about the directors and executive officers of National Penn and their ownership of National Penn common stock is set forth in the proxy statement for National Penns 2015 annual meeting of shareholders, as filed with the SEC on Schedule 14A on March 18, 2015. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the Proxy Statement/Prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.