As filed with the Securities and Exchange Commission on December 30, 1994
Registration No. 33-56675
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
PRE-EFFECTIVE AMENDMENT TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________________
CRESTAR FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 6711 54-072217
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
919 East Main Street
P.O. Box 26665
Richmond, Virginia 23261-6665
(804) 782-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN C. CLARK, III
Corporate Senior Vice President, General Counsel
and Secretary
Crestar Financial Corporation
919 East Main Street
P.O. Box 26665
Richmond, Virginia 23261-6665
(804) 782-7445
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
LATHAN M. EWERS, JR. PHILIP ROSS BEVAN
Hunton & Williams Elias, Matz, Tiernan & Herrick L.L.P.
951 E. Byrd Street 12th Floor, The Walker Building
Riverfront Plaza, East Tower 734 15th Street, N.W.
Richmond, Virginia 23219-4074 Washington, D.C. 20005
(804) 788-8269 (202) 347-0300
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
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 thefollowing box.
CALCULATION OF REGISTRATION FEE
<TABLE>
Title of Each Class
of Securities To Maximum Amount Proposed Maximum Proposed Maximum Amount of
Be Registered To Be Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock, $5.00 1,278,790
par value per share shares(1) $5.1875(2) $36,190,511(2) $12,479
Common Stock, $5.00 66,667
par value per share shares(1) $10.0000(2) $2,000,000(2) $690
Preferred Share 1,345,457
Purchase Rights(3) rights N/A N/A N/A
</TABLE>
(1) This Registration Statement covers the maximum number of shares of
common stock of the Registrant which are expected to be issued in
connection with the transactions described herein.
(2) Estimated solely for purposes of calculating the registration fee (a)
in accordance withRule 457(f)(1) for TideMark Bancorp, Inc. Common
Stock, with the market value of TideMark Common Stock being exchanged
in the transaction for Crestar Common Stock based on the average of
the bid and asked prices for TideMark Common Stock as reported by
NASDAQ on November 28, 1994; (b) in accordance with Rule 457(f)(2) for
TideMark Series A Preferred Stock, using the per share book value of
TideMark Series A at its anticipated issue dateof December 15, 1994, and
(c) assuming no cash will be paid by Registrant in the exchange.
(3) The Rights to purchase Participating Cumulative Preferred Stock, Series C
will be attached to and will trade with shares of the Common Stock of
Crestar. _______________________
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, or until the Registration
Statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
December 30, 1994
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders of TideMark Bancorp, Inc. ("TideMark") on February 2, 1995 at
10:00 a.m., Eastern Time, at the Holiday Inn Hampton-Coliseum Hotel and
Conference Center, located at 1815 West Mercury Boulevard, Hampton,
Virginia. This is a very important meeting regarding your investment in
TideMark.
One purpose of the meeting is to consider and vote upon the
Agreement and Plan of Reorganization, dated as of October 31, 1994, by and
among TideMark, TideMark Bank, Crestar Financial Corporation ("Crestar")
and Crestar Bank, and the related Plan of Merger (together, the
"Agreement"), pursuant to which, among other things, TideMark will be
merged with and into Crestar (the "Holding Company Merger"). In
connection with the Holding Company Merger, each share of common stock of
TideMark outstanding immediately prior to consummation of the Holding
Company Merger (other than shares held by Crestar or dissenters' shares)
will be converted into and represent the right to receive shares of common
stock of Crestar and/or, subject to certain limitations, cash, as
described in the accompanying Proxy Statement/Prospectus. Your Board of
Directors unanimously recommends that you vote in favor of the Agreement
and the Holding Company Merger, which the Board believes is in the best
interests of the shareholders of TideMark.
At the Annual Meeting, shareholders will also be asked to elect
three directors for terms of three years and until their successors are
elected and qualified, to ratify the appointment by the Board of Directors
of Coopers & Lybrand L.L.P. as TideMark's independent auditors for fiscal
year 1995, to approve an adjournment of the Annual Meeting if necessary to
obtain additional votes in favor of the Agreement, and to transact such
other business as may properly come before the meeting.
Enclosed is a Notice of the Annual Meeting of Shareholders, a Proxy
Statement/Prospectus containing a discussion of the Agreement and the
Holding Company Merger, a proxy card and a Cash
Option Form, which is described in the Proxy Statement/ Prospectus.
Please complete, sign and date the enclosed proxy card and return it as
soon as possible in the envelope provided.
If you decide to attend the Annual Meeting, you may vote your shares in
person whether or not you have previously submitted a proxy. It is
important to understand that the Agreement and Holding Company Merger must
be approved by the holders of more than two-thirds of all outstanding
shares of common stock of TideMark and that the failure to vote will have
the same effect as a vote against the proposal. On behalf of the Board,
thank you for your attention to this important matter.
Very truly yours,
________________________ ___________________________
Gordon L. Gentry, Jr. Robert N. Springer
Chairman of the Board President and Chief
Executive Officer
TIDEMARK BANCORP, INC.
301 Hiden Boulevard
Newport News, Virginia 23606
(804)599-1400
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on February 2, 1995
TO THE SHAREHOLDERS OF TIDEMARK BANCORP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of shareholders has
been called by the Board of Directors of TideMark Bancorp, Inc.
("TideMark") and will be held at the Holiday Inn Hampton-Coliseum Hotel
and Conference Center, located at 1815 West Mercury Boulevard, Hampton,
Virginia, on February 2, 1995 at 10:00 a.m. Eastern Time for the purpose
of considering and voting upon the following matters:
1. Proposed Holding Company Merger. To consider and vote upon
the Agreement and Plan of Reorganization dated as of October 31, 1994 and
a related Holding Company Plan of Merger (together, the "Agreement")
providing for the merger of TideMark with and into Crestar Financial
Corporation (the "Holding Company Merger"). The Agreement is attached to
the accompanying Proxy Statement/Prospectus as Annex I;
2. Election of Directors. To elect three directors for terms of
three years and until their successors are elected and qualified;
3. Ratification of Auditors. To ratify the appointment by the
Board of Directors of Coopers & Lybrand L.L.P. as TideMark's independent
auditors for fiscal year 1995;
4. Adjournment. To consider and vote upon a proposal to approve
an adjournment of the Annual Meeting to another date, time and/or place
for the purpose of soliciting additional proxies in favor of the Agreement
in the event that there are not sufficient votes at the time of the Annual
Meeting to approve the Agreement; and
5. Other Business. To consider and vote upon such other matters
as may properly come before the meeting.
Only those holders of TideMark common stock of record at the close
of business on December 1, 1994 shall be entitled to notice of and to vote
at the meeting. The affirmative vote of the holders of more than two-
thirds of the issued and outstanding shares of TideMark common stock
entitled to vote at the meeting is required to approve the Holding Company
Merger.
Pursuant to the Virginia Stock Corporation Act (the "VSCA"), holders
of TideMark common stock entitled to vote on approval of the Agreement and
the related Holding Company Plan of Merger have the right to dissent from
the Holding Company Merger and to demand payment of the fair value of each
such holder's shares of TideMark common stock in the event the Holding
Company Merger is consummated. A holder of TideMark common stock who
wishes to assert such holder's dissenters' rights must (i) deliver to
TideMark, before such vote is taken on the Agreement and the related
Holding Company Plan of Merger, written notice of such holder's intent to
demand payment for such shares if the Holding Company Merger is
consummated, (ii) not vote such shares in favor of approval of the
Agreement and the related Holding Company Plan of Merger, and (iii) comply
with the further provisions of the VSCA in order to be entitled to receive
in cash, if the Holding Company Merger is consummated, the fair value of
such holder's TideMark common stock. A vote against approval of the
Agreement and the related Holding Company Plan of Merger will not
constitute written notice of an intent to demand payment nor will a
failure to vote against such approval constitute a waiver of dissenters'
rights. A copy of the applicable provisions of the VSCA referred to above
is set forth in Annex IV to the accompanying Proxy Statement/Prospectus
and a summary of such provisions is set forth in the accompanying Proxy
Statement/Prospectus under "The Holding Company Merger -- Rights of
Shareholders Electing to Exercise Their Right of Appraisal."
By Order of the Board of Directors,
Betty H. Looper
Secretary
December 30, 1994
Newport News, Virginia
THE BOARD OF DIRECTORS OF TIDEMARK UNANIMOUSLY RECOMMENDS THAT THE HOLDERS
OF TIDEMARK COMMON STOCK VOTE TO APPROVE THE HOLDING COMPANY MERGER
PROPOSAL.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE
SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. SHAREHOLDERS
ATTENDING THE MEETING MAY PERSONALLY VOTE ON ALL MATTERS WHICH ARE
CONSIDERED, IN WHICH EVENT THE SIGNED PROXIES ARE REVOKED. ANY PROXY MAY
BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE
EXERCISE THEREOF.
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
OF
TIDEMARK BANCORP, INC.
To Be Held On February 2, 1995
_______________
PROSPECTUS OF
CRESTAR FINANCIAL CORPORATION
Common Stock
par value $5.00
_______________
This Proxy Statement/Prospectus is being furnished to the holders of
common stock, par value $0.01 per share (the "TideMark Common Stock"), of
TideMark Bancorp, Inc., a Virginia corporation ("TideMark"), in connection
with the solicitation of proxies by the TideMark Board of Directors (the
"TideMark Board") for use at the Annual Meeting of TideMark shareholders
to be held at 10:00 a.m. Eastern Time on February 2, 1995, at the Holiday
Inn Hampton-Coliseum Hotel and Conference Center, located at 1815 West
Mercury Boulevard, Hampton, Virginia (the "TideMark Shareholder Meeting"
or the "Annual Meeting").
At the TideMark Shareholder Meeting, shareholders of record of
TideMark Common Stock as of the close of business on December 1, 1994,
will consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization (the "Agreement"), dated as of October 31, 1994, by and
among Crestar Financial Corporation ("Crestar"), Crestar Bank, a Virginia
banking corporation wholly owned by Crestar ("Crestar Bank"), TideMark,
and TideMark Bank, a federally chartered stock savings bank wholly owned
by TideMark ("TideMark Bank"), pursuant to which, among other things,
TideMark will merge with and into Crestar (the "Holding Company Merger").
Thereafter TideMark Bank will merge into Crestar Bank (the "Bank Merger").
The Holding Company Merger and the Bank Merger are sometimes referred to
together as the "Transaction." Upon consummation of the Holding Company
Merger, which is expected to occur in March, 1995, each outstanding share
of TideMark Common Stock (other than shares as to which the holder
exercises and perfects the statutory right to an appraisal ("Dissenting
Shares") and other than shares held by Crestar) shall be converted into
and represent the right to receive (upon a shareholder's election) either
(i) $5.50 in cash per share of TideMark Common Stock (the "Common Stock
Price Per Share") (provided that the number of shares of TideMark Common
Stock for which shareholders elect to receive cash, when added to the
number of Dissenting Shares, shall not exceed 40% of the outstanding
shares of TideMark Common Stock) or (ii) a number of shares of Crestar
Common Stock, determined by dividing $5.50 (the "Common Stock Price Per
Share") by the average closing price of Crestar Common Stock (the "Average
Closing Price") as reported on the New York Stock Exchange ("NYSE") for
each of the 10 trading days ending on the tenth day prior to the Effective
Time of the Holding Company Merger (the "Common Stock Exchange Ratio"),
subject to adjustment as set forth in the Agreement. Upon consummation of
the Holding Company Merger, each outstanding share of TideMark Non-
Cumulative Preferred Stock, Series A ("TideMark Series A") which was
issued by TideMark on December 15, 1994 to Crestar Securities Corporation
in conjunction with TideMark's acquisition of certain assets and
liabilities of Bay Savings Bank, FSB, shall be converted into and
represent the right to receive a number of shares of Crestar Common Stock
determined by dividing $10.00 per share of TideMark Series A (the
"Preferred Stock Price Per Share") by the Average Closing Price as
reported on the NYSE for each of the ten trading days ending on the tenth
day prior to the Effective Time of the Holding Company Merger (the
"Preferred Stock Exchange Ratio"), subject to adjustment as set forth in
the Agreement. Based on the closing price of Crestar Common Stock on the
NYSE on December 22, 1994 of $38.375, each share of TideMark Common Stock
would have been exchanged for 0.143 shares of Crestar Common Stock and
each share of TideMark Series A would have been exchanged for 0.261 shares
of Crestar Common Stock if such date had been the Effective Time of the
Holding Company Merger. Such number of shares of Crestar Common Stock may
increase or decrease depending on the Average Closing Price as described
herein. See "The Holding Company Merger -- Determination of Exchange
Ratios and Exchange for Crestar Common Stock." For a description of the
Agreement, which is included herein as Annex I to this Proxy
Statement/Prospectus, see "The Holding Company Merger."
At the TideMark Shareholder Meeting, TideMark shareholders will also
be asked to elect three directors for terms of three years and until their
successors are elected and qualified, to ratify the appointment by the
Board of Directors of Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as
TideMark's independent auditors for fiscal year 1995, to approve a
proposal to adjourn the Annual Meeting for the purpose of soliciting
additional proxies in favor of the Agreement if, at the time of the
TideMark Shareholder Meeting, there are not sufficient votes to approve
the Agreement and to transact such other business as may properly come
before such Annual Meeting.
_______________
This Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to shareholders of TideMark on or about December 30,
1994.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF CRESTAR COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
_______________
The date of this Proxy Statement/Prospectus is December 30, 1994.
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . 2
CERTAIN INFORMATION REGARDING TIDEMARK. . . . . . . . . . . . . . 3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Parties to the Transaction . . . . . . . . . . . . . . . . . 4
Shareholder Meeting. . . . . . . . . . . . . . . . . . . . . 5
Vote Required; Record Date . . . . . . . . . . . . . . . . . 6
The Holding Company Merger . . . . . . . . . . . . . . . . . 6
The Exchange Ratios. . . . . . . . . . . . . . . . . . . . . 7
Cash Election. . . . . . . . . . . . . . . . . . . . . . . . 8
Effective Time . . . . . . . . . . . . . . . . . . . . . . . 8
Rights of Shareholders Electing to Exercise Their Right of
Appraisal. . . . . . . . . . . . . . . . . . . . . . . 8
Opinion of Financial Advisor . . . . . . . . . . . . . . . . 9
Conditions to Consummation . . . . . . . . . . . . . . . . . 9
Conduct of Business Pending the Holding Company Merger . . . 10
Interests of Certain Persons in the Holding Company Merger . 10
Resale of Crestar Common Stock . . . . . . . . . . . . . . . 10
Certain Federal Income Tax Consequences of the Transaction . 10
Stock Option Agreement . . . . . . . . . . . . . . . . . . . 11
Market Prices Prior to Announcement of the Transaction . . . 11
Comparative Per Share Data . . . . . . . . . . . . . . . . . 12
Selected Financial Data. . . . . . . . . . . . . . . . . . . 14
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 18
THE HOLDING COMPANY MERGER. . . . . . . . . . . . . . . . . . . . 21
Background and Reasons . . . . . . . . . . . . . . . . . . . 21
Opinion of Financial Advisor . . . . . . . . . . . . . . . . 22
Effective Time of the Holding Company Merger . . . . . . . . 27
Determination of Exchange Ratios and Exchange for Crestar
Common Stock . . . . . . . . . . . . . . . . . . . . . 27
Cash Election; Election Procedures . . . . . . . . . . . . . 29
Business of TideMark Pending the Holding Company Merger. . . 30
Conditions to Consummation of the Holding Company Merger . . 32
Stock Option Agreement . . . . . . . . . . . . . . . . . . . 33
Termination. . . . . . . . . . . . . . . . . . . . . . . . . 34
Accounting Treatment . . . . . . . . . . . . . . . . . . . . 37
Operations After the Holding Company Merger. . . . . . . . . 37
Interests of Certain Persons in the Transaction. . . . . . . 37
Stock Options. . . . . . . . . . . . . . . . . . . . . . . . 39
Effect on TideMark Employee Benefits Plans . . . . . . . . . 39
Certain Federal Income Tax Consequences. . . . . . . . . . . 41
Rights of Shareholders Electing to Exercise Their Right of
Appraisal. . . . . . . . . . . . . . . . . . . . . . . 46
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR, DIRECTORS WHOSE
TERMS CONTINUE AND EXECUTIVE OFFICERS. . . . . . . . . . . . 50
Election of Directors. . . . . . . . . . . . . . . . . . . . 50
Executive Officers Who Are Not Directors . . . . . . . . . . 53
THE TIDEMARK BOARDS OF DIRECTORS AND COMMITTEES . . . . . . . . . 54
Committees of TideMark Board . . . . . . . . . . . . . . . . 54
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . 56
Summary of Compensation in 1994, 1993 and 1992 . . . . . . . 56
Stock Options. . . . . . . . . . . . . . . . . . . . . . . . 57
Profit Sharing and Savings Plan. . . . . . . . . . . . . . . 57
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . 58
Executive Retirement Plan. . . . . . . . . . . . . . . . . . 59
Key Employee Restricted Stock Incentive Plan . . . . . . . . 60
Employment Agreements. . . . . . . . . . . . . . . . . . . . 61
Executive Compensation Committee Report on Executive
Compensation . . . . . . . . . . . . . . . . . . . . . 64
Comparative Performance of TideMark. . . . . . . . . . . . . 66
Indebtedness of Management . . . . . . . . . . . . . . . . . 67
Transactions with TideMark . . . . . . . . . . . . . . . . . 67
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT . . . . . . . . 68
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS OF TIDEMARK . 69
Independent Auditors . . . . . . . . . . . . . . . . . . . . 69
ADJOURNMENT OF ANNUAL MEETING . . . . . . . . . . . . . . . . . . 70
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 71
BUSINESS OF CRESTAR . . . . . . . . . . . . . . . . . . . . . . . 71
Recent Developments. . . . . . . . . . . . . . . . . . . . . 72
BUSINESS OF TIDEMARK. . . . . . . . . . . . . . . . . . . . . . . 74
PRICE RANGE OF TIDEMARK COMMON STOCK AND DIVIDEND POLICY. . . . . 76
TIDEMARK SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. . . . . 77
SUPERVISION AND REGULATION OF CRESTAR . . . . . . . . . . . . . . 80
Bank Holding Companies . . . . . . . . . . . . . . . . . . . 80
Capital Requirements . . . . . . . . . . . . . . . . . . . . 81
Limits on Dividends and Other Payments . . . . . . . . . . . 83
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Other Safety and Soundness Regulations . . . . . . . . . . . 85
DESCRIPTION OF CRESTAR CAPITAL STOCK. . . . . . . . . . . . . . . 86
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 86
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . 87
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Virginia Stock Corporation Act . . . . . . . . . . . . . . . 88
COMPARATIVE RIGHTS OF SHAREHOLDERS. . . . . . . . . . . . . . . . 90
Capitalization . . . . . . . . . . . . . . . . . . . . . . . 90
Amendment of Articles or Bylaws. . . . . . . . . . . . . . . 90
Required Shareholder Vote for Certain Actions. . . . . . . . 91
Director Nominations . . . . . . . . . . . . . . . . . . . . 92
Directors and Classes of Directors; Vacancies and Removal of
Directors. . . . . . . . . . . . . . . . . . . . . . . 92
Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . 94
Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . 94
Assessment . . . . . . . . . . . . . . . . . . . . . . . . . 94
Conversion; Redemption; Sinking Fund . . . . . . . . . . . . 94
Liquidation Rights . . . . . . . . . . . . . . . . . . . . . 95
Dividends and Other Distributions. . . . . . . . . . . . . . 95
Special Meetings of Shareholders . . . . . . . . . . . . . . 95
Indemnification. . . . . . . . . . . . . . . . . . . . . . . 96
Shareholder Proposals. . . . . . . . . . . . . . . . . . . . 96
Shareholder Inspection Rights; Shareholder Lists . . . . . . 97
Shareholder Rights Plan. . . . . . . . . . . . . . . . . . . 98
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . 98
RESALE OF CRESTAR COMMON STOCK. . . . . . . . . . . . . . . . . . 98
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . 99
DATE OF SUBMISSION OF SHAREHOLDER PROPOSALS . . . . . . . . . . .100
ANNUAL REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . .100
ANNEX I -- Agreement and Plan of Reorganization dated
October 31, 1994; Plans of Merger
ANNEX II -- Stock Option Agreement dated September 20, 1994
ANNEX III -- Fairness Opinion of Scott & Stringfellow, Inc.
ANNEX IV -- Article 15 of the Virginia Stock Corporation Act
relating to Dissenters' Rights
ANNEX V -- TideMark Form 10-K for the year ended June 30, 1994
ANNEX VI -- TideMark 1994 Annual Report to Shareholders
ANNEX VII -- TideMark Form 10-Q for the quarter ended
September 30, 1994
AVAILABLE INFORMATION
Crestar and TideMark are subject to the reporting and informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act")
and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC").
Reports, proxy statements and other information filed with the SEC can be
inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611-2511 or Seven World
Trade Center (13th Floor), New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such reports, proxy statements and other information also may be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005 for Crestar and at the offices of the National Association
of Securities Dealers, Inc. located at 1735 K Street, N.W., Washington,
D.C. 20006 for TideMark. As permitted by the Rules and Regulations of the
SEC, this Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4, of which this Proxy
Statement/Prospectus is a part, and exhibits thereto (together with the
amendments thereto, the "Registration Statement"), which has been filed by
Crestar with the SEC under the Securities Act of 1933 (the "1933 Act")
with respect to Crestar Common Stock and to which reference is hereby
made.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Proxy Statement/Prospectus, and if given or made, such
information or representation must not be relied upon as having been
authorized by Crestar or TideMark. This Proxy Statement/Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the securities to which it relates, nor does it
constitute an offer to or solicitation of any person in any jurisdiction
to whom it would be unlawful to make such an offer or solicitation.
Neither the delivery of this Proxy Statement/Prospectus nor the
distribution of any of the securities to which this Proxy
Statement/Prospectus relates shall, at any time, imply that the
information herein is correct as of any time subsequent to the date
hereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO CRESTAR AND TIDEMARK THAT ARE NOT PRESENTED HEREIN
OR DELIVERED HEREWITH. CRESTAR DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST FROM CRESTAR'S INVESTOR RELATIONS DEPARTMENT, CRESTAR
FINANCIAL CORPORATION, 919 EAST MAIN STREET, RICHMOND, VIRGINIA
23261-6665, (804) 782-7152. TIDEMARK DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM BETTY H. LOOPER, SECRETARY, TIDEMARK BANCORP,
INC., 301 HIDEN BOULEVARD, NEWPORT NEWS, VIRGINIA 23606, (804) 599-1400.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD
BE MADE BY JANUARY 12, 1995.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Crestar are incorporated by
reference in this Proxy Statement/Prospectus: (i) Crestar's Annual Report
on Form 10-K for the year ended December 31, 1993; (ii) Crestar's
Quarterly Reports on Form 10-Q for the periods ended March 31, 1994,
June 30, 1994 and September 30, 1994; (iii) the description of Crestar
Common Stock in Crestar's registration statement filed under the Exchange
Act with respect to Crestar Common Stock, including all amendments and
reports filed for the purpose of updating such description; (iv) Crestar's
Current Report on Form 8-K, dated March 10, 1994; (v) Crestar's Current
Report on Form 8-K, dated September 23, 1994; and (vi) Crestar's Current
Report on Form 8-K, dated November 9, 1994.
The following documents filed by TideMark with the SEC are
incorporated by reference in this Proxy Statement/Prospectus: (i)
TideMark's Annual Report on Form 10-K for the year ended June 30, 1994;
(ii) TideMark's Quarterly Report on Form 10-Q for the period ended
September 30, 1994; (iii) TideMark's Current Report on Form 8-K, dated
July 11, 1994; (iv) TideMark's Current Report on Form 8-K, dated September
20, 1994; (v) TideMark's Current Report on Form 8-K, dated October 31,
1994; (vi) TideMark's current report on Form 8-K, dated December 1, 1994; and
(vi) TideMark's Current Report on Form 8-K, dated December 19, 1994.
All documents filed by Crestar and TideMark pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the date of the TideMark Shareholder Meeting are
hereby incorporated by reference in this Proxy Statement/Prospectus and
shall be deemed a part hereof from the date of filing of such documents.
Any statement contained in any supplement hereto or in a document
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of the Registration
Statement and this Proxy Statement/Prospectus to the extent that a
statement contained herein, in any supplement hereto or in any
subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration
Statement, this Proxy Statement/Prospectus or any supplement hereto.
Also incorporated by reference herein is the Agreement and Plan of
Reorganization among Crestar, Crestar Bank, TideMark and TideMark Bank,
dated October 31, 1994, which is attached to this Proxy
Statement/Prospectus as Annex I.
CERTAIN INFORMATION REGARDING TIDEMARK
Selected portions of certain reports filed by TideMark with the SEC
are included (without the exhibits thereto) as Annexes to this Proxy
Statement/Prospectus. Portions of TideMark's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994 (the "TideMark Form 10-K") appear
as Annex V; portions of TideMark's 1994 Annual Report to Shareholders (the
"TideMark Annual Report"), including the audited financial statements of
TideMark and notes thereto, appear as Annex VI; and portions of TideMark's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994
appear as Annex VII. Such Annexes (excluding any documents incorporated
by reference therein or exhibits thereto) are part of this Proxy
Statement/Prospectus and should be carefully reviewed for the information
regarding TideMark contained therein. The portions of the reports which
do not appear in the Annexes, as well as the documents incorporated by
reference by, or included as exhibits to, such reports are NOT a part of
this Proxy Statement/Prospectus or the Registration Statement.
SUMMARY
The following summary is not intended to be a complete description
of all material facts regarding Crestar, TideMark and the matters to be
considered at the TideMark Shareholder Meeting and is qualified in all
respects by the information appearing elsewhere or incorporated by
reference in this Proxy Statement/Prospectus, the Annexes hereto and the
documents referred to herein. Shareholders are urged to carefully read
all such information.
Parties to the Transaction
Crestar. Crestar is the holding company for Crestar Bank
(Virginia), Crestar Bank NA (Washington, D.C.) and Crestar Bank MD
(Maryland). At September 30, 1994, Crestar had approximately $14.5
billion in total assets, $11.0 billion in total deposits and $1.1 billion
in total shareholders' equity.
In 1963, six Virginia banks combined to form United Virginia
Bankshares Incorporated ("UVB"), a bank holding company formed under the
Bank Holding Company Act of 1956 (the "BHCA"). UVB (parent company of
United Virginia Bank) extended its operations into the District of
Columbia by acquiring NS&T Bank, N.A. on December 27, 1985 and into
Maryland by acquiring Bank of Bethesda on April 1, 1986. On September 1,
1987, UVB became Crestar Financial Corporation and its bank subsidiaries
adopted their present names.
Crestar serves customers through a network of 336 banking offices
and 276 automated teller machines (as of September 30, 1994). Crestar
offers a broad range of banking services, including various types of
deposit accounts and instruments, commercial and consumer loans, trust and
investment management services, bank credit cards and international
banking services. Crestar's subsidiary, Crestar Insurance Agency, Inc.,
offers a variety of personal and business insurance products. Securities
brokerage and investment banking services are offered by Crestar's
subsidiary, Crestar Securities Corporation. Mortgage loan origination,
servicing and wholesale lending are offered by Crestar Mortgage
Corporation, and investment advisory services are offered by Capitoline
Investment Services Incorporated, both of which are subsidiaries of
Crestar Bank. These various Crestar subsidiaries provide banking and non-
banking services throughout Virginia, Maryland and Washington, D.C., as
well as certain non-banking services to customers in other states.
The executive offices of Crestar are located in Richmond, Virginia
at Crestar Center, 919 East Main Street. Regional headquarters are
located in Norfolk and Roanoke, Virginia and in Washington, D.C.
Crestar's principal Operations Center is located in Richmond. See
"Business of Crestar."
TideMark. TideMark is a Virginia-chartered savings and loan holding
company headquartered in Newport News, Virginia. Substantially all of
TideMark's assets and operations are in TideMark Bank, a federal stock
savings bank, formerly known as Newport News Savings Bank. TideMark Bank
has been in business since 1887 and is the oldest and largest financial
institution headquartered on the Virginia Peninsula. At September 30,
1994, TideMark had consolidated assets of $387.4 million, deposits of
$228.5 million and shareholders' equity of $19.4 million. TideMark serves
more than 30,000 customers through its nine retail banking offices in its
primary market areas - the Virginia Peninsula, Middle Peninsula and
Northern Neck. TideMark Bank offers a variety of retail deposit products,
all of which are insured through the Savings Association Insurance Fund
("SAIF") administered by the Federal Deposit Insurance Corporation
("FDIC"), to individuals and businesses. TideMark operates five automated
teller machines throughout the market area. TideMark's lending activities
focus on meeting the needs in its market area by offering permanent and
construction residential loans, second mortgages and equity lines of
credit, consumer loans, permanent and construction commercial real estate
and business loans and lines of credit to local individuals and
businesses. Additionally, TideMark originates mortgage loans through its
TideMark Mortgage Division offices located in Newport News and Chesapeake,
Virginia.
On July 11, 1994, TideMark executed an agreement to acquire the
branch offices and deposits of Bay Savings Bank, FSB, Newport News,
Virginia ("Bay" or "Bay Savings") (the "Bay Agreement"), and on July 18,
1994, TideMark executed an agreement whereby TideMark agreed to acquire
the right to service Bay's residential loan portfolio. TideMark has
received regulatory approval of the transactions contemplated by the Bay
Agreement. In September, 1994, Crestar Securities Corporation, a wholly-
owned subsidiary of Crestar, executed a commitment to purchase shares of
the TideMark Series A for $2.0 million in order to finance the Bay
Agreement. TideMark consummated the Bay Agreement on December 19, 1994.
TideMark sold its Kilmarnock, Virginia branch office on November 10, 1994
to the Bank of Lancaster.
The executive offices of TideMark are located at 301 Hiden
Boulevard, Newport News, Virginia 23606. See "Business of TideMark."
Shareholder Meeting
The TideMark Shareholders Meeting will be held on February 2, 1995
at 10:00 a.m., at the Holiday Inn Hampton-Coliseum Hotel and Conference
Center located at 1815 West Mercury Boulevard, Hampton, Virginia, for the
purpose of considering and voting upon (i) a proposal to approve the
Agreement and a related Holding Company Plan of Merger; (ii) the election
of three directors for terms of three years and until their successors are
elected and qualified; (iii) the ratification of the appointment of
independent auditors for fiscal year 1995; (iv) the adjournment of the
Annual Meeting, if necessary, in order to solicit additional votes in
favor of the Agreement; and such other business as may properly come
before the meeting.
Vote Required; Record Date
Only TideMark shareholders of record at the close of business on
December 1, 1994 (the "Record Date") will be entitled to vote at the
TideMark Shareholder Meeting. The affirmative vote of the holders of more
than two-thirds of the shares outstanding on such date is required to
approve the Holding Company Merger, a plurality is required to elect the
Board's nominees and a majority of votes cast is required to ratify the
appointment of the independent auditors and to approve the adjournment
proposal. As of the Record Date, there were 6,939,484 shares of TideMark
Common Stock entitled to be voted, held by approximately 1,386
shareholders of record.
The directors of TideMark and their affiliates beneficially owned,
as of the Record Date, 1,416,137 shares or approximately 20.4% of the
6,939,484 outstanding shares of TideMark Common Stock. The directors of
TideMark have agreed with Crestar to recommend the approval of the Holding
Company Merger to the shareholders of TideMark and to vote the shares of
TideMark Common Stock beneficially owned by them, and with respect to
which they have the power to vote, in favor of the Holding Company Merger.
See "TideMark Security Ownership of Certain Beneficial Owners."
The Board of Directors of Crestar has approved the Holding Company
Merger and approval of the Holding Company Merger by Crestar shareholders
is not required by the Virginia Stock Corporation Act (the "VSCA").
The Holding Company Merger
Pursuant to the Agreement, at the Effective Time of the Holding
Company Merger, as defined herein under the heading "The Holding Company
Merger -- Effective Time of the Holding Company Merger," TideMark will
merge into Crestar in accordance with the Holding Company Plan of Merger
whereby the separate existence of TideMark will cease. At the Effective
Time of the Holding Company Merger, each outstanding share of TideMark
Common Stock (other than shares held by Crestar or Dissenting Shares)
shall be converted into and represent the right to receive (upon a
shareholder's election) either (i) $5.50 in cash (provided that the number
of shares of TideMark Common Stock that may be exchanged for cash, when
added to the Dissenting Shares, shall not exceed 40% of the outstanding
shares of TideMark Common Stock) or (ii) a number of shares of Crestar
Common Stock, determined by the Common Stock Exchange Ratio, subject to
adjustment as set forth in the Agreement. At the Effective Time of
Holding Company Merger, each outstanding share of TideMark Series A (other
than shares held by Crestar or Dissenting Shares) shall be converted into
and represent the right to receive a number of shares of Crestar Common
Stock, determined by the Preferred Stock Exchange Ratio, subject to
adjustment as set forth in the Agreement.
Immediately following the Effective Time of the Holding Company
Merger, TideMark Bank will merge into Crestar Bank in accordance with the
Bank Plan of Merger, and the separate existence of TideMark Bank will
cease. The Bank Merger is intended to qualify as an "Oakar" transaction
to avoid the payment of FDIC exit and entrance fees in accordance with
Section 5(d)(3) of the Federal Deposit Insurance Act ("FDIA").
The Exchange Ratios
For the purpose of determining the Common Stock Exchange Ratio, each
share of TideMark Common Stock has been valued at $5.50, the Common Stock
Price Per Share. The number of shares of Crestar Common Stock to be
delivered for each share of TideMark Common Stock will be determined by
dividing $5.50 per share of TideMark Common Stock by the average closing
price of Crestar Common Stock as reported on the NYSE for each of the ten
trading days ending on the tenth day prior to the Effective Time of the
Holding Company Merger (the "Average Closing Price"). For the purpose of
determining the Preferred Stock Exchange Ratio, each share of TideMark
Series A has been valued at $10.00 (the "Preferred Stock Price Per
Share"). The number of shares of Crestar Common Stock to be delivered for
each share of TideMark Series A will be determined by dividing $10.00 by
the Average Closing Price. The Common Stock Exchange Ratio and the
Preferred Stock Exchange Ratio are sometimes referred to together as the
"Exchange Ratios." The Exchange Ratios would be appropriately adjusted in
the event of any distribution (other than cash dividends) with respect to
Crestar Common Stock which occurs prior to the effective date of the
Transaction. The Common Stock Price Per Share and the Preferred Stock
Price Per Share are sometimes referred to together as the "Merger
Consideration." At the Effective Time of the Holding Company Merger,
outstanding options to purchase TideMark Common Stock (the "TideMark
Options"), other than the option held by Crestar as described under
"Summary -- Stock Option Agreement" shall, unless the holder of TideMark
Options has notified TideMark it is electing the exercise or cash-out
feature provided for in the Agreement, be converted, based on the Common
Stock Exchange Ratio, into options to acquire Crestar Common Stock. See
"The Holding Company Merger -- Determination of Exchange Ratios and
Exchange for Crestar Common Stock."
Cash Election
Holders of shares of TideMark Common Stock will be given the option
of exchanging all or any part of their shares for $5.50 cash per share of
TideMark Common Stock. The number of shares exchanged for cash may not
exceed 40% of the outstanding shares of TideMark Common Stock. Because
the number of shares exchanged for cash may not exceed 40% of the
outstanding shares of TideMark Common Stock, the extent to which the cash
elections will be accommodated will depend upon the number of holders of
shares of TideMark Common Stock who elect to receive cash. Accordingly, a
holder of shares of TideMark Common Stock who elects to receive cash may
instead receive a portion of such cash election and/or shares of Crestar
Common Stock (plus cash in lieu of fractional shares). Holders of shares
of TideMark Series A will not be entitled to exchange their shares of
TideMark Series A for cash.
IF A HOLDER OF SHARES OF TIDEMARK COMMON STOCK ELECTS TO SURRENDER
SHARES FOR CASH, HE MUST FILE THE CASH OPTION FORM ACCOMPANYING THIS PROXY
STATEMENT/PROSPECTUS PRIOR TO OR AT THE TIDEMARK SHAREHOLDER MEETING. ANY
HOLDER OF SHARES OF TIDEMARK COMMON STOCK WHO DOES NOT COMPLETE AND RETURN
A CASH OPTION FORM PRIOR TO OR AT THE TIDEMARK SHAREHOLDER MEETING CAN
ONLY RECEIVE CRESTAR COMMON STOCK IN THE HOLDING COMPANY MERGER. ONCE THE
VOTE ON THE HOLDING COMPANY MERGER HAS BEEN TAKEN AT THE TIDEMARK
SHAREHOLDER MEETING, THE CASH ELECTION IS IRREVOCABLE. THE CASH OPTION
FORM MUST BE ACCOMPANIED BY THE STOCK CERTIFICATES TO BE EXCHANGED FOR
CASH. TideMark will hold the certificates for safekeeping pending the
Effective Time of the Holding Company Merger, at which time they will be
exchanged for cash, or in the event of proration, cash and Crestar Common
Stock. If the Holding Company Merger is not consummated, TideMark will
return the certificates. See "The Holding Company Merger -- Cash
Election; Election Procedures."
Effective Time
The Transaction is expected to be consummated in March, 1995.
TideMark and Crestar each has the right, acting unilaterally, to terminate
the Agreement should the Transaction not be consummated by June 30, 1995.
See "The Holding Company Merger -- Termination."
Rights of Shareholders Electing to Exercise Their Right of Appraisal
Holders of TideMark Common Stock entitled to vote on approval of the
Agreement and the related Holding Company Plan of Merger have the right to
dissent from the Holding Company Merger and, upon consummation of the
Holding Company Merger and the satisfaction of certain specified
procedures, to receive payment of the fair value of each such holder's
shares of TideMark Common Stock in cash in accordance with Article 15 of
the VSCA. The procedures to be followed by shareholders electing to
perfect his right of appraisal are summarized under "The Holding Company
Merger -- Rights of Shareholders Electing to Exercise Their Right of
Appraisal" and a copy of the applicable provisions of the VSCA is set
forth in Annex IV to this Proxy Statement/Prospectus. Failure to follow
such provisions precisely may result in loss of such appraisal rights.
Opinion of Financial Advisor
TideMark has received the opinion of Scott & Stringfellow, Inc.
("Scott & Stringfellow") that the Merger Consideration to be received by
the holders of the TideMark Common Stock pursuant to the terms of the
Holding Company Merger is fair to the TideMark Common shareholders from a
financial point of view. Scott & Stringfellow's opinion is directed only
to the Merger Consideration to be received by the holders of the TideMark
Common Stock and does not constitute a recommendation to any holders of
the TideMark Common Stock as to how such holders of TideMark Common Stock
should vote at the TideMark Shareholder Meeting or as to any other matter.
Scott & Stringfellow will be paid a fee for its services at the closing of
the Holding Company Merger. For additional information concerning Scott &
Stringfellow and its opinion, see "The Holding Company Merger -- Opinion
of Financial Advisor" and the opinion of such firm attached as Annex III
to this Proxy Statement/Prospectus.
Conditions to Consummation
Consummation of the Holding Company Merger would be accomplished by
the statutory merger of TideMark into Crestar and consummation of the Bank
Merger would be accomplished by the statutory merger of TideMark Bank into
Crestar Bank. The Holding Company Merger and the Bank Merger are
contingent upon the approvals of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), the Office of Thrift
Supervision (the "OTS"), the State Corporation Commission of Virginia (the
"SCC") and the FDIC, which approvals have been applied for and are
expected to be received. The Transaction is also subject to other usual
conditions, including receipt by Crestar and TideMark of the legal opinion
of Hunton & Williams that the Holding Company Merger and the Bank Merger
each will constitute a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986 (the "Code"). See "The Holding Company
Merger -- Conditions to Consummation of the Holding Company Merger."
Conduct of Business Pending the Holding Company Merger
Pursuant to the terms of the Agreement, TideMark has agreed, except
for the closing of the Bay Agreement, not to take certain actions relating
to the operation of its business pending consummation of the Holding
Company Merger, including the payment of cash dividends, without the prior
approval of Crestar, except as otherwise permitted by the Agreement. See
"The Holding Company Merger -- Business of TideMark Pending the Holding
Company Merger."
Interests of Certain Persons in the Holding Company Merger
Certain members of TideMark's management and the TideMark Board have
interests in the Holding Company Merger in addition to their interests as
shareholders of TideMark generally. These include, among other things,
provisions in the Agreement relating to the honoring by Crestar of
severance provisions in existing employment agreements with Messrs.
Gentry, Jr., Springer and Meade and Ms. Lawson, election to the Crestar
Peninsula Advisory Board of up to three directors of TideMark,
indemnification and directors' and officers' liability insurance for
TideMark directors and officers and eligibility for certain Crestar
employee benefits. See "The Holding Company Merger -- Interests of
Certain Persons in the Transaction."
Resale of Crestar Common Stock
Shares of Crestar Common Stock received in the Holding Company
Merger will be freely transferable by the holders thereof, except for
those shares held by those holders who may be deemed to be "affiliates"
(generally including directors, certain executive officers and ten percent
or more shareholders) of TideMark or Crestar under applicable federal
securities laws. See "Resale of Crestar Common Stock."
Certain Federal Income Tax Consequences of the Transaction
Each of the Holding Company Merger and the Bank Merger is intended
to be a tax-free "reorganization" as defined in Section 368(a) of the
Code, but the receipt of cash by a TideMark shareholder for any shares of
TideMark Common Stock, including cash received as a result of the
perfection of dissenters' rights under Article 15 of the VSCA, or in lieu
of a fractional share of Crestar Common Stock will be a taxable
transaction. A condition to consummation of the Holding Company Merger is
the receipt by Crestar and TideMark of an opinion from Hunton & Williams,
counsel to Crestar, as to the qualification of the Holding Company Merger
as a tax-free reorganization and certain other federal income tax
consequences of the Transaction. See "The Holding Company Merger
- -- Certain Federal Income Tax Consequences."
Stock Option Agreement
Pursuant to a Stock Option Agreement, dated as of September 20, 1994
(the "Stock Option Agreement"), TideMark granted Crestar an option to
purchase up to 1,380,000 shares of TideMark Common Stock at $4.25 per
share exercisable upon the occurrence of a Purchase Event (as defined
herein). The Stock Option Agreement terminates in accordance with its
terms on the date on which occurs the earliest of: (i) the Effective Time
of the Holding Company Merger; (ii) a termination of the Agreement in
accordance with its terms (other than by Crestar under certain
circumstances) prior to the occurrence of a Purchase Event or a
Preliminary Purchase Event (as defined herein); (iii) 12 months following
a termination of the Agreement by Crestar under certain circumstances; or
(iv) 12 months after the termination of the Agreement in accordance with
its terms following the occurrence of a Purchase Event or a Preliminary
Purchase Event. The existence of the Stock Option Agreement might
discourage other potential acquirors of TideMark. The Stock Option
Agreement is attached hereto as Annex II. See also "The Holding Company
Merger--Stock Option Agreement."
Market Prices Prior to Announcement of the Transaction
The following is information regarding the last reported sale price
per share of Crestar Common Stock on the NYSE Composite Transactions Tape
on September 19, 1994, and the closing price per share of TideMark Common
Stock on the National Association of Securities Dealers, Inc. National
Market System (the "NASDAQ/NMS") on September 19, 1994, the date
immediately preceding the execution of the binding letter agreement which
was superseded by the Agreement on October 31, 1994. See "Price Range of
TideMark Common Stock and Dividend Policy" for information concerning
recent market prices of the TideMark Common Stock.
Equivalent
Historical Pro Forma
Crestar TideMark(a) TideMark(a)
Common Stock $47.50 $4.50 $5.51
_______________
(a) The amount of the equivalent price for TideMark Common Stock is the
product of multiplying an assumed Common Stock Exchange Ratio of
.116 shares of Crestar Common Stock (the result of dividing $5.50 by
the last sale price of Crestar Common Stock on September 19, 1994 of
$47.50) by $47.50 per share.
Comparative Per Share Data
The following table presents historical and pro forma per share data
for Crestar, and historical and equivalent pro forma per share data for
TideMark. The pro forma combined amounts give effect to an assumed Common
Stock Exchange Ratio of 0.141 shares of Crestar Common Stock for each
share of TideMark Common Stock (based on the last sale price of Crestar
Common Stock on November 16, 1994 of $38.875). The equivalent pro forma
TideMark share amounts allow comparison of historical information about
one share of TideMark Common Stock to the corresponding data about what
one share of TideMark Common Stock will equate to in the combined
corporation and are computed by multiplying the pro forma combined amounts
by an assumed Common Stock Exchange Ratio of 0.141. As discussed in "The
Holding Company Merger -- Determination of Exchange Ratios and Exchange
for Crestar Common Stock," the final Common Stock Exchange Ratio will be
determined based on the average closing price for Crestar Common Stock as
reported on the NYSE for each of the ten trading days ending on the tenth
day prior to the Effective Time of the Holding Company Merger. The
following table is based on the assumption that all issued and outstanding
shares of TideMark Common Stock are converted into shares of Crestar
Common Stock. Other pending acquisitions by Crestar are not reflected in
the comparative per share data as they are immaterial.
Crestar's fiscal year ends December 31 and TideMark's fiscal year
ends June 30. In the following table, TideMark financial data are
presented consistent with the fiscal year of Crestar. Under the heading
"Years Ended December 31, 1993 and 1992," TideMark book value per share is
as of December 31, 1993 and 1992, and net income and dividend data reflect
results for the twelve months then ended. Under the heading "Nine Months
Ended September 30, 1994 and 1993," TideMark book value per share is as of
September 30, 1994 and 1993, and net income and dividend data reflect
results for the nine months then ended.
The per share data included in the following table should be read in
conjunction with the consolidated financial statements of Crestar
incorporated by reference herein and the financial statements of TideMark
included herein and the notes accompanying all such financial statements.
The data presented below are not necessarily indicative of the results of
operations which would have been obtained if the Holding Company Merger
had been consummated in the past or which may be obtainable in the future.
COMPARATIVE PER SHARE DATA
<TABLE>
Nine Months Ended Years Ended
September 30, December 31,
1994 1993 1993 1992
<S> <C> <C> <C> <C>
Book Value Per Share at Period End:(4)(5)
Crestar historical . . . . . . . . . . . . . . . . . . . $29.70 $27.77 $28.32 $25.24
TideMark historical. . . . . . . . . . . . . . . . . . . 2.79 2.78 2.80 2.61
Pro forma combined per Crestar common share(1) . . . . . 29.45 27.56 28.11 25.06
Equivalent pro forma per TideMark common share . . . . . 4.15 3.89 3.96 3.53
Cash Dividends Declared Per Share:(4)(5)
Crestar historical . . . . . . . . . . . . . . . . . . . $ 1.13 $ 0.81 $ 1.14 $ 0.80
TideMark historical. . . . . . . . . . . . . . . . . . . -- -- -- --
Pro forma combined per Crestar common share(2) . . . . . 1.09 0.78 1.10 0.78
Equivalent pro forma per TideMark common share . . . . . 0.15 0.11 0.15 0.11
Net Income Per Share Before
Cumulative Effect of
Accounting Change:(4)(5)(6)
Crestar historical . . . . . . . . . . . . . . . . . . . $ 3.34 $ 2.67 $ 3.68 $ 2.32
TideMark historical. . . . . . . . . . . . . . . . . . . 0.22 0.09 0.14 0.15
Pro forma combined per Crestar common share(3) . . . . . 3.30 2.62 3.61 2.29
Equivalent pro forma per TideMark common share . . . . . 0.46 0.40 0.51 0.32
Net Income Per Share:(4)(5)
Crestar historical . . . . . . . . . . . . . . . . . . . $ 3.34 $ 2.67 $ 3.68 $ 2.32
TideMark historical. . . . . . . . . . . . . . . . . . . 0.22 0.09 0.14 0.44
Pro forma combined per Crestar common share(3) . . . . . 3.30 2.62 3.61 2.35
Equivalent pro forma per TideMark common share . . . . . 0.46 0.40 0.51 0.33
</TABLE>
_______________
(1) Pro forma combined book value per Crestar common share represents
combined common shareholders' equity amounts, divided by pro forma
combined period-end common shares outstanding.
(2) Pro forma combined dividends per Crestar common share represent
combined common dividends declared, divided by pro forma combined
average common shares outstanding.
(3) Pro forma combined net income per Crestar common share represents
combined net income available to common shareholders, divided by pro
forma combined average common shares outstanding.
(4) Pro forma combined book value per share, cash dividends declared per
share and net income per share amounts for Crestar and TideMark do
not reflect exercise of options to acquire shares of TideMark Common
Stock. Options to acquire 42,000 at an average price per share of
$9.64 shares were outstanding at September 30, 1994. Assumed
exercise of these options does not have a significant impact upon
the combined shareholders' equity of Crestar and TideMark or the pro
forma combined cash dividends declared per share or combined net
income per share.
(5) Crestar's fiscal year ends December 31 and TideMark's fiscal year
ends June 30. In the above table, TideMark financial data is
presented consistent with the fiscal year of Crestar. TideMark's
book value per share is as of the dates presented, and net income
and dividend data reflect results for the periods presented.
(6) As of July 1, 1992, TideMark changed from the deferral method of
accounting for income taxes to the asset and liability method, and
recorded a cumulative effect of accounting change of $0.29 per share
of TideMark Common Stock.
Selected Financial Data
CRESTAR FINANCIAL CORPORATION
The following Crestar consolidated financial data is qualified in
its entirety by the information included in the documents incorporated in
this Proxy Statement/Prospectus by reference. Interim financial results,
in the opinion of Crestar management, reflect all adjustments necessary
for a fair presentation of the results of operations, including
adjustments related to completed acquisitions. All such adjustments are
of a normal nature. The results of operations for an interim period are
not necessarily indicative of results that may be expected for a full year
or any other interim period. See "Incorporation of Certain Information by
Reference."
<TABLE>
Nine Months
Ended
September 30, Years ended December 31,
1994 1993 1993 1992 1991 1990 1989
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings: (1)
Net interest income . . . . . . $ 434.9 $ 389.1 $ 527.0 $ 482.1 $ 421.1 $ 414.2 $ 380.2
Provision for loan losses . . . 27.0 35.3 48.8 99.2 209.5 131.1 44.8
Net interest income after
provision for loan losses. . . 407.9 353.8 478.2 382.9 211.6 283.1 335.3
Noninterest income. . . . . . . 197.0 184.6 248.3 218.4 233.8 166.8 148.4
Noninterest expense . . . . . . 414.9 392.8 523.0 501.8 405.6 378.8 362.8
Income before income taxes. . . 190.0 145.6 203.5 99.5 39.8 71.1 120.9
Income tax expense. . . . . . . 63.3 43.8 63.0 19.7 6.1 9.9 17.1
Net income. . . . . . . . . . . $ 126.7 $ 101.8 $ 140.5 $ 79.8 $ 33.8 $ 61.1 $ 103.8
Net income applicable
to common shares . . . . . . . $ 126.7 $ 99.9 $ 138.3 $ 77.3 $ 31.2 $ 58.5 $ 101.0
Per Common Share Data:
Net income (primary). . . . . . $ 3.34 $ 2.67 $ 3.68 $ 2.32 $ 0.98 $ 1.87 $ 3.28
Dividends declared (2). . . . . 1.13 0.81 1.14 0.80 0.86 1.32 1.20
Book value. . . . . . . . . . . 29.70 27.77 28.32 25.24 23.23 23.15 22.73
Average primary
shares (thousands) . . . . . . 37,9333 7,429 37,587 33,286 31,921 31,218 30,739
Selected Period-End Balances:
Total assets. . . . . . . . . . $14,450.4 $12,987.1 $13,286.9 $12,674.7 $11,828.3 $11,881.2 $11,360.8
Loans (net of unearned income). 8,647.9 7,052.3 7,287.1 6,581.7 7,065.8 7,680.2 7,769.3
Allowance for loan losses . . . 225.9 213.0 211.0 205.0 210.0 149.4 93.2
Nonperforming assets (3). . . . 86.6 134.8 96.8 220.8 350.0 237.2 75.1
Total deposits. . . . . . . . . 10,986.1 9,935.7 10,165.8 9,581.5 8,889.6 8,506.1 8,467.3
Long-term debt. . . . . . . . . 218.6 190.6 191.2 210.4 161.9 168.4 170.1
Common shareholders' equity . . 1,116.8 1,049.9 1,062.5 913.9 749.9 726.3 705.3
Total shareholders' equity. . . 1,116.8 1,094.9 1,062.5 958.9 794.9 771.3 750.3
Average Balances:
Total assets. . . . . . . . . . $13,611.5 $12,472.1 $12,585.4 $11,920.4 $11,440.7 $11,673.7 $10,659.4
Loans (net of unearned income). 8,115.6 6,745.9 6,836.5 6,725.3 7,275.3 7,767.2 7,682.1
Total deposits. . . . . . . . . 10,886.6 9,572.9 9,682.8 9,540.6 8,596.9 8,296.8 8,143.6
Long-term debt. . . . . . . . . 214.8 223.8 215.4 185.9 162.8 170.1 175.1
Common shareholders' equity . . 1,094.1 975.9 994.8 794.6 744.1 731.7 670.5
Total shareholders' equity. . . 1,094.1 1,020.9 1,038.7 839.6 789.1 776.7 719.7
Ratios:
Return on average assets. . . . 1.24% 1.09% 1.12% 0.67% 0.30% 0.52% 0.97%
Return on average
shareholders' equity . . . . . 15.44 13.29 13.53 9.50 4.28 7.87 14.43
Return on average common
shareholders' equity . . . . . 15.44 13.65 13.90 9.73 4.19 7.99 15.06
Net interest margin (4) . . . . 4.81 4.75 4.78 4.67 4.29 4.22 4.36
Nonperforming assets to
loans and foreclosed
properties at period end . . . 1.00 1.90 1.32 3.32 4.90 3.08 0.97
Net charge-offs to average
loans. . . . . . . . . . . . . 0.46 0.97 0.95 1.69 2.07 0.99 0.55
Allowance for loan losses to:
Loans at period end. . . . . . 2.61 3.02 2.89 3.11 2.97 1.94 1.20
Nonperforming loans
at period end . . . . . . . . 359 213 264 144 78 68 137
Nonperforming assets
at period end . . . . . . . . 261 158 218 93 60 63 124
Total shareholders' equity
to total assets at
period end . . . . . . . . . . 7.73 8.43 8.00 7.57 6.72 6.49 6.60
Capital ratios at period end:
Tier 1 risk-adjusted capital . 9.6 10.5 10.5 10.4 7.9 7.5 7.3
Total risk-adjusted capital. . 12.2 13.5 13.5 13.7 10.6 10.1 9.6
Tier 1 leverage. . . . . . . . 7.7 8.1 7.9 7.7 6.7 6.2 6.8
</TABLE>
_______________
(1) Amounts may not add due to rounding.
(2) In April 1991, Crestar announced that, thereafter, its dividend
declaration would be made in the month following the end of each
quarter instead of in the last month of each quarter. As a result,
1991 included only three dividend declarations; however, four
dividend payments were made.
(3) Nonperforming assets include nonaccrual loans, restructured loans
and foreclosed properties.
(4) Net interest margin is calculated on a taxable equivalent basis,
using a tax rate of 35% for 1994 and 1993 and 34% for 1992, 1991,
1990 and 1989.
TIDEMARK BANCORP, INC.
The following TideMark consolidated financial data is qualified in
its entirety by the information included in the documents included in this
Proxy Statement/Prospectus. Interim financial results, in the opinion of
management of TideMark, reflect all adjustments necessary for a fair
presentation of the results of operations. All such adjustments are of a
normal recurring nature. The results of operations for an interim period
are not necessarily indicative of results that may be expected for a full
year or any other interim period. See "Certain Information Regarding
TideMark."
<TABLE>
Three Months
Ended
September 30, Years ended June 30,
1994 1993 1994 1993 1992 1991 1990
(Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings: (1)
Net interest income . . . . . . . . . $ 2,404 $ 1,858 $ 8,725 $ 8,801 $ 7,675 $ 5,720 $ 4,952
Provision for loan losses . . . . . . 11 -- 83 65 1,982 1,895 9,436
Net interest income (expense)
after provision for loan
losses . . . . . . . . . . . . . . . 2,393 1,858 8,642 8,736 5,693 3,825 (4,484)
Noninterest income. . . . . . . . . . 1,436 1,238 5,294 4,197 5,921 5,229 2,092
Noninterest expense . . . . . . . . . 2,502 2,615 11,835 11,955 9,892 8,504 11,031
Income (loss) before income
taxes, extraordinary items
and cumulative effect of
accounting change. . . . . . . . . . 1,327 481 2,101 978 1,722 550 (13,423)
Provision for (benefit from)
income taxes . . . . . . . . . . . . 351 99 776 389 747 461 (1,895)
Income (loss) before extraordinary
items and cumulative effect
of an accounting change. . . . . . . 976 382 1,325 589 975 89 (11,528)
Extraordinary item
Reduction of income taxes
arising from the carryforward
of net operating losses. . . . . . . -- -- -- -- 590 461 --
Cumulative effect of change
in accounting for
income taxes . . . . . . . . . . . . -- -- -- 2,027 -- -- --
Net income (loss) . . . . . . . . . . 976 382 1,325 2,616 1,565 550 (11,528)
Net income (loss) applicable
to common shares . . . . . . . . . . $ 976 $ 382 $ 1,325 $ 2,616 $ 1,565 $ 550 $(11,528)
Per Common Share Data:
Net income (loss)(primary). . . . . . $ 0.14 $ 0.06 $ 0.19 $ 0.38 $ 0.40 $ 0.40 $ (8.35)
Dividends declared (2). . . . . . . . -- -- -- -- -- -- --
Book value. . . . . . . . . . . . . . $ 2.79 $ 2.78 $ 2.69 $ 2.61 $ 2.23 $ 6.25 $ 5.85
Average primary
shares (thousands) . . . . . . . . . 6,937 6,931 6,931 6,931 3,913 1,380 1,380
Selected Period-End Balances:
Total assets. . . . . . . . . . . . . $387,411 $381,426 $386,576 $379,572 $354,894 $359,605 $361,193
Loans (net of allowance for loan
losses and unearned income) . . . . 173,841 183,248 170,591 180,319 177,026 204,221 210,136
Allowance for loan losses . . . . . . 4,679 6,847 4,618 6,796 7,187 5,538 5,285
Nonperforming assets (3). . . . . . . 12,381 21,190 13,672 20,888 24,827 21,497 30,416
Total deposits. . . . . . . . . . . . 228,490 229,413 232,725 219,324 209,663 227,662 246,648
Long-term debt. . . . . . . . . . . . 11,000 26,000 11,000 36,000 66,800 31,800 41,200
Common shareholders' equity . . . . . 19,366 19,302 18,637 18,064 15,448 8,623 8,073
Total shareholders' equity. . . . . . 19,366 19,302 18,637 18,064 15,448 8,623 8,073
Average Balances:
Total assets. . . . . . . . . . . . . $383,294 $372,683 $371,431 $354,802 $342,950 $366,667 $364,810
Loans (net of allowance for loan
losses and unearned income) . . . . 178,800 204,666 170,913 176,995 193,807 219,127 261,337
Total deposits. . . . . . . . . . . . 231,486 219,594 225,994 208,066 215,200 230,642 267,538
Long-term debt. . . . . . . . . . . . 11,079 32,749 16,921 56,071 45,663 28,812 40,414
Common shareholders' equity . . . . . 18,906 18,343 19,426 16,356 11,855 8,333 15,669
Total shareholders' equity. . . . . . 18,906 18,343 19,426 16,356 11,855 8,333 15,669
Ratios:
Return on average assets. . . . . . . 1.02% 0.41% 0.36% 0.74% 0.46% 0.15% (3.16)%
Return on average
shareholders' equity . . . . . . . . 20.65% 8.33% 6.82% 15.99% 13.19% 6.60% (73.57)%
Return on average common
shareholders' equity . . . . . . . . 20.65% 8.33% 6.82% 15.99% 13.19% 6.60% (73.57)%
Net interest margin (4) . . . . . . . 2.65% 2.13% 2.52% 2.61% 2.41% 1.76% 1.53%
Nonperforming assets to
loans and foreclosed
properties at period end . . . . . . 7.11% 11.12% 7.99% 11.14% 13.47% 10.31% 13.51%
Net charge-offs to average loans. . . (0.03)% (0.02)% 1.20% 0.22% 0.20% 0.75% 2.59%
Allowance for loan losses to:
Loans at period end. . . . . . . . . 2.69% 3.74% 2.59% 3.20% 4.06% 2.71% 2.52%
Nonperforming loans
at period end . . . . . . . . . . . 41.77% 56.30% 39.56% 56.34% 45.46% 37.72% 36.99%
Nonperforming assets
at period end . . . . . . . . . . . 37.79% 32.31% 33.78% 32.54% 28.95% 25.76% 17.38%
Total shareholders' equity
to total assets at
period end . . . . . . . . . . . . . 5.00% 5.06% 4.82% 4.76% 4.35% 2.40% 2.24%
Capital ratios at period end:
Tier 1 risk-adjusted capital (core). 4.69% 4.61% 4.61% 4.37% 4.13% 2.21% 2.18%
Total risk-adjusted capital. . . . . 10.88% 10.36% 10.79% 9.78% 9.35% 5.50% 4.92%
Tier 1 leverage (tangible) . . . . . 4.67% 4.57% 4.58% 4.32% 4.06% 2.11% 2.04%
</TABLE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the TideMark Board of Directors (the "TideMark
Board"), to be voted at the TideMark Shareholder Meeting to be held at the
Holiday Inn Hampton-Coliseum Hotel and Conference Center located at 1815
West Mercury Boulevard, Hampton, Virginia, on February 2, 1995, at 10:00
a.m. and at any adjournment thereof. At the TideMark Shareholder
Meeting, shareholders will consider and vote upon: (i) the Agreement and
the related Holding Company Plan of Merger, pursuant to which TideMark
will merge with and into Crestar, and Crestar will succeed to the business
of TideMark; (ii) the election of three directors for terms of three years
and until their successors are elected and qualified; (iii) the
ratification of the appointment by the TideMark Board of Coopers & Lybrand
as the independent auditors of TideMark for the 1995 fiscal year; (iv) the
approval of a proposal to adjourn the TideMark Shareholder Meeting to
another date, time and/or place for the purpose of soliciting additional
proxies in favor of the Agreement in the event that there are not
sufficient votes at the TideMark Shareholder Meeting to approve the
Agreement; and (v) such other matters as may properly come before such
Annual Meeting. Only shareholders of record of TideMark at the close of
business on December 1, 1994 are entitled to notice of and to vote at the
TideMark Shareholder Meeting. This Proxy Statement/Prospectus is being
mailed to all such holders of record of TideMark Common Stock on or about
December 30, 1994.
The holders of the TideMark Common Stock are entitled to one vote
for each share standing in such holder's name on the books of TideMark.
Cumulative voting is not permitted. The affirmative vote of: (i) the
holders of more than two-thirds of the outstanding shares entitled to vote
is required for approval of the Holding Company Merger; (ii) a plurality
of the votes cast by the shares of TideMark Common Stock entitled to vote
in the election is required to elect each nominee for director; and (iii)
a majority of the votes cast by the shareholders present in person or by
proxy and entitled to vote thereon is required to ratify the appointment
of Coopers & Lybrand as the independent auditors of TideMark for the 1995
fiscal year and to approve the adjournment proposal.
Under rules of the NYSE, the proposal to adopt the Agreement is
considered a "non-discretionary item" whereby brokerage firms may not vote
in their discretion on behalf of their clients if such clients have not
furnished voting instructions. Abstentions and such broker "non-votes"
(as well as withheld votes in the case of the election of directors) will
be considered in determining the presence of a quorum at the Annual
Meeting but will not be counted as a vote cast for a proposal. Because
the proposal to adopt the Agreement is required to be approved by the
holders of two-thirds of the outstanding shares of TideMark Common Stock,
abstentions and broker "non-votes" will have the same effect as a vote
against this proposal. Assuming the presence of a quorum, abstentions and
broker "non-votes" also will not be counted as votes to ratify TideMark's
independent public accountants or to adjourn the Annual Meeting to solicit
additional proxies to vote on the proposal to approve the Agreement, if
required, and accordingly will have the same effect as votes against such
proposals. Withheld votes and broker "non-votes" will not affect the
votes required for election of directors.
The proxies solicited hereby, if properly signed and returned and
not revoked prior to their use, will be voted in accordance with the
instructions given thereon by the shareholders. If no instructions are so
specified, the proxies will be voted FOR the proposed Holding Company
Merger, FOR the election of the Board's nominees, FOR the ratification of
Coopers & Lybrand as the independent auditors of TideMark for fiscal 1995,
FOR the adjournment proposal and otherwise at the discretion of the
proxies. Any shareholder giving a proxy has the power to revoke it at any
time before it is exercised by (i) filing written notice of revocation
with the Secretary of TideMark (Betty H. Looper, Secretary, TideMark
Bancorp, Inc., 301 Hiden Boulevard, Newport News, Virginia 23606);
(ii) submitting a duly executed proxy bearing a later date; or
(iii) appearing at the TideMark Shareholder Meeting and notifying the
Secretary of his or her intention to vote in person. Attendance at the
Annual Meeting will not, in and of itself, constitute revocation of a
proxy. Proxies solicited by this Proxy Statement/Prospectus may be
exercised only at the TideMark Shareholder Meeting and any adjournment of
the TideMark Shareholder Meeting and will not be used for any other
meeting.
The accompanying proxy is being solicited by the TideMark Board.
The cost of such solicitation will be borne by TideMark. In addition to
the use of the mails, proxies may be solicited by personal interview,
telephone or telegram by directors, officers and employees of TideMark or
Crestar without additional compensation. Arrangements may also be made
with brokerage houses and custodians, nominees and fiduciaries for
forwarding of solicitation material to beneficial owners of stock held of
record by such persons and obtaining proxies from the beneficial owners of
TideMark Common Stock entitled to vote at the Annual Meeting, and TideMark
will reimburse such persons for their reasonable expenses incurred in
doing so. TideMark has retained D. F. King & Co, Inc., a professional
proxy solicitation firm, to assist in the solicitation of proxies for the
Annual Meeting. Such firm will receive a fee of approximately $3,000,
plus expenses.
The TideMark Board has no information that other matters will be
brought before the meeting. If, however, other matters are presented, the
accompanying proxy will be voted in accordance with the recommendations of
the TideMark Board with respect to such matters.
As of the Record Date, the directors and executive officers of
TideMark and their affiliates beneficially owned a total of 1,451,015
shares (representing 20.9% of the outstanding shares of TideMark Common
Stock), and the directors of Crestar owned no TideMark Common Stock. The
TideMark directors have agreed with Crestar to recommend that TideMark
shareholders vote in favor of the Holding Company Merger and to vote
shares beneficially owned by such directors, and shares with respect to
which they have the power to vote, in favor of the Holding Company Merger.
See "TideMark Security Ownership of Certain Beneficial Owners."
For the reasons described below, the TideMark Board has adopted the
Agreement, believes the Holding Company Merger is in the best interest of
TideMark and its shareholders and recommends that shareholders of TideMark
vote FOR approval of the Agreement. In making its recommendation, the
TideMark Board considered, among other things, the opinion of Scott &
Stringfellow that the Merger Consideration was fair to TideMark Common
Stock shareholders from a financial point of view. See "The Holding
Company Merger -- Background of the Holding Company Merger," "-- Reasons
and Basis for the Holding Company Merger," and "-- Opinion of Financial
Advisor." The TideMark Board also recommends that TideMark shareholders
vote FOR the election of the Board's nominees for director, FOR the
ratification of Coopers & Lybrand as the independent auditors of TideMark
for fiscal 1995 and FOR the adjournment of the TideMark Shareholder
Meeting, if necessary to solicit additional votes or proxies in favor of
the Agreement.
The address of Crestar is 919 East Main Street, Richmond, Virginia
23219 and its telephone number is (804) 782-5000. The address of TideMark
is 301 Hiden Boulevard, Newport News, Virginia 23606 and its telephone
number is (804) 599-1400.
THE HOLDING COMPANY MERGER
The detailed terms of the Holding Company Merger are contained in
the Agreement and Plan of Reorganization, attached as Annex I to this
Proxy Statement/Prospectus. The following discussion describes the more
important aspects of the Holding Company Merger and the terms of the
Agreement. This description is not complete and is qualified by reference
to the Agreement which is incorporated by reference herein.
Background and Reasons
The TideMark Board has historically investigated various means to
maximize shareholder value. Over the years, the TideMark Board, on a
periodic basis and formally at its annual strategic planning sessions,
generally reviewed merger and acquisition activity in the thrift industry
and discussed various possible transactions that might offer value to
TideMark shareholders. In 1990, the TideMark Board formed a Merger and
Acquisition Committee, composed of its Chairman of the Board, President
and three outside directors, for the purpose of following the
consolidation of the thrift industry and evaluating possible strategic
business combinations for TideMark which were brought to the TideMark
Board from time to time. During the period of 1990 to 1993, informal and
inconclusive discussions in this regard were held with seven local thrift
and banking organizations. Such discussions were also held with Crestar
in 1993, but were terminated by the parties in late 1993 due to the
failure of the parties to reach an agreement with respect to the basic
terms of any transaction. In February 1994, a regional investment
advisory firm other than Scott & Stringfellow was retained to assist the
TideMark Board in its evaluation of strategic options. The advice of that
firm was that a sale of TideMark was not timely and that the TideMark
Board should focus on improving operations and asset quality.
Thereafter, the TideMark Board entered into discussions with First
Federal of Michigan, Detroit, Michigan, with respect to the possible
acquisition of all or part of Bay by TideMark. The TideMark Board engaged
Scott & Stringfellow as its financial consultant to explore and evaluate
the proposed acquisition of Bay. As a result of the recommendations of
Scott & Stringfellow and the Board's decision to increase its market
share, TideMark executed the Bay Agreement in July 1994. The consummation
of the Bay Agreement required that TideMark increase its Tier 1 capital by
approximately $2.0 million, which TideMark initially contemplated raising
by means of a rights offering to its shareholders in the autumn of 1994.
In August 1994, as TideMark was finalizing its plans to effect the
rights offering, Crestar's Eastern Region President contacted TideMark's
Chairman and indicated a renewed interest in acquiring TideMark. The
TideMark Board's Merger and Acquisition Committee met on August 9, 1994
and the full TideMark Board was notified of Crestar's interest on August
11, 1994. Crestar executed a confidentiality agreement on August 26, 1994
with TideMark and began its due diligence review of TideMark's books and
records. TideMark engaged Scott & Stringfellow, on September 7, 1994, to
act as TideMark's financial advisor with respect to the possible offer
from Crestar.
On September 20, 1994, after the performance of its due diligence
review, Crestar presented to TideMark a binding offer to acquire TideMark
at $5.50 per share, a price consistent with TideMark's expectations
expressed earlier to Crestar. The TideMark Board met on that date,
reviewed the offer, considered the recommendations of Scott &
Stringfellow, and voted unanimously to accept the offer. The TideMark
Board also approved the Stock Option Agreement as an inducement to Crestar
and to ensure the prompt negotiation and execution of the definitive
merger agreement and Crestar Securities Corporation's commitment to
purchase the TideMark Series A.
To provide the financing needed to close the Bay Agreement, Crestar
Securities Corporation agreed to purchase the TideMark Series A. For more
information relating to this commitment, see "Business of TideMark."
The binding letter agreement was subject to the satisfaction of
certain conditions precedent, the most important of which was the
negotiation and execution of a definitive merger agreement. On October
31, 1994, the TideMark Board subsequent to its evaluation of the opinion
of Scott & Stringfellow that the consideration offered by Crestar was fair
from a financial point of view, unanimously approved the Agreement and
authorized its execution.
Opinion of Financial Advisor
TideMark has retained Scott & Stringfellow to act as its financial
advisor in connection with rendering a fairness opinion with respect to
the Holding Company Merger. Scott & Stringfellow is a full service
investment banking and brokerage firm headquartered in Richmond, Virginia,
that provides a broad array of services to corporations, financial
institutions, individuals and state and local governments. The Financial
Institutions Group of Scott & Stringfellow actively works with financial
institutions in Virginia, North Carolina, the District of Columbia,
Maryland, and West Virginia on these and other matters. As part of its
investment banking practice, it is continually engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions, negotiated underwritings, and secondary distributions of
listed and unlisted securities. Scott & Stringfellow was selected by the
TideMark Board based upon its expertise and reputation in providing
valuation and merger and acquisition and advisory services to financial
institutions. Scott & Stringfellow's analysts follow and publish reports
about TideMark.
On October 31, 1994, at the meeting at which the TideMark Board
approved and adopted the Agreement, Scott & Stringfellow delivered a
written opinion ("Opinion") to the TideMark Board that as of such date,
the Merger Consideration to be received by TideMark Common Stock
shareholders in cash, Crestar Common Stock, or a mix thereof (subject to
certain limitations on the cash component of the consideration), was fair
to the TideMark Common shareholders from a financial point of view. Such
Opinion was updated as of the date of this Proxy Statement/ Prospectus.
No instructions or limitations were given or imposed by the TideMark Board
upon Scott & Stringfellow with respect to the investigations made or
procedures followed by them in rendering the Opinion.
The full text of the Opinion, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is set forth and
attached hereto in Annex III to this Proxy Statement/Prospectus and is
incorporated herein by reference. TideMark shareholders are urged to read
the Opinion in its entirety. The following is a summary of certain
analyses performed by Scott & Stringfellow which were the bases of such
Opinion.
In developing its Opinion, Scott & Stringfellow reviewed and
analyzed: (i) the Agreement; (ii) the Registration Statement and this
Proxy Statement/Prospectus; (iii) TideMark's audited financial statements
for the four years ended June 30, 1994; (iv) TideMark's unaudited
financial statements for the quarter ended September 30, 1993 and 1994,
and other internal information relating to TideMark prepared by TideMark's
management; (v) information regarding the trading market for the TideMark
Common Stock and the Crestar Common Stock and the price ranges within
which the respective stocks have traded; (vi) the relationship of prices
paid to relevant financial data such as net worth, earnings, deposits and
assets in certain thrift and thrift holding company mergers and
acquisitions in the southeastern United States and in Virginia in recent
years; (vii) Crestar's annual reports to shareholders and its audited
financial statements for the four years ended December 31, 1993; and
(viii) Crestar's unaudited financial statements for the quarter and nine
months ended September 30, 1993 and 1994 and other internal information
relating to Crestar prepared by Crestar's management. Scott &
Stringfellow has discussed with members of TideMark's and Crestar's
management past and current business operations, the background of the
Holding Company Merger, the reasons and basis for the Holding Company
Merger, results of regulatory examinations, and the business and future
prospects of TideMark and Crestar individually and as combined entity, as
well as other matters relevant to its inquiry. Scott & Stringfellow has
conducted such other studies, analysis and investigations particularly of
the banking and thrift industries, and considered such other information
as it deemed appropriate, the material portion of which is described
below. Finally, Scott & Stringfellow also took into account its
assessment of general economic, market and financial conditions and its
experience in other transactions, as well as its experience in securities
valuations and knowledge of the commercial banking and thrift industries
generally.
Scott & Stringfellow relied without independent verification upon
the accuracy and completeness of all of the financial and other
information reviewed by it and discussed with it for purposes of its
Opinion. With respect to financial forecasts reviewed by Scott &
Stringfellow in rendering its Opinion, Scott & Stringfellow assumed that
such financial forecasts were reasonably prepared on the basis reflecting
the best currently available estimates and judgment of the managements of
TideMark and Crestar as to the future financial performance of TideMark
and Crestar, respectively. Scott & Stringfellow did not make an
independent evaluation or appraisal of the assets or liabilities of
TideMark and Crestar nor was it furnished with any such appraisal.
The summary set forth below does not purport to be a complete
description of the analyses performed by Scott & Stringfellow in this
regard. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefor, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors
discussed below, Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analysis and of
the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process
underlying its Opinion. In performing its analyses, Scott & Stringfellow
made numerous assumptions with respect to industry performance, business
and economic conditions and other matters, many of which are beyond
TideMark's and Crestar's control. The analyses performed by Scott &
Stringfellow are not necessarily indicative of actual values or future
results which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at
which business actually may be sold. No company or transaction utilized
in Scott & Stringfellow's analyses was identical to TideMark or Crestar.
Accordingly, such analyses are not based solely upon arithmetic
calculations; rather they involve complex considerations and judgments
concerning differences in financial and operating characteristics of the
relevant companies, the timing of relevant transactions, and prospective
buyer interest, as well as other factors that could affect public trading
values of the company or companies to which they are being compared.
Scott & Stringfellow evaluated the financial terms of the
transaction using standard valuation methods, including a discounted cash
flow analysis, a market comparable analysis, a comparable acquisition
analysis, and a dilution analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the
fair market value of TideMark Common Stock. Among other things, Scott &
Stringfellow considered a range of asset and earnings growth for TideMark
of between 4.0% and 8.0% and required equity capital levels of between
4.25% and 5.0% of assets. A range of discount rates from 10.0% to 12.0%
was applied to the cash flows resulting from the projections during the
first five years and the residual values. The residual values were
estimated by capitalizing the projected final year earnings by the
discount rates, less the projected long-term growth rate of TideMark's
earnings. The discount rates, growth rates and capital levels were chosen
based on what Scott & Stringfellow, in its judgment, considered to be
appropriate taking into account, among other things, TideMark's past and
current financial performance and conditions, the general level of
inflation, rates of return for fixed income and equity securities in the
marketplace generally and particularly in the banking industry. In all
scenarios considered, the present value of TideMark Common Stock was
calculated at less than the value of the consideration to be received from
Crestar pursuant to the Holding Company Merger.
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible
net worth, assets, deposits and earnings in twenty-nine thrift and thrift
holding company mergers and acquisitions in the Southeastern United States
(defined for this purpose as the states of Virginia, the District of
Columbia, Maryland, North Carolina, South Carolina, Georgia and West
Virginia) since January 1, 1993, representing all such transactions known
to Scott & Stringfellow to have occurred during this period involving
thrift and thrift holding companies with assets of less than $1 billion,
and in particular to all such transactions that have been announced since
January 1, 1993 in Virginia, with the proposed Holding Company Merger and
found the consideration to be received from Crestar to be within the
relevant pricing ranges acceptable for such recent transactions.
Specifically, based upon the eight most recent transactions announced in
Virginia since January 1, 1993, other than the Holding Company Merger, the
average price to tangible book value in these transactions was 135.2%,
compared with 207.6% for TideMark, the average price to earnings ratio was
15.8x, compared with 28.8x for TideMark over the last twelve months prior
to the announcement of the Holding Company Merger, the average premium to
deposits was 11.5% compared with 16.5% for TideMark, the average price to
assets was 8.9% compared with 9.9% for TideMark and the average tangible
book premium to core deposits of 2.9% compared to 9.6% for TideMark. For
purposes of computing the information with respect to the Holding Company
Merger, $5.50 per share of consideration for each share of TideMark Common
Stock was used.
Analysis of Crestar and Virginia Bank Group. Scott & Stringfellow
analyzed the performance and financial condition of Crestar relative to
the Virginia Bank Group consisting of Crestar, Central Fidelity Banks,
Inc., F&M National Corp., First Virginia Banks, Inc., George Mason
Bankshares, Inc., Jefferson Bankshares, Inc., Piedmont BankGroup, Inc.,
Premier Bankshares, Corp., and Signet Banking Corp. Certain financial
information compared was, among other things, information relating to
tangible equity to assets, loans to deposits, net interest margin,
nonperforming assets, total assets, non-accrual loans, and efficiency
ratio, as well as a comparison of common stock liquidity and common stock
prices as of October 25, 1994. Additional valuation information compared
for the twelve-month period ended September 30, 1994, and stock prices as
of October 25, 1994, was (i) price to tangible book value ratio which was
157.6% for Crestar, compared to an average of 157.5% for the Virginia Bank
Group, (ii) price to last twelve months earnings ratio which was 9.0x for
Crestar, compared to an average of 10.6x for the Virginia Bank Group,
(iii) return on average assets which was 1.23% for Crestar, compared to an
average of 1.27% for the Virginia Bank Group, (iv) return on average
equity which was 15.1% for Crestar, compared to an average of 14.1% for
the Virginia Bank Group, and (v) a dividend yield of 3.86% for Crestar,
compared to an average of 3.21% for the Virginia Bank Group. Overall, in
the opinion of Scott & Stringfellow, Crestar's operating performance,
financial condition, and liquidity for the Crestar Common Stock were
better than the Virginia Bank Group average and Crestar's market value was
reasonable when compared to the Virginia Bank Group.
Dilution Analysis. Based upon publicly available financial
information on TideMark and Crestar, Scott & Stringfellow considered the
effect of the transaction on the book value, earnings, and market value of
TideMark and Crestar. Scott & Stringfellow concluded from this analysis
that the transaction would have a significant positive effect on TideMark
and the TideMark Common Stock shareholders in that, the Merger
Consideration to be received by TideMark Common shareholders would
represent a substantial increase in the historical dividends per share
(TideMark pays no dividend), net income per share (TideMark earned $.19
per share for the year ended June 30, 1994 compared to $.50 per share it
is projected to earn with Crestar or 162.0% increase for the year ended
December 31, 1994), and book value per share of TideMark Common Stock
(book value will increase $.67 per share or 25.0%). There can be no
assurance that pro forma amounts are indicative of future results. See
"Summary -- Comparative Per Share Data."
Pursuant to an engagement letter dated September 7, 1994 between
TideMark and Scott & Stringfellow, in exchange for its services, Scott &
Stringfellow will receive a fee of $75,000, payable at closing. If the
Holding Company Merger is not consummated, TideMark also has agreed to
reimburse Scott & Stringfellow for its reasonable out-of-pocket expenses,
including all reasonable fees and disbursements of counsel.
Effective Time of the Holding Company Merger
The Holding Company Merger shall become effective at the time the
Articles of Merger for the Holding Company Merger filed with the SCC are
made effective (the "Effective Time of the Holding Company Merger"). The
Effective Time of the Holding Company Merger is expected to occur late in
the first calendar quarter of 1995. It is expected that immediately
following the Effective Time of the Holding Company Merger, TideMark Bank
will merge directly into Crestar Bank. Either TideMark or Crestar may
terminate the Agreement if the Transaction has not been consummated by
June 30, 1995.
Until the Effective Time of the Holding Company Merger occurs,
TideMark shareholders will retain their rights as shareholders to vote on
matters submitted to them by the TideMark Board.
Determination of Exchange Ratios and Exchange for Crestar Common Stock
Crestar valued TideMark Common Stock for purposes of the exchange at
$5.50 per share and valued TideMark Series A for purposes of the exchange
at $10.00 per share. The valuation of TideMark Common Stock and TideMark
Series A was based upon the potential value of TideMark Common Stock and
TideMark Series A, the nature of TideMark's banking and savings bank
businesses, and TideMark's deposit base, market share and market franchise
in and around the Newport News area. Each share of TideMark Common Stock
(other than shares held by Crestar, shares to be exchanged for cash and
Dissenting Shares) shall be converted into the number of shares of Crestar
Common Stock determined by dividing the Common Stock Price Per Share by
the Average Closing Price, subject to adjustment in certain circumstances.
Each share of TideMark Series A (other than shares held by Crestar and
Dissenting Shares) shall be converted into the number of shares of Crestar
Common Stock determined by dividing the Preferred Stock Price Per Share by
the Average Closing Price, subject to adjustment in certain circumstances.
The Exchange Ratios at the Effective Time of the Holding Company Merger
shall be adjusted to reflect any consolidation, split-up, other
subdivisions or combinations of Crestar Common Stock, any dividend payable
in Crestar Common Stock, or any capital reorganization involving the
reclassification of Crestar Common Stock subsequent to the date of the
Agreement. Based on the $38.375 closing price of Crestar Common Stock on
the NYSE on December 22, 1994, the Common Stock Exchange Ratio would have
been 0.143 shares of Crestar Common Stock per share of TideMark Common
Stock and the Preferred Stock Exchange Ratio would have been 0.261 shares
of Crestar Common Stock per share of TideMark Series A. Based on the
6,939,484 shares of TideMark Common Stock outstanding as of the Record
Date and the 200,000 shares of TideMark Series A issued subsequent to the
Record Date, and assuming that no cash is to be paid to TideMark holders
of shares of TideMark Common Stock in connection with the Holding Company
Merger, the Exchange Ratios would have resulted in the issuance of an
aggregate of approximately 1,044,547 shares of Crestar Common Stock in
exchange for both the TideMark Common Stock and the TideMark Series A.
Such number of shares will vary to the extent that (i) shares of TideMark
Common Stock are exchanged for cash and (ii) the components of the
Exchange Ratios calculations change prior to the Effective Time of the
Holding Company Merger. The number of shares of Crestar Common Stock to
be issued in connection with the Holding Company Merger also will vary to
the extent that outstanding options to purchase 42,000 shares of TideMark
Common Stock are exercised prior to the Effective Time of the Holding
Company Merger. See "-- Effect on TideMark Employee Benefits Plans"
below.
Following the Effective Time of the Holding Company Merger, former
holders of shares of TideMark Common Stock will be mailed a Letter of
Transmittal which will set forth the procedures that should be followed
for exchange of TideMark Common Stock for Crestar Common Stock. Following
the Effective Time of the Holding Company Merger, former holders of shares
of TideMark Series A will also be mailed a Letter of Transmittal which
will set forth the procedures that should be followed for exchange of
TideMark Series A for Crestar Common Stock.
Shareholders of TideMark who elect to receive Crestar Common Stock,
who fail to return the Cash Option Form in a timely manner or who fail to
perfect their dissenters' rights, upon surrender of their certificates for
cancellation, will be entitled to receive certificates representing the
number of whole shares of Crestar Common Stock for which such shares have
been submitted for exchange and cash in lieu of any fractional share
interest on the basis of the Exchange Ratios.
Cash Election; Election Procedures
Holders of shares of TideMark Common Stock will be given the option
of exchanging some or all of their shares for the Common Stock Price Per
Share ($5.50) in cash (subject to all applicable withholding taxes),
provided that the number of shares that may be exchanged for cash (when
added to Dissenting Shares) will not exceed 40% of the outstanding shares
of TideMark Common Stock immediately prior to the Effective Time of the
Holding Company Merger. The cash election must be made at the time
TideMark shareholders vote on the Holding Company Merger, and, once such
vote has been taken, cash elections will be irrevocable. If the aggregate
number of shares for which a cash election is made (when added to
Dissenting Shares) exceeds 40% of the outstanding shares of TideMark
Common Stock immediately prior to the Effective Time of the Holding
Company Merger, Crestar first will pay cash for shares submitted for cash
exchange by each holder of 100 or fewer TideMark shares (if such holder
has submitted all his shares for cash exchange) and then will pay cash for
the remaining shares submitted for cash pro rata. Shares not exchanged
for cash after proration will be exchanged for Crestar Common Stock at the
Common Stock Exchange Ratio. Holders of the TideMark Series A will not be
entitled to exchange their shares of TideMark Series A for cash.
An election to receive cash will be properly made only if TideMark
has received a properly completed Cash Option Form in accordance with the
procedures and within the time period set forth in the form. A Cash
Option Form will be properly completed only if accompanied by certificates
representing all shares of TideMark Common Stock covered thereby.
IF A TIDEMARK SHAREHOLDER ELECTS TO SURRENDER SHARES FOR CASH, HE
MUST FILE THE CASH OPTION FORM ACCOMPANYING THIS PROXY
STATEMENT/PROSPECTUS PRIOR TO OR AT THE TIDEMARK SHAREHOLDER MEETING. ANY
TIDEMARK SHAREHOLDER WHO DOES NOT COMPLETE AND RETURN A CASH OPTION FORM
PRIOR TO OR AT THE TIDEMARK SHAREHOLDER MEETING CAN ONLY RECEIVE CRESTAR
COMMON STOCK IN THE MERGER. ONCE THE VOTE ON THE MERGER HAS BEEN TAKEN AT
THE TIDEMARK SHAREHOLDER MEETING, THE CASH ELECTION IS IRREVOCABLE.
TideMark will hold the certificates in safekeeping pending the Effective
Time of the Holding Company Merger, at which time they will be exchanged
for cash by Crestar, or in the event of proration, cash and Crestar Common
Stock. If the Holding Company Merger is not consummated, TideMark will
return the certificates.
Before or promptly after the Effective Time of the Holding Company
Merger, Crestar Bank, acting in the capacity of exchange agent for Crestar
(the "Exchange Agent"), will mail the Letter of Transmittal to each person
who, as of the Effective Time of the Holding Company Merger, holds shares
of TideMark Common Stock or TideMark Series A. The Letter of Transmittal
will permit holders of shares of TideMark Common Stock to exchange their
shares based on the Common Stock Exchange Ratios for shares of Crestar
Common Stock, see "-- Determination of Exchange Ratios and Exchange for
Crestar Common Stock." The Letter of Transmittal will also permit holders
of TideMark Series A to elect to exchange their shares based on the
Preferred Stock Exchange Ratio for shares of Crestar Common Stock, see "--
Determination of Exchange Ratios and Exchange for Crestar Common Stock."
A request to receive Crestar Common Stock will be properly made only
if the Exchange Agent has received a properly completed Letter of
Transmittal in accordance with the procedures and within the time period
set forth in the Letter of Transmittal. A Letter of Transmittal will be
properly completed only if accompanied by certificates representing all
shares of TideMark Common Stock or TideMark Series A covered thereby.
TIDEMARK SHAREHOLDERS WHO WISH TO RECEIVE SHARES OF CRESTAR COMMON
STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS.
Business of TideMark Pending the Holding Company Merger
TideMark has agreed that until the Effective Time of the Holding
Company Merger it will operate its business substantially as presently
operated and, except for the purchase and assumption transaction with Bay
Savings, only in the ordinary course. In this connection, TideMark has
agreed that it will not, without the prior written consent of Crestar,
(i) make any change in the salaries, bonuses or title of any officer,
except bonuses not exceeding $100,000 in the aggregate which may be paid
in connection with the consummation of the Bay Agreement; (ii) make any
change in the title, salaries or bonuses of any other employee, other than
those permitted by current employment policies in the ordinary course of
business and bonuses which may be paid in connection with the consummation
of the Bay Agreement, not exceeding $100,000 in the aggregate, any of
which changes shall be reported promptly to Crestar; (iii) enter into any
bonus, incentive compensation, deferred compensation, profit sharing,
thrift, retirement, pension, group insurance or other benefit plan or any
employment or consulting agreement or increase benefits under existing
plans; (iv) create or otherwise become liable with respect to any
indebtedness for money borrowed or purchase money indebtedness except in
the ordinary course of business; (v) amend its Articles of Incorporation
or Bylaws; (vi) issue or contract to issue any shares of TideMark capital
stock or securities exchangeable for or convertible into capital stock,
except (W) up to 42,000 shares of TideMark Common Stock issuable pursuant
to the TideMark Options outstanding as of June 30, 1994, (X) up to
1,380,000 shares of TideMark Common Stock pursuant to the Stock Option
Agreement, or (Y) 200,000 shares of TideMark Series A; (vii) purchase any
shares of TideMark capital stock; (viii) enter into or assume any material
contract or obligation, except in the ordinary course of business;
(ix) other than as provided in (a) below with respect to the work-out of
nonperforming assets, waive, release, compromise or assign any right or
claim involving $75,000 or more; (x) propose or take any other action
which would make any representation or warranty in Section 3.1 of the
Agreement untrue; (xi) introduce any new products or services or change
the rate of interest on any deposit instrument to above-market interest
rates; (xii) make any change in policies respecting extensions of credit
or loan charge-offs; (xiii) change reserve requirement policies;
(xiv) change securities portfolio policies; (xv) acquire a policy or enter
into any new agreement, amendment or endorsement or make any changes
relating to insurance coverage, including coverage for its directors and
officers, which would result in an additional payment obligation of
$50,000 or more; (xvi) propose or take any action with respect to the
closing of any branches; (xvii) amend the terms of the TideMark Options;
(xviii) amend the terms of the written severance or employment agreements
identified in Schedule E to the Agreement; or (xix) make any change in any
tax election or accounting method or system of internal accounting
controls, except as may be appropriate to conform to any change in
regulatory accounting requirements or generally accepted accounting
principles. TideMark and TideMark Bank have further agreed that, between
the date of the Agreement and the Effective Time of the Holding Company
Merger, they will consult and cooperate with Crestar regarding (a) loan
portfolio management, including management and work-out of nonperforming
assets, and credit review and approval procedures, including notice to
Crestar's Credit Review Department Management of any new nonresidential
loans in excess of $500,000, and (b) securities portfolio and funds
management, including management of interest rate risk.
TideMark has further agreed that unless and until the Agreement is
terminated pursuant to its terms, neither TideMark, TideMark Bank nor any
of their executive officers, directors, representatives, agents or
affiliates shall, directly or indirectly, solicit or initiate discussions
or negotiations with any person other than Crestar concerning the merger,
sale of substantial assets, tender offer, sale of shares of TideMark or
TideMark Bank stock, or disclose, directly or indirectly, any information
not customarily disclosed to the public concerning TideMark or TideMark
Bank, or afford to any person other than Crestar access to TideMark's
books, records or properties or otherwise assist any person who may be
preparing to make an offer to purchase TideMark or enter into any
agreement with any third party for a business combination, equity
investment or sale of a significant amount of TideMark's assets except in
a situation in which a majority of the full TideMark Board has determined
in good faith, upon advice of counsel, that the TideMark Board has a
fiduciary duty to consider and respond to a bona fide proposal by a third
party and provides written notice to Crestar of its intention to consider
such a proposal and the material terms of such proposal at least five days
before responding to such a proposal.
Conditions to Consummation of the Holding Company Merger
Consummation of the Holding Company Merger is conditioned upon the
approval of the holders of more than two-thirds of the outstanding
TideMark Common Stock entitled to vote at the TideMark Shareholder
Meeting. The Holding Company Merger must be approved by the Federal
Reserve Board, the OTS, the SCC and the FDIC, applications for which have
been filed and approvals for which are expected to be received. The
obligations of TideMark and Crestar to consummate the Holding Company
Merger are further conditioned upon (i) the accuracy of the
representations and warranties of TideMark and Crestar contained in the
Agreement, including without limitation the representation and warranty
that there has been no material adverse change in the condition (financial
or otherwise) of Crestar or TideMark since September 30, 1994 (other than
changes resulting from or attributable to: (i) changes since such date in
laws or regulations, generally accepted accounting principles or
interpretations of either thereof that affect the banking or savings and
loan industries generally, (ii) changes since such date in the general
level of interest rates, (iii) expenses incurred in connection with the
Transaction, and, with respect to TideMark, (iv) accruals and reserves by
TideMark or TideMark Bank taken since such date pursuant to Section 4.8 of
the Agreement, or (v) any other accruals, reserves or expenses incurred by
TideMark or TideMark Bank since such date with Crestar's prior written
consent); (ii) the performance of all covenants and agreements contained
in the Agreement, including without limitation the establishment of the
accruals, reserves and charge-offs as may be necessary to conform
TideMark's accounting and credit loss reserve practices and methods to
those of Crestar Bank as such practices and methods are to be applied from
and after the Effective Time of the Holding Company Merger; (iii) the
receipt of an opinion of Hunton & Williams, counsel to Crestar and Crestar
Bank, with respect to certain of the tax consequences of the Transaction
described herein under "-- Certain Federal Income Tax Consequences;" (iv)
the receipt by Crestar of certain evidence of title relating to TideMark's
branches; (v) the approval for listing on the NYSE of the shares of
Crestar Common Stock at the Effective Time of the Holding Company Merger;
(vi) the receipt of opinions of counsel with respect to certain legal
matters; (vii) the execution and delivery of a commitment and undertaking
by each shareholder of TideMark who is an affiliate of TideMark to the
effect that (A) such shareholder will dispose of the shares of Crestar
Common Stock received by him in connection with the Holding Company Merger
only in accordance with the provisions of paragraph (d) of Rule 145 under
the 1933 Act, (B) such shareholder will not dispose of any of such shares
until Crestar has received, at its expense, an opinion of counsel
acceptable to it that such proposed disposition is in compliance with the
provisions of paragraph (d) of Rule 145 and any applicable securities laws
which opinion shall be rendered promptly following counsel's receipt of
such shareholder's written notice of its intention to sell shares of
Crestar Common Stock and (C) the certificates representing said shares may
bear a legend referring to the foregoing restrictions; (viii) the shares
of Crestar Common Stock to be issued in the Holding Company Merger shall
have been duly registered under the 1933 Act and applicable state
securities laws, and such registration shall not be subject to a stop
order or any threatened stop order by the SEC or any applicable state
securities authority and shall be approved for listing on the NYSE; and
(ix) in the case of TideMark, the opinion of Scott & Stringfellow with
respect to fairness to TideMark shareholders from a financial point of
view shall not have been withdrawn prior to the mailing of this Proxy
Statement/Prospectus.
Crestar and TideMark may waive any condition to their obligations to
consummate the Holding Company Merger except requisite approvals of
Crestar and TideMark shareholders and regulatory authorities.
Stock Option Agreement
Crestar and TideMark entered into the Stock Option Agreement, dated
as of September 20, 1994, pursuant to which TideMark issued to Crestar an
option (the "Option") to purchase up to 1,380,000 shares of TideMark
Common Stock at a purchase price of $4.25 per share. The Stock Option
Agreement was entered into by TideMark as a condition of, and an
inducement to, Crestar to execute the Agreement. The Stock Option
Agreement is intended to increase the likelihood that the Holding Company
Merger will be consummated in accordance with the terms of the Agreement.
Consequently, certain aspects of the Stock Option Agreement may have the
effect of discouraging persons who might now or prior to the consummation
of the Holding Company Merger be interested in acquiring TideMark from
considering or proposing such an acquisition, even if such persons were
prepared to pay a higher price per share for the TideMark Common Stock
than the Common Stock Price Per Share contemplated by the Agreement.
Certain attempts to acquire TideMark would cause the Option, granted under
the Stock Option Agreement, to become exercisable as described below, and
would trigger Crestar's right to exercise the Option. The existence of
the Option would significantly increase the cost to a potential acquiror
of acquiring TideMark compared to its cost had the Stock Option Agreement
not been entered into due to the increase in the number of shares of
TideMark Common Stock which would exist as a result of Crestar's exercise
of the Option. Such increased cost might discourage a potential acquiror
from considering or proposing an acquisition, or might result in a
potential acquiror proposing to pay a lower price per share to acquire
TideMark than it might otherwise have proposed to pay due to the larger
number of shares of TideMark Common Stock then outstanding.
The Option is exercisable only upon the occurrence of a Purchase
Event (as defined below). A Purchase Event means any of the following
events: (i) without Crestar's prior written consent, TideMark shall have
authorized, recommended or publicly proposed, or entered into an agreement
with any person (other than Crestar or any subsidiary thereof) (A) to
effect a merger, consolidation or similar transaction, (B) for the
disposition, by sale, lease, exchange or otherwise, of 25% or more of the
consolidated assets of TideMark and its subsidiaries or (C) for the
issuance, sale or other disposition of securities representing 25% or more
of the voting power of TideMark or any of its subsidiaries (collectively
referred to as an "Acquisition Transaction"); or (ii) any person (other
than Crestar or any subsidiary thereof) shall have acquired beneficial
ownership of 25% or more of TideMark Common Stock.
The Stock Option Agreement terminates in accordance with its terms
on the date on which occurs the earliest of: (i) the Effective Time of the
Holding Company Merger (as defined in the Agreement); (ii) a termination
of the Agreement in accordance with its terms (other than by Crestar due
to a breach of the Agreement by TideMark) prior to the occurrence of a
Purchase Event or a Preliminary Purchase Event (as defined below);
(iii) 12 months following a termination of the Agreement by Crestar due to
a breach of the Agreement by TideMark; or (iv) 12 months after the
termination of the Agreement in accordance with its terms following the
occurrence of a Purchase Event or a Preliminary Purchase Event.
A Preliminary Purchase Event means any of the following events:
(i) any person (other than Crestar or any subsidiary thereof) shall have
commenced a tender offer or exchange offer to acquire 10% or more of
TideMark Common Stock (a "Tender Offer"); or (ii) TideMark's shareholders
shall have failed to adopt the Agreement at a meeting called for such
purpose or such meeting shall not have been held or shall have been
canceled or the TideMark Board shall have withdrawn its recommendation to
shareholders, in each case following the public announcement of (A) a
Tender Offer, (B) a proposal to engage in an Acquisition Transaction, or
(C) the filing of an application or notice to engage in an Acquisition
Transaction.
Termination
The Agreement will be terminated, and the Transaction abandoned, if
the shareholders of TideMark will not have given the approval of the
Holding Company Merger. Notwithstanding such approval by such
shareholders, the Agreement also may be terminated at any time prior to
the Effective Time of the Holding Company Merger, by: (i) the mutual
consent of Crestar, Crestar Bank, TideMark and TideMark Bank, as expressed
by their respective Boards of Directors; (ii) either Crestar or Crestar
Bank on the one hand or TideMark or TideMark Bank on the other hand, as
expressed by their respective Boards of Directors, if the Holding Company
Merger has not occurred by June 30, 1995, provided that the failure of the
Holding Company Merger to so occur will not be due to a willful breach of
any representation, warranty, covenant or agreement by the party seeking
to terminate the Agreement; (iii) Crestar and Crestar Bank in writing
authorized by their respective Boards of Directors if TideMark or TideMark
Bank has, or by TideMark and TideMark Bank in writing authorized by their
respective Boards of Directors if Crestar or Crestar Bank has, in any
material respect, breached (A) any covenant or agreement contained in the
Agreement, or (B) any representation or warranty contained in the
Agreement, in any case if such breach has not been cured by the earlier of
30 days after the date on which written notice of such breach is given to
the party committing such breach or the Closing Date unless such breach by
TideMark or TideMark Bank is due to the failure or inability of Crestar
Securities Corporation to consummate its commitment to purchase the
TideMark Series A in a timely fashion to permit consummation of the Bay
Agreement by TideMark Bank pursuant to the terms and conditions thereof;
provided that it is understood and agreed that either party may terminate
the Agreement on the basis of any such material breach of any
representation or warranty which is not cured within 30 days of written
notice thereof contained in the Agreement notwithstanding any
qualification therein relating to the knowledge of the other party;
(iv) either Crestar or Crestar Bank on the one hand or TideMark or
TideMark Bank on the other hand, as expressed by their respective Boards
of Directors, in the event that any of the conditions precedent to the
obligations of such parties to consummate the Transaction have not been
satisfied or fulfilled or waived by the party entitled to so waive on or
before the Closing Date (as defined in the Agreement), provided that no
party shall be entitled to terminate the Agreement if the condition
precedent or conditions precedent which provide the basis for termination
can reasonably be and are satisfied within a reasonable period of time, in
which case, the Closing Date shall be appropriately postponed; (v) Crestar
and Crestar Bank, if the Boards of Directors of Crestar and Crestar Bank
shall have determined in their sole discretion, exercised in good faith,
that the Transaction has become inadvisable or impracticable by reason of
(A) the issuance of any order, decree or advisory letter of regulatory
authority containing conditions or requirements reasonably deemed
objectionable to Crestar, (B) the threat or the institution of any
litigation, proceeding or investigation (including under federal antitrust
laws) to restrain or prohibit the consummation of the Transaction or to
obtain other relief in connection with the Agreement or (C) public
commencement of a competing offer for TideMark Common Stock which is
significantly better than Crestar's offer, and which Crestar certifies to
TideMark, in writing, it is unwilling to meet; (vi) TideMark and TideMark
Bank, if the Boards of Directors of TideMark and TideMark Bank shall have
determined in their sole discretion, exercised in good faith, that the
Transaction has become inadvisable or impracticable by reason of (A) the
issuance of any order, decree or advisory letter of regulatory authority
containing conditions or requirements reasonably deemed objectionable to
TideMark, (B) the threat or the institution of any litigation, proceeding
or investigation (including under federal antitrust laws) to restrain or
prohibit the consummation of the Transaction or to obtain other relief in
connection with the Agreement, or (C) commencement of a competing offer
for TideMark Common Stock which is significantly better than Crestar's
offer, and which Crestar has certified to TideMark, in writing, it is
unwilling to meet; (vii) Crestar, Crestar Bank, TideMark or TideMark Bank,
if the Federal Reserve Board, the OTS, the FDIC or the SCC deny approval
of the Transaction and the time period for all appeals or requests for
reconsideration has run; (viii) Crestar if, following Crestar's pre-merger
review, such pre-merger review reveals that there has been a material
adverse change in the asset quality of TideMark which would result in a
reduction of TideMark's stockholder's equity by 10% or more from that
shown by the TideMark Financial Statements (as defined by the Agreement)
as of June 30, 1994, exclusive of (A) changes in the value of TideMark's
consolidated assets and liabilities resulting from movements in general
market interest rates, (B) changes in laws, rules and regulations and
accounting principles, (C) adjustments determined by Crestar resulting
from Crestar's due diligence review of TideMark's books and records
through July 31, 1994, as disclosed in Schedule N to the Agreement, (D)
changes in the capital structure of TideMark due to the issuance of
securities to accomplish the transaction contemplated by the Bay
Agreement, and (E) any other matters mutually agreed by the parties
contained in the Agreement; and (ix) TideMark if there has been a material
adverse change in the business operations or consolidated financial
condition of Crestar from that shown by the Crestar Financial Statements
(as defined by the Agreement) as of June 30, 1994, exclusive of
(A) changes resulting from movements in general market interest rates, (B)
changes in laws, rules and regulations and accounting principles, and (C)
any other matters mutually agreed by the parties contained in the
Agreement.
In the event of the termination and abandonment of the Agreement and
the Holding Company Merger pursuant to the above, the Agreement, other
than provisions relating to confidentiality of information obtained by the
parties and to the payment of expenses relating to the Holding Company
Merger, shall become void and of no effect, without any liability on the
part of any party or its directors or officers, provided that nothing
contained in the Agreement will serve to relieve any party from liability
for a willful breach of the Agreement.
Accounting Treatment
The Transaction is to be accounted for as a purchase in accordance
with generally accepted accounting principles as outlined in Accounting
Principles Board Opinion No. 16, "Business Combinations."
Operations After the Holding Company Merger
After the consummation of the Transaction, Crestar Bank will
continue generally to conduct the business presently conducted by TideMark
Bank.
Interests of Certain Persons in the Transaction
Certain members of TideMark and TideMark Bank's management may be
deemed to have interests in the Transaction in addition to their interests
as shareholders of TideMark generally. In each case, the TideMark Board
or TideMark Bank was aware of their potential interests, and considered
them, among other matters, in approving the Agreement and the transactions
contemplated thereby.
Indemnification; Liability Insurance. After the Effective Time of
the Holding Company Merger, Crestar acknowledges its obligation to
provide, and has agreed to provide, indemnification to the directors,
employees and officers of TideMark and TideMark Bank and the subsidiaries
thereof for events occurring prior to or subsequent to the Effective Time
of the Holding Company Merger as if they had been directors, employees or
officers of Crestar prior to the Effective Time of the Holding Company
Merger, to the extent permitted under the VSCA and the Articles of
Incorporation and Bylaws of Crestar as in effect as of the date of the
Agreement. Such indemnification shall continue for six years after the
Effective Time of the Holding Company Merger, provided that any right to
indemnification in respect of any claim asserted or made within such six
year period shall continue until final disposition of such claim. Crestar
will provide officers and directors liability insurance coverage to all
TideMark and TideMark Bank and subsidiaries thereof directors and
officers, whether or not they become part of the Crestar organization
after the Effective Time of the Holding Company Merger, to the same extent
it is provided to Crestar's officers and directors, provided that coverage
will not extend to acts as to which notice has been given prior to the
Effective Time of the Holding Company Merger.
Employment Agreements. Crestar will honor the severance provisions
contained in the written employment agreements ("Employment Agreements")
by and among Messrs. Gentry, Jr., Springer and Meade and Ms. Lawson and
TideMark Bank. See "Executive Compensation -- Employment Agreements" for
a description of the terms and conditions of the Employment Agreements.
Crestar Bank will undertake to continue employment of those retail
branch personnel who meet Crestar's employment qualification requirements
and needs, either at existing TideMark or TideMark Bank offices or at
Crestar offices. TideMark non-branch personnel displaced as a result of
the Holding Company Merger will be interviewed prior to the Effective Time
of the Holding Company Merger for open positions within Crestar Bank or a
subsidiary of Crestar. Crestar or Crestar Bank will pay a severance
benefit to each person, other than those persons who have Employment
Agreements as described above, who is an employee of TideMark or TideMark
Bank at the Effective Time of the Holding Company Merger and who (x) is
not offered a comparable position with Crestar Bank or a subsidiary of
Crestar (the acceptance of a position with Crestar Bank or a subsidiary of
Crestar shall establish that such position was comparable) or (y) is
terminated without cause within six months after the Effective Time of the
Holding Company Merger. The amount of such severance benefit will equal
one week of such employee's base pay (as in effect immediately before the
Effective Time of the Holding Company Merger) for each full year of
service with TideMark or TideMark Bank up to 20 years and two weeks of
such base pay for each full year of service with TideMark or TideMark Bank
over 20 years; provided, however, that the severance benefit shall not be
less than six weeks of base pay. Each person who is a TideMark or
TideMark Bank employee at the Effective Time of the Holding Company Merger
shall be paid promptly after the Effective Time of the Holding Company
Merger for all accrued but unused vacation time through the end of the
last full month prior to the Effective Time of the Holding Company Merger.
TideMark and TideMark Bank shall take such actions as are necessary to
terminate its or their severance pay policies or plans effective prior to
the Effective Time of the Holding Company Merger. Out-placement
counseling will be available through the Virginia Employment Commission
for any TideMark or TideMark Bank employees who are entitled to severance
benefits from Crestar under the Agreement or under a written severance
agreement as identified in the Agreement.
Prior to the Effective Time of the Holding Company Merger, each
member of TideMark Bank's senior management group will be interviewed by
his Crestar Bank counterpart with the goal of determining if there are
mutually beneficial employment opportunities available within Crestar Bank
or another subsidiary of Crestar.
Advisory Board of Directors. Crestar Bank will offer up to three
members of the TideMark or TideMark Bank Board of Directors a position on
Crestar Bank's Peninsula Advisory Board. Members who agree to serve on
the Peninsula Advisory Board will be paid on the usual terms and
conditions that Crestar Bank pays members of its other, similar, advisory
boards. Crestar Bank, TideMark and TideMark Bank will cooperate in
identifying the members of the advisory board.
Other than as set forth above, no director or executive officer of
TideMark, TideMark Bank, Crestar or Crestar Bank has any direct or
indirect material interest in the Transaction, except in the case of
directors and executive officers of TideMark and TideMark Bank insofar as
ownership of TideMark Common Stock and existing TideMark Options to
purchase such stock might be deemed such an interest.
Stock Options
Each holder of outstanding TideMark Options shall elect, by giving
notice to TideMark prior to the Closing Date (as defined in the
Agreement), either to (a) allow the TideMark Options to terminate at the
Effective Time of the Holding Company Merger and promptly following the
Effective Time of the Holding Company Merger receive a cash payment
(subject to all applicable withholding taxes) equal to the excess of (i)
the aggregate Price Per Share of the TideMark Common Stock represented by
his TideMark Options less (ii) the aggregate exercise price of such
TideMark Options, (b) exercise the TideMark Options for TideMark Common
Stock prior to the Closing Date and convert such Common Stock into Crestar
Common Stock or elect to receive cash as provided in the Agreement, or (c)
have the TideMark Options converted into options to purchase Crestar
Common Stock as set forth in the Agreement. Crestar agrees to make any
cash payment required under the Agreement with respect to the termination
of the TideMark Options promptly following consummation of the Holding
Company Merger. TideMark has agreed not to amend any option agreement to
extend the three month period following termination of employment during
which TideMark Options may be exercised.
Effect on TideMark Employee Benefits Plans
All employees of TideMark or TideMark Bank immediately prior to the
Effective Time of the Holding Company Merger who are employed by Crestar,
Crestar Bank or another Crestar subsidiary immediately following the
Effective Time of the Holding Company Merger ("Transferred Employees")
will be covered by Crestar's employee benefit plans as to which they are
eligible to participate based on their length of service, compensation,
job classification, and position, including, where applicable, any
incentive compensation plan. Notwithstanding the foregoing, Crestar may
determine to continue any of the TideMark or TideMark Bank benefit plans
for Transferred Employees in lieu of offering participation in Crestar's
benefit plans providing similar benefits (e.g., medical and
hospitalization benefits), to terminate any of the TideMark or TideMark
Bank benefit plans, or to merge any such benefit plans with Crestar's
benefit plans. Except as specifically provided in the Agreement and as
otherwise prohibited by law, Transferred Employees' service with TideMark
or TideMark Bank which is recognized by the applicable benefit plan of
TideMark or TideMark Bank at the Effective Time of the Holding Company
Merger shall be recognized as service with Crestar for purposes of
eligibility to participate and vesting, if applicable (but not for
purposes of benefit accrual) under the corresponding Crestar benefit plan,
subject to applicable break-in-service rules.
Crestar agrees that any pre-existing condition, limitation or
exclusion in its health plans shall not apply to Transferred Employees or
their covered dependents who are covered under a medical or
hospitalization indemnity plan maintained by TideMark or TideMark Bank on
the date of the Holding Company Merger and who then change that coverage
to Crestar's medical or hospitalization indemnity health plan at the time
such Transferred Employees are first given the option to enroll in
Crestar's health plans.
Crestar agrees that immediately following the Holding Company
Merger, all participants who then have accounts in the 401(k) profit
sharing plan maintained by TideMark or TideMark Bank (the "401(k) Plan")
shall be fully vested in their account balances. Crestar, at its
election, may continue the 401(k) Plan for the benefit of Transferred
Employees (as such plan may be amended as of the Effective Time of the
Holding Company Merger to provide current contributions and eligibility
provisions identical to those under the Crestar Employees' Thrift and
Profit Sharing Plan (the "Crestar Thrift Plan")), may merge the 401(k)
Plan into the Crestar Thrift Plan or any other defined contribution plan
maintained by Crestar, or may cease additional benefit accruals under and
contributions to the 401(k) Plan and continue to hold the assets of such
Plan until they are distributable in accordance with its terms. In the
event of a merger of the 401(k) Plan into the Crestar Thrift Plan or a
cessation of accruals and contributions under the 401(k) Plan, the Crestar
Thrift Plan will recognize for purposes of eligibility to participate,
early retirement, and eligibility for vesting, all Transferred Employees'
service which is recognized under the 401(k) Plan, subject to applicable
break-in-service rules.
Crestar agrees that the Retirement Plan for Employees of Crestar
Financial Corporation and Affiliated Corporations (the "Crestar Retirement
Plan") will recognize for purposes of eligibility to participate, vesting
and eligibility for early retirement, but not for benefit accrual
purposes, all Transferred Employees' service which is recognized under the
Employees' Retirement Plan of Newport News Savings Bank (the "TideMark
Pension Plan"), subject to applicable break-in-service rules. Crestar, at
its option, may continue the TideMark Pension Plan as a frozen plan or may
terminate the TideMark Pension Plan and pay out or annuitize benefits, or
may merge the TideMark Pension Plan into the Crestar Retirement Plan. If
the TideMark Pension Plan is merged into the Crestar Retirement Plan, each
Transferred Employee who becomes a participant in the Crestar Retirement
Plan will receive a pension benefit, as calculated by the actuaries for
the Crestar Retirement Plan, as the greater of (x) such Transferred
Employee's vested accrued benefit under the TideMark Pension Plan or (y)
his vested accrued benefit under the Crestar Retirement Plan using service
recognized under the TideMark Pension Plan (subject to applicable break-
in-service rules) and service recognized with Crestar or a Crestar
affiliate on and after the Effective Time of the Holding Company Merger
(subject to applicable break-in-service rules). If the TideMark Pension
Plan is not merged into the Crestar Retirement Plan, any pension benefit
payable to a Transferred Employee from the Crestar Retirement Plan shall
be the difference between (x) his pension benefit under the Crestar
Retirement Plan using service recognized under the TideMark Pension Plan
(subject to applicable break-in-service rules) and service recognized with
Crestar or a Crestar affiliate on and after the Effective Time of the
Holding Company Merger (subject to applicable break-in-service rules) and
(y) such Employee's pension benefit determined under the TideMark Pension
Plan.
Certain Federal Income Tax Consequences
Crestar and TideMark have received an opinion of Hunton & Williams,
counsel to Crestar, to the effect that for federal income tax purposes the
Holding Company Merger and the Bank Merger each will be a reorganization
under Section 368(a) of the Code, and, consequently, (i) none of Crestar,
Crestar Bank, TideMark or TideMark Bank will recognize any taxable gain or
loss upon consummation of the Holding Company Merger or consummation of
the Bank Merger (but income may be recognized as a result of (a) the
termination of the bad-debt reserve maintained by TideMark Bank for
federal income tax purposes and (b) other possible changes in tax
accounting methods), and (ii) the Holding Company Merger will result in
the tax consequences summarized below for TideMark shareholders who
receive Crestar Common Stock and/or cash in exchange for TideMark Common
Stock pursuant to the Holding Company Merger. Receipt of substantially
the same opinion of Hunton & Williams as of the Closing Date is a
condition to consummation of the Holding Company Merger. The opinion of
Hunton & Williams is based on, and the opinion to be given as of the
Closing Date will be based on, certain customary assumptions and
representations regarding, among other things, the lack of previous
dealings between TideMark and Crestar, the existing and future ownership
of TideMark stock and Crestar stock, and the future business plans for
Crestar.
As described below, the federal income tax consequences to a
TideMark shareholder will depend on whether the shareholder exchanges
shares of TideMark Common Stock for Crestar Common Stock, cash, or a
combination of Crestar Common Stock and cash and, if the shareholder
exchanges any shares of TideMark Common Stock for cash, on whether certain
related shareholders receive Crestar Common Stock or cash. The following
summary does not discuss all potentially relevant federal income tax
matters, consequences to any shareholders subject to special tax treatment
(for example, tax-exempt organizations and foreign persons), or
consequences to shareholders who acquired their TideMark Common Stock
through the exercise of employee stock options or otherwise as
compensation.
Exchange of TideMark Common Stock for Crestar Common Stock
A holder of shares of TideMark Common Stock who receives solely
Crestar Common Stock in exchange for all his shares of TideMark Common
Stock will not recognize any gain or loss on the exchange. If a
shareholder receives Crestar Common Stock and cash in lieu of a fractional
share of Crestar Common Stock, the shareholder will recognize taxable gain
or loss solely with respect to such fractional share as if the fractional
share had been received and then redeemed for the cash. A shareholder who
exchanges all his shares of TideMark Common Stock for Crestar Common Stock
will have a tax basis in the shares of Crestar Common Stock (including any
fractional share interest) equal to his tax basis in the shares of
TideMark Common Stock exchanged therefor. A shareholder's holding period
for shares of Crestar Common Stock (including any fractional share
interest) received in the Holding Company Merger will include his holding
period for the shares of TideMark Common Stock exchanged therefor if they
are held as a capital asset at the Effective Time of the Holding Company
Merger.
Exchange of TideMark Common Stock for Cash and Crestar Common Stock
A holder of shares of TideMark Common Stock who receives cash for
some shares of TideMark Common Stock and exchanges other shares of
TideMark Common Stock for shares of Crestar Common Stock (including any
fractional share interest) will recognize any gain realized up to the
amount of cash received (excluding cash paid in lieu of a fractional share
of Crestar Common Stock) but will not recognize any loss. If the
shareholder holds his TideMark Common Stock as a capital asset at the time
of the Holding Company Merger, the amount of gain recognized generally
will be treated as capital gain unless the receipt of cash is treated as
having the effect of a dividend. If the recognized gain is treated as a
dividend, it will be taxed as ordinary income.
A shareholder's receipt of cash will not be treated as a dividend if
(after taking into account the constructive ownership rules of Section 318
of the Code summarized below) the requirements for a stock redemption to
be treated as a sale of stock under Section 302 of the Code are satisfied.
Under a Supreme Court decision (Clark v. Commissioner), to determine
whether those requirements are satisfied, a shareholder should be treated
as receiving shares of Crestar Common Stock in the Holding Company Merger
(instead of the cash actually received) and then receiving cash from
Crestar in a hypothetical redemption of those shares. That hypothetical
redemption will satisfy the requirements under Section 302 if it (i) is
"not essentially equivalent to a dividend" within the meaning of
Section 302(b)(1) of the Code or (ii) has the effect of a "substantially
disproportionate" redemption of Crestar Common Stock within the meaning of
Section 302(b)(2) of the Code. Whether the hypothetical redemption of
shares of Crestar Common Stock will be essentially equivalent to a
dividend depends on the individual shareholder's circumstances; to avoid
dividend treatment in any case, the hypothetical redemption must result in
a "meaningful reduction" in the percentage of Crestar Common Stock
actually and constructively owned by the shareholder (including any
Crestar Common Stock deemed received in the Holding Company Merger). The
Internal Revenue Service has indicated in a published ruling that any
reduction in percentage ownership of a publicly-held corporation by a
small minority shareholder who exercises no control over corporate affairs
constitutes a meaningful reduction. The hypothetical redemption of shares
of Crestar Common Stock will be substantially disproportionate if the
percentage of Crestar Common Stock actually and constructively owned by
the shareholder after that redemption is less than 80% of the percentage
of Crestar Common Stock actually and constructively owned by the
shareholder (including Crestar Common Stock deemed received in the Holding
Company Merger) immediately before the hypothetical redemption.
A shareholder's tax basis in the shares of Crestar Common Stock
(including any fractional share interest) received will equal his tax
basis in his shares of TideMark Common Stock exchanged therefor, reduced
by the amount of cash received (excluding cash paid in lieu of a
fractional share of Crestar Common Stock) and increased by the amount of
gain recognized (including any gain treated as a dividend). A
shareholder's holding period for shares of Crestar Common Stock (including
any fractional share interest) received in the Holding Company Merger will
include his holding period for the shares of TideMark Common Stock
exchanged therefor if they are held as a capital asset at the time of the
Holding Company Merger. If a shareholder receives cash in lieu of a
fractional share of Crestar Common Stock, the shareholder will recognize
gain or loss as if the fractional share had been received and then
redeemed for the cash.
Exchange of TideMark Common Stock for Cash
Any holder of shares of TideMark Common Stock who exchanges all of
his shares of TideMark Common Stock for cash should consult his tax
advisor to determine whether the exchange is to be taxed as a sale of
stock or whether the cash received is to be taxed as a dividend. In
addition, any shareholder who makes an election to receive cash for all
his shares should be aware that he may, in fact, receive some Crestar
Common Stock under the proration provisions of the Agreement. Such a
holder should therefore be familiar with the rules, described above, that
apply to a holder who receives cash and some Crestar Common Stock.
The criteria for determining the tax treatment of exchanging all of
a shareholder's shares of TideMark Common Stock for cash are not certain.
The Supreme Court's decision in the Clark case suggests that a holder of
shares of TideMark Common Stock who receives solely cash for all his
shares of TideMark Common Stock should be treated as receiving shares of
Crestar Common Stock in the Holding Company Merger, rather than the cash
actually received, and then receiving cash from Crestar in a hypothetical
redemption of those shares. The treatment of the cash received in that
hypothetical redemption then would depend first on whether the shareholder
is treated as owning any shares of Crestar Common Stock (taking into
account the constructive ownership rules of Section 318 of the Code). If
a shareholder receiving solely cash in the Holding Company Merger does not
actually or constructively own any shares of Crestar Common Stock, the
shareholder should recognize gain or loss equal to the difference between
the amount of cash received and his tax basis in his shares of TideMark
Common Stock surrendered in the Holding Company Merger. Such gain or loss
will be capital gain or loss if the shares of TideMark Common Stock are
held as a capital asset at the time of the Holding Company Merger. If the
shareholder actually or constructively owns shares of Crestar Common
Stock, the cash received in a hypothetical redemption should result in the
recognition of gain or loss as described above unless the redemption is
treated as a dividend distribution. The redemption should not be treated
as a dividend distribution if it meets the requirements to be (i) not
essentially equivalent to a dividend within the meaning of
Section 302(b)(1) of the Code or (ii) a substantially disproportionate
redemption of Crestar Common Stock within the meaning of
Section 302(b)(2) of the Code. See the discussion above under "--
Determination of Exchange Ratios and Exchange for Crestar Common Stock"
for a summary of those requirements.
Despite the Clark decision, the Internal Revenue Service might
assert that the receipt of solely cash in the Holding Company Merger is to
be treated as a distribution in redemption of the shareholder's TideMark
Common Stock before, and separate from, the Holding Company Merger. The
Internal Revenue Service apparently has taken such a position in private
letter rulings, which are not legal precedent, issued after the Clark
decision. Under that position, if a holder of shares of TideMark Common
Stock receiving solely cash does not constructively own (within the
meaning of Section 318 of the Code) shares of TideMark Common Stock held
by another shareholder who exchanges such shares for Crestar Common Stock,
the shareholder receiving solely cash generally will recognize gain or
loss equal to the difference between the amount of cash received and his
tax basis in his shares of TideMark Common Stock. Such gain or loss will
be capital gain or loss if the shares of TideMark Common Stock are held as
a capital asset at the time of the Holding Company Merger. If the holder
of shares of TideMark Common Stock does constructively own shares of
TideMark Common Stock exchanged for Crestar Common Stock, the cash
received in a hypothetical redemption of the TideMark Common Stock
generally will be taxable as a dividend unless the redemption meets the
requirements to be (i) not essentially equivalent to a dividend within the
meaning of Section 302(b)(1) of the Code or (ii) a substantially
disproportionate redemption of TideMark Common Stock within the meaning of
Section 302(b)(2) of the Code. Those requirements would be applied to the
shareholder's actual and constructive ownership of TideMark Common Stock,
in contrast to the approach discussed above where they are applied to the
shareholder's actual and constructive ownership of Crestar Common Stock.
Section 318 of the Code
Under Section 318(a) of the Code, a shareholder is treated as owning
(i) stock that the shareholder has an option or other right to acquire,
(ii) stock owned by the shareholder's spouse, children, grandchildren, and
parents, and (iii) stock owned by certain trusts of which the shareholder
is a beneficiary, any estate of which the shareholder is a beneficiary,
any partnership or "S corporation" in which the shareholder is a partner
or shareholder, and any non-S corporation of which the shareholder owns at
least 50% in value of the stock. A shareholder that is a partnership or S
corporation, estate, trust, or non-S corporation is treated as owning
stock owned (as the case may be) by partners or S corporation
shareholders, by estate beneficiaries, by certain trust beneficiaries, and
by 50% shareholders of a non-S corporate shareholder. Stock
constructively owned by a person generally is treated as being owned by
that person for the purpose of attributing ownership to another person.
In certain cases, a shareholder who will actually own no Crestar Common
Stock may be able to avoid application of the family attribution rules of
Section 318 of the Code by filing a timely waiver agreement with the
Internal Revenue Service pursuant to Section 302(c)(2) of the Code and
applicable regulations.
Shareholders Electing to Exercise Their Right of Appraisal
The receipt of cash for shares of TideMark Common Stock pursuant to
the exercise of the right to an appraisal will be a taxable transaction.
Any shareholder considering the exercise of such right should consult his
tax advisor about the tax consequences of receiving cash for his shares.
The preceding discussion summarizes for general information the
material federal income tax consequences of the Holding Company Merger to
TideMark shareholders. The tax consequences to any particular shareholder
may depend on the shareholder's circumstances. TideMark shareholders are
urged to consult their own tax advisors with regard to federal, state, and
local tax consequences.
Rights of Shareholders Electing to Exercise Their Right of Appraisal
Holders of TideMark Common Stock entitled to vote on the approval of
the Agreement and the related Holding Company Plan of Merger will be
entitled to have the fair value of each such holder's shares of TideMark
Common Stock immediately prior to consummation of the Holding Company
Merger paid to such holder in cash, together with interest, if any, by
complying with the provisions of Article 15 of the VSCA ("Article 15").
Under Article 15, the determination of the fair value of a dissenter's
shares ("Dissenting Shares") would exclude any appreciation or
depreciation in the value of such shares in anticipation of the Holding
Company Merger, unless such exclusion would be inequitable.
A holder of TideMark Common Stock who desires to exercise such
holder's dissenter's rights must satisfy all of the following conditions.
A written notice of such holders' intent to demand payment for such
holder's Common Stock must be delivered to TideMark before the taking of
the vote on approval of the Holding Company Merger. This written notice
must be in addition to and separate from voting against, abstaining from
voting, or failing to vote on approval of the Agreement and the related
Holding Company Plan of Merger. Voting against, abstaining from voting or
failing to vote on approval of the Agreement and the related Holding
Company Plan of Merger will not constitute written notice of an intent to
demand payment within the meaning of Article 15.
A holder of TideMark Common Stock electing to exercise such holder's
dissenters' rights under Article 15 must not vote for approval of the
Agreement and the related Holding Company Plan of Merger. Voting for
approval of the Agreement and the related Holding Company Plan of Merger,
or delivering a proxy in connection with the TideMark Shareholder Meeting
(unless the proxy specifies a vote against, or affirmatively abstaining
from voting on, approval of the Agreement and the related Holding Company
Plan of Merger), will constitute a waiver of such holder's dissenters'
rights and will nullify any written notice of an intent to demand payment
submitted by such holder.
A holder of record of TideMark Common Stock may assert dissenters'
rights as to less than all of the shares registered in such holder's name
only if such holder dissents with respect to all shares beneficially owned
by any one person and notifies TideMark in writing of the name and address
of each person on whose behalf such holder is asserting dissenters'
rights. The rights of a partial dissenter under Article 15 are determined
as if the shares as to which the holder dissents and the holder's other
shares were registered in the names of different shareholders.
A beneficial holder of TideMark Common Stock may assert dissenters'
rights as to shares held on such holder's behalf only if such holder: (i)
submits to TideMark the record holder's written consent to the dissent not
later than the time the beneficial holder asserts dissenters' rights; and
(ii) does so with respect to all shares of which such holder is the
beneficial holder or over which such holder has the power to direct the
vote.
If the Holding Company Merger is consummated, Crestar will, within
ten days after the Effective Time of the Holding Company Merger, deliver a
dissenters' notice to all holders who satisfied the foregoing
requirements, which will: (i) state where payment demand is to be sent
and where and when certificates for Dissenting Shares are to be deposited;
(ii) supply a form for demanding payment that includes the date (September
20, 1994) of the first announcement to news media of the terms of the
Holding Company Merger, and requires that the person asserting dissenters'
rights certify whether or not such person acquired beneficial ownership of
such person's Dissenting Shares before or after such date; (iii) set a
date by which Crestar must receive the payment demand, which date may not
be less than 30 days nor more than 60 days after the date of delivery of
the dissenters' notice; and (iv) be accompanied by a copy of Article 15.
A shareholder sent a dissenters' notice shall demand payment,
certify that such holder acquired beneficial ownership of such holder's
Dissenting Shares before, on or after September 20, 1994, and deposit the
certificates representing such holder's Dissenting Shares in accordance
with the dissenters' notice. A shareholder who deposits such holder's
shares as described in the dissenters' notice retains all other rights as
a holder of TideMark Common Stock except to the extent such rights are
canceled or modified by the consummation of the Holding Company Merger. A
shareholder who does not demand payment and deposit his share certificates
where required, each by the date set forth in the dissenters' notice, is
not entitled to payment for such holder's shares under Article 15.
Except as provided below with respect to after-acquired shares,
within 30 days after receipt of a payment demand, Crestar shall pay the
dissenter the amount that Crestar estimates to be the fair value of the
dissenter's shares, plus accrued interest. The obligation of Crestar to
make such payment may be enforced: (i) by the Circuit Court for the City
of Richmond, Virginia; or (ii) at the election of any dissenter residing
or having its principal office in Virginia, by the circuit court in the
city or county where the dissenter resides or has such office. The
payment by Crestar will be accompanied by: (i) Crestar's balance sheet as
of the end of a fiscal year ended not more than 16 months before the
Effective Time of the Holding Company Merger, an income statement for that
year, a statement of changes in shareholders' equity for that year and the
latest available interim financial statements, if any; (ii) an explanation
of how Crestar estimated the fair value of the Dissenting Shares and of
how the interest was calculated; (iii) a statement of the dissenter's
right to demand payment as described below; and (iv) a copy of Article 15.
Crestar may elect to withhold payment from a dissenter unless the
dissenter was the beneficial owner of the Dissenting Shares on September
20, 1994, in which case Crestar will estimate the fair value of such
after-acquired shares, plus accrued interest, and will offer to pay such
amount to each dissenter who agrees to accept it in full satisfaction of
such dissenter's demand. Crestar will send with such offer an explanation
of how it estimated the fair value of the shares and of how the interest
was calculated, and a statement of the dissenter's right to demand payment
as described below.
Within 30 days after Crestar makes or offers payment as described
above, a dissenter may notify Crestar in writing of the dissenter's own
estimate of the fair value of the Dissenting Shares and the amount of
interest due, and demand payment of such estimate (less any payment by
Crestar) or reject Crestar's offer and demand payment of such estimate.
If any such demand for payment remains unsettled, within 60 days
after receiving the payment demand Crestar will petition the Circuit Court
for the City of Richmond, Virginia to determine the fair value of the
shares and the accrued interest and make all dissenters whose demands
remain unsettled parties to such proceeding, or pay each dissenter whose
demand remains unsettled the amount demanded. Each dissenter made a party
to such proceeding is entitled to a judgment for: (i) the amount, if any,
by which the court finds that the fair value of the Dissenting Shares,
plus interest, exceeds the amount paid by Crestar; or (ii) the fair value,
plus accrued interest, of the dissenter's after-acquired shares for which
Crestar elected to withhold payment. The court will determine all costs
of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court and assess the costs against Crestar, or
against all or some of the dissenters to the extent the court finds the
dissenters did not act in good faith in demanding payment.
The foregoing is only a summary of the rights of a dissenting holder
of TideMark Common Stock. Any holder of TideMark Common Stock who intends
to dissent from the Holding Company Merger should carefully review the
text of the applicable provisions of the VSCA set forth in Annex IV to
this Proxy Statement/Prospectus and should also consult with such holder's
attorney. The failure of a holder of TideMark Common Stock to follow
precisely the procedures summarized above, and set forth in Annex IV, may
result in loss of dissenters' rights. No further notice of the events
giving rise to dissenter's rights or any steps associated therewith will
be furnished to holders of TideMark Common Stock, except as indicated
above or otherwise required by law.
In general, any dissenting shareholder who perfects such holder's
right to be paid the fair value of such holder's TideMark Common Stock in
cash will recognize taxable gain or loss for federal income tax purposes
upon receipt of such cash. See "-- Certain Federal Income Tax
Consequences."
THE TIDEMARK BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE HOLDING
COMPANY MERGER.
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR,
DIRECTORS WHOSE TERMS CONTINUE AND
EXECUTIVE OFFICERS
Election of Directors
The persons named below have been nominated to serve as Directors of
TideMark. Each nominee has agreed to serve if elected. Unless otherwise
directed, each proxy executed and returned by a TideMark shareholder will
be voted for the election of the nominees described below. If any person
named as a nominee should be unable or unwilling to stand for election at
the time of the Annual Meeting, the proxies will nominate and vote for a
replacement nominee recommended by the Board of Directors. At this time,
the Board of Directors knows of no reason why the nominees listed below
may not be able to serve as directors if elected.
The Bylaws of TideMark provide that the Board of Directors shall be
divided into three classes, and a resolution of the Board of Directors
adopted pursuant to such Bylaws provides that the Board of Directors shall
consist of 10 members. The following tables set forth certain information
with respect to the directors of TideMark, including the principal
occupation of such persons during at least the past five years. Except
for John R. Lawson II, who is the first cousin of the spouse of Pamela B.
Lawson, Executive Vice President and Chief Financial Officer of TideMark,
no director or nominee for director is related to any director or
executive officer of TideMark or its subsidiaries by blood, marriage or
adoption, and there are no arrangements or understandings between the
directors, nominees and any other persons pursuant to which such person
was selected.
Nominees for director will be elected by a plurality of the votes
cast by the shares of TideMark Common Stock entitled to vote in the
election at the Annual Meeting. Abstentions and broker non-votes will
have no effect on the vote.
The nominees, if elected, will serve a term of three years and until
their successors are elected and qualified, or such shorter term as may
occur as a result of the consummation of the Agreement.
Nominees for a Three Year Term Expiring in 1997
Age as of Position with TideMark and Director
Name June 30, Principal Occupation During Since(1)
1994 Last Five Years
John R. Lawson 42 Director of TideMark and 1992
II TideMark Bank. President
and Chief Executive Officer
of W.M. Jordan Company,
Inc., a general contractor
in Newport News, Virginia
since 1975.
Anthony R. 55 Director of TideMark, 1989
Santoro TideMark Bank and Newport
News Service Corporation, a
wholly-owned subsidiary of
TideMark Bank ("NNSC");
President of Christopher
Newport University, Newport
News, Virginia since 1987.
Gary A. Suttle 39 Director of TideMark, 1989
TideMark Bank and NNSC;
Chief Financial Officer of
Suttle Motor Corporation, a
Newport News, Virginia based
automobile dealership since
1980.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
NOMINEES BE ELECTED AS DIRECTORS
Directors Continuing in Office
Term Expiring in 1995
Age as of Position with TideMark and Director
Name June 30, Principal Occupation During Since(1)
1994 Last Five Years
Gordon L. 57 Director of TideMark, 1989
Gentry, Jr. TideMark Bank and NNSC;
Chairman of the Board since
October 1989; Chief
Executive Officer from
February 1989 to January
1993; President from
February 1989 to August
1990; previously with Signet
Banking Corporation, Newport
News, Virginia (from 1960 to
1989), serving during the
last five years as Senior
Vice President and Senior
Retail Officer, Eastern
Region, and as Peninsula
Executive Officer.
(Footnote appears on page 53)
Age as of Position with TideMark and Director
Name June 30, Principal Occupation During Since(1)
1994 Last Five Years
Nelson L. St. 58 Director of TideMark and 1989
Clair, Jr. TideMark Bank; President and
Chief Executive Officer,
Riverside Health System
since 1982, a Newport News,
Virginia based corporation
which owns and operates
various regional hospitals
and other health care
related facilities.
Lindsay B. 36 Director of TideMark and 1989
Trittipoe TideMark Bank; since
November 1989 institutional
sales, Craigie, Inc.,
Richmond, Virginia,
investment bankers;
previously Vice President,
Anderson & Strudwick, Inc.,
a Richmond, Virginia based
stock brokerage firm from
September to November 1989;
previously in institutional
sales with Morgan Stanley
Co., New York, New York from
February 1987 to December
1988.
Directors Continuing in Office
Term Expiring in 1996
Age as of Position with TideMark and Director
Name June 30, Principal Occupation During Since(1)
1994 Last Five Years
James S. G. 69 Director of TideMark and 1989
Davenport TideMark Bank; since 1980
Chairman of the Board,
Davenport Dukes Associates,
Inc., a Newport News,
Virginia based financial
planning firm; since 1972
Chairman of the Board and
Chief Executive Officer,
National Benefit Plans,
Inc., a Norfolk, Virginia
based third-party insurance
administrator.
Robert L. 40 Director of TideMark and 1989
Freeman, Jr. TideMark Bank; since 1986
Partner, Jones, Blechman,
Woltz and Kelly, P.C., a
Newport News, Virginia based
law firm which serves as
general counsel to TideMark
Bank.
(Footnote appears on page 53)
Age as of Position with TideMark and Director
Name June 30, Principal Occupation During Since(1)
1994 Last Five Years
Robert N. 39 Director of TideMark and 1990
Springer TideMark Bank and NNSC;
President and Chief
Executive Officer since
January 1993; President and
Chief Operating Officer from
October 1990 to January
1993; Senior Vice President
and Chief Financial Officer
from September 1989 to
October 1990; previously
with Signet Banking
Corporation, Baltimore,
Maryland from 1986 to 1989
as Vice President Capital
Markets Group and Assistant
Treasurer.
Alan S. Witt 39 Director of TideMark and 1989
TideMark Bank; Partner,
Rauch, Witt & Co. since 1979
and, since 1989, managing
partner of Rauch, Witt &
Co., a Newport News,
Virginia based public
accounting firm.
_____________________________
(1) All of the directors of TideMark except for Mr. Lawson were the
initial directors of TideMark when it was incorporated in 1992 and
served on TideMark Bank's Board as well. Except with respect to Mr.
Lawson, date indicates the year when each director became a member
of the TideMark Board Bank.
Executive Officers Who Are Not Directors
The following table sets forth information concerning executive officers of
TideMark who do not serve on the TideMark Board. All executive officers serve
for a term of one year. There are no arrangements or understandings pursuant to
which any officer was selected as an officer.
Age as of Position with TideMark or TideMark Bank and
Name June 30, 1994 Principal Occupation During Last Five Years
Ralph R. Allen 47 Senior Vice President of TideMark Bank
since 1986; Chief Compliance Officer since
December 1991; Chief Lending Officer from
1985 to December 1991.
Pamela B. 40 Executive Vice President and Chief
Lawson Financial Officer of TideMark and TideMark
Bank since July 1994 and Senior Vice
President and Chief Financial Officer of
TideMark and TideMark Bank from December
1990 to July 1994; from 1980 to 1990 served
as Senior Vice President and Treasurer of
Bay Savings Bank, FSB, Newport News,
Virginia.
John M. 49 Senior Vice President, Commercial Lending,
Lunsford since April 1992; from 1971 to 1992 was
employed by Crestar Bank, Newport News,
Virginia, serving as Senior Vice President,
Commercial Lending from 1989 to 1992.
John D. Meade, 41 Senior Vice President, Retail Banking,
III since July 1994; from 1978 to 1994 was
employed by NationsBank, serving as Senior
Vice President and Area Executive Officer
since 1984.
Robert L. 46 Senior Vice President, Mortgage Banking,
Midgette since October 1993; served as First Vice
President and General Auditor from June
1992 to September 1993; from 1976 to 1992
was employed by Dominion Bankshares,
Roanoke, Virginia, serving as a general
auditor.
THE TIDEMARK BOARDS OF DIRECTORS AND COMMITTEES
Regular meetings of the TideMark Board are held quarterly. The
TideMark Board held a total of five regular meetings during fiscal 1994.
All directors attended at least 75 percent of the aggregate of all
meetings of the TideMark Board and committees on which they served. There
are no fees paid to members of TideMark's Board of Directors.
During fiscal 1994, the Board of Directors of TideMark Bank held 20
regular meetings and one special meeting. All directors attended at least
75 percent of the meetings of the Board of TideMark Bank. Effective in
June 1993, the Board of TideMark Bank elected to establish two regular
Board meetings per month.
Each non-employee director of TideMark Bank is paid a fee of $550
per regular meeting. Non-employee directors also receive a fee of $150
per special meeting attended. No fees are paid for non-attendance. Non-
employee directors of NNSC, the wholly-owned subsidiary of TideMark Bank,
receive $150 per NNSC Board meeting attended. NNSC held no meetings
during fiscal 1994. Messrs. Gentry, Santoro, Springer and Suttle are
directors of NNSC. Non-employee directors of NNSC serving on any
committee of the Board of NNSC receive $150 per committee meeting
attended.
Committees of TideMark Board
Both the TideMark Board and Board of Directors of TideMark Bank have
established various standing committees. Committees of the TideMark Board
are composed of members of the TideMark Board and include the following:
The Executive Committee during the interim between TideMark Board
meetings, has and may exercise all of the authority of the Board of
Directors, except to approve certain extraordinary transactions.
Currently, Messrs. Springer (Chairman), Davenport, Freeman, Gentry, St.
Clair, Suttle and Trittipoe are members of this committee. This committee
did not meet in fiscal 1994.
The Audit Committee recommends the engagement of independent
auditors, reviews the scope of their services, supervises the internal
audit function, reviews with management and the independent auditors the
systems of internal controls and monitors TideMark's adherence in
accounting and financial reporting to generally accepted accounting
principles. The current members of the Audit Committee are Messrs. Witt
(Chairman), St. Clair, Suttle and Lawson. Messrs. Gentry and Springer and
Ms. Lawson are non-voting members of this committee. The Audit Committee
met four times in fiscal 1994.
The TideMark Board appointed the following directors to serve as
Plan Administrators of the Employee Compensatory Stock Option Plan
("Plan"): Messrs. Davenport (Chairman), Santoro and Trittipoe. Plan
Administrators are given absolute direction under the Plan to select
persons to whom options will be granted and to otherwise administer the
Plan. The Plan Administrators did not meet in fiscal 1994.
The TideMark Board appointed Messrs. St. Clair (Chairman), Freeman,
Gentry, Springer and Witt to serve as the Nominating Committee in
connection with the election of directors. The committee met in August
1994 with respect to the Annual Meeting. While there are no established
procedures for consideration of shareholder nominees to the TideMark
Board, the Nominating Committee will consider such nominations if they are
submitted in writing to the committee prior to its consideration and
nomination of nominees. In addition, shareholders may name nominees for
election to the Board of TideMark by submitting such written nominations
to the Secretary of TideMark at least 14 days prior to the date of the
Annual Meeting in accordance with the Bylaws. Such shareholder notice of
nomination shall set forth (i) the name, age, business address and
residence address of each nominee, (ii) the principal occupation or
employment of each such nominee and (iii) the number of shares of stock,
of TideMark owned by each such nominee. If such nomination is made,
ballots bearing the name of such nominee or nominees will be provided for
use by stockholders at the Annual Meeting.
The Personnel Committee is responsible for reviewing executive
compensation, investigating new and different forms of compensation and
making recommendations on executive compensation to TideMark's Board of
Directors. Currently, Messrs. Davenport (Chairman), Gentry, Lawson,
Santoro, Springer and Witt are the members of this committee which met six
times in 1994. See "--Executive Compensation Committee Report on
Executive Compensation" for information regarding executive compensation.
EXECUTIVE COMPENSATION
Summary of Compensation in 1994, 1993 and 1992
The following table sets forth information concerning compensation
for services in all capacities awarded to, earned by, or paid to
TideMark's Chief Executive Officer and the only other executive officer of
TideMark or TideMark Bank whose total compensation during fiscal 1994
exceeded $100,000 for each of the three years ended June 30, 1994. No
compensation was paid directly by TideMark to its executive officers, all
of whom also serve as executive officers of TideMark Bank:
<TABLE>
Fiscal Other Annual All Other
Name and Principal Position Year Salary Bonus(1) Compensation(2) Compensation(3)
<S> <C> <C> <C> <C> <C>
Gordon L. Gentry, Jr. 1994 $110,250 $12,500 $4,629 $28,380
Chairman of the Board of 1993 $110,250 25,000 -- 24,886
TideMark and TideMark 1992 $110,250 -- -- 22,036
Bank
Robert N. Springer 1994 100,000 12,500 6,521 2,769
President and Chief 1993 100,000 15,000 -- 1,500
Executive Officer of 1992 100,000 -- -- 2,481
TideMark and TideMark
Bank
</TABLE>
___________________________________
(1) Annual profit sharing and any bonus.
(2) Includes compensation value for use of TideMark-owned vehicle and
premium value of life insurance, the face value of which exceeds
$50,000, the value of which did not exceed the lesser of either
$50,000 or 10% of the total annual salary and bonus reported for the
individual.
(3) All other compensation includes:
(a) accrued amounts deferred pursuant to Section 401(k) of the
Code in accordance with TideMark Bank's Profit Sharing and
Savings Plan which totaled $3,053 for Mr. Gentry and $2,769
for Mr. Springer;
(b) the cost of a contribution to a non-qualifying executive
retirement plan on behalf of Mr. Gentry, which totaled $18,105
for fiscal 1994; and
(c) the dollar value of the premium paid, $7,222 during fiscal
1994, on a split dollar life insurance policy in which Mr.
Gentry has an interest in the cash value, along with the
premiums paid by TideMark. Mr. Gentry
(footnotes continued on following page)
- ----------------------
pays an assumed term cost of the coverage and TideMark pays
the remainder of the policy. If all assumptions as to life
expectancy and other factors occur in accordance with
projections, TideMark expects to recover the cost of the
policy.
Stock Options
The following table sets forth information concerning the value of
unexercised TideMark Options at the end of fiscal 1994 held by Messrs.
Gentry and Springer. No TideMark Options were granted to or exercised by
either of these individuals during fiscal 1994.
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Name June 30, 1994(1) June 30, 1994(2)
Gordon L. Gentry, Jr. 25,000 $ -
Robert N. Springer - $ -
_________________________________
(1) During fiscal 1989, options to acquire 25,000 shares of TideMark
Common Stock were granted to Mr. Gentry, which options became exercisable
in annual 20% installments. All options are currently exercisable and all
options may be exercised on a cumulative basis.
(2) The exercise price of $10.00 on all options was greater than the
market price of TideMark's Common Stock at June 30, 1994.
Profit Sharing and Savings Plan
TideMark Bank maintains a non-contributory profit sharing plan
intended to qualify under Section 401 of the Code, the 401(k) Plan. The
401(k) Plan was amended effective March 1, 1986 primarily to include
Section 401(k) features of the Code.
Any employee who is at least 21 years old and who has completed
1,000 hours of service during the 12-month period from date of employment
will enter the 401(k) Plan as of the January 1 or July 1 coinciding with
or next following the date in which the employee has completed such
service. Any contributions to the profit sharing portion of the 401(k)
Plan by TideMark Bank are to be determined each year by TideMark Bank's
Board of Directors. Such contributions, if any, are solely at the
discretion of the Board of Directors. Contributions by TideMark Bank
generally are allocated among the accounts of participants in proportion
to their respective amounts of compensation for the plan year, and vest in
accordance with a schedule of years of service set forth in the 401(k)
Plan, with full vesting occurring after five years of service.
Elective contributions to the savings portion of the 401(k) Plan may
be made by participants, subject to limitations specified in the 401(k)
Plan. Until June 30, 1994, participants could contribute from one percent
to ten percent of their base pay to the 401(k) Plan. Effective in 1994,
the maximum amount of elective contributions for each participant is
$8,994 or 25 percent of the compensation of the employee that is included
as gross income for the tax year. TideMark Bank matched employee
contributions up to six percent at a rate of 50 percent of employee
contributions. In fiscal 1994, TideMark Bank contributed $60,000 to the
401(k) Plan. Beginning July 1, 1994, participants may contribute from one
percent to ten percent of their base pay to the plan, with TideMark
matching employee contributions up to ten percent of their base pay at a
rate of 50 percent of employee contributions.
Trustees are appointed by TideMark's Board of Directors to
administer the 401(k) Plan. Current trustees are Messrs. Davenport, Witt,
Gentry, Santoro, Springer and Ms. Lawson. All assets of the Plan are held
in trust and invested by the trustees. Payments begin at retirement,
subject to vested amounts. Payments may either be lump sum distribution
or periodic payments as elected by the participant. The following table
sets forth the benefits contributed by TideMark Bank under this plan to
the executive officers whose compensation exceeded $100,000.
Amount Set Aside for
Name of Individual Fiscal Year 1994
Gordon L. Gentry, Jr. $3,053
Robert N. Springer $2,769
Pension Plan
Until June 30, 1994, TideMark had a qualified, defined benefit, non-
contributory retirement plan in which all employees were eligible to
participate after attaining age 21 and completing 12 months of employment
which includes at least 1,000 hours of service ("Retirement Plan"). As of
June 30, 1994, the accrual of benefits under the Retirement Plan was
frozen; thus, all compensation and periods of service after that date are
no longer used to compute benefits. The Retirement Plan continues to be
in existence, and all participants in the Retirement Plan as of June 30,
1994 became immediately vested in the benefits accrued as of that date.
TideMark has no plans to terminate the Retirement Plan at this time, but
reserves the right to revise or discontinue the Retirement Plan in the
future. No new participants will be allowed to enter the retirement plan
after June 30, 1994.
The Retirement Plan provides for monthly payments to, or on behalf
of, each covered employee upon retirement at age 65 or disability or
death, with the benefits based upon predetermined formulas reflecting
years of credited service and factors applied to average compensation and
Social Security benefits.
The following table sets forth, in annuity amounts payable for life
with five years guaranteed, the estimated annual benefits payable upon
retirement in fiscal 1994 to participants at normal retirement age in the
average annual salary and years of credited service classifications
specified.
Highest
Consecutive
Sixty Month Estimated Annual Pension for
Average Representative Years of
Compensation Credited Service(1)(2)(3)
10 Years 20 Years 30 Years 40 Years
$20,000 $ 2,200 $4,400 $5,800 $7,200
40,000 5,376 10,752 14,528 17,816
60,000 8,796 17,592 23,988 29,286
80,000 12,216 24,432 33,448 40,756
100,000 15,636 31,272 42,908 52,226
120,000 19,056 38,112 52,368 63,696
140,000 22,476 44,952 61,828 75,166
____________________________________________
(1) The amounts shown are determined using the 1993 Social Security
Covered Compensation for persons having attained age 65 as of June 30,
1994.
(2) Messrs. Gentry and Springer each have five years of credited service.
(3) Projected annual retirement benefits are $3,022 for Mr. Gentry and
$4,406 for Mr. Springer.
Executive Retirement Plan
TideMark has established a non-qualifying, defined contribution
retirement plan for Mr. Gentry. The plan calls for annual contributions
of $11,694 until Mr. Gentry attains the age of 60. The non-qualifying
plan was amended effective June 30, 1994, commensurate with the freezing
of TideMark's Retirement Plan, requiring additional annual contributions
of $6,411 until Mr. Gentry attains the age of 65. TideMark has
established an account at a local financial institution to which the
contributions are deposited and held in trust. At retirement, defined as
the first day of the month coincident with or next following Mr. Gentry's
attainment of age 60, the plan shall provide benefits equal to monthly,
quarterly, semi-annual or annual installments at Mr. Gentry's option over
a period of ten years. Projected annual retirement benefits under the
plan are $36,177.
Key Employee Restricted Stock Incentive Plan
Effective July 1, 1993, the TideMark Board adopted a Key Employee
Restricted Stock Incentive Plan (the "Restricted Stock Plan"), the purpose
of which is to encourage and enable certain key employees to acquire a
proprietary interest in TideMark thus enhancing TideMark's ability to
attract and retain the services of individuals having managerial and
technical talent. The Restricted Stock Plan has not been approved by
TideMark shareholders.
The TideMark Board serves as the administrator of the Restricted
Stock Plan (the "Administrator"). The Administrator has full and final
authority to select Restricted Stock Plan participants, to determine the
times and conditions subject to which stock awards are to be granted and
to make stock awards in such amounts and at such times as the
Administrator determines to be equitable under the Restricted Stock Plan.
Generally each stock award is evidenced by a written agreement between the
Company and the Participant.
In order to be eligible to be considered for a stock award under the
Restricted Stock Plan, the participant must be a key employee of TideMark
who, by virtue of the special importance of his services to the
management, operation or development of TideMark is recognized by the
Administrator as having a substantial impact on TideMark's long-term
success. There are an unlimited number of shares subject to the
Restricted Stock Plan which shares may be obtained from TideMark's
authorized but unissued, or Treasury, shares.
TideMark Common Stock issued to a participant is nontransferable and
subject to forfeiture until the lapse of the restricted period, which
typically runs for three years from the date of grant. During the
restricted period, each participant has all rights of ownership of the
TideMark Common Stock, subject to the restriction on transfer. The number
of shares issued under the Restricted Stock Plan is adjustable in the
event of a change in the capitalization of TideMark due to, for example,
a stock split, stock dividend, or other change in the capital structure of
TideMark.
If TideMark becomes a party to a merger, consolidation or
reorganization, the Administrator has the discretion to negotiate an
understanding whereby the acquiring corporation would assume all rights of
participants pursuant to the Restricted Stock Plan and their individual
agreements. The Administrator is currently negotiating such an
understanding.
If the participant voluntarily terminates his employment or is
dismissed for cause during the restricted period, all of the restricted
stock awarded is forfeited and returned to TideMark. In the event that a
participant's employment is terminated prior to the lapse of all or part
of the restrictions on his restricted TideMark Common Stock, and such
termination is due to his death, total and permanent disability, dismissal
without cause due to the restructuring of TideMark or retirement in
accordance with TideMark policy, the Administrator shall either accelerate
the time at which any remaining restrictions lapse or remove all such
restrictions in their entirety. In addition, in the event of a merger,
consolidation or reorganization, the Administrator has the discretion to
accelerate the time at which any remaining restrictions lapse, or may
remove all restrictions entirely.
For information relating to restricted stock awards pursuant to the
Restricted Stock Plan, see "-- Employment Agreements," below.
Employment Agreements
In September 1993, TideMark Bank entered into Employment Agreements
with Mr. Gentry, Mr. Springer and Ms. Lawson, which superseded any other
contracts in existence at that time. Crestar has agreed to honor these
Employment Agreements. See "The Holding Company Merger -- Interests of
Certain Persons in the Transaction."
The Employment Agreement with Mr. Gentry provides for employment for
a period of three years, commencing January 1, 1993, at an annual base
salary of $110,250, plus discretionary bonuses and fringe benefits
commensurate with his position as Chairman of the Board of TideMark and
TideMark Bank. The base salary can be modified by action of the Board.
Mr. Gentry is eligible under the Employment Agreement for a cash bonus in
an amount up to $25,000, determined by applying a factor weighted
30 percent towards actual earnings of TideMark compared to budgeted
earnings and 70 percent towards actual deposit levels of TideMark Bank
compared to budgeted deposit levels. Mr. Gentry is also eligible under
the Employment Agreement to be awarded shares of restricted TideMark
Common Stock according to the formula described above. The stock awarded
is restricted for investment only for a period of three years from the
date of the award. The TideMark Common Stock may not be sold,
transferred, or assigned during the restrictive period without prior
written consent of TideMark. Mr. Gentry was not eligible for a bonus for
fiscal 1994 pursuant to the formula described above under his Employment
Agreement; however, on July 28, 1994, the Board of Directors awarded Mr.
Gentry a discretionary bonus of $10,000 in cash and 3,265 shares of
restricted TideMark Common Stock. The restrictions on the restricted
stock may be removed by the Administrator as a result of the proposed
Holding Company Merger prior to the Effective Time of the Holding Company
Merger.
The Employment Agreement contains a provision which provides Mr.
Gentry with specified benefits in the event that he is terminated
subsequent to a change in control of TideMark or he terminates his
employment subsequent to a change in control for good reason, defined as:
(a) a change in control of TideMark Bank, (b) a failure by TideMark Bank
to comply with any material provision of this agreement, (c) subsequent to
a change in control of TideMark Bank and without Mr. Gentry's express
written consent, any of the following occurring: the assignment to
Mr. Gentry of any duties inconsistent with Mr. Gentry's positions, duties,
responsibilities and status with TideMark Bank immediately prior to a
change in control of TideMark Bank; a change in his reporting
responsibilities, titles or offices as in effect immediately prior to a
change in control of TideMark Bank; any removal of Mr. Gentry from, or the
failure to elect him to, any of such positions, except in connection with
a termination of employment for just cause, disability, death or
retirement; a reduction by TideMark Bank in Mr. Gentry's annual base
salary as in effect immediately prior to a change in control or as the
same may be increased from time to time; or the failure of TideMark Bank
to continue in effect any bonus, benefit or compensation plan, life
insurance plan, health and accident plan or disability plan in which Mr.
Gentry is participating at any time of a change in control of TideMark
Bank, or the taking of any action by TideMark Bank which would adversely
affect Mr. Gentry's participation in or materially reduce his benefits
under any of such plans; or (d) any purported termination of Mr. Gentry's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of the Employment Agreement. In such an
event, he would be entitled to receive 2.99 times his average annual
compensation for the preceding five years. Assuming that such average was
Mr. Gentry's existing salary level, his severance pay would amount to
approximately $325,000, subject to limitation as set forth below.
The Employment Agreements with Mr. Springer and Ms. Lawson provide
for employment for a one year period, ending June 30, 1995, at an annual
base salary of $100,000 and $80,000, respectively, plus discretionary
bonuses and fringe benefits commensurate with their positions as President
and Chief Executive Officer of TideMark and TideMark Bank, in the case of
Mr. Springer, and Executive Vice President and Chief Financial Officer of
TideMark and TideMark Bank, in the case of Ms. Lawson. The base salary
can be modified by action of the Board of Directors of TideMark Bank. Mr.
Springer is eligible under his agreement for a cash bonus in an amount up
to $25,000, determined by applying a factor weighted 70 percent towards
actual earnings of TideMark compared to budgeted earnings and 30 percent
towards actual deposit levels of TideMark Bank compared to budgeted
deposit levels. Mr. Springer is also eligible under his agreement to be
awarded shares of restricted TideMark Common Stock in accordance with the
same formula described above. The TideMark Common Stock awarded is
restricted for investment only for a period of three years from the date
of the award. The TideMark Common Stock may not be sold, transferred, or
assigned during the restrictive period without prior written consent of
TideMark. Mr. Springer was not eligible for a bonus for fiscal 1994
pursuant to the formula described above under his Agreement; however, on
July 28, 1994, the Board of Directors awarded Mr. Springer a discretionary
bonus of $5,000 in cash and 3,265 shares of restricted TideMark Common
Stock. The restrictions on the restricted stock may be removed by the
Administrator as a result of the proposed Holding Company Merger prior to
the Effective Time of the Holding Company Merger.
Ms. Lawson is eligible under her Employment Agreement for a bonus in
an amount to be determined by the Board of Directors, and based on such
factors as the financial performance of TideMark. Ms. Lawson is also
eligible under her Employment Agreement to be awarded shares of restricted
Common Stock of TideMark. The TideMark Common Stock awarded is restricted
for investment only for a period of three years from the date of the
award. The TideMark Common Stock may not be sold, transferred, or
assigned during the restrictive period without prior written consent of
TideMark. On July 28, 1994, the Board of Directors awarded Ms. Lawson a
discretionary bonus of $2,500 in cash and 1,633 shares of restricted
TideMark Common Stock. The restrictions on the restricted stock may be
removed by the Administrator as a result of the proposed Holding Company
Merger prior to the Effective Time of the Holding Company Merger.
In the event that TideMark or TideMark Bank is sold, merged or
consolidated with another financial or other institution or business, and
the successor institution does not offer the executive a comparable
position of employment for a period of at least one year to the then
current position that Mr. Springer or Ms. Lawson has with TideMark Bank
(in the Tidewater, Virginia geographical area, with respect to Ms.
Lawson), with compensation at least equal to the base salary stated in the
respective agreements, then the agreements terminate and the executive is
entitled to receive the aggregate sum of $300,000 in the case of Mr.
Springer, and $150,000 in the case of Ms. Lawson, payable in 12 monthly
installments beginning on the date of termination, subject to limitation
as set forth below.
Employment may be terminated under the Employment Agreements with
Messrs. Gentry and Springer and Ms. Lawson for "just cause," defined
therein as dishonesty, incompetence, willful misconduct, breach of
fiduciary duty, intentional failure to perform stated duties, willful
violation of other than minor laws or regulations, breach or neglect of
duties, persistent negligence or misconduct in the performance of duties,
or breach of any provision of the Employment Agreement. In the event
employment is terminated for just cause, the employee has no right to
compensation or other benefits for any period after such date of
termination. The Employment Agreements can also be terminated by the
executives, but in such event, the executives have no right after the date
of termination to compensation or other benefits as provided for in the
Employment Agreements.
The Employment Agreements may be terminated by TideMark for any
other reason not constituting "just cause." In such event TideMark shall
be obligated to pay the executive's base salary and accrued benefits for
the remaining term of the Employment Agreements after the date of
termination. Further, TideMark may provide notice that the Employment
Agreements shall not be renewed for the next term and shall terminate at
the end of the then current term without further expense or obligation of
TideMark to the executive.
All three Employment Agreements provide that severance benefits will
be limited such that they will not constitute "excess parachute payments"
for purposes of the penalties to TideMark and the executive imposed on
such payments by the Deficit Reduction Act of 1984. The Employment
Agreements do not contain any provision restricting the executives' right
to compete against TideMark upon termination of employment.
On July 5, 1994, TideMark entered into an employment agreement with
John D. Meade, III, Senior Vice President, Retail Banking. The agreement
provides Mr. Meade for a period of one year from the date of his
employment, in the event of a public announcement by TideMark of a sale or
merger of TideMark, with specific benefits in the event he is terminated
or offered a position with significantly reduced duties and compensation
which he does not accept. In such an event, Mr. Meade would be entitled
to receive a sum of $75,000 within 30 days after this termination or
rejection of an inferior offer.
Executive Compensation Committee Report on Executive Compensation
Compensation for the Chairman and the President and Chief Executive
Officer ("CEO") is determined by the TideMark Board in the absence of the
Chairman and the CEO. In determining compensation for the Chairman and
for the CEO, the directors consider the recommendation of the Personnel
Committee of the Board which bases its recommendations on the
consideration of several factors including the financial performance of
TideMark Bank, the individual performance of the Chairman and of
the CEO, and the compensation paid to persons in comparable positions
within the industry.
Compensation for executive officers other than the Chairman and CEO
is determined by the Board of Directors based upon the recommendation of
the CEO. Compensation levels of all executive officers are determined
with initial consideration being given to the overall performance of
TideMark Bank. Additionally, the performance of the individual unit or
units for which the executive officer had responsibility is evaluated and
compared with budgeted levels of performance. Consideration is also given
to the compensation paid to executives in similar positions in the
industry, with emphasis placed on pay levels for those operating in
TideMark Bank's marketplace.
The major component of executive compensation during fiscal 1994 was
base salary. Increases in base salary are made annually based upon the
criteria outlined above. In addition to base salary, bonuses were paid
during fiscal 1994 to each of Messrs. Gentry and Springer in the amount of
$12,500. These bonuses were paid based upon the subjective evaluation of
executive performance as made by the Board of Directors. Additionally,
during fiscal year 1994 the Chief Financial Officer, Ms. Lawson, was
granted a five percent salary increase and for fiscal 1994 a bonus in the
amount of $7,500 based upon corporate performance as well as the
performance of the areas for which she was responsible.
During fiscal 1994 a bonus program was developed for all employees
of TideMark Bank based upon subjective and objective evaluation of the
employee's performance as well as the performance of TideMark Bank during
any period. The plan provides that for any year, the Board of Directors
can establish a bonus pool for employees based upon TideMark Bank
performance. This pool is divided among operating units based upon that
unit's relative performance as determined by the Chairman, Chief Executive
Officer and Chief Financial Officer. Each unit head is responsible for
making a recommendation as to how the bonus pool is to be divided among
the employees of that unit based upon specific employee performance.
(SIGNED:) TideMark Board
James S.G. Davenport Anthony R. Santoro
Robert L. Freeman, Jr. Gary A. Suttle
John R. Lawson, II Lindsay B. Trittipoe
Nelson L. St. Clair, Jr. Alan S. Witt
Comparative Performance of TideMark
The following chart compares TideMark's Common Stock with (i) the
NASDAQ National Market Index for U.S. Companies, and (ii) the thrift
stocks traded on the NASDAQ National Market System. The chart assumes an
investment of $100 on July 1, 1989, in each of TideMark's Common Stock,
the NASDAQ National Market Index and the stocks in the selected thrift
peer group. Each year's performance is for the fiscal year ended June 30
(or the trading date immediately prior thereto). The overall performance
assumes dividend reinvestment throughout the period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG TIDEMARK BANCORP, INC.
NASDAQ NATIONAL MARKET INDEX AND NASDAQ THRIFT INDEX
[GRAPH AS DEFINED BY THE FOLLOWING DATA POINTS]
LEGEND
<TABLE>
Symbol Index Description 6/30/89 6/29/90 6/28/91 6/30/92 6/30/93 6/30/94
<S> <C> <C> <C> <C> <C> <C> <C>
(star) TideMark Bancorp, Inc. 100.0 42.1 31.6 28.1 21.1 40.4
(triangle) NASDAQ Market Index 100.0 107.8 114.2 137.1 172.4 173.0
(box) NASDAQ Thrift Index 100.0 80.5 84.6 125.1 183.6 235.3
</TABLE>
NOTE: The preceding chart indicates the relative performance of the
1,380,000 shares of TideMark Common Stock issued in TideMark's 1986
initial public offering at $10.00 per share. It excludes the effect of an
additional 5,551,321 shares of Common Stock issued on January 15, 1992 at
$1.00 per share. Based on the last traded sales price on June 30, 1994 of
$2.875, those shares have appreciated 187.5 percent during that period.
Indebtedness of Management
TideMark offers various types of loans to its directors, officers
and employees. Effective August 1989, TideMark did not offer loans of any
type to officers or directors at other than market rates or terms. In the
judgment of management, the loans do not involve more than the normal risk
of collectibility.
The following table sets forth certain information with respect to
each director and executive officer of TideMark during fiscal 1994 and
their affiliates who had aggregate borrowings of $60,000 or greater from
TideMark during fiscal 1994. These loans were made on substantially the
same terms as those prevailing at the time for comparable transactions
with unaffiliated persons.
<TABLE>
HIGHEST
PRINCIPAL
BALANCE FROM BALANCE BALANCE INTEREST
YEAR JULY 1, 1993 TO ON ON RATE ON
NAME TYPE OF LOAN MADE JUNE 30, 1994 JUNE 30, 1994 SEPT. 30, 1994 SEPT. 30, 1994
<S> <C> <C> <C> <C> <C> <C>
Gordon L. Gentry, Jr.
Chairman of the Board Mortgage 1993 $99,685(1) $ -- (2) $ -- (2) ---
Robert N. Springer
President and Chief Mortgage 1990 201,472 -- (2) -- (2) ---
Executive Officer Equity Line 1990 17,301 16,264 15,644 8.25%
106 Associates
James Davenport,
Director, Partner Mortgage 1983 109,173 106,508 105,797 6.375%
Robert L. Freeman, Jr.
Director Unsecured
Line of Credit 1993 128,500 28,500 --- 7.25%
</TABLE>
______________________________
(1) Mr. Gentry has an approved equity line-of-credit of $40,000 which was
not drawn upon during fiscal 1994.
(2) Loans were sold in the secondary market during fiscal 1994.
Transactions with TideMark
Director Robert L. Freeman, Jr. is a partner in the law firm of
Jones, Blechman, Woltz and Kelly, P.C., which firm serves as general
counsel and provides legal services to TideMark and its subsidiaries.
Director Lindsay B. Trittipoe is an institutional salesman with Craigie,
Inc., an investment banking firm in Richmond, Virginia which is an
approved dealer for TideMark Bank. In the ordinary course of business,
and strictly on a competitive bid basis, TideMark Bank has purchased from
and sold certain investment securities to Craigie, Inc. using Mr.
Trittipoe as the broker for such transactions.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires TideMark's executive
officers and directors, and persons who own more than ten percent of a
registered class of TideMark's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Executive officers, directors and greater than ten percent stockholders
are required by applicable regulations to furnish TideMark with copies of
all Forms 3, 4 and 5 they file. Based solely on TideMark's review of the
copies of such forms it has received and written representations from
certain reporting persons, TideMark believes that all its executive
officers, directors and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to
transactions during fiscal 1994.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS OF TIDEMARK
Coopers & Lybrand served as TideMark's independent auditors for
fiscal 1993 and 1994. The Board of Directors has reappointed Coopers &
Lybrand as its auditors for fiscal 1995.
Independent Auditors
Ernst & Young L.L.P. ("Ernst & Young") audited TideMark Bank's
financial statements for the years ended June 30, 1992 and 1991. Ernst &
Young advised TideMark Bank on October 15, 1992, that it was resigning as
TideMark Bank's independent auditors. Ernst & Young informed TideMark
Bank that such resignation was due to turnover in the Norfolk office of
Ernst & Young of personnel specializing in the thrift industry and the
fact that TideMark Bank would be the only remaining thrift client served
by Ernst & Young's Norfolk office, and Ernst & Young concluded that it
could not provide the appropriate level of service for TideMark Bank in
the future.
The resignation of Ernst & Young was not due to any disagreements
with Ernst & Young as to any matters of accounting principles or
practices, audit procedures or scope, or with respect to financial
statement disclosure. The independent auditor's reports on TideMark
Bank's financial statements for the two most recent fiscal years preceding
the resignation of Ernst & Young neither contained an adverse opinion or
disclaimer of opinion nor were such reports qualified as to uncertainty,
audit scope or accounting principles; except the report on TideMark Bank's
1991 financial statements was modified to disclose uncertainties due to
TideMark Bank's failure at the time of such report to meet all applicable
regulatory capital requirements. The report of Ernst & Young on TideMark
Bank's financial statements at and for the period ended June 30, 1992 was
not qualified or modified.
On May 24, 1993, TideMark engaged Coopers & Lybrand. During
TideMark Bank's two most recent fiscal years and the subsequent interim
period preceding Coopers & Lybrand's appointment and with respect to
TideMark from the date of its incorporation until Coopers & Lybrand's
appointment neither TideMark Bank nor TideMark consulted Coopers & Lybrand
regarding the application of accounting principles, either completed or
proposed, the type of audit opinion that might be rendered on TideMark
Bank's or TideMark's financial statements or any other matters which would
be required to be reported herein.
A representative of Coopers & Lybrand will be present at the Annual
Meeting to respond to shareholders' questions and will have the
opportunity to make a statement. TideMark has been advised by Coopers &
Lybrand that neither the firm nor any of its associates has any
relationship with TideMark or its subsidiaries other than the usual
relationship that exists between independent public accountants and
clients.
The Board of Directors unanimously recommends you vote FOR the
proposal to ratify the appointment of Coopers & Lybrand as independent
auditor of TideMark for its fiscal year ending June 30, 1995.
ADJOURNMENT OF ANNUAL MEETING
Each proxy solicited hereby by TideMark requests authority to vote
for an adjournment of the TideMark Shareholder Meeting if an adjournment
of such meeting is deemed to be necessary. TideMark may seek an
adjournment of the TideMark Shareholder Meeting for not more than 29 days
in order to enable it to solicit additional votes in favor of the
Agreement in the event that such proposal has not received the requisite
vote of shareholders at the TideMark Shareholder Meeting and has not
received the negative votes of the holders of more than one-third of the
outstanding TideMark Common Stock. If TideMark desires to adjourn the
TideMark Shareholder Meeting with respect to the foregoing proposal, it
will request a motion that the TideMark Shareholder Meeting be adjourned
for up to 29 days with respect to such proposal (and solely with respect
to such proposal, provided that a quorum is present at such meeting), and
no vote will be taken on such proposal at the originally scheduled
meeting. Each proxy solicited hereby, if properly signed and returned to
TideMark and not revoked prior to its use, will be voted on any such
motion for adjournment in accordance with the instruction contained
therein. If no contrary instructions are given, each proxy received will
be voted in favor of any motion by TideMark to adjourn the TideMark
Shareholder Meeting. Unless revoked prior to its use, any proxy solicited
for the TideMark Shareholder Meeting will continue to be valid for any
adjournment of such meeting, and will be voted in accordance with the
instructions contained therein, and if no contrary instructions are given,
FOR the Agreement and the Holding Company Merger, and otherwise at the
discretion of the proxies.
Any adjournment will permit TideMark to solicit additional proxies
and will permit a greater expression of the shareholders' views with
respect to such proposal. Such an adjournment would be disadvantageous to
shareholders who are against the Agreement, because an adjournment will
give TideMark additional time to solicit favorable votes and thus increase
the chances of approving such proposal.
If a quorum is not present at the TideMark Shareholder Meeting, no
proposal will be acted upon and TideMark will adjourn the TideMark
Shareholder Meeting to a later date in order to solicit additional proxies
on each of the proposals being submitted to shareholders.
An adjournment for up to 29 days will not require either the setting
of a new record date or notice of the adjourned meeting as in the case of
an original meeting. TideMark does not have any reason to believe that an
adjournment of the TideMark Shareholder Meeting will be necessary at this
time.
Because the TideMark Board unanimously recommends that shareholders
vote FOR the Agreement and the Holding Company Merger, as discussed above,
the TideMark Board unanimously recommends that shareholders vote FOR the
possible adjournment of the TideMark Shareholder Meeting on such proposal.
OTHER MATTERS
As of the date of this Prospectus/Proxy Statement, the TideMark
Board does not know of any other matters to be presented for action at the
TideMark Shareholder Meeting other than procedural matters incident to the
conduct of the meeting. In addition, shareholders may make proposals for
consideration at the TideMark Shareholder Meeting in accordance with the
procedures specified in TideMark's Bylaws. If such shareholder proposals
are made or any other matters not now known are properly brought before
the TideMark Shareholder Meeting, the persons named in the accompanying
proxy will vote such proxy in accordance with the determination of a
majority of the TideMark Board in its sole discretion.
BUSINESS OF CRESTAR
Crestar is the holding company for Crestar Bank, Crestar Bank N.A.
of Washington, D.C. and Crestar Bank MD of Maryland. At September 30,
1994, Crestar had approximately $14.5 billion in total assets,
$11.0 billion in total deposits and $1.1 billion in total shareholders'
equity.
In 1963, six Virginia banks combined to form United Virginia
Bankshares Incorporated ("UVB"), a bank holding company formed under the
Bank Holding Company Act of 1956 (the "BHCA"). UVB (parent company of
United Virginia Bank) extended its operations into the District of
Columbia by acquiring NS&T Bank, N.A. on December 27, 1985 and into
Maryland by acquiring Bank of Bethesda on April 1, 1986. On September 1,
1987, UVB became Crestar Financial Corporation and its bank subsidiaries
adopted their present names.
Crestar serves customers through a network of 336 banking offices
and 276 automated teller machines (as of September 30, 1994). Crestar's
subsidiary banks (the "Bank Subsidiaries") offer a broad range of banking
services, including various types of deposit accounts and instruments,
commercial and consumer loans, trust and investment management services,
bank credit cards and international banking services. Crestar's
subsidiary, Crestar Insurance Agency, Inc., offers a variety of personal
and business insurance products. Securities brokerage and investment
banking services are offered by Crestar's subsidiary, Crestar Securities
Corporation. Mortgage loan origination, servicing and wholesale lending
are offered by Crestar Mortgage Corporation, and investment advisory
services are offered by Capitoline Investment Services Incorporated, both
of which are subsidiaries of Crestar Bank. These various Crestar
subsidiaries provide banking and non-banking services throughout Virginia,
Maryland and Washington, D.C., as well as certain non-banking services to
customers in other states.
The executive offices of Crestar are located in Richmond, Virginia
at Crestar Center, 919 East Main Street. Crestar's Operations Center is
located in Richmond. Regional headquarters are located in Norfolk and
Roanoke, Virginia and in Washington, D.C.
Recent Developments
Acquisitions Completed in 1994. On September 16, 1994, Crestar Bank
acquired from the Resolution Trust Corporation approximately $17 million
in deposits related to two branches of Second National Federal Savings
Association, Salisbury, Maryland located in Fairfax and Woodbridge,
Virginia. Upon acquisition, the Woodbridge branch was closed and its
deposits assumed by an existing Crestar Bank branch in Woodbridge,
Virginia.
On June 10, 1994, Crestar acquired Annapolis Bancorp, Inc., the
holding company for Annapolis Federal Savings Bank, headquartered in
Annapolis, Maryland. Approximately $300 million in total assets, $210
million in loans, $275 million in deposits, and nine branches were
initially added to Crestar's existing branch network. Crestar issued
264,208 shares of Crestar Common Stock and made cash payments of
approximately $3 million in the transaction.
On May 14, 1994, Crestar Bank acquired from the Resolution Trust
Corporation approximately $150 million in deposits related to Piedmont
Federal Savings Association, Manassas, Virginia.
On March 18, 1994, Crestar acquired Providence Savings and Loan
Association, F.A. ("Providence") headquartered in Vienna, Virginia.
Approximately $300 million in deposits, $250 million in loans and six
branches were initially added to Crestar's existing branch network.
Crestar paid approximately $27 million in cash in the transaction.
On March 18, 1994, Crestar Bank acquired substantially all of the
assets (approximately $425 million) and assumed certain liabilities of NVR
Federal Savings Bank, headquartered in McLean, Virginia. Approximately
$340 million in deposits, $210 million in loans and two branches were
initially added to Crestar's operations. Crestar Bank paid approximately
$42 million in cash in the transaction.
On January 28, 1994, Crestar acquired Virginia Federal Savings Bank,
headquartered in Richmond, Virginia. Approximately $500 million in
deposits, $550 million in loans and 10 branches were initially added to
Crestar's existing branch network. Crestar paid approximately $52 million
in cash in the transaction.
On January 11, 1994, Crestar Mortgage Corporation acquired the stock
of Mortgage Capital Corporation, a wholesale mortgage loan production
company, with an initial purchase payment of $5.2 million. Under terms of
the purchase agreement, an additional $2.4 million may be paid to the
former owners, depending on the future performance of Mortgage Capital's
operations over the next five years.
Pending Acquisitions. On September 1, 1994, Crestar and Crestar
Bank entered into an agreement and plan of reorganization with Jefferson
Savings & Loan Association, F.A. ("Jefferson"), headquartered in
Warrenton, Virginia, providing for the merger of Jefferson into Crestar
Bank in which Jefferson shareholders will receive Crestar Common Stock or
cash. At June 30, 1994, Jefferson had total assets of approximately $298
million, total deposits of approximately $269 million and stockholders'
equity of approximately $11.7 million. The acquisition of Jefferson,
which is subject to the receipt of regulatory and shareholder approvals
(already received), is expected to occur in January 1995.
On August 26, 1994, Crestar and Crestar Bank entered into an
agreement and plan of reorganization with Independent Bank
("Independent"), headquartered in Manassas, Virginia, providing for the
merger of Independent into Crestar Bank in which Independent shareholders
will receive Crestar Common Stock or cash. At June 30, 1994, Independent
had total assets of $93 million and total deposits of $85 million. The
acquisition of Independent, which is subject to the receipt of regulatory
and shareholder approvals (already received), is expected to be completed
in January 1995.
Crestar continually seeks acquisition opportunities with other
financial institutions in which it may pay cash or issue common stock or
other equity or debt securities. As of the date of this Proxy
Statement/Prospectus, Crestar has no present agreements or understandings
to acquire or merge with any other businesses other than as described
above.
Subordinated Debt Issuance. On November 16, 1994, Crestar Financial
Corporation sold $150 million of 8 3/4% subordinated notes due November
15, 2004. Net of underwriting discounts, the notes resulted in net
proceeds of $148.6 million. Proceeds from the sale of the notes will be
used for general corporate purposes, including cash requirements for
pending acquisitions.
BUSINESS OF TIDEMARK
TideMark is a Virginia-chartered savings and loan holding company
headquartered in Newport News, Virginia. Substantially all of TideMark's
assets and operations are in TideMark Bank, a federal stock savings bank,
formerly known as Newport News Savings Bank. TideMark Bank has been in
business since 1887 and is the oldest and largest financial institution
headquartered on the Virginia Peninsula. At September 30, 1994, TideMark
had consolidated assets of $387.4 million, deposits of $228.5 million and
stockholders' equity of $19.4 million.
TideMark Bank converted from the mutual to the stock form of
ownership in June 1986. In December 1992, TideMark Bank reorganized into
the holding company form of organization with TideMark becoming the
holding company for TideMark Bank.
TideMark serves more than 30,000 customers throughout its nine
retail banking offices in its primary market areas - the Virginia
Peninsula, Middle Peninsula and Northern Neck. TideMark offers a variety
of retail deposit products, all of which are insured by the SAIF which is
administered by the FDIC, to individuals and local businesses. TideMark
operates five automated teller machines throughout the market area.
TideMark's lending activities focus on meeting the needs in its market
area by offering permanent and construction residential loans, second
mortgages and equity lines of credit, consumer loans, permanent and
construction commercial real estate and business loans and lines of credit
to local individuals and businesses. Additionally, TideMark originates
mortgages through its TideMark Mortgage Division offices located in
Newport News and Chesapeake, Virginia. TideMark Bank has two wholly owned
subsidiaries, Newport News Service Corporation and Dominion Motor Inns,
Inc., both of which are engaged in real estate development and ownership
and real estate joint ventures. TideMark Bank is currently operating
under a plan to divest all of NNSC's assets by fiscal year end 1995.
TideMark's operational strategy involves (i) developing efficient,
highly automated operations resulting, for example, in the sale of
TideMark Bank's Kilmarnock branch in November 1994; (ii) increasing market
share by building TideMark Bank's deposit base, focusing on demand deposit
accounts; (iii) ensuring customer satisfaction; and (iv) enhancing
profitability through relationship marketing, as evidenced by TideMark's
recent affiliation with Bankers Financial Partners, Inc., a subsidiary of
Legg Mason Wood Walker, Inc., to offer a wide range of financial products
and services to TideMark Bank's customers. On July 11, 1994, TideMark
executed an agreement to acquire the branch offices and deposits of Bay, a
division of First Federal of Michigan. TideMark, on July 28, 1994, also
agreed to acquire the right to service Bay's residential loan portfolio.
The agreements call for TideMark to pay a premium of $1.8 million
(approximately 2.5%) for the Bay deposits of approximately $71.0 million
at June 30, 1994. The deposit premium is to be reduced by an amount equal
to 2.5% of the difference between $70.0 million and the amount of the
deposits to be assumed as of the closing date of that agreement in the
event that the amount of deposits assumed falls below $70.0 million. In
addition, TideMark will acquire approximately $581,000 of related customer
loans at book value. The Bay premises and equipment and real property are
to be purchased for an amount equal to the net book value of such property
on the closing date, with the exception of two branch locations which will
be adjusted to current market prices estimated by TideMark to be less than
net book value. The estimated purchase price for the property and
equipment as of September 30, 1994 was $490,000. The residential loan
servicing rights were purchased at a price equal to 90 basis points of the
outstanding principal balance of the loans on the sale date, which
totalled $1.9 million. The servicing rights were purchased during the
first quarter of fiscal 1995. The branch purchase and deposit assumption
closed on December 19, 1994 with TideMark Bank paying a premium of
approximately $1.65 million for approximately $63.1 million of deposits.
TideMark financed the transaction through the sale of the TideMark
Series A to Crestar Securities Corporation ("CSC"). On September 26,
1994, CSC entered into a commitment to purchase from TideMark 200,000
shares of the TideMark Series A for $2.0 million immediately prior to the
closing of the Bay Agreement. The TideMark Series A provides for, among
other things: (i) preferred non-cumulative dividends at the rate of $1.00
per year payable quarterly, which will be periodically increased by $.10
per quarter up to a maximum of $1.50 per share beginning on July 1, 1995;
(ii) a liquidation preference of $10.00 per share; (iii) redemption, at
the option of TideMark's Board of Directors, at $10.00 per share unless a
Preliminary Purchase Event or Purchase Event (as defined herein) has
occurred, in which event the TideMark Series A will be redeemed at $10.60
per share; (iv) the senior ranking of the TideMark Series A; (v) no voting
rights except as otherwise required by law; and (vi) no conversion or
preemptive rights.
TideMark reinvests deposits raised in each community with loans that
meet the residential mortgage, personal and business financial needs of
that community. TideMark Bank has achieved an "outstanding" rating from
the OTS for its community reinvestment activities. TideMark Bank
participates in local home buyers programs and has assisted in a number of
community outreach programs.
TideMark and TideMark Bank are subject to examination and
comprehensive regulation by the OTS and the FDIC and the regulations of
the Federal Reserve Board relating to reserves required to be maintained
against deposits and certain other matters. TideMark Bank is a member of
the Federal Home Loan Bank of Atlanta. For a complete description of the
business of TideMark and its subsidiaries, see Annex V, TideMark's Form
10-K for the year ended June 30, 1994, and Annex VI, TideMark's 1994
Annual Report to Shareholders, both of which are attached hereto.
PRICE RANGE OF TIDEMARK COMMON STOCK
AND DIVIDEND POLICY
TideMark Common Stock is traded on the NASDAQ/NMS under the symbol
"TDMK." The following table sets forth for the calendar periods
indicated, the high and low closing prices of the TideMark Common Stock as
reported on the NASDAQ/NMS for the following calendar quarters:
1994 High Low
Fourth Quarter $5.38 $4.94
(through December 22,
1994)
Third Quarter 5.25 2.50
Second Quarter 3.50 1.87
First Quarter 2.25 1.75
1993 High Low
Fourth Quarter $2.50 $1.75
Third Quarter 2.00 1.50
Second Quarter 2.25 1.50
First Quarter 2.00 1.50
On December 1, 1994, the Record Date, the outstanding shares of
TideMark Common Stock were held by approximately 1,386 beneficial owners.
The closing price per share of the TideMark Common Stock on December 22,
1994 on the NASDAQ/NMS was $5.00.
As a result of losses incurred during the fourth quarter of 1988,
TideMark suspended the payment of dividends. The payment and amounts of
dividends in the future will be determined by the Board of Directors,
based upon the results of operations and financial condition of TideMark,
economic conditions at the time of declaration and OTS regulatory
restrictions.
The OTS has adopted a regulation governing capital distributions by
savings associations which include cash dividends. "Tier 2" associations,
such as TideMark Bank, are associations that before and after the proposed
distribution meet or exceed their minimum capital requirements. Such
institutions may make capital distributions over the most recent four
quarter period up to a specified percentage of their net income during
that four quarter period, depending on how close the association is to
meeting its fully phased-in capital requirements. Tier 2 associations
that meet the capital requirements are permitted to make distributions up
to 75% of net income over the four quarter period. In order to meet the
"safe harbor" requirements of the OTS regulation, a Tier 2 association
must submit a written notice of a proposed dividend to the OTS at least 30
days prior to the proposed payment date. The OTS may object to the
distribution during that 30 day period based on safety and soundness
concerns.
See "Comparative Rights of Shareholders -- Dividends and Other
Distributions."
TIDEMARK SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of TideMark Common Stock as of December 1, 1994 by
each of TideMark's directors and by all directors and executive officers
of TideMark as a group.
Shares Beneficially Owned
As of December 1, 1994(1)
Name Amount Percent
James S. G. Davenport 52,774 *
Robert L. Freeman, Jr. 314,000(2) 4.53%
Robert N. Springer 28,565(3) *
Alan S. Witt 27,833(4) *
John R. Lawson, II 340,000(5) 4.91%
Anthony R. Santoro 1,600 *
Gary A. Suttle 502,000(6) 7.24%
Gordon L. Gentry, Jr. 54,265(7) *
Nelson L. St. Clair, Jr. 6,000 *
Lindsay B. Trittipoe 114,100(8) 1.65%
All directors and executive
officers as a group (20 persons) 1,488,815(9) 21.34%
_________________________
* Represents less than 1%.
(Footnotes appear on next page)
(Footnotes continued from prior page)
(1)For the purposes of this table, pursuant to rules promulgated under the
Exchange Act, an individual is considered to "beneficially own" any shares
of TideMark Common Stock if he or she has or shares, (a) voting power,
which includes the power to vote or direct the voting of the shares; or
(b) investment power, which includes the power to dispose or direct the
disposition of the shares. A person is deemed to have beneficial
ownership of any shares of TideMark Common Stock which may be acquired
within 60 days pursuant to the exercise of stock options. Unless
otherwise indicated, a director has sole voting power and sole investment
power with respect to the indicated shares. Shares of Common Stock which
may be acquired within 60 days of the Record Date are deemed to be
outstanding shares of TideMark Common Stock beneficially owned by such
person(s) but are not deemed to be outstanding for the purposes of
computing the percentage of TideMark Common Stock owned by any other
person or group.
(2)Does not include 45,500 shares owned directly by Robert L. Freeman, Sr.,
Mr. Freeman's father, 25,000 shares owned directly by Dorothy Freeman, Mr.
Freeman's mother, or 228,500 shares owned directly by Susan Freman Bryant,
Mr. Freeman's sister.
(3)Includes 3,265 shares of restricted TideMark Common Stock granted on July
28, 1994.
(4)Includes 1,500 shares held in a trust account for the benefit of Mr.
Witt's children.
(5)Includes 320,000 shares owned directly by W.M. Jordan Company, Inc.
("WMJC"). Does not include 100,000 shares owned by Mr. Lawson's father,
Robert T. Lawson. See table, below.
(6)Includes 168,000 shares held by Suttle Motor Corporation ("SMC"), of
which Mr. Suttle is Chief Financial Officer and 333,000 shares held by SMC
Associates ("Associates"), of which Mr. Suttle is a general partner. See
table, below.
(7)Includes 25,000 shares of TideMark Common Stock which may be acquired
through the exercise of options which are exercisable within 60 days after
the Record Date, and 3,265 shares of restricted TideMark Common Stock
granted on July 28, 1994.
(8)Includes 700 shares owned individually by Mr. Trittipoe's wife.
(9)Included are officers of TideMark Bank. Includes 37,800 shares with
respect to which certain officers and directors have the right to acquire
beneficial ownership through the exercise of stock options, which stock
options are exercisable within 60 days of the Record Date and 8,163 shares
of restricted TideMark Common Stock awarded to three executive officers.
Such shares are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares of TideMark's Common Stock beneficially
owned by directors and executive officers as a group. See "Executive
Compensation - Stock Options." Also includes all beneficial ownership as
footnoted above for Messrs. Lawson and Suttle.
The following table sets forth information as to TideMark Common
Stock beneficially owned, as of December 1, 1994, by the only persons or
entities known to TideMark to be the beneficial owners of more than 5% of
TideMark Common Stock.
<TABLE>
Amount and Nature of
Name and Address of Beneficial Ownership as of Percent of
Beneficial Owner December 1, 1994 Outstanding Shares
<S> <C> <C>
W. M. Jordan Company, Inc. 440,000(2) 6.35%
11010 Jefferson Avenue
Newport News, Virginia 23601
Gary A. Suttle
Suttle Motor Corporation
12525 Jefferson Avenue
Newport News, Virginia 23602 502,000 7.24%
Value Partners Ltd.(4)
2200 Ross Avenue
Suite 4600 West
Dallas, Texas 75201 652,000 9.41%
All directors and
executive officers as a
group (20 persons) 1,488,815(5) 21.34%
</TABLE>
- -----------------------------
(1)Except as indicated otherwise, based on information furnished by the
respective individuals or entity and by filings made pursuant to the
Exchange Act. Under applicable regulations, shares are deemed to be beneficially
owned by a person if he or she directly or indirectly has or shares the power
to vote or dispose of the shares, whether or not he or she has any economic
interest in the shares. Unless otherwise indicated, the name beneficial owner
has sole voting and dispositive power with respect to the shares.
(2)Includes 100,000 shares of TideMark Common Stock owned directly by Rober T.
Lawson, the Chairman of the Board of WMJC, and 20,000 shares owned directly by
John R. Lawson II, the President of WMJC. John R. Lawson is a director of
TideMark and is the son of Robert T. Lawson. WMJC has sole voting and
dispositive power over the 320,000 shares it owns directly and each of Messrs.
Robert T. Lawson and John R. Lawson have sole voting and dispositive power
over the shares directly owned by them.
(3)Includes 168,000 shares directly owned by SMC over which SMC has sole voting
and dispositive power, 333,000 shares directly owned by Associates, over which
Associates has sole voting and dispositive power, and 1,000 shares directly
owned by Gary A. Suttle. Mr. Suttle, a TideMark director, is Secretary-
Treasurer of SMC and is the general partner of Associates.
(4)Value Partners Ltd. is a Texas limited partnership ("VP"), the general
partner of which is Fisher-Ewing Partners, a Texas general partnership,
the general partners of which are Richard W. Fisher and Timothy G. Ewing.
VP has sole voting and dispositive power over all 652,000 shares.
(5)Included are officers of TideMark Bank. Includes 37,800 shares with
respect to which certain officers and directors have the right to acquire
beneficial ownership through the exercise of stock options, which stock
options are exercisable within 60 days of the Record Date. Such shares
are deemed to be outstanding for the purpose of computing the percentage
of outstanding shares of TideMark's Common Stock beneficially owned by
directors and officers as a group. See "Executive Compensation--Stock
Options." Also includes all beneficial ownership as footnoted above
for Messrs. Lawson and Suttle.
SUPERVISION AND REGULATION OF CRESTAR
Bank holding companies and banks are extensively regulated under
both federal and state law. The following description briefly discusses
certain provisions of federal and state laws and certain regulations and
proposed regulations and the potential impact of such provisions on
Crestar and its Bank Subsidiaries. To the extent that the following
information describes statutory or regulatory provisions, it is qualified
in its entirety by reference to the particular statutory or regulatory
provisions.
Bank Holding Companies
As a bank holding company registered under the BHCA, Crestar is
subject to regulation by the Federal Reserve Board. The Federal Reserve
Board has jurisdiction under the BHCA to approve any bank or nonbank
acquisition, merger or consolidation proposed by a bank holding company.
The BHCA generally limits the activities of a bank holding company and its
subsidiaries to that of banking, managing or controlling banks, or any
other activity which is so closely related to banking or to managing or
controlling banks as to be a proper incident thereto.
The BHCA currently prohibits the Federal Reserve Board from
approving an application from a bank holding company to acquire shares of
a bank located outside the state in which the operations of the holding
company's banking subsidiaries are principally conducted, unless such an
acquisition is specifically authorized by statute of the state in which
the bank whose shares are to be acquired is located. However, under
recently enacted federal legislation, the restriction on interstate
acquisitions will be abolished effective one year from enactment of such
legislation and thereafter, bank holding companies from any state will be
able to acquire banks and bank holding companies located in any other
state. Banks also will be able to branch across state lines effective
June 1, 1997, provided certain conditions are met, including that
applicable state law must expressly permit such interstate branching.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal
law and regulatory policy that are designed to reduce potential loss
exposure to the depositors of such depository institutions and to the FDIC
insurance fund in the event the depository institution becomes in danger
of default or in default. For example, under a policy of the Federal
Reserve Board with respect to bank holding company operations, a bank
holding company is required to serve as a source of financial strength to
its subsidiary depository institutions and to commit resources to support
such institutions in circumstances where it might not do so absent such
policy. In addition, the "cross-guarantee" provisions of federal law,
require insured depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund
("BIF") as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a
commonly controlled insured depository institution in danger of default.
The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or
both. The FDIC's claim for damages is superior to claims of stockholders
of the insured depository institution or its holding company but is
subordinate to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly controlled
insured depository institutions.
The Federal Deposit Insurance Act ("FDIA") also provides that
amounts received from the liquidation or other resolution of any insured
depository institution by any receiver must be distributed (after payment
of secured claims) to pay the deposit liabilities of the institution prior
to payment of any other general or unsecured senior liability,
subordinated liability, general creditor or stockholder. This provision
would give depositors a preference over general and subordinated creditors
and stockholders in the event a receiver is appointed to distribute the
assets of any of the Bank Subsidiaries.
Crestar is registered under the bank holding company laws of
Virginia. Accordingly, Crestar and its Bank Subsidiaries are subject to
regulation and supervision by the State Corporation Commission of
Virginia.
Capital Requirements
The Federal Reserve Board, the Office of the Comptroller of the
Currency (the "OCC") and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to United States
banking organizations. In addition, those regulatory agencies may from
time to time require that a banking organization maintain capital above
the minimum levels because of its financial condition or actual or
anticipated growth. Under the risk-based capital requirements of these
federal bank regulatory agencies, Crestar and its Bank Subsidiaries are
required to maintain a minimum ratio of total capital to risk-weighted
assets of at least 8%. At least half of the total capital is required to
be "Tier 1 capital", which consists principally of common and certain
qualifying preferred shareholders' equity, less certain intangibles and
other adjustments. The remainder "Tier 2 capital" consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss
allowance. The Tier 1 and total capital to risk-weighted asset ratios of
Crestar Financial Corporation as of September 30, 1994 were 9.6% and
12.2%, respectively, exceeding the minimums required.
In addition, each of the federal regulatory agencies has established
a minimum leverage capital ratio (Tier 1 capital to average tangible
assets). These guidelines provide for a minimum ratio of 3% for banks and
bank holding companies that meet certain specified criteria, including
that they have the highest regulatory examination rating and are not
contemplating significant growth or expansion. All other institutions are
expected to maintain a leverage ratio of at least 100 to 200 basis points
above the minimum. The leverage ratio of Crestar as of September 30, 1994,
was 7.7%. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires each federal banking agency to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of
nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. The Federal Reserve
Board, the FDIC and the OCC have issued a joint advance notice of proposed
rulemaking, and have issued a revised proposal, soliciting comments on a
proposed framework for implementing the interest rate risk component of
the risk-based capital guidelines. Under the proposal, an institution's
assets, liabilities, and off-balance sheet positions would be weighed by
risk factors that approximate the instruments' price sensitivity to a 100
basis point change in interest rates. Institutions with interest rate
risk exposure in excess of a threshold level would be required to hold
additional capital proportional to that risk. The Federal Reserve Board,
the FDIC, the OCC and the OTS also issued a joint notice of proposed
rulemaking soliciting comments on a proposed revision to the risk-based
capital guidelines to take account of concentration of credit risk and the
risk of non-traditional activities. The proposal would amend each
agency's risk-based capital standards by explicitly identifying
concentration of credit risk and the risk arising from non-traditional
activities, as well as an institution's ability to manage those risks, as
important factors to be taken into account by the agency in assessing an
institution's overall capital adequacy. The proposal was adopted without
modification as a final rule by the Federal Reserve Board on August 3,
1994, and by the FDIC on August 9, 1994. Publication of a final
interagency rule is subject to the completion of each agency's approval
process. The final rule will not become effective until 30 days after
publication. Crestar does not expect the final rule to have a material
impact on its capital requirements.
Limits on Dividends and Other Payments
Crestar is a legal entity separate and distinct from its subsidiary
institutions. Most of the revenues of Crestar result from dividends paid
to Crestar by its Bank Subsidiaries. There are various legal limitations
applicable to the payment of dividends to Crestar as well as the payment
of dividends by Crestar to its respective shareholders.
Under federal law, the Bank Subsidiaries may not, subject to certain
limited exceptions, make loans or extensions of credit to, or investments
in the securities of, Crestar, as the case may be, or take securities of
Crestar, as the case may be, as collateral for loans to any borrower. The
Bank Subsidiaries are also subject to collateral security requirements for
any loans or extensions of credit permitted by such exceptions.
The Bank Subsidiaries are subject to various statutory restrictions
on their ability to pay dividends to Crestar. Under the current
supervisory practices of the Bank Subsidiaries' regulatory agencies, prior
approval from those agencies is required if cash dividends declared in any
given year exceed net income for that year plus retained earnings of the
two preceding years. Under these supervisory practices, at January 1,
1994, the Bank Subsidiaries could have paid additional dividends to
Crestar of approximately $106.0 million, without obtaining prior
regulatory approval. The payment of dividends by the Bank Subsidiaries or
Crestar may also be limited by other factors, such as requirements to
maintain capital above regulatory guidelines. Bank regulatory agencies
have authority to prohibit any Bank Subsidiary or Crestar from engaging in
an unsafe or unsound practice in conducting their business. The payment
of dividends, depending upon the financial condition of the Bank
Subsidiary in question, or Crestar, could be deemed to constitute such an
unsafe or unsound practice. The Federal Reserve Board has stated that,
as a matter of prudent banking, a bank or bank holding company should not
maintain its existing rate of cash dividends on common stock unless (1)
the organization's net income available to common shareholders over the
past year has been sufficient to fund fully the dividends and (2) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality, and overall financial
condition.
Under the FDIA, insured depository institutions such as the Bank
Subsidiaries are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the
institution would become "undercapitalized" (as such term is used in the
statute). Based on the Bank Subsidiaries' current financial condition,
Crestar does not expect that this provision will have any impact on its
ability to obtain dividends from its Bank Subsidiaries.
Banks
The Bank Subsidiaries are supervised and regularly examined by the
Federal Reserve Board, the SCC, the Maryland State Bank Commissioner and
the OCC, as the case may be. The various laws and regulations
administered by the regulatory agencies affect corporate practices, such
as payment of dividends, incurring debt and acquisition of financial
institutions and other companies, and affect business practices, such as
payment of interest on deposits, the charging of interest on loans, types
of business conducted and location of offices.
The Bank Subsidiaries also are subject to the requirements of the
Community Reinvestment Act (the "CRA"). The CRA imposes on financial
institutions an affirmative and ongoing obligation to meet the credit
needs of their local communities, including low- and moderate-income
neighborhoods, consistent with the safe and sound operation of those
institutions. Each financial institution's efforts in meeting community
credit needs currently are evaluated as part of the examination process
pursuant to twelve assessment factors. These factors also are considered
in evaluating mergers, acquisitions and applications to open a branch or
facility.
As a result of a Presidential initiative, each of the federal
banking agencies, including the FDIC, has issued a notice of proposed
rulemaking that would replace the current CRA assessment system with a new
evaluation system that would rate institutions based on their actual
performance (rather than efforts) in meeting community credit needs.
Crestar is currently studying the proposal (which is expected to be
substantially revised) and determining whether the regulation, if enacted,
would require changes to the CRA action plans of its Bank Subsidiaries.
As institutions with deposits insured by the BIF, the Bank
Subsidiaries also are subject to insurance assessments imposed by the
FDIC. The FDIC has implemented a risk-based assessment schedule, imposing
assessments ranging from 0.23% to 0.31% of an institution's average
assessment base. The actual assessment to be paid by each BIF member is
based on the institution's assessment risk classification, which is
determined based on whether the institution is considered "well
capitalized," "adequately capitalized" or "undercapitalized," as such
terms have been defined in applicable federal regulations, and whether
such institution is considered by its supervisory agency to be financially
sound or to have supervisory concerns. Because a portion of the Bank
Subsidiaries' deposits are treated as being insured by the SAIF, however,
Crestar's future deposit insurance premium expenses may be affected by
changes in the SAIF assessment rate. Under current law, the SAIF
assessment is determined pursuant to the same risk-based assessment system
that applies to BIF-insured institutions. In addition, current federal
law provides that the SAIF assessment rate may not be less than 0.18% from
January 1, 1994 through December 31, 1997. After December 31, 1997, the
SAIF assessment rate must be a rate determined by the FDIC to be
appropriate to increase the SAIF's reserve ratio to 1.25% of insured
deposits or such higher percentage as the FDIC determines to be
appropriate, but the assessment rate may not be less than 0.15%. As of
September 30, 1994, approximately 34% of the total deposits of the Bank
Subsidiaries were SAIF-insured and subject to the SAIF assessment rate.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under current federal
law to take prompt corrective action to resolve problems of insured
depository institutions. The extent of these powers depends upon whether
the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized," as such terms are defined under uniform
regulations defining such capital levels issued by each of the federal
banking agencies.
In addition, FDIC regulations now require that management report on
its institution's responsibility for preparing financial statements, and
establishing and maintaining an internal control structure and procedures
for financial reporting and compliance with designated laws and
regulations concerning safety and soundness; and that independent auditors
attest to and report separately on assertions in management's reports
concerning compliance with such laws and regulations, using FDIC-approved
audit procedures.
Current federal law also requires each of the federal banking
agencies to develop regulations addressing certain safety and soundness
standards for insured depository institutions and depository institution
holding companies, including operational and managerial standards, asset
quality, earnings and stock valuation standards, as well as compensation
standards (but not dollar levels of compensation). Each of the federal
banking agencies have issued a joint notice of proposed rulemaking, which
requested comment on the implementation of these standards. The proposed
rule sets forth general operational and managerial standards in the areas
of internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth
and compensation, fees and benefits. The proposal contemplates that each
federal agency would determine compliance with these standards through the
examination process, and if necessary to correct weaknesses, require an
institution to file a written safety and soundness compliance plan.
Crestar has not yet determined the effect that the proposed rule would
have on their respective operations and the operations of their depository
institution subsidiaries if it is enacted substantially as proposed.
DESCRIPTION OF CRESTAR CAPITAL STOCK
The capital stock of Crestar consists of 100,000,000 authorized
shares of Common Stock and 2,000,000 authorized shares of Preferred Stock.
The shares of Preferred Stock are issuable in series, with relative
rights, preferences and limitations of each series fixed by Crestar's
Board of Directors. The following summary does not purport to be complete
and is subject in all respects to applicable Virginia law, Crestar's
Restated Articles of Incorporation and Bylaws, and the Rights Agreement
dated June 23, 1989 (described below) (the "Rights Agreement").
Common Stock
Crestar had 37,597,723 shares of Common Stock outstanding at
September 30, 1994. Each share of Common Stock is entitled to one vote on
all matters submitted to a vote of shareholders. Holders of Common Stock
are entitled to receive dividends when and as declared by Crestar's Board
of Directors out of funds legally available therefor. Dividends may be
paid on the Common Stock only if all dividends on any outstanding
Preferred Stock have been paid or provided for.
The issued and outstanding shares of Common Stock are fully paid and
non-assessable. Holders of Common Stock have no preemptive or conversion
rights and are not subject to further calls or assessments by Crestar.
In the event of the voluntary or involuntary dissolution,
liquidation or winding up of Crestar, holders of Common Stock are entitled
to receive, pro rata, after satisfaction in full of the prior rights of
creditors and holders of Preferred Stock, if any, all the remaining assets
of Crestar available for distribution.
Directors are elected by a vote of the holders of Common Stock.
Holders of Common Stock are not entitled to cumulative voting rights.
Mellon Bank, N.A. acts as the transfer agent and registrar for the
Common Stock.
Preferred Stock
Crestar's Board of Directors is authorized to designate with respect
to each new series of Preferred Stock the number of shares in each series,
the dividend rates and dates of payment, voluntary and involuntary
liquidation preferences, redemption prices, whether or not dividends shall
be cumulative and, if cumulative, the date or dates from which the same
shall be cumulative, the sinking fund provisions, if any, for redemption
or purchase of shares, the rights, if any, and the terms and conditions on
which shares can be converted into or exchanged for, or the rights to
purchase, shares of any other class or series, and the voting rights, if
any. Any Preferred Stock issued will rank prior to the Common Stock as to
dividends and as to distributions in the event of liquidation, dissolution
or winding up of Crestar. The ability of Crestar's Board of Directors to
issue Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other
things, adversely affect the voting powers of holders of Common Stock and,
under certain circumstances, may discourage an attempt by others to gain
control of Crestar.
Pursuant to Crestar's Restated Articles of Incorporation, the Board
of Directors has designated a series of 100,000 shares of Participating
Cumulative Preferred Stock, Series C (the "Series C Preferred Stock"),
none of the shares of which are currently outstanding. The Series C
Preferred Stock was created in connection with Crestar's shareholder
rights plan which is described below.
Rights
In 1989, pursuant to the Rights Agreement, Crestar distributed as a
dividend one Right for each outstanding share of Common Stock. Each Right
entitles the holder to buy one one-thousandth of a share of Junior
Preferred Stock at an exercise price of $115, subject to adjustment. The
Rights will become exercisable only if a person or group acquires or
announces a tender offer for 10% or more of the outstanding Common Stock.
When exercisable, Crestar may issue a share of Common Stock in exchange
for each Right other than those held by such person or group. If a person
or group acquires 30% or more of the outstanding Common Stock, each Right
will entitle the holder, other than the acquiring person, upon payment of
the exercise price, to acquire Series C Preferred Stock or, at the option
of Crestar, Common Stock, having a value equal to twice the Right's
exercise price. If Crestar is acquired in a merger or other business
combination or if 50% of its earnings power is sold, each Right will
entitle the holder, other than the acquiring person, to purchase
securities of the surviving company having a market value equal to twice
the exercise price of the Right. The Rights will expire on June 23, 1999,
and may be redeemed by Crestar at any time prior to the tenth day after an
announcement that a 10% position has been acquired, unless such time
period has been extended by the Board of Directors.
Until such time as a person or group acquires or announces a tender
offer for 10% or more of the Common Stock, (i) the Rights will be
evidenced by the Common Stock certificates and will be transferred with
and only with such Common Stock certificates, and (ii) the surrender for
transfer of any certificate for Common Stock will also constitute the
transfer of the Rights associated with the Common Stock represented by
such certificate. Rights may not be transferred, directly or indirectly
(i) to any person or group that has acquired, or obtained the right to
acquire, beneficial ownership of 10% or more of the Rights (an "Acquiring
Person"), (ii) to any person in connection with a transaction in which
such person becomes an Acquiring Person or (iii) to any affiliate or
associate of any such person. Any Right that is the subject of a
purported transfer to any such person will be null and void.
The Rights can be expected to have certain anti-takeover effects if
an acquisition transaction not approved by the Board of Directors is
proposed by a person or group. In such event, the Rights will cause
substantial dilution to any person or group that acquires more than 10% of
the outstanding shares of Common Stock of Crestar if certain events
thereafter occur without the Rights having been redeemed. For example, if
thereafter such acquiring person acquires 30% of Crestar's outstanding
Common Stock, or effects a business combination with Crestar, the Rights
permits shareholders to acquire securities having a value equal to twice
the amount of the purchase price specified in the Rights, but rights held
by such "acquiring person" are void to the extent permitted by law and may
not be exercised. Further, other shareholders may not transfer rights to
such "acquiring person" above his 10% ownership threshold. Because of
these provisions, it is unlikely that any person or group will propose an
acquisition transaction that is not approved by Crestar's Board of
Directors. Thus, the Rights could have the effect of discouraging
acquisition transactions not approved by Crestar's Board of Directors.
The Rights do not interfere with any merger or other business combination
approved by Crestar's Board of Directors and shareholders because the
rights are redeemable with the concurrence of a majority of the
"Continuing Directors," defined as directors in office when the Rights
Agreement was adopted and any person added thereafter to the Board with
the approval of the Continuing Directors.
Virginia Stock Corporation Act
The VSCA contains provisions governing "Affiliated Transactions."
These provisions, with several exceptions discussed below, require
approval of material acquisition transactions between a Virginia
corporation and any holder of more than 10% of any class of its
outstanding voting shares (an "Interested Shareholder") by the holders of
at least two-thirds of the remaining voting shares. Affiliated
Transactions subject to this approval requirement include mergers, share
exchanges, material dispositions of corporate assets not in the ordinary
course of business, any dissolution of the corporation proposed by or on
behalf of an Interested Shareholder, or any reclassification, including
reverse stock splits, recapitalization or merger of the corporation with
its subsidiaries which increases the percentage of voting shares owned
beneficially by an Interested Shareholder by more than 5%.
For three years following the time that an Interested Shareholder
becomes an owner of 10% of the outstanding voting shares, a Virginia
corporation cannot engage in an Affiliated Transaction with such
Interested Shareholder without approval of two-thirds of the voting shares
other than those shares beneficially owned by the Interested Shareholder,
and majority approval of the "Disinterested Directors." A Disinterested
Director means, with respect to a particular Interested Shareholder, a
member of Crestar's Board of Directors who was (1) a member on the date on
which an Interested Shareholder became an Interested Shareholder and
(2) recommended for election by, or was elected to fill a vacancy and
received the affirmative vote of, a majority of the Disinterested
Directors then on the Board. At the expiration of the three year period,
the statute requires approval of Affiliated Transactions by two-thirds of
the voting shares other than those beneficially owned by the Interested
Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three year period has expired and require
either that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement
provides that in a two-step acquisition transaction, the Interested
Shareholder must pay the shareholders in the second step either the same
amount of cash or the same amount and type of consideration paid to
acquire the Virginia corporation's shares in the first step.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder whose acquisition
of shares making such person an Interested Shareholder was approved by a
majority of the Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of
Virginia corporations. In addition, the statute provides that, by
affirmative vote of a majority of the voting shares other than shares
owned by any Interested Shareholder, a corporation can adopt an amendment
to its articles of incorporation or bylaws providing that the Affiliated
Transactions provisions shall not apply to the corporation. Crestar has
not "opted out" of the Affiliated Transactions provisions.
Virginia law also provides that shares acquired in a transaction
that would cause the acquiring person's voting strength to meet or exceed
any of three thresholds (20%, 33 1/3% or 50%) have no voting rights unless
granted by a majority vote of shares not owned by the acquiring person or
any officer or employee-director of the Virginia corporation. This
provision empowers an acquiring person to require the Virginia corporation
to hold a special meeting of shareholders to consider the matter within 50
days of its request.
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Holding Company Merger, shareholders of
TideMark (except any holder of shares of TideMark Common Stock properly
exercising the right to an appraisal or electing the cash option)
automatically will become shareholders of Crestar, and their rights as
shareholders will be determined by Crestar's Restated Articles of
Incorporation and Bylaws. The following is a summary of the material
differences in the rights of shareholders of Crestar and TideMark. This
summary does not purport to be a complete discussion of, and is qualified
in its entirety by reference to, the governing law and the Articles of
Incorporation and Bylaws of each entity.
Capitalization
TideMark. TideMark Articles of Incorporation (the "TideMark
Articles") authorize the issuance of up to 25,000,000 shares of capital
stock of which 20,000,000 are shares of TideMark Common Stock, par value
$.01 per share, of which 6,939,484 shares were issued and outstanding as
of the Record Date and of which 5,000,000 shares are TideMark preferred
stock, par value $.01 per share, of which no shares of the TideMark Series
A were issued and outstanding as of the Record Date. But see "Business of
TideMark" with respect to the recent sale of 200,000 shares of the
TideMark Series A to Crestar Securities Corporation.
Crestar. Crestar's authorized capital is set forth under
"Description of Crestar Capital Stock."
Amendment of Articles or Bylaws
TideMark. As permitted by the VSCA, the TideMark Articles provide
that, unless a greater vote is required by law or by the TideMark
Articles, the TideMark Articles may be amended if the amendment is adopted
by the TideMark Board and approved by a vote of the holders of a majority
of the votes entitled to be cast on the amendment by each voting group
entitled to vote thereon. The TideMark Articles further provide that
notwithstanding any provision of such Articles or any provision of law
which might otherwise permit a lesser vote or no vote, but in addition to
any vote required by law or the TideMark Articles, the affirmative vote of
at least 75% of the then outstanding shares of the class or classes
entitled to vote at that meeting, voting together as a single class, shall
be required to amend or repeal the sections of the TideMark Articles
relating to amendment of the TideMark Articles, amendment of the Bylaws,
removal of directors and the limitation of liability and the
indemnification of the Board of Directors. The TideMark Articles also
provide that the TideMark Board is expressly authorized to amend the
Bylaws of TideMark (the "TideMark Bylaws"). Any such amendment of the
TideMark Bylaws requires the approval of a majority of the total number of
authorized directors. The stockholders of TideMark may also amend
TideMark Bylaws by the affirmative vote of at least 67% of all of the
then-outstanding shares of the capital stock of TideMark entitled to vote
generally in the election of directors, voting together as a single class.
Crestar. As permitted by the VSCA, Crestar's Articles provide that,
unless a greater vote is required by law, by the Articles of Crestar or by
a resolution of the Board of Directors, Crestar's Articles may be amended
if the amendment is adopted by the Board of Directors and approved by a
vote of the holders of a majority of the votes entitled to be cast on the
amendment by each voting group entitled to vote thereon. The Article
providing for a classified Board of Directors and establishing criteria
for removing Directors requires the approving vote of a majority of
"Disinterested Directors" and the holders of at least two-thirds of the
votes entitled to be cast on the amendment.
Crestar's Bylaws generally provide that the Board of Directors may,
by a majority vote, amend its Bylaws.
Required Shareholder Vote for Certain Actions
TideMark and Crestar. The VSCA generally requires the approval of a
majority of a corporation's Board of Directors and the holders of more
than two-thirds of all the votes entitled to be cast thereon by each
voting group entitled to vote on any plan of merger or consolidation, plan
of share exchange or sale of substantially all of the assets of a
corporation not in the ordinary course of business. The VSCA also
specifies additional voting requirements for Affiliated Transactions and
transactions that would cause an acquiring person's voting power to meet
or exceed specified thresholds, as discussed under "-- Antitakeover
Provisions" and "Description of Crestar Capital Stock -- Virginia Stock
Corporation Act."
None of the additional voting requirements contained in the VSCA are
applicable to the Holding Company Merger since it is not an "Affiliated
Transaction."
Director Nominations
TideMark. The TideMark Bylaws state that nominations for the
election of directors may be made by the Board of Directors or by any
stockholder entitled to vote for the election of directors. The Board of
Directors appoints three or more directors to act as a nominating
committee for selecting management nominees for election as directors and
delivers written nominations to the Secretary of TideMark at least 20 days
prior to the date of the Annual Meeting. All nominations made by the
nominating committee are ratified by TideMark Board. A stockholder of
TideMark may also nominate persons for election to the Board of Directors
so long as such stockholder complies with the nomination requirements set
forth in the TideMark Articles. The TideMark Articles require that
advance notice of such proposed stockholder nomination be received by the
Chairman of the Board, the Nominating Committee or by the Secretary of
TideMark not less than 14 days nor more than 60 days prior to any meeting
of stockholders called for the election of directors. Each such notice
must set forth (i) the name, age, business address and, if known,
residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, and (iii) the
number of shares of TideMark Common Stock beneficially owned by each such
nominee. In addition, the stockholder making such nomination must
promptly provide any other information reasonably requested by TideMark.
Crestar. The Bylaws of Crestar provide that any nomination for
director made by a shareholder must be made in writing to the Secretary of
Crestar not less than 15 days prior to the meeting of shareholders at
which directors are to be elected. If mailed, such notice shall be sent
by certified mail, return receipt requested, and shall be deemed to have
been given when received by the Secretary of Crestar. A shareholder's
nomination for director shall set forth (a) the name and business address
of the shareholder's nominee, (b) the fact that the nominee has consented
to his name being placed in nomination, (c) the name and address, as they
appear on Crestar's books, of the shareholder making the nomination,
(d) the class and number of shares of Crestar's stock beneficially owned
by the shareholder, and (e) any material interest of the shareholder in
the proposed nomination.
Directors and Classes of Directors; Vacancies and Removal of Directors
TideMark. The TideMark Articles provide that the number of
directors be set forth in the TideMark Bylaws and shall not be fewer than
five nor more than 15. A majority of the Whole Board of Directors
(defined to be the total number of authorized directors whether or not
there exists any vacancies in previously authorized directorships at the
time any resolution is presented to the Board for adoption) may vote to
increase or decrease the number of directors constituting the Whole Board
of Directors, provided that the minimum number of directors shall be five
and the maximum number shall be 15. The current number of directors of
TideMark is 10. The Board of Directors is divided into three classes,
with Class I consisting of three directors, Class II consisting of three
directors and Class III consisting of four directors. The term of each
class expires on the third anniversary of the class election and directors
are elected for a three year term and until their successors are elected
and qualified. Any vacancies in the Board of Directors for any reason,
and any newly created directorships resulting from any increase in the
number of directors, may be filled only by the Board of Directors, acting
by vote of a majority of the directors then in office, although less than
a quorum, and any directors so chosen will hold office until the next
succeeding annual election of directors and until their successors are
elected and qualified. No decrease in the number of directors will
shorten the term of any incumbent director. Any director or the entire
TideMark Board may be removed at any time, with or without cause, only by
the affirmative vote, at a meeting of the shareholders called for that
purpose, by the holders of 67% or more of the shares of the class or
classes entitled to vote at that meeting and that elected the director.
Crestar. Crestar's Articles provide that the number of Directors
shall be set forth in the Bylaws, but the number of directors set forth in
the Bylaws may not be increased by more than four during any 12-month
period except by the affirmative vote of more than two-thirds of the votes
entitled to be cast. The Bylaws provide for a Board of Directors
consisting of not less than five nor more than 26 members, with the number
to be fixed by the Board. The Board currently has fixed the number of
directors at 19. Crestar's Board of Directors is divided into three
classes, each as nearly equal in number as possible, with one class being
elected annually.
The Articles of Incorporation of Crestar provide that any vacancy
occurring on the Board of Directors, including a vacancy resulting from an
increase in the number of Directors, may be filled by the affirmative vote
of a majority of the remaining directors, though less than a quorum of the
Board of Directors. If at the time any such vacancy is filled, any
person, or any associate or affiliate of such person (as those terms are
defined in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, or any successor rule or regulation) is directly or
indirectly the beneficial owner of 10% (or more) of outstanding voting
shares, the vacancy shall be filled by the affirmative vote of a majority
of the remaining directors in the class of directors in which the vacancy
has occurred. Directors so chosen shall hold office for a term expiring
at the next following annual meeting of shareholders at which directors
are elected. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
Subject to the rights of the holders of preferred stock then
outstanding, any director may be removed, with cause, only by the
affirmative vote of the holders of at least two-thirds of outstanding
voting shares.
Anti-Takeover Provisions
TideMark and Crestar. For a description of certain provisions of
VSCA which may be deemed to have an anti-takeover effect, see "Description
of Crestar Capital Stock -- Virginia Stock Corporation Act." TideMark has
"opted out" of certain VSCA provisions relating to "Affiliated
Transactions" and to "Control Share Acquisitions."
Preemptive Rights
Except for the TideMark Series A, which will be redeemable at the
option of the TideMark Board, neither the shareholders of Crestar nor the
shareholders of TideMark have preemptive rights. Thus, if additional
shares of Crestar Common Stock, Crestar preferred stock or TideMark Common
Stock or TideMark Preferred Stock are issued, holders of such stock, to
the extent they do not participate in such additional issuance of shares,
would own proportionately smaller interests in a larger amount of
outstanding capital stock.
Assessment
All shares of Crestar Common Stock presently issued are, and those
to be issued pursuant to the Agreement will be, fully paid and
nonassessable.
All outstanding shares of TideMark Common Stock and TideMark Series
A are deemed to be fully paid and nonassessable.
Conversion; Redemption; Sinking Fund
Except for the TideMark Series A, which is redeemable at the option
of the TideMark Board of Directors, neither Crestar Common Stock nor
TideMark Common Stock nor the TideMark Series A is convertible, redeemable
or entitled to any sinking fund.
Liquidation Rights
TideMark and Crestar. The VSCA generally provides that a
corporation's board of directors may propose dissolution for submission to
shareholders and that to be authorized, the dissolution must be approved
by the holders of more than two-thirds of all votes entitled to be cast on
the proposal, unless the articles of incorporation of the corporation
require a greater or lesser vote. There are no provisions in the Articles
of Incorporation of Crestar or TideMark which would modify the statutory
requirements for dissolution under the VSCA.
Dividends and Other Distributions
TideMark and Crestar. The VSCA generally provides that a
corporation may make distributions to its shareholders unless, after
giving effect to the distribution, (i) the corporation would not be able
to pay its debts as they become due in the usual course of business or
(ii) the corporation's total assets would be less than the sum of its
total liabilities plus (unless the articles of incorporation permit
otherwise, which in the case of TideMark and Crestar they do not) the
amount that would be needed, if the corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to
those receiving the distribution. These requirements are applicable to
both Crestar and TideMark as Virginia corporations.
In addition to the limitations set forth in the VSCA, there are
various regulatory requirements which are applicable to distributions by
bank holding companies such as Crestar and by savings and loan holding
companies such as TideMark. For a description of the regulatory
limitations on distributions by Crestar, see "Supervision and Regulation
of Crestar -- Limits on Dividends and Other Payments." For a description
of the regulatory limitations on capital distributions by TideMark Bank,
see "Price Range of TideMark Common Stock and Dividend Policy."
Special Meetings of Shareholders
TideMark. The TideMark Bylaws provide that special meetings of
TideMark shareholders, for any purpose, may only be called by the Chairman
of the Board, the President or the Board of Directors.
Crestar. The Bylaws of Crestar provide that special meetings of the
shareholders for any purpose or purposes may be called at any time by the
Chairman of the Board of Directors, by the President, or by a majority of
the Board of Directors.
Indemnification
TideMark. The TideMark Articles state that TideMark shall indemnify
and advance expenses to all directors and officers of TideMark, and may
indemnify and advance expenses to all employees and agents of TideMark, to
the fullest extent permitted by the VSCA as of the date of the TideMark
Articles and may provide to such directors and officers such further
indemnity, including indemnity with respect to a proceeding by or in right
of TideMark but not including indemnity against the willful misconduct of
the director or officer or a knowing violation by the director or officer
of criminal law. Such further indemnity may include provisions for the
advancement and reimbursement of expenses. The indemnification and
advancement of expenses provided by the TideMark Articles is not thereby
deemed to be exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
policy of insurance (whether or not TideMark would have the power to
indemnify such person against liability under the law), trust fund or fund
of any nature (which may be created and funded by the Board of Directors
for the purpose of securing or in any manner insuring its obligation to
indemnify or advance expenses pursuant to the TideMark Articles) or other
agreement, vote of shareholders or directors, or otherwise, both as to
actions in their official capacity and as to actions in another capacity
while holding office, and will continue as to a person who has ceased to
be a director, officer, employee or agent and will inure to the benefit of
such person's estate.
Crestar. The Articles of Incorporation of Crestar provide that to
the full extent permitted by the VSCA and any other applicable law,
Crestar shall indemnify a director or officer of Crestar who is or was a
party to any proceeding by reason of the fact that he is or was such a
director or officer or is or was serving at the request of the
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. The Board of Directors is empowered, by majority vote
of a quorum of disinterested directors, to contract in advance to
indemnify any director or officer.
Shareholder Proposals
TideMark. The TideMark Bylaws state that any new business proposed
by a shareholder to be taken up at the Annual Meeting of Shareholders must
be stated in writing and filed with the Secretary of TideMark at least ten
days prior to the date of the meeting. Unless such prior notice is given,
any other new business proposed by a shareholder at such meeting may be
discussed and considered, but will not be voted upon at the meeting.
Shareholders who wish to have their proposals included in TideMark's proxy
materials must comply with Proxy Rule 14a-8 under the Exchange Act. See
"Date of Submission of Shareholder Proposals," herein.
Crestar. The Bylaws of Crestar provide that at any meeting of
shareholders of Crestar, only that business that is properly brought
before the meeting may be presented to and acted upon by the shareholders.
To be properly brought before the meeting, business must be brought (a) by
or at the direction of the Board of Directors or (b) by a shareholder who
has given written notice of business he expects to bring before the
meeting to the Secretary of Crestar not less than 15 days prior to the
meeting. If mailed, such notice shall be sent by certified mail, return
receipt requested, and shall be deemed to have been given when received by
the Secretary of Crestar. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the
meeting (a) a brief description of the business to be brought before the
meeting and the reasons for conducting such business at the meeting, (b)
the name and address, as they appear on Crestar's books, of the
shareholder proposing such business, (c) the class and number of shares of
Crestar's stock beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. No business shall
be conducted at a meeting of shareholders except in accordance with the
procedures set forth in Crestar's Bylaws.
Shareholder Inspection Rights; Shareholder Lists
TideMark and Crestar. Except as stated below, the Articles of
Incorporation and Bylaws of Crestar and TideMark do not contain any
provisions which govern shareholder inspection rights or shareholder
lists. Under the VSCA, the shareholder of a Virginia corporation is
entitled to inspect and copy certain books and records of the corporation,
including a list of shareholders, if (i) the shareholder has been a
shareholder of record for at least six months immediately preceding his or
her written demand or is the holder of at least 5% of the corporation's
outstanding shares, (ii) the shareholder's demand is made in good faith
and for a proper purpose, (iii) the shareholder describes with reasonable
particularity the purpose of the request and the records desired to be
inspected and (iv) the records are directly connected with the stated
purpose. The VSCA also provides that a corporation shall make available
for inspection by any shareholder during usual business hours, at least 10
days before each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting.
The TideMark Bylaws require that TideMark's Secretary make, at least
ten days prior to each shareholder's meeting, a complete list of the
shareholders entitled to vote at such meeting, with the address of, and
number of shares held by, each. This list may be inspected by
shareholders prior to, and at, the meeting of shareholders. The Bylaws
further empower the Board of Directors, subject to the VSCA, as described
above, to determine, from time to time, whether and to what extent and at
what times and places and under what conditions the account, books and
documents of TideMark shall be open to inspection of the shareholders.
Shareholders have no right to inspect any account, book or document of
TideMark except as conferred by law, unless and until authorized by
resolution of the Board of Directors or shareholders of TideMark.
Shareholder Rights Plan
TideMark. TideMark does not have a shareholders' rights plan.
Crestar. For a description of a shareholder rights agreement which
has been adopted by Crestar, see "Description of Crestar Capital Stock --
Rights."
Dissenters' Rights
TideMark and Crestar. The provisions of Article 15 of the VSCA
which provide shareholders of a Virginia corporation the right to dissent
from, and obtain payment of the fair value of his shares in the event of,
mergers, consolidations and certain other corporate transactions are
applicable to both Crestar and TideMark as Virginia corporations.
However, because Crestar has more than 2,000 record shareholders, unlike
TideMark, shareholders of Crestar are less likely to have rights to
dissent from mergers, consolidations and certain other corporate
transactions to which Crestar is a party because Article 15 of the VSCA
provides that holders of shares of a Virginia corporation which has shares
listed on a national securities exchange or which has at least 2,000
record shareholders are not entitled to dissenters' rights unless certain
requirements are met. For additional information in this regard, see "The
Holding Company Merger -- Rights of Shareholders Electing to Exercise
Their Right of Appraisal" and Annex IV, attached hereto.
RESALE OF CRESTAR COMMON STOCK
Crestar Common Stock has been registered under the Securities Act,
thereby allowing such shares to be traded freely and without restriction
by those holders of TideMark Common Stock who receive such shares
following consummation of the Holding Company Merger and who are not
deemed to be "affiliates" (as defined under the Securities Act, but
generally including directors, certain executive officers and 10% or more
shareholders) of TideMark or Crestar. The Agreement provides that each
holder of TideMark Common Stock who is deemed by TideMark to be an
affiliate of it will enter into an agreement with Crestar prior to the
Effective Date of the Holding Company Merger providing, among other
things, that such affiliate will not transfer any Crestar Common Stock
received by such holder in the Holding Company Merger except in compliance
with the Securities Act. This Proxy Statement/Prospectus does not cover
any resales of Crestar Common Stock received by affiliates of TideMark.
EXPERTS
The consolidated financial statements of Crestar Financial
Corporation and Subsidiaries incorporated in this Proxy
Statement/Prospectus by reference to Crestar's Annual Report on Form 10-K
for the year ended December 31, 1993 and Crestar's current report on
Form 8-K dated March 10, 1994 have been so incorporated in reliance upon
the report of KPMG Peat Marwick LLP, independent auditors, incorporated
herein by reference, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP refers to
changes in accounting for postretirement benefits other than pensions and
for income taxes.
The consolidated balance sheets of TideMark as of June 30, 1994 and
1993, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the two years in the
period ended June 30, 1994, included in this Proxy Statement/Prospectus,
have been included herein in reliance on the report of Coopers & Lybrand,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The report of Coopers & Lybrand refers to
changes in accounting for certain investments in debt and equity
securities and accounting for income taxes.
The consolidated statements of operations, stockholders' equity and
cash flows of TideMark Bancorp. Inc. and Subsidiaries for the year ended
June 30, 1992, included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1994, have been audited by Ernst & Young,
independent auditors, as set forth in their report thereon included
therein and incorporated herein in this Proxy Statement/Prospectus. Such
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting
and auditing.
LEGAL OPINION
The legality of the Crestar Common Stock to be issued in the Holding
Company Merger will be passed on for Crestar by Hunton & Williams,
Richmond, Virginia. Gordon F. Rainey, Jr., a partner in Hunton &
Williams, is a director of Crestar and Crestar Bank.
A condition to consummation of the Holding Company Merger is the
delivery by Hunton & Williams, counsel for Crestar, of an opinion to
Crestar concerning certain federal income tax consequences of the
Transaction. See "The Holding Company Merger -- Certain Federal Income
Tax Consequences."
Legal matters will be passed on for TideMark by Elias, Matz, Tiernan
& Herrick L.L.P., Washington, D.C.
DATE OF SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal which a shareholder wishes to have included in the
proxy solicitation materials to be used by TideMark in connection with the
next Annual Meeting of TideMark must be received at the main office of
TideMark, 301 Hiden Boulevard, Newport News, Virginia, 23606, no later
than May 31, 1995. If such proposal is in compliance with all of the
requirements of Rule 14a-8 of the Exchange Act, it will be included in the
Proxy Statement and set forth on the form of proxy issued for the next
Annual Meeting. It is urged that any such proposals be sent by certified
mail, return receipt requested.
ANNUAL REPORTS
A copy of TideMark's Form 10-K, without exhibits, and Annual Report
to Stockholders for the year ended June 30, 1994 is attached to this Proxy
Statement/Prospectus. See Annexes V and VI, respectively.
Upon receipt of a written request, TideMark will furnish additional
copies of TideMark's Annual Report and Form 10-K, without exhibits, as
filed with the SEC. Such requests should be directed to Pamela B. Lawson,
Executive Vice President and Chief Financial Officer, TideMark Bancorp,
Inc., 301 Hiden Boulevard, Newport News, Virginia 23606.
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION
among
CRESTAR FINANCIAL CORPORATION,
CRESTAR BANK,
TIDEMARK BANCORP, INC.,
and
TIDEMARK BANK
October 31, 1994
INDEX
Page
ARTICLE I
General
1.1. Holding Company Merger . . . . . . . . . . . . . . . . . 2
1.2. Bank Merger . . . . . . . . . . . . . . . . . . . . . . 2
1.3. Issuance of Crestar Common Stock and Payment of
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Taking of Necessary Action . . . . . . . . . . . . . . . 2
ARTICLE II
Effect of Transaction on Common Stock, Assets,
Liabilities and Capitalization of Crestar,
Crestar Bank, TideMark and TideMark Bank
2.1. Conversion of Stock; Exchange Ratio; Cash
Election . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2. Manner of Exchange . . . . . . . . . . . . . . . . . . . 4
2.3. No Fractional Shares . . . . . . . . . . . . . . . . . . 7
2.4. Dissenting Shares . . . . . . . . . . . . . . . . . . . 7
2.5. Assets . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6. Liabilities . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
Representations and Warranties
3.1. Representations and Warranties of TideMark . . . . . . . 8
(a) Organization, Standing and Power . . . . . . . . . 8
(b) Capital Structure . . . . . . . . . . . . . . . . . 9
(c) Authority . . . . . . . . . . . . . . . . . . . . . 9
(d) Investments . . . . . . . . . . . . . . . . . . . . 11
(e) Financial Statements . . . . . . . . . . . . . . . 11
(f) Absence of Undisclosed Liabilities . . . . . . . . 12
(g) Tax Matters . . . . . . . . . . . . . . . . . . . . 13
(h) Options, Warrants and Related Matters . . . . . . . 14
(i) Property . . . . . . . . . . . . . . . . . . . . . 14
(j) Additional Schedules Furnished to Crestar . . . . . 15
(k) Agreements in Force and Effect . . . . . . . . . . 16
(l) Legal Proceedings; Compliance with Laws . . . . . . 17
(m) Employee Benefit Plans . . . . . . . . . . . . . 17
(n) Insurance . . . . . . . . . . . . . . . . . . . . . 20
(o) Loan Portfolio . . . . . . . . . . . . . . . . . . 21
(p) Absence of Changes . . . . . . . . . . . . . . . . 22
(q) Brokers and Finders . . . . . . . . . . . . . . . . 22
(r) Subsidiaries . . . . . . . . . . . . . . . . . . . 22
(s) Reports . . . . . . . . . . . . . . . . . . . . . . 23
(t) Environmental Matters . . . . . . . . . . . . . . . 23
(u) Disclosure . . . . . . . . . . . . . . . . . . . . 25
(v) Accounting; Tax; Regulatory Matters . . . . . . . . 25
(w) Regulatory Approvals . . . . . . . . . . . . . . . 25
3.2. Representations and Warranties of Crestar and
Crestar Bank . . . . . . . . . . . . . . . . . . . . . . 25
(a) Organization, Standing and Power . . . . . . . . . 25
(b) Capital Structure . . . . . . . . . . . . . . . . . 26
(c) Authority . . . . . . . . . . . . . . . . . . . . . 26
(d) Financial Statements . . . . . . . . . . . . . . . 27
(e) Absence of Undisclosed Liabilities . . . . . . . . 28
(f) Absence of Changes . . . . . . . . . . . . . . . . 28
(g) Brokers and Finders . . . . . . . . . . . . . . . . 29
(h) Subsidiaries . . . . . . . . . . . . . . . . . . . 29
(i) Reports . . . . . . . . . . . . . . . . . . . . . . 29
(j) Tax Matters . . . . . . . . . . . . . . . . . . . . 29
(k) Property . . . . . . . . . . . . . . . . . . . . . 30
(l) Agreements in Force and Effect . . . . . . . . . . 30
(m) Legal Proceedings; Compliance with Laws . . . . . . 31
(n) Employee Benefit Plans . . . . . . . . . . . . . . 31
(o) Regulatory Approvals . . . . . . . . . . . . . . . 33
(p) Disclosure . . . . . . . . . . . . . . . . . . . . 33
ARTICLE IV
Conduct and Transactions Prior to
Effective Time of the Merger
4.1. Access to Records and Properties of Crestar,
Crestar Bank, TideMark and TideMark Bank;
Confidentiality . . . . . . . . . . . . . . . . . . . . 33
4.2. Registration Statement, Proxy Statement,
Shareholder Approval . . . . . . . . . . . . . . . . . . 34
4.3. Operation of the Business of TideMark . . . . . . . . . 35
4.4. No Solicitation . . . . . . . . . . . . . . . . . . . . 37
4.5. Dividends . . . . . . . . . . . . . . . . . . . . . . . 37
4.6. Regulatory Filings; Best Efforts . . . . . . . . . . . . 37
4.7. Public Announcements . . . . . . . . . . . . . . . . . . 37
4.8. Operating Synergies; Conformance to Reserve
Policies, Etc. . . . . . . . . . . . . . . . . . . . . . 38
4.9. Crestar Rights Agreement . . . . . . . . . . . . . . . . 38
4.10. Agreement as to Efforts to Consummate . . . . . 39
4.11. Adverse Changes in Condition . . . . . . . . . . 39
4.12. NYSE Listing . . . . . . . . . . . . . . . . . . 39
4.13. Updating of Schedules . . . . . . . . . . . . . 39
4.14. Transactions in Crestar Common Stock . . . . . . 40
ARTICLE V
Conditions of Merger
5.1. Conditions of Obligations of Crestar and Crestar
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . 40
(a) Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . 40
(b) Authorization of Transaction . . . . . . . . . . . 40
(c) Opinion of Counsel . . . . . . . . . . . . . . . . 41
(d) The Registration Statement . . . . . . . . . . . . 41
(e) Tax Opinion . . . . . . . . . . . . . . . . . . . . 41
(f) Regulatory Approvals . . . . . . . . . . . . . . . 42
(g) Affiliate Letters . . . . . . . . . . . . . . . . . 42
(h) Title Matters . . . . . . . . . . . . . . . . . 42
(i) NYSE Listing . . . . . . . . . . . . . . . . . . . 42
(j) Acceptance by Crestar and Crestar Bank
Counsel . . . . . . . . . . . . . . . . . . . . 42
5.2. Conditions of Obligations of TideMark and TideMark
Bank . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(a) Representations and Warranties; Performance
of Obligations . . . . . . . . . . . . . . . . . 43
(b) Authorization of Transaction . . . . . . . . . . . 43
(c) Opinion of Counsel . . . . . . . . . . . . . . . . 43
(d) The Registration Statement . . . . . . . . . . . . 43
(e) Regulatory Approvals . . . . . . . . . . . . . . . 44
(f) Tax Opinion . . . . . . . . . . . . . . . . . . . . 44
(g) NYSE Listing . . . . . . . . . . . . . . . . . . . 45
(h) Fairness Opinion . . . . . . . . . . . . . . . . . 45
(i) Acceptance by TideMark's Counsel . . . . . . . . . 45
ARTICLE VI
Closing Date; Effective Time
6.1. Closing Date . . . . . . . . . . . . . . . . . . . . . . 45
6.2. Filings at Closing . . . . . . . . . . . . . . . . . . . 46
6.3. Effective Time . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII
Termination; Survival of Representations,
Warranties and Covenants; Waiver and Amendment
7.1. Termination . . . . . . . . . . . . . . . . . . . . . . 46
7.2. Effect of Termination . . . . . . . . . . . . . . . . . 49
7.3. Survival of Representations, Warranties and
Covenants . . . . . . . . . . . . . . . . . . . . . . . 49
7.4. Waiver and Amendment . . . . . . . . . . . . . . . . . . 49
ARTICLE VIII
Additional Covenants
8.1. Indemnification of TideMark Officers and
Directors; Liability Insurance . . . . . . . . . . . . . 50
8.2. Employee Matters . . . . . . . . . . . . . . . . . . . . 50
8.3. Employee Benefit Matters . . . . . . . . . . . . . . . . 51
8.4. Crestar Bank/Peninsula Local Advisory Board of
Directors . . . . . . . . . . . . . . . . . . . . . . . 54
8.5. Stock Options . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IX
Miscellaneous
9.1. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 54
9.2. Entire Agreement . . . . . . . . . . . . . . . . . . . . 54
9.3. Descriptive Headings . . . . . . . . . . . . . . . . . . 55
9.4. Notices . . . . . . . . . . . . . . . . . . . . . . . . 55
9.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . 55
9.6. Governing Law . . . . . . . . . . . . . . . . . . . . . 55
Exhibit A - Holding Company Plan of Merger of TideMark into
Crestar
Exhibit B - Bank Plan of Merger of TideMark Bank into Crestar Bank
Exhibit C - Opinion of Elias, Matz, Tiernan & Herrick L.L.P., counsel
to TideMark and TideMark Bank
Exhibit D - Opinion of Hunton & Williams, counsel to Crestar and
Crestar Bank
Exhibit E - Form of Affiliate's Undertaking
[Only Exhibits A and B are provided in this Proxy Statement/Prospectus.
Exhibits C, D and E and the Schedules described on page (v) are not
included as not being relevant to the shareholder's decision on the
proposed transaction.]
INDEX TO SCHEDULES
Section in
Schedule Description Agreement
A-1 Securities Owned by TideMark and 3.1(b);
TideMark Bank 3.1(d)
A-2 TideMark and TideMark Bank Financial 3.1(e)
Statements
B TideMark Taxes Being Contested, etc. 3.1(g)
C Salary Rates, TideMark Common Stock Held by 3.1(h);
Certain Employees and Directors of TideMark 3.1(j)(1)
Bank, Options
D Notes, Bonds, Mortgages, Indentures, Licenses, 3.1(j)(2)
Lease Agreements and Other Contracts of
Tidemark and Tidemark Bank
E Employment Contracts and Related Matters of 3.1(j)(3);
TideMark and TideMark Bank 3.1(m)(1);
3.1(m)(7);
3.1(m)(8);
3.1(m)(9)
F Real Estate Owned or Leased by 3.1(j)(4)
TideMark and TideMark Bank
G Affiliates of TideMark 3.1(j)(5);
5.1(g)
H Legal Proceedings of TideMark 3.1(1)
I Insurance of TideMark 3.1(n)
J TideMark Loans 3.1(o)
K Certain Changes 3.1(p)
L Environmental Matters 3.1(t)
M Crestar Taxes Being Contested, etc. 3.2(i)
N TideMark Loan Portfolio Adjustment 7.1(g)
Made by Crestar
R TideMark Subsidiaries and Joint 3.1(r)
Ventures
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") dated
as of October 31, 1994 among CRESTAR FINANCIAL CORPORATION, a Virginia
corporation ("Crestar"), CRESTAR BANK, a Virginia banking corporation
wholly-owned by Crestar ("Crestar Bank"), TIDEMARK BANCORP, INC. a Virginia
corporation ("TideMark") and TIDEMARK BANK, a federal savings bank
("TideMark Bank"), recites and provides:
A. TideMark and Crestar have entered into a Letter Agreement
(the "Letter Agreement") and a Stock Option Agreement (the "Option
Agreement") both dated September 20, 1994, pursuant to which Crestar will
acquire TideMark in a statutory merger in exchange for Crestar common stock
and cash and TideMark has granted an option to Crestar to purchase shares
of TideMark Common Stock in certain events. The Letter Agreement is being
merged into the Agreement. The Option Agreement shall survive execution of
the Agreement for the term provided in the Option Agreement.
B. The boards of directors of Crestar and TideMark deem it
advisable to merge TideMark into Crestar (the "Holding Company Merger")
pursuant to this Agreement and the Plan of Merger attached as Exhibit A
(the "Holding Company Plan of Merger") whereby the holders of shares of
common stock ("TideMark Common Stock") and preferred stock of TideMark will
receive common stock of Crestar ("Crestar Common Stock") and/or cash in
exchange therefor.
C. The boards of directors of Crestar, TideMark, Crestar Bank
and TideMark Bank deem it advisable that after the Holding Company Merger,
Crestar shall cause TideMark Bank to be merged into Crestar Bank (the "Bank
Merger"). The boards of directors deem it advisable that the Bank Merger
be accomplished by the merger of TideMark Bank into Crestar Bank pursuant
to this Agreement and the Bank Plan of Merger attached as Exhibit B (the
"Bank Plan of Merger"). The Holding Company Merger and the Bank Merger are
referred to herein collectively as the "Transaction."
D. To effectuate the foregoing, the parties desire to adopt
this Agreement and the Holding Company Plan of Merger, which shall
represent a plan of reorganization in accordance with the provisions of
Section 368(a) of the United States Internal Revenue Code, as amended (the
"Code"), and the Bank Plan of Merger, which also shall represent a plan of
reorganization.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived from this Agreement, and of the representations, warranties,
conditions and promises herein contained, Crestar, Crestar Bank, TideMark
and TideMark Bank hereby adopt this Agreement whereby at the "Effective
Time of the Holding Company Merger" (as defined in Article VI hereof)
TideMark shall be merged into Crestar in accordance with the Holding
Company Plan of Merger. At the Effective Time of the Bank Merger (as
defined in Article VI hereof), TideMark Bank will merge directly into
Crestar Bank in accordance with the Bank Plan of Merger. The Bank Merger
is intended to qualify as an "Oakar" transaction to avoid the payment of
Federal Deposit Insurance Corporation ("FDIC") exit and entrance fees in
accordance with Section 5(d)(3) of the Federal Deposit Insurance Act
("FDIA"). The outstanding shares of TideMark Common Stock shall be
converted into shares of Crestar Common Stock and/or cash as provided in
this Agreement on the basis, terms and conditions contained herein and in
the Holding Company Plan of Merger. At the Effective Time of the Bank
Merger, the outstanding shares of TideMark Bank Common Stock shall be
canceled.
In connection therewith, the parties hereto agree as follows:
ARTICLE I
General
1.1. Holding Company Merger. Subject to the provisions of this
Agreement and the Holding Company Plan of Merger, at the Effective Time of
the Holding Company Merger the separate existence of TideMark shall cease
and TideMark shall be merged with and into Crestar (the "Surviving
Company").
1.2. Bank Merger. Subject to the provisions of this Agreement
and the Bank Plan of Merger, immediately following the Effective Time of
the Holding Company Merger Crestar shall cause TideMark Bank to merge into
Crestar Bank (the "Surviving Bank"), which merger shall qualify as an
"Oakar" transaction in accordance with Section 5(d)(3)(A) of the FDIA and
the separate existence of TideMark Bank shall cease.
1.3. Issuance of Crestar Common Stock and Payment of Cash.
Crestar agrees that at the Effective Time of the Holding Company Merger it
will issue Crestar Common Stock and/or pay cash to the extent set forth in,
and in accordance with, the terms of this Agreement and the Holding Company
Plan of Merger.
1.4. Taking of Necessary Action. In case at any time after the
Effective Time of the Merger any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Company and/or Surviving Bank with full title to all properties, assets,
rights, approvals, immunities and franchises of TideMark and/or TideMark
Bank, the officers and directors of the Surviving Company and/or Surviving
Bank shall take all such necessary action.
ARTICLE II
Effect of Transaction on Common Stock, Assets,
Liabilities and Capitalization of Crestar,
Crestar Bank, TideMark and TideMark Bank
2.1. Conversion of Stock; Exchange Ratio; Cash Election. At the
Effective Time of the Holding Company Merger:
(a) Conversion of Stock. Each share of TideMark Common
Stock and TideMark Preferred Stock which is issued and
outstanding at the Effective Time of the Holding Company Merger
(other than shares held directly by Crestar, which shall be
cancelled without payment therefore, shares to be exchanged for
cash and Dissenting Shares (as defined in Section 2.4)) shall,
and without any action by the holder thereof, be converted into
the number of shares of Crestar Common Stock determined in
accordance with subsection 2.1(b). All such shares shall be
validly issued, fully paid and nonassessable.
(b) Exchange Ratios. Each share of TideMark Common Stock
(other than shares held directly by Crestar and shares to be
exchanged for cash) shall be converted into the number of shares
of Crestar Common Stock determined by dividing $5.50 per share of
TideMark Common Stock (the "Common Stock Price Per Share") by the
average closing price of Crestar Common Stock as reported on the
New York Stock Exchange for each of the 10 trading days ending on
the 10th day prior to the day of the Effective Time of the
Holding Company Merger (the "Average Closing Price"). Each share
of TideMark Non-Cumulative Preferred Stock, Series A ("TideMark
Series A") shall be converted into the number of shares of
Crestar Common Stock determined by dividing $10 per share of
TideMark Series A, (the "Preferred Stock Price Per Share") by the
Average Closing Price. The result of the quotient determined by
dividing the Common Stock Price Per Share by the Average Closing
Price and rounded to the nearest thousandths decimal point is
hereinafter called the "Common Stock Exchange Ratio" and the
quotient similarly determined with respect to TideMark Series A
is hereinafter called the "Preferred Stock Exchange Ratio."
Together, the two are called the "Exchange Ratios."
The Exchange Ratios at the Effective Time of the Holding
Company Merger shall be adjusted to reflect any consolidation,
split-up, other subdivisions or combinations of Crestar Common
Stock, any dividend payable in Crestar Common Stock, or any
capital reorganization involving the reclassification of Crestar
Common Stock subsequent to the date of this Agreement.
(c) Cash Election. Holders of shares of TideMark Common
Stock will be given the option of exchanging their shares for the
Common Stock Price Per Share in cash (subject to all applicable
withholding taxes), provided that the number of shares that may
be exchanged for cash when aggregated with Dissenting Shares (as
herein defined) shall not exceed 40% of the number of outstanding
shares of TideMark Common Stock immediately prior to the
Effective Time of the Holding Company Merger. The cash election
must be made at or prior to the time TideMark shareholders vote
on the Merger, and, once such vote has been taken, cash elections
shall be irrevocable. If the aggregate number of shares for
which a cash election is made, aggregated with the Dissenting
Shares, exceeds 40% of the outstanding shares of TideMark Common
Stock immediately prior to the Effective Time of the Holding
Company Merger, Crestar first will pay cash for shares submitted
for cash exchange by each holder of 100 or fewer TideMark shares
(if such holder has submitted all his shares for cash exchange)
and then will pay cash for the remaining shares submitted for
cash pro rata. Shares not exchanged for cash after proration
will be exchanged for Crestar Common Stock at the Common Stock
Exchange Ratio. Holders of the TideMark Series A will not be
entitled to exchange their shares of TideMark Series A for cash.
2.2. Manner of Exchange.
(a) Shareholders who elect to exchange some or all of their
shares of TideMark Common Stock for cash must submit to TideMark
certificates for the shares being exchanged for cash at or prior
to the meeting of TideMark's shareholders referred to in Section
4.2. If the Merger is approved by TideMark's shareholders at
this meeting, a shareholder's election to receive cash is
irrevocable and TideMark will retain certificates for shares
submitted for cash purchase until either (1) termination of this
Agreement, upon which TideMark will return such certificates, or
(ii) the Effective Time of the Holding Company Merger, when
Crestar Bank (which shall act as exchange agent) will exchange
such certificates for cash to the extent required by this
Agreement and the Holding Company Plan of Merger.
(b) After the Effective Time of the Holding Company
Merger, each holder of a certificate for theretofore outstanding
shares of TideMark Common Stock or TideMark Series A, upon
surrender of such certificate to Crestar Bank (which shall act as
exchange agent), unless previously surrendered to TideMark in
connection with exercise of the cash option, and a Letter of
Transmittal, which shall be mailed to each holder of a
certificate for theretofore outstanding shares of TideMark Common
Stock and TideMark Series A by Crestar Bank promptly following
the Effective Time of the Holding Company Merger, shall be
entitled to receive in exchange therefor a certificate or
certificates representing the number of full shares of Crestar
Common Stock for which shares of TideMark Common Stock or
TideMark Series A theretofore represented by the certificate or
certificates so surrendered shall have been exchanged as provided
in this Article II or cash if the cash option provided in
subsection 2.1(c) is properly elected, or, in the event of
proration, a combination of cash and Crestar Common Stock. Until
so surrendered, each outstanding certificate which, prior to the
Effective Time of the Holding Company Merger, represented
TideMark Common Stock or Tidemark Series A will be deemed to
evidence the right to receive either (i) the number of full
shares of Crestar Common Stock into which the shares of TideMark
Common Stock or Tidemark Series A represented thereby may be
converted in accordance with the applicable Exchange Ratio or
(ii) the Common Stock Price Per Share multiplied by the number of
shares of TideMark Common Stock represented by such certificate
(subject to all applicable withholding taxes) in cash if the cash
option provided in subsection 2.1(c) was properly elected by a
holder of Tidemark Common Stock, or (iii) a combination thereof;
and, after the Effective Time of the Holding Company Merger
(unless the cash option was properly elected) will be deemed for
all corporate purposes of Crestar to evidence ownership of the
number of full shares of Crestar Common Stock into which the
shares of TideMark Common Stock or Tidemark Series A represented
thereby were converted.
(c) For shares of TideMark Common Stock or Tidemark Series
A to be converted into Crestar Common Stock, until such
outstanding certificates formerly representing TideMark Common
Stock or Tidemark Series A are surrendered, no dividend payable
to holders of record of Crestar Common Stock for any period as of
any date subsequent to the Effective Time of the Holding Company
Merger shall be paid to the holder of such outstanding
certificates in respect thereof. After the Effective Time of the
Holding Company Merger, there shall be no further registry of
transfer on the records of TideMark of shares of TideMark Common
Stock or Tidemark Series A. If a certificate representing such
shares is presented to Crestar, it shall be canceled and
exchanged for a certificate representing shares of Crestar Common
Stock as herein provided. Upon surrender of certificates of
TideMark Common Stock or Tidemark Series A in exchange for
Crestar Common Stock, there shall be paid to the recordholder of
the certificates of Crestar Common Stock issued in exchange
therefor (i) the amount of dividends theretofore paid for such
full shares of Crestar Common Stock as of any date subsequent to
the Effective Time of the Holding Company Merger which have not
yet been paid to a public official pursuant to abandoned property
laws and (ii) at the appropriate payment date the amount of
dividends with a record date after the Effective Time of the
Holding Company Merger but prior to surrender and a payment date
subsequent to surrender. No interest shall be payable on such
dividends upon surrender of outstanding certificates.
(d) At the Effective Time of the Holding Company Merger,
each share of TideMark Common Stock held by Crestar shall be
canceled, retired and cease to exist and each Dissenting Share
shall be treated in accordance with Articles 15 of the Virginia
Stock Corporation Act ("VSCA").
(e) At the Effective Time of the Holding Company Merger
and as provided in the Holding Company Plan of Merger,
outstanding options to acquire TideMark Common Stock that were
granted under the Key Employee Compensatory Stock Option Plan
("TideMark Options," as defined in Section 3.1(j)(1) hereof), and
which are identified on Schedule C, shall, unless the holder of
the TideMark Options has notified TideMark that he is electing
the exercise or cash-out feature provided for in Section 8.5, be
converted, based on the Common Stock Exchange Ratio, into options
to acquire Crestar Common Stock ("Crestar Options"). The
exercise price per share of Crestar Common Stock under a Crestar
Option shall be equal to the exercise price per share of TideMark
Common Stock under the TideMark Option divided by the Common
Stock Exchange Ratio (rounded up to the nearest cent). The
number of shares of Crestar Common Stock subject to a Crestar
Option shall be equal to the number of shares of TideMark Common
Stock subject to the TideMark Option multiplied by the Common
Stock Exchange Ratio (rounded down to the nearest whole share).
Except as provided in the preceding sentences regarding the price
of, and number of shares of Crestar Common Stock subject to, the
Crestar Option, the terms of the Crestar Option shall be the same
as the terms of the TideMark Option.
2.3. No Fractional Shares. No certificates or scrip for
fractional shares of Crestar Common Stock will be issued. In lieu thereof,
Crestar will pay the value of such fractional shares in cash on the basis
of the Average Closing Price.
2.4. Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of TideMark Common Stock and Tidemark
Series A which are issued and outstanding immediately prior to the
Effective Time of the Holding Company Merger and which are held by a
shareholder (other than Crestar and its subsidiaries, which waive such
right to dissent) who has the right (to the extent such right is available
by law) to demand and receive payment of the fair value of his shares of
TideMark Common Stock or Tidemark Series A pursuant to Section 13.1-730 of
the VSCA (the "Dissenting Shares") shall not be converted into or be
exchangeable for the right to receive the consideration provided in Section
2.1 of this Agreement, unless and until such holder shall fail to perfect
his or her right to dissent or shall have effectively withdrawn or lost
such right under the VSCA, as the case may be. If such holder shall have
so failed to perfect his right to dissent or shall have effectively
withdrawn or lost such right, each of his shares of TideMark Common Stock
or Tidemark Series A shall thereupon be deemed to have been converted into,
at the Effective Time of the Holding Company Merger, the right to receive
shares of Crestar Common Stock as provided in Section 2.1 of this
Agreement.
2.5. Assets. At the Effective Time of the Holding Company
Merger, the corporate existence of TideMark shall be merged into and
continued in Crestar as the Surviving Company. At the Effective Time of
the Bank Merger, the corporate existence of TideMark Bank shall be merged
into and continued in Crestar Bank as the Surviving Bank. All rights,
franchises and interests of TideMark and of TideMark Bank in and to any
type of property and choses in action shall be transferred to and vested in
the Surviving Company or the Surviving Bank, as applicable, by virtue of
the Holding Company Merger and the Bank Merger without any deed or other
transfer. The Surviving Company or the Surviving Bank, as applicable,
without any order or other action on the part of any court or otherwise,
shall hold and enjoy all rights of property, franchises and interests,
including appointments, designations and nominations, and all other rights
and interests as trustee, executor, administrator, transfer agent or
registrar of stocks and bonds, guardian of estates, assignee, receiver and
committee, and in every other fiduciary capacity, in the same manner and to
the same extent as such rights, franchises and interests were held or
enjoyed by TideMark or TideMark Bank at the Effective Time of the Holding
Company Merger and the Effective Time of the Bank Merger, respectively, as
provided in Section 13.1-721 of VSCA, and, with respect to the Bank Merger,
Section 6.1-44 of the Virginia Banking Act ("VBA").
2.6. Liabilities. At the Effective Time of the Holding Company
Merger, the Surviving Company shall be liable for all liabilities of
TideMark, as provided in Section 13.1-721 of the VSCA. At the Effective
Time of the Bank Merger, the Surviving Bank shall be liable for all
liabilities of TideMark Bank, as provided in Section 13.1-721 of the VSCA
and Section 6.1-44 of the VBA. All deposits, debts, liabilities and
obligations of TideMark and TideMark Bank, accrued, absolute, contingent or
otherwise, and whether or not reflected or reserved against on balance
sheets, books of accounts, or records of TideMark or TideMark Bank shall be
those of the Surviving Company or the Surviving Bank, respectively, and
shall not be released or impaired by the Holding Company Merger or the Bank
Merger. All rights of creditors and other obligees and all liens on
property of TideMark or of TideMark Bank shall be preserved unimpaired.
ARTICLE III
Representations and Warranties
3.1. Representations and Warranties of TideMark and Tidemark
Bank. TideMark and Tidemark Bank represent and warrant to Crestar and
Crestar Bank as follows:
(a) Organization, Standing and Power. TideMark is a
corporation duly organized, validly existing and in good standing
under the laws of Virginia and has all requisite power and
authority to own, lease and operate its properties and to carry
on its business, as now being conducted and to perform this
Agreement and the Holding Company Plan of Merger and to effect
the transactions contemplated hereby and thereby. TideMark has
delivered to Crestar complete and correct copies of (i) its
Articles of Incorporation and (ii) its By-laws.
TideMark Bank is a federal savings bank duly organized,
validly existing and in good standing under the laws of the
United States and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its
business as now being conducted and to perform this Agreement and
the Bank Plan of Merger and to effect the transactions
contemplated hereby and thereby. TideMark Bank's deposits are
insured by the Savings Association Insurance Fund of the FDIC to
the maximum extent permitted by law. TideMark Bank has delivered
to Crestar complete and correct copies of (i) its Charter and
(ii) its By-laws.
(b) Capital Structure. The authorized capital stock of
TideMark consists of 20,000,000 shares of TideMark Common Stock,
par value $0.01, and 5,000,000 shares of preferred stock, par
value $0.01. On the date hereof, 6,939,484 shares of TideMark
Common Stock and no shares of preferred stock were outstanding;
Tidemark has agreed to issue and sell 200,000 shares of TideMark
Series A, to Crestar Securities Corporation. All of the
outstanding shares of TideMark Common Stock and TideMark Series A
were validly issued, fully paid and nonassessable. Other than
TideMark Series A, no shares of TideMark preferred stock will be
or are issued and outstanding.
The authorized capital stock of TideMark Bank consists of
20,000,000 shares of Common Stock. On the date hereof, 100
shares of TideMark Bank Common Stock were outstanding and all of
such outstanding shares were validly issued, fully paid and
nonassessable. TideMark owns all of the issued and outstanding
capital stock of TideMark Bank free and clear of any liens,
claims, encumbrances, charges or rights of third parties of any
kind whatsoever.
TideMark knows of no person who beneficially owns 5% or
more of the outstanding TideMark Common Stock as of the date
hereof, except as disclosed on Schedule C.
(c) Authority. Subject to the approval of this Agreement
and the Holding Company Plan of Merger by the shareholders of
TideMark as contemplated by Section 4.2, the execution and
delivery of this Agreement and the consummation of the
transactions contemplated hereby and by the Holding Company Plan
of Merger have been duly and validly authorized by all necessary
action on the part of TideMark, and this Agreement is a valid and
binding obligation of TideMark, enforceable in accordance with
its terms, except as enforceability may be limited by laws
affecting insured depository institutions and similar laws
affecting the enforcement of creditors' rights generally and
subject to any equitable principles limiting the right to obtain
specific performance. The execution and delivery of this
Agreement, the consummation of the transactions contemplated
hereby and by the Holding Company Plan of Merger and compliance
by TideMark with any of the provisions hereof or thereof will not
(i) conflict with or result in a breach of any provision of its
Articles of Incorporation or By-laws or a default (or give rise
to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond,
debenture, mortgage, indenture, license, material agreement or
other material instrument or obligation to which TideMark is a
party, or by which it or any of its properties or assets may be
bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to TideMark or any of its
properties or assets. No consent or approval by any governmental
authority, other than compliance with applicable federal and
state securities and banking laws, and regulations of the Board
of Governors of the Federal Reserve System (the "Federal Reserve
Board"), the FDIC, the Office of Thrift Supervision ("OTS") and
the Bureau of Financial Institutions of the Virginia State
Corporation Commission ("SCC"), is required in connection with
the execution and delivery by TideMark of this Agreement or the
consummation by TideMark of the transactions contemplated hereby
or by the Holding Company Plan of Merger.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and by the
Bank Plan of Merger, as applicable, have been duly and validly
authorized by all necessary action on the part of TideMark Bank,
and this Agreement is a valid and binding obligation of TideMark
Bank, enforceable in accordance with its terms except as
enforceability may be limited by laws affecting insured
depository institutions and similar laws affecting the
enforcement of creditors' rights generally and subject to any
equitable principles limiting the right to obtain specific
performance. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and by the
Bank Plan of Merger, as applicable, and compliance by TideMark
Bank with any of the provisions hereof will not (i) conflict with
or result in a breach of any provision of its Charter or By-laws
or a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions
or provisions of any note, bond, debenture, mortgage, indenture,
license, material agreement or other material instrument or
obligation to which TideMark Bank is a party, or by which it or
any of its properties or assets may be bound, or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to TideMark Bank or any of its properties or assets.
No consent or approval by any governmental authority, other than
compliance with applicable federal and state banking laws, and
regulations of the Federal Reserve Board, the FDIC, the OTS and
the SCC, is required in connection with the execution and
delivery by TideMark Bank of this Agreement or the consummation
by TideMark Bank of the transactions contemplated hereby or by
the Bank Plan of Merger.
(d) Investments. All securities owned by TideMark and
TideMark Bank of record and beneficially are free and clear of
all mortgages, liens, pledges, encumbrances or any other
restriction, whether contractual or statutory, which would
materially impair the ability of TideMark or TideMark Bank freely
to dispose of any such security at any time, except as noted on
Schedule A-1. Any securities owned of record by TideMark and
TideMark Bank in an amount equal to 5% or more of the issued and
outstanding voting securities of the issuer thereof have been
noted on such Schedule A-1. There are no voting trusts or other
agreements or undertakings of which TideMark or TideMark Bank is
a party with respect to the voting of such securities. With
respect to all repurchase agreements to which TideMark or
TideMark Bank is a party, TideMark or TideMark Bank has a valid,
perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement,
and the value of the collateral securing each such repurchase
agreement equals or exceeds the amount of the debt secured by
such collateral under such agreement.
(e) Financial Statements. Schedule A-2 contains copies of
the following financial statements of TideMark (or TideMark Bank
with respect to the year ended June 30, 1992) (the "TideMark
Financial Statements"):
(i) Consolidated Statement of Financial Condition as
of June 30, 1994 and 1993 (audited);
(ii) Consolidated Statements of Operations for each
of the three years ended June 30, 1994, 1993, and 1992
(audited);
(iii) Consolidated Statements of Changes in
Stockholders' Equity for each of the three years ended June
30, 1994, 1993 and 1992 (audited); and
(iv) Consolidated Statements of Cash Flows for each
of the three years ended June 30, 1994, 1993 and 1992
(audited).
Such financial statements and the notes thereto have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated unless otherwise noted in the TideMark Consolidated
Financial Statements. Each of such consolidated statements of
financial condition, together with the notes thereto, presents
fairly as of its date the consolidated financial condition and
assets and liabilities of TideMark. The consolidated statements
of operations, changes in stockholders' equity and cash flows,
together with the notes thereto, present fairly the results of
consolidated operations, consolidated changes in stockholders'
equity and consolidated cash flows of TideMark or TideMark Bank
for the periods indicated in accordance with generally accepted
accounting principles ("GAAP").
Except as disclosed in the TideMark Financial Statements,
and in the case of TideMark Bank, compliance with and subject to
the requirements of 12 C.F.R. Section 563.134, there are no
restrictions precluding TideMark or TideMark Bank from paying
dividends when, as and if declared by their respective Boards of
Directors.
(f) Absence of Undisclosed Liabilities. At June 30, 1994,
TideMark had no material obligations or liabilities (contingent
or otherwise) of any nature which were not reflected in the
TideMark Financial Statements or in the TideMark periodic reports
filed with the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934 (the "1934 Act") as of such
dates, or disclosed in the notes thereto, except for those which
are disclosed in Schedules specifically referred to herein or
which in the aggregate are immaterial.
(g) Tax Matters. TideMark Bank and all other subsidiaries
of TideMark are members of the same "affiliated group," as
defined in Section 1504(a)(1) of the Code, as TideMark
(collectively, the "TideMark Group"). Each member of the
TideMark Group has filed or caused to be filed or (in the case of
returns or reports not yet due) will file all tax returns and
reports required to have been filed by or for them before the
Effective Time of the Holding Company Merger, and all information
set forth in such returns or reports is or (in the case of such
returns or reports not yet due) will be accurate and complete in
all material respects. Each member of the TideMark Group has
paid or made adequate provision for, or (with respect to returns
or reports not yet filed) before the Effective Time of the
Holding Company Merger will pay or make adequate provision for,
all taxes, additions to tax, penalties, and interest for all
periods covered by those returns or reports. There are, and at
the Effective Time of the Holding Company Merger will be, no
unpaid taxes, additions to tax, penalties, or interest due and
payable by any member of the TideMark Group that are or could
become a lien on any asset, or otherwise materially adversely
affect the business, property or financial condition, of any
member of the TideMark Group except for taxes and any such
related liability (a) incurred in the ordinary course of business
for which adequate provision has been made by any member of the
TideMark Group or (b) being contested in good faith and disclosed
in Schedule B. Each member of the TideMark Group has collected
or withheld, or will collect or withhold before the Effective
Time of the Holding Company Merger, all amounts required to be
collected or withheld by it for any taxes, and all such amounts
have been, or before the Effective Time of the Holding Company
Merger will have been, paid to the appropriate governmental
agencies or set aside in appropriate accounts for future payment
when due. Each member of the TideMark Group is in material
compliance with, and its records contain all information and
documents (including, without limitation, properly completed IRS
Forms W-9) necessary to comply in all material respects with, all
applicable information reporting and tax withholding requirements
under federal, state, and local laws, rules, and regulations, and
such records identify with specificity all accounts subject to
backup withholding under Section 3406 of the Code. The
consolidated statements of financial condition contained in the
TideMark Financial Statements fully and properly reflect, as of
the dates thereof, the aggregate liabilities of the members of
the TideMark Group for all accrued taxes, additions to tax,
penalties and interest in accordance with GAAP. For periods
ending after June 30, 1994, the books and records of each member
of the TideMark Group fully and properly reflect their liability
for all accrued taxes, additions to tax, penalties and interest
in accordance with GAAP. Except as disclosed in Schedule B, no
member of the TideMark Group has granted (nor is it subject to)
any waiver of the period of limitations for the assessment of tax
for any currently open taxable period, and no unpaid tax
deficiency has been asserted in writing against or with respect
to any member of the TideMark Group by any taxing authority. No
member of the TideMark Group has made or entered into, or holds
any asset subject to, a consent filed pursuant to Section 341(f)
of the Code and the regulations thereunder or a "safe harbor
lease" subject to former Section 168(f)(8) of the Code and the
regulations thereunder. Schedule B describes all tax elections,
consents and agreements affecting any member of the TideMark
Group. To the best knowledge of TideMark, no TideMark
shareholder is a "foreign person" for purposes of Section 1445 of
the Code.
(h) Options, Warrants and Related Matters. There are no
outstanding unexercised options, warrants, calls, commitments or
agreements of any character to which TideMark or TideMark Bank is
a party or by which it is bound, calling for the issuance of
securities of TideMark or TideMark Bank or any security
representing the right to purchase or otherwise receive any such
security, except (i) as set forth on Schedule C and (ii) the
Option Agreement, and (iii) the Commitment dated September 26,
1994 (the "Commitment") between Crestar Securities Corporation
("CSC") and TideMark pursuant to which CSC will acquire 200,000
shares of TideMark Series A to enable TideMark Bank to satisfy
its obligations under the Asset Purchase and Account Assumption
Agreement dated July 11, 1994 (the "Bay Agreement") among
TideMark Bank, First Federal of Michigan, Bay Savings Bank, FSB
and 1001 Holding, Inc.
(i) Property. TideMark and TideMark Bank own (or enjoy
use of under capital leases) all property reflected on the
TideMark Financial Statements as of June 30, 1994 (except
property sold or otherwise disposed of in the ordinary course of
business). All property shown as being owned is owned free and
clear of all mortgages, liens, pledges, charges or encumbrances
of any nature whatsoever, except those referred to in such
TideMark Financial Statements or the notes thereto, liens for
current taxes not yet due and payable, any unfiled mechanics'
liens and such encumbrances and imperfections of title, if any,
as are not substantial in character or amount or otherwise
materially impair TideMark's consolidated business operations.
The leases relating to leased property are fairly reflected in
such TideMark Financial Statements.
Except for Other Real Estate Owned ("OREO"), all property
and assets material to the business or operations of TideMark and
TideMark Bank are in substantially good operating condition and
repair and such property and assets are adequate for the business
and operations of TideMark and TideMark Bank as currently
conducted.
(j) Additional Schedules Furnished to Crestar. In
addition to any Schedules furnished to Crestar pursuant to other
provisions of this Agreement, TideMark has furnished to Crestar
the following Schedules which are correct and complete as of the
date hereof:
(1) Employees. Schedule C lists as of the date
hereof (A) the names of and current annual salary rates for
all present employees of TideMark and TideMark Bank who
received, respectively, $60,000 or more in aggregate
compensation, whether in salary or otherwise as reported or
would be reported on Form W-2, during the year ended June
30, 1994, or are presently scheduled to receive salary in
excess of $60,000 during the year ending June 30, 1995,
(B) the number of shares of TideMark Common Stock owned
beneficially by each director of TideMark or TideMark Bank
as of the date hereof, (C) the names of and the number of
shares of TideMark Common Stock owned by each person known
to TideMark who beneficially owns 5% or more of the
outstanding TideMark Common Stock as of the date hereof,
and (D) the names of, the number of outstanding options of,
and the exercise price of, each agreement to make stock
awards granted to each person under the TideMark Employee
Compensatory Stock Option Plan or the Key Employee
Restricted Stock Incentive Plan or any option granted to a
director of TideMark or TideMark Bank (collectively,
"TideMark Options") and the exercise price of each such
TideMark Option.
(2) Certain Contracts. Schedule D lists all notes,
bonds, mortgages, indentures, licenses, lease agreements
and other contracts and obligations to which TideMark or
TideMark Bank is an indebted party or a lessee, licensee or
obligee as of the date hereof except for those entered into
by TideMark or TideMark Bank in the ordinary course of its
business consistent with its prior practice and that do not
involve an amount remaining greater than $100,000.
(3) Employment Contracts and Related Matters. Except
in all cases as set forth on Schedule E, neither TideMark
nor TideMark Bank is a party to any employment contract not
terminable at the option of TideMark or TideMark Bank
without liability. Except in all cases as set forth on
Schedule E, neither TideMark nor TideMark Bank is a party
to (A) any retirement, profit sharing or pension plan or
thrift plan or agreement or employee benefit plan (as
defined in Section 3 of the Employee Retirement Income
Security Act of 1974 ("ERISA")), (B) any management or
consulting agreement not terminable at the option of
TideMark or TideMark Bank without liability or (C) any
union or labor agreement.
(4) Real Estate. Schedule F describes, as of the
date hereof, all interests in real property owned, leased
or otherwise claimed by TideMark and TideMark Bank,
including OREO.
(5) Affiliates. Schedule G sets forth the names and
number of shares of TideMark Common Stock owned as of the
date hereof beneficially or of record by any persons
TideMark considers to be affiliates of TideMark ("TideMark
Affiliates") as that term is defined for purposes of
Rule 145 under the Securities Act of 1933 (the "1933 Act").
(k) Agreements in Force and Effect. All contracts,
agreements, plans, leases, policies and licenses referred to in
any Schedule of TideMark or TideMark Bank referred to herein are
valid and in full force and effect, and neither TideMark nor
TideMark Bank has breached any provision of, nor is in default in
any respect under the terms of, any such contract, agreement,
lease, policy or license, the effect of which breach or default
would have a material adverse effect upon either the financial
condition, results of operations, or business of TideMark on a
consolidated basis.
(l) Legal Proceedings; Compliance with Laws. Schedule H
describes all legal, administrative, arbitration or other
proceeding or governmental investigation known to TideMark or
TideMark Bank pending or, to the knowledge of TideMark's and
TideMark Bank's management, threatened or probable of assertion
against TideMark or TideMark Bank. Except as set forth on
Schedule H, no such proceeding or investigation, if decided
adversely, would have a material adverse effect on either the
financial condition, results of operations or business of
TideMark on a consolidated basis. Except as set forth in
Schedule H, TideMark and TideMark Bank have complied in all
material respects with any laws, ordinances, requirements,
regulations or orders applicable to its business except where
noncompliance would not have a material adverse effect on either
the financial condition, results of operations or business of
TideMark on a consolidated basis. TideMark and TideMark Bank
have all licenses, permits, orders or approvals (collectively,
the "Permits") of any federal, state, local or foreign
governmental or regulatory body that are necessary for the
conduct of its business and the absence of which would have a
material adverse effect on the financial condition, results of
operations or business of TideMark on a consolidated basis; the
Permits are in full force and effect; no violations are or have
been recorded in respect of any Permits nor has TideMark or
TideMark Bank received written notice of any violations; and no
proceeding is pending or, to the knowledge of TideMark and
TideMark Bank, threatened to revoke or limit any Permit. Except
as set forth in Schedule H, neither TideMark nor TideMark Bank
has entered into any agreements or written understandings with
the OTS, the FDIC or any other regulatory agency having authority
over it. Neither TideMark nor TideMark Bank is subject to any
judgment, order, writ, injunction or decree which materially
adversely affects, or might reasonably be expected materially
adversely to affect either the financial condition, results of
operations, or business of TideMark on a consolidated basis.
(m) Employee Benefit Plans.
(1) Schedule E includes a correct and complete list
of, and Crestar has been furnished a true and correct copy
of (or an accurate written description thereof in the case
of oral agreements or arrangements) (A) all qualified
pension and profit-sharing plans, all deferred
compensation, consultant, severance, thrift, option, bonus
and group insurance contracts and all other incentive,
welfare and employee benefit plans, trust, annuity or other
funding agreements, and all other agreements (including
oral agreements) that are presently in effect, or have been
approved prior to the date hereof, maintained for the
benefit of employees or former employees of TideMark or
TideMark Bank or the dependents or beneficiaries of any
employee or former employee of TideMark or TideMark Bank,
whether or not subject to ERISA (the "Employee Plans"), (B)
the most recent actuarial and financial reports prepared or
required to be prepared with respect to any Employee Plan
and (C) the most recent annual reports filed with any
governmental agency, the most recent favorable
determination letter issued by the Internal Revenue
Service, and any open requests for rulings or determination
letters, that pertain to any such qualified Employee Plan.
Schedule E identifies each Employee Plan that is intended
to be qualified under Section 401(a) of the Code and each
such plan is qualified.
(2) Neither TideMark, TideMark Bank nor any employee
pension benefit plan (as defined in Section 3(2) of ERISA
(a "Pension Plan")) maintained or previously maintained by
it, has incurred any material liability to the Pension
Benefit Guaranty Corporation ("PBGC") or to the Internal
Revenue Service with respect to any Pension Plan. There is
not currently pending with the PBGC any filing with respect
to any reportable event under Section 4043 of ERISA nor has
any reportable event occurred as to which a filing is
required and has not been made.
(3) Full payment has been made (or proper accruals
have been established) of all contributions which are
required for periods prior to the Closing Date, as defined
in Section 6.1 hereof, under the terms of each Employee
Plan, ERISA, or a collective bargaining agreement, no
accumulated funding deficiency (as defined in Section 302
of ERISA or Section 412 of the Code) whether or not waived,
exists with respect to any Pension Plan (including any
Pension Plan previously maintained by TideMark or TideMark
Bank), and except as set forth on Schedule E, there is no
"unfunded current liability" (as defined in Section 412 of
the Code) with respect to any Pension Plan.
(4) No Employee Plan is a "multiemployer plan" (as
defined in Section 3(37) of ERISA). Neither TideMark nor
TideMark Bank has incurred any liability under Section 4201
of ERISA for a complete or partial withdrawal from a multi-
employer plan (as defined in Section 3(37) of ERISA).
Neither TideMark nor TideMark Bank has participated in or
agreed to participate in, a multiemployer plan (as defined
in Section 3(37) of ERISA).
(5) All Employee Plans that are "employee benefit
plans," as defined in Section 3(3) of ERISA, that are
maintained by TideMark or TideMark Bank or previously
maintained by TideMark or TideMark Bank comply and have
been administered in compliance in all material respects
with ERISA and all other applicable legal requirements,
including the terms of such plans, collective bargaining
agreements and securities laws. Neither TideMark nor
TideMark Bank has any material liability under any such
plan that is not reflected in the TideMark Financial
Statements or on Schedule E hereto.
(6) Except as set forth on Schedule E, no prohibited
transaction has occurred with respect to any Employee Plan
that is an "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by TideMark or TideMark Bank or
previously maintained by TideMark or TideMark Bank that
would result, directly or indirectly, in material liability
under ERISA or in the imposition of a material excise tax
under Section 4975 of the Code.
(7) Schedule E identifies each Employee Plan that is
an "employee welfare benefit plan" (as defined in Section
3(1) of ERISA) and which is funded. The funding under each
such plan does not exceed the limitations under Section
419A(b) or 419A(c) of the Code. Neither TideMark nor
TideMark Bank is subject to taxation on the income of any
such plan or any such plan previously maintained by
TideMark or TideMark Bank.
(8) Schedule E identifies the method of funding
(including any individual accounting) for all post-
retirement medical or life insurance benefits for the
employees of TideMark and TideMark Bank. Schedule E also
discloses the funded status of these Employee Plans.
(9) Schedule E identifies each corporate owned life
insurance policy, including any key man insurance policy
and policy insuring the life of any director or employee of
TideMark or TideMark Bank, and indicates for each such
policy, the face amount of coverage, cash surrender value,
if any, and annual premiums.
(10) No trade or business is, or has ever been,
treated as a single employer with TideMark or TideMark Bank
for employee benefit purposes under ERISA and the Code.
(n) Insurance. All policies or binders of fire,
liability, product liability, workmen's compensation, vehicular
and other insurance held by or on behalf of TideMark or TideMark
Bank are described on Schedule I and are valid and enforceable in
accordance with their terms, are in full force and effect, and
insure against risks and liabilities to the extent and in the
manner customary for the industry and are deemed appropriate and
sufficient by TideMark and TideMark Bank. Neither TideMark nor
TideMark Bank is in default with respect to any provision
contained in any such policy or binder and has not failed to give
any notice or present any claim under any such policy or binder
in due and timely fashion. Neither TideMark nor TideMark Bank
has received notice of cancellation or non-renewal of any such
policy or binder. Neither TideMark nor TideMark Bank has
knowledge of any inaccuracy in any application for such policies
or binders, any failure to pay premiums when due or any similar
state of facts that might form the basis for termination of any
such insurance. Neither TideMark nor TideMark Bank has knowledge
of any state of facts or of the occurrence of any event that is
reasonably likely to form the basis for any material claim
against it not fully covered (except to the extent of any
applicable deductible) by the policies or binders referred to
above. Neither TideMark nor TideMark Bank has received notice
from any of its insurance carriers that any insurance premiums
will be materially increased in the future or that any such
insurance coverage will not be available in the future on
substantially the same terms as now in effect.
(o) Loan Portfolio. Each loan outstanding on the books of
TideMark and TideMark Bank is in all respects what it purports to
be, was made in the ordinary course of business, was not known to
be uncollectible at the time it was made, accrues interest
(except for loans recorded on TideMark Bank's books as non-
accrual) in accordance with the terms of the loan, and with
respect to loans originated by TideMark Bank was made in
accordance with TideMark Bank's standard loan policies as in
effect at the time the loan was negotiated except for loans to
facilitate the sale of OREO or loans with renegotiated terms and
conditions. The records of TideMark Bank regarding all loans
outstanding and OREO by TideMark Bank on its books are accurate
in all material respects and the risk classifications for the
loans outstanding are, in the best judgment of the management of
TideMark, appropriate. The reserves for possible loan losses on
the outstanding loans of TideMark Bank, as reflected in the
TideMark Financial Statements, have been established in
accordance with generally accepted accounting principles and with
the requirements of the OTS and the FDIC. In the best judgment
of the management of TideMark such reserves are adequate as of
the date hereof and will be adequate as of the Effective Time of
the Holding Company Merger to absorb all known and anticipated
loan losses in the loan portfolio of TideMark Bank. Except as
identified on Schedule J, no loan in excess of $50,000 has been
classified by examiners (regulatory or internal) as "Special
Mention", "Substandard", "Doubtful", "Loss", or words of similar
import. Except as disclosed on Schedule F, the OREO included in
any nonperforming asset of TideMark Bank is recorded at the lower
of cost or fair value less estimated costs to sell based on
independent appraisals that comply with the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of
1989 and Uniform Standards of Professional Appraisal Practice.
Except as identified on Schedule J, to the best knowledge of the
management of TideMark and TideMark Bank, each loan reflected as
an asset on the TideMark Financial Statements is the legal, valid
and binding obligation of the obligor and any guarantor, subject
to bankruptcy, insolvency, fraudulent conveyance and other laws
of general applicability relating to or affecting creditors'
rights and to general principles of equity, and no defense,
offset or counterclaim has been asserted with respect to any such
loan, which if successful would have a material adverse effect on
the financial condition, results of operation or business of
TideMark on a consolidated basis.
(p) Absence of Changes. Except as identified on Schedule
K, since June 30, 1994, there has not been any material adverse
change in the aggregate assets or liabilities, earnings or
business of TideMark, other than changes resulting from or
attributable to (i) changes since such date in laws or
regulations, generally accepted accounting principles or
interpretations of either thereof that affect the banking or
savings and loan industries generally, (ii) changes since such
date in the general level of interest rates, (iii) expenses since
such date incurred in connection with the transactions
contemplated by this Agreement (estimated at $250,000), and the
transactions contemplated by the Bay Agreement (expenses for
which are estimated at $50,000) (iv) accruals and reserves by
TideMark or TideMark Bank since such date pursuant to the terms
of Section 4.8 hereof, or (v) any other accruals, reserves or
expenses incurred by TideMark or TideMark Bank since such date
with Crestar's prior written consent. Since June 30, 1994, the
business of TideMark has been conducted only in the ordinary
course with the exception of the Bay Agreement.
(q) Brokers and Finders. Neither TideMark, TideMark Bank
nor any of their officers, directors or employees have employed
any broker or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the
transactions contemplated herein except for the engagement of
Scott & Stringfellow, Inc., whose fee for its engagement shall
not exceed approximately $75,000.
(r) Subsidiaries; Partnerships and Joint Ventures.
TideMark's only subsidiaries, direct or indirect, other than
TideMark Bank, are set forth in Schedule R. Such corporations
are duly organized, validly existing and in good standing under
the laws of their jurisdiction of incorporation and have all
requisite corporate power and authority to own, lease and operate
their properties and to carry on their business as now being
conducted in all material respects. TideMark owns, directly or
indirectly, all of the issued and outstanding common stock of its
subsidiaries free and clear of any liens, claims, encumbrances,
charges or rights of third parties of any kind whatsoever and is
not a party to any joint venture agreement or partnership except
as set forth in Schedule R.
(s) Reports. Since July 1, 1990 TideMark and TideMark
Bank have filed all material reports and statements, together
with any amendments required to be made with respect thereto,
that were required to be filed with (i) the FDIC, (ii) the OTS
(iii) the SEC and (iv) any other governmental or regulatory
authority or agency having jurisdiction over their operations.
Each of such reports and documents, including the financial
statements, exhibits and schedules thereto, filed with the SEC
pursuant to the 1934 Act was in form and substance in compliance
in all material respects with the 1934 Act. No such report or
statement, or any amendments thereto, contains any statement
which, at the time and in light of the circumstances under which
it was made, was false or misleading with respect to any material
fact necessary in order to make the statements contained therein
not false or misleading. TideMark is a reporting company under
Section 12(g) or 15(d) of the 1934 Act and the regulations of the
SEC.
(t) Environmental Matters. For purposes of this
subsection, the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating to
(i) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural
resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The
term "Environmental Law" includes without limitation (i) the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. Section 9601, et seq; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C.
Section 6901, et seq; the Clean Air Act, as amended, 42 U.S.C.
Section 7401, et seq; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251, et seq; the Toxic Substances
Control Act, as amended, 15 U.S.C. Section 9601, et seq; the
Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 11001, et seq; the Safe Drinking Water Act, 42 U.S.C.
Section 300f, et seq; and all comparable state and local laws,
and (ii) any common law (including without limitation common law
that may impose strict liability) that may impose liability or
obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous
Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity, including any
material containing any such substance as a component. Hazardous
Substances include without limitation petroleum or any derivative
or by-product thereof, asbestos, radioactive material, and
polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned"
means those properties owned or operated by TideMark or TideMark
Bank or any of their subsidiaries, including those properties
serving as collateral for any loans made and retained by TideMark
or TideMark Bank or for which TideMark or TideMark Bank serves in
a trust relationship for the loans retained in portfolio.
Except as disclosed in Schedule L, to the best knowledge of
TideMark and TideMark Bank,
(i) Neither TideMark nor TideMark Bank has been or
is in violation of or liable under any Environmental Law;
(ii) none of the Loan Portfolio Properties and Other
Properties Owned has been or is in violation of or liable
under any Environmental Law; and
(iii) there are no actions, suits, demands, notices,
claims, investigations or proceedings pending or threatened
relating to the liability of the Loan Portfolio Properties
and Other Properties Owned under any Environmental Law,
including without limitation any notices, demand letters or
requests for information from any federal or state
environmental agency relating to any such liabilities under
or violations of Environmental Law.
(u) Disclosure. Except to the extent of any subsequent
correction or supplement with respect thereto furnished prior to
the date hereof, no written statement, certificate, schedule,
list or other written information furnished by or on behalf of
TideMark at any time to Crestar, in connection with this
Agreement, when considered as a whole, contains or will contain
any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they
were made, not misleading. Each document delivered or to be
delivered by TideMark to Crestar is or will be a true and
complete copy of such document, unmodified except by another
document delivered by TideMark.
(v) Accounting; Tax; Regulatory Matters. Subject to
action taken by the Board of Directors of TideMark pursuant to or
as a result of the exception clause to the first sentence of
Section 4.4 hereof, TideMark has not taken or agreed to take any
action or has any knowledge of any fact or circumstance that
would prevent the Holding Company Merger or the Bank Merger from
qualifying as a reorganization within the meaning of Section 368
of the Code, or materially impede or delay receipt of any
approval referred to in Section 4.6.
(w) Regulatory Approvals. Neither TideMark nor TideMark
Bank knows of any reason why the approvals, consents and waivers
of governmental authorities referred to in Sections 5.1(f) and
5.2(e) hereof should not be obtained on a timely basis without
the imposition of any condition of the type referred to in
Section 5.1(f) hereof.
3.2. Representations and Warranties of Crestar and Crestar Bank.
Crestar and Crestar Bank represent and warrant to TideMark and TideMark
Bank as follows:
(a) Organization, Standing and Power. Crestar is a
corporation duly organized, validly existing and in good standing
under the laws of Virginia and has all requisite corporate power
and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Crestar has
delivered to TideMark complete and correct copies of its Articles
of Incorporation and all amendments thereto to the date hereof
and its By-laws as amended to the date hereof.
(b) Capital Structure. The authorized capital stock of
Crestar consists of 100,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock, of which 37,717,023 shares
of Common Stock and no shares of Preferred Stock were issued and
outstanding as of June 30, 1994. All of such issued and
outstanding shares of Crestar Common Stock were validly issued,
fully paid and nonassessable at such date.
The authorized capital stock of Crestar Bank consists of
1,500,000 shares of common stock, $150 par value, of which
1,400,000 shares were issued and outstanding as of June 30, 1994,
all of which shares are owned by Crestar free and clear of any
liens, claims, encumbrances, charges or rights of third parties
of any kind whatsoever. All such issued and outstanding shares
of common stock of Crestar Bank were validly issued, fully paid
and nonassessable.
(c) Authority. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary
action on the part of Crestar; and this Agreement is a valid and
binding obligation of Crestar, enforceable in accordance with its
terms. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and
compliance by Crestar with any of the provisions hereof will not
(i) conflict with or result in a breach of any provision of its
Articles of Incorporation or By-laws or a default (or give rise
to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or
obligation to which Crestar is a party, or by which it or any of
its properties or assets may be bound or (ii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable
to Crestar or any of its properties or assets. No consent or
approval by any governmental authority, other than compliance
with applicable federal and state securities and banking laws,
the rules of the New York Stock Exchange and regulations of the
Federal Reserve Board, the OTS, the FDIC and the SCC is required
in connection with the execution and delivery by Crestar of this
Agreement or the consummation by Crestar of the transactions
contemplated hereby or by the Holding Company Plan of Merger.
The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and by the
Bank Plan of Merger have been duly and validly authorized by all
necessary action on the part of Crestar Bank, and this Agreement
is a valid and binding obligation of Crestar Bank, enforceable in
accordance with its terms. The execution and delivery of this
Agreement, the consummation of the transactions contemplated
hereby and by the Bank Plan of Merger and compliance by Crestar
Bank with any of the provisions hereof or thereof will not
(i) conflict with or result in a breach of any provision of its
Articles of Incorporation or By-laws or a default (or give rise
to any right of termination, cancellation or acceleration) under
any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or
obligation to which Crestar Bank is a party, or by which it or
any of its properties or assets may be bound, or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to Crestar Bank or any of its properties or assets.
No consent or approval by any government authority, other than
compliance with applicable federal and state securities and
banking laws, and regulations of the Federal Reserve Board, the
OTS, the FDIC and the SCC, is required in connection with the
execution and delivery by Crestar Bank of this Agreement or the
consummation by Crestar Bank of the transactions contemplated
hereby or by the Bank Plan of Merger.
(d) Financial Statements. Crestar has on or prior to the
date hereof delivered to TideMark copies of the following
consolidated financial statements of Crestar (the "Crestar
Financial Statements"):
(i) Consolidated Balance Sheets as of December 31,
1993 and 1992 (audited) and as of June 30, 1994 and 1993
(unaudited);
(ii) Consolidated Income Statements for each of the
three years ended December 31, 1993, 1992, and 1991
(audited) and the three months and the six months ended
June 30, 1994 and 1993 (unaudited);
(iii) Consolidated Statements of Changes in
Shareholders' Equity for each of the three years ended
December 31, 1993, 1992 and 1991 (audited) and the three
and six months ended June 30, 1994 and 1993 (unaudited);
and
(iv) Consolidated Statements of Cash Flows for each of
the three years ended December 31, 1993, 1992 and 1991
(audited) and the six months ended June 30, 1994 and 1993
(unaudited).
Such consolidated financial statements and the notes thereto have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated unless otherwise noted in the Crestar Financial
Statements. Each of such consolidated balance sheets, together
with the notes thereto, presents fairly as of its date the
financial condition and assets and liabilities of Crestar. The
consolidated income statements, statements of changes in
shareholders' equity and statements of cash flows, together with
the notes thereto, present fairly the results of operations,
shareholders' equity and cash flows of Crestar for the periods
indicated.
(e) Absence of Undisclosed Liabilities. At June 30, 1994
and December 31, 1993, Crestar and its consolidated subsidiaries
had no material obligations or liabilities, (contingent or
otherwise) of any nature which were not reflected in the Crestar
Financial Statement as of such dates, or disclosed in the notes
thereto, except for those which are disclosed in Schedules
specifically referred to herein or which in the aggregate are
immaterial.
(f) Absence of Changes. Since June 30, 1994 there has not
been any material adverse change in the condition (financial or
otherwise), aggregate assets or liabilities, earnings or business
of Crestar, other than changes resulting from or attributable to
(i) changes since such date in laws or regulations, generally
accepted accounting principles or interpretations of either
thereof that affect the banking or savings and loan industries
generally, (ii) changes since such date in the general level of
interest rates, and (iii) expenses since such date incurred in
connection with the transactions contemplated by this Agreement.
Since June 30, 1994 the business of Crestar has been conducted
only in the ordinary course.
(g) Brokers and Finders. Neither Crestar, Crestar Bank
nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with
the transactions contemplated herein.
(h) Subsidiaries. Crestar's first-tier subsidiaries are
Crestar Bank, Crestar Bank N.A., Crestar Bank MD, Crestar
Insurance Agency, Inc., and Crestar Securities Corporation. Such
corporations are duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of
incorporation and have all requisite corporate power and
authority to own, lease and operate their properties and to carry
on their business as now being conducted in all material
respects. As of the date hereof, Crestar, Crestar Bank and
Crestar Securities Corporation (other than in a fiduciary
capacity) do not own directly or indirectly, or have any rights
to acquire, any shares of TideMark Common Stock or TideMark
Preferred Stock, other than pursuant to the Option Agreement or
the Commitment.
(i) Reports. Since January 1, 1990, Crestar has filed all
material reports and statements, together with any amendments
required to be made with respect thereto, that were required to
be filed with (i) the Federal Reserve Board, (ii) the FDIC, (iii)
the SCC, (iv) the SEC and (v) any other governmental or
regulatory authority or agency having jurisdiction over their
operations. Each of such reports and documents, including the
financial statements, exhibits and schedules thereto, filed with
the SEC pursuant to the 1934 Act was in form and substance in
compliance with the 1934 Act. No such report or statement, or
any amendments thereto, contains any statement which, at the time
and in light of the circumstances under which it was made, was
false or misleading with respect to any material fact necessary
in order to make the statements contained therein not false or
misleading.
(j) Tax Matters. Each of Crestar, Crestar Bank, and all
other corporations that are members of the same "affiliated
group," as defined in Section 1504(a)(1) of the Code, as Crestar
(collectively, the "Crestar Group") has filed or caused to be
filed or (in the case of returns or reports not yet due) will
file all tax returns and reports required to have been filed by
or for it before the Effective Time of the Holding Company
Merger. Each member of the Crestar Group has paid or made
adequate provision for or (with respect to returns or reports not
yet filed) before the Effective Time of the Holding Company
Merger will pay or make adequate provision for all taxes,
additions to tax, penalties, and interest for all periods covered
by those returns or reports. The consolidated balance sheets
contained in the Crestar Financial Statements fully and properly
reflect, as of the dates thereof, the aggregate liabilities of
the members of the Crestar Group for all accrued taxes, additions
to tax, penalties and interest in accordance with GAAP. For
periods ending after June 30, 1994, the books and records of each
member of the Crestar Group fully and properly reflect its
liability for all accrued taxes, additions to tax, penalties and
interest in accordance with GAAP. Except as disclosed in
Schedule M, no member of the Crestar Group has granted (nor is it
subject to) any waiver of the period of limitations for the
assessment of tax for any currently open taxable period, and no
unpaid tax deficiency has been asserted in writing against or
with respect to any member of the Crestar Group by any taxing
authority.
(k) Property. Crestar and Crestar Bank own (or enjoy use
of under capital leases) all property reflected on the Crestar
Financial Statements as of June 30, 1994 and December 31, 1993 as
being owned by them (except property sold or otherwise disposed
of in the ordinary course of business). All property shown as
being owned is owned free and clear of mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever, except those
referred to in such Crestar Financial Statements or the notes
thereto, liens for current taxes not yet due and payable, any
unfiled mechanic's liens and such encumbrances and imperfections
of title, if any, as are not substantial in character or amount
or otherwise would materially impair Crestar's consolidated
business operations. The leases relating to leased property are
fairly reflected in such Crestar Financial Statements.
All property and assets material to the business or
operations of Crestar and Crestar Bank are in substantially good
operating condition and repair, and such property and assets are
adequate for the business and operations of Crestar and Crestar
Bank.
(l) Agreements in Force and Effect. All material
contracts, agreements, plans, leases, policies and licenses of
Crestar and Crestar Bank are valid and in full force and effect;
and Crestar and Crestar Bank have not breached any material
provision of, or are in default in any material respect under the
terms of, any such contract, agreement, lease, policy or license,
the effect of which breach or default would have a material
adverse effect upon the financial condition, results of
operations or business of Crestar and its subsidiaries taken as a
whole.
(m) Legal Proceedings; Compliance with Laws. There is no
legal, administrative, arbitration or other proceeding or
governmental investigation pending, or, to the knowledge of
Crestar's and Crestar Bank's management, threatened or probable
of assertion which, if decided adversely, would have a material
adverse effect on the financial condition, results of operations,
business or prospects of Crestar on a consolidated basis.
Crestar and Crestar Bank have complied with any laws, ordinances,
requirements, regulations or orders applicable to their
respective businesses, except where noncompliance would not have
a material adverse effect on the financial condition, results of
operations, business or prospects of Crestar on a consolidated
basis. Crestar and Crestar Bank have all licenses, permits,
orders or approvals of any federal, state, local or foreign
governmental or regulatory body that are necessary for the
conduct of the respective businesses of Crestar and Crestar Bank
and the absence of which would have a material adverse effect on
the financial condition, results of operations, business or
prospects of Crestar on a consolidated basis; the Permits are in
full force and effect; neither Crestar nor Crestar Bank is aware
of any material violations that are or have been recorded in
respect of any Permit nor has Crestar or Crestar Bank received
notice of any violations; and no proceeding is pending or, to the
knowledge of Crestar or Crestar Bank, threatened to revoke or
limit any Permit. Neither Crestar nor Crestar Bank is subject to
any judgment, order, writ, injunction or decree which materially
adversely affects, or might reasonably be expected to materially
adversely affect, the financial condition, results of operations,
business or prospects of Crestar on a consolidated basis.
(n) Employee Benefit Plans.
(1) Neither Crestar nor any of its subsidiaries, nor
any employee benefit pension plan (as defined in Section
3(2) of ERISA (a "Pension Plan")) maintained by it, has
incurred any material liability to the PBGC or to the
Internal Revenue Service with respect to any Pension Plan,
deferred compensation, consultant, severance, thrift,
option, bonus and group insurance contract or any other
incentive, welfare and employee benefit plan and agreement
presently in effect, or approved prior to the date hereof,
for the benefit of employees or former employees of Crestar
and its subsidiaries or the dependents or beneficiaries of
any employee or former employee of Crestar or any
subsidiary (the "Crestar Employee Plans"). There is not
currently pending with the PBGC any filing with respect to
any reportable event under Section 4043 of ERISA nor has
any reportable event occurred as to which a filing is
required and has not been made.
(2) Full payment has been made (or proper accruals
have been established) of all contributions which are
required for periods prior to the Closing Date under the
terms of each Crestar Employee Plan, ERISA, or a collective
bargaining agreement, and no accumulated funding deficiency
(as defined in Section 302 of ERISA or Section 412 of the
Code) whether or not waived, exists with respect to any
Pension Plan.
(3) No Crestar Employee Plan is a "multiemployer
plan" (as defined in Section 3(37) of ERISA). Neither
Crestar nor Crestar Bank has incurred any material
liability under Section 4201 of ERISA for a complete or
partial withdrawal from a multiemployer plan (as defined in
Section 3(37) of ERISA). Neither Crestar nor Crestar Bank
has participated in or agreed to participate in, a
multiemployer plan (as defined in Section 3(37) of ERISA).
(4) All "employee benefit plans," as defined in
Section 3(3) of ERISA, that are maintained by Crestar
comply and have been administered in compliance in all
material respects with ERISA and all other applicable legal
requirements, including the terms of such plans, collective
bargaining agreements and securities laws. Neither Crestar
nor Crestar Bank has any material liability under any such
plan that is not reflected in the Crestar Financial
Statements.
(5) No prohibited transaction has occurred with
respect to any "employee benefit plan" (as defined in
Section 3(3) of ERISA) maintained by Crestar or Crestar
Bank that would result, directly or indirectly, in material
liability under ERISA or in the imposition of a material
excise tax under Section 4975 of the Code.
(o) Regulatory Approvals. Neither Crestar nor Crestar
Bank knows of any reason why the approvals, consents and waivers
of governmental authorities referred to in Sections 5.1(f) and
5.2(e) hereof should not be obtained on a timely basis without
the imposition of any condition of the type referred to in
Section 5.1(f) hereof.
(p) Disclosure. Except to the extent of any subsequent
correction or supplement with respect thereto furnished prior to
the date hereof, no written statement, certificate, schedule,
list or other written information furnished by or on behalf of
Crestar at any time to TideMark, in connection with this
Agreement when considered as a whole, contains or will contain
any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they
were made, not misleading. Each document delivered or to be
delivered by Crestar to TideMark is or will be a true and
complete copy of such document, unmodified except by another
document delivered by Crestar.
ARTICLE IV
Conduct and Transactions Prior to
Effective Time of the Merger
4.1. Access to Records and Properties of Crestar, Crestar Bank,
TideMark and TideMark Bank; Confidentiality. Between the date of this
Agreement and the Effective Time of the Holding Company Merger, each of
Crestar and Crestar Bank on the one hand, and each of TideMark and TideMark
Bank on the other, agree to give to the other reasonable access to all the
premises and books and records (including tax returns filed and those in
preparation) of it and its subsidiaries and to cause its officers to
furnish the other with such financial and operating data and other
information with respect to the business and properties as the other shall
from time to time request for the purposes of verifying the representations
and warranties set forth herein, preparing the Registration Statement (as
defined in Section 4.2) and applicable regulatory filings (as set forth in
Section 4.6), and preparing unaudited financial statements of TideMark as
of a date prior to the Effective Time of the Holding Company Merger in
order to facilitate Crestar in performance of its post-Closing Date
financial reporting requirements and pre-merger review as permitted in
Section 7.1(g), provided, however, that any such investigation shall be
conducted in such manner as not to interfere unreasonably with the
operation of the respective business of the other. Crestar and TideMark
shall each maintain the confidentiality of all confidential information
furnished to it by the other party hereto concerning the business,
operations, and financial condition of the party furnishing such
information, and shall not use any such information except in furtherance
of the Transaction. If this Agreement is terminated, each party hereto
shall promptly return all documents and copies of, and all workpapers
containing, confidential information received from the other party hereto.
The obligations of confidentiality under this Section 4.1 shall survive any
such termination of this Agreement and shall remain in effect, except to
the extent that (a) one party shall have directly or indirectly acquired
the assets and business of the other party; (b) as to any particular
confidential information with respect to one party, such information (i)
shall become generally available to the public other than as a result of an
unauthorized disclosure by the other party or (ii) was available to the
other party on a nonconfidential basis prior to its disclosure by the first
party; (c) disclosure by any party is required by subpoena or order of a
court of competent jurisdiction or by order of a regulatory authority of
competent jurisdiction; or (d) disclosure is required by the SEC or bank or
thrift regulatory authorities in connection with the transactions
contemplated by this Agreement, provided that the disclosing party has,
prior to such disclosure, advised the other party of the circumstances
necessitating such disclosure and have reached mutually agreeable
arrangements relating to such disclosure.
4.2. Registration Statement, Proxy Statement, Shareholder
Approval. TideMark will duly call and will hold a meeting of its
shareholders as soon as practicable for the purpose of approving the
Holding Company Merger and will comply fully with the provisions of the
1933 Act and the 1934 Act and the rules and regulations of the SEC under
such acts to the extent applicable, and the Articles of Incorporation and
By-laws of TideMark relating to the call and holding of a meeting of
shareholders for such purpose. Subject to action taken by its Board of
Directors pursuant to or as a result of the exception clause to the first
sentence of Section 4.4 hereof, the Board of Directors of TideMark will
recommend to and actively encourage shareholders that they vote in favor of
the Holding Company Merger. Crestar and TideMark will jointly prepare the
proxy statement-prospectus to be used in connection with such meeting (the
"Proxy Statement-Prospectus") and Crestar will prepare and file with the
SEC a Registration Statement on Form S-4 (the "Registration Statement"), of
which such Proxy Statement-Prospectus shall be a part, and use its best
efforts promptly to have the Registration Statement declared effective. In
connection with the foregoing, Crestar will comply with the requirements of
the 1933 Act, the 1934 Act, the New York Stock Exchange and the rules and
regulations of the SEC under such acts with respect to the offering and
sale of Crestar Common Stock in connection with the Transaction and with
all applicable state Blue Sky and securities laws. The notices of such
meetings and the Proxy Statement-Prospectus shall not be mailed to TideMark
shareholders until the Registration Statement shall have become effective
under the 1933 Act. TideMark covenants that none of the information
supplied by TideMark and Crestar covenants that none of the information
supplied by Crestar in the Proxy Statement-Prospectus will, at the time of
the mailing of the Proxy Statement-Prospectus to TideMark shareholders,
contain any untrue statement of a material fact nor will any such
information omit any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading; and at all times
subsequent to the time of the mailing of the Proxy Statement-Prospectus, up
to and including the date of the meeting of TideMark shareholders to which
the Proxy Statement-Prospectus relates, none of such information in the
Proxy Statement-Prospectus, as amended or supplemented, will contain an
untrue statement of a material fact or omit any material fact required to
be stated therein in order to make the statements therein, in light of the
circumstances in which they were made, not misleading.
TideMark, as the sole shareholder of TideMark Bank, and Crestar,
as the sole shareholder of Crestar Bank, hereby approve this Agreement and
the Bank Plan of Merger.
4.3. Operation of the Business of TideMark and TideMark Bank.
TideMark and TideMark Bank agree that from June 30, 1994 to the Effective
Time of the Merger, they have operated, and they will operate, their
respective businesses substantially as presently operated and, except for
the Bay Agreement, only in the ordinary course and in general conformity
with applicable laws and regulations, and, consistent with such operation,
they will use their best efforts to preserve intact its present business
organizations and its relationships with persons having business dealings
with it. Without limiting the generality of the foregoing, TideMark and
TideMark Bank agree that they will not, without the prior written consent
of Crestar, (i) make any change in the salaries, bonuses or title of any
officer except bonuses not exceeding $100,000 in the aggregate which may be
paid in connection with the consummation of the Bay Agreement; (ii) make
any change in the title, salaries or bonuses of any other employee, other
than those permitted by current employment policies in the ordinary course
of business and bonuses not exceeding $100,000 in the aggregate which may
be paid in connection with the consummation of the Bay Transaction, any of
which changes shall be reported promptly to Crestar; (iii) enter into any
bonus, incentive compensation, deferred compensation, profit sharing,
thrift, retirement, pension, group insurance or other benefit plan or any
employment or consulting agreement or increase benefits under existing
plans; (iv) create or otherwise become liable with respect to any
indebtedness for money borrowed or purchase money indebtedness except in
the ordinary course of business; (v) amend its Articles of Incorporation or
By-laws; (vi) issue or contract to issue any shares of TideMark capital
stock or securities exchangeable for or convertible into capital stock
except (w) up to 42,000 shares of TideMark Common Stock issuable pursuant
to TideMark Options outstanding as of June 30, 1994, (y) up to 1,380,000
shares of TideMark Common Stock pursuant to the Option Agreement; or (z)
200,000 shares of TideMark Series A; (vii) purchase any shares of TideMark
capital stock; (viii) enter into or assume any material contract or
obligation, except in the ordinary course of business; (ix) other than as
provided in (a) below with respect to the work-out of nonperforming assets,
waive, release, compromise or assign any right or claim involving $75,000
or more; (x) propose or take any other action which would make any
representation or warranty in Section 3.1 hereof untrue; (xi) introduce any
new products or services or change the rate of interest on any deposit
instrument to above-market interest rates; (xii) make any change in
policies respecting extensions of credit or loan charge-offs; (xiii) change
reserve requirement policies; (xiv) change securities portfolio policies;
(xv) acquire a policy or enter into any new agreement, amendment or
endorsement or make any changes relating to insurance coverage, including
coverage for its directors and officers, which would result in an
additional payment obligation of $50,000 or more; (xvi) propose or take any
action with respect to the closing of any branches; (xvii) amend the terms
of the TideMark Options; (xviii) amend the terms of the written severance
or employment agreements identified in Schedule E; or (xix) make any change
in any tax election or accounting method or system of internal accounting
controls, except as may be appropriate to conform to any change in
regulatory accounting requirements or generally accepted accounting
principles. TideMark and TideMark Bank further agree that, between the
date of this Agreement and the Effective Time of the Holding Company
Merger, they will consult and cooperate with Crestar regarding (a) loan
portfolio management, including management and work-out of nonperforming
assets, and credit review and approval procedures, including notice to
Crestar's Credit Review Department Management of any new nonresidential
loans in excess of $500,000, and (b) securities portfolio and funds
management, including management of interest rate risk.
4.4. No Solicitation. Unless and until this Agreement shall
have been terminated pursuant to its terms, neither TideMark, TideMark Bank
nor any of their executive officers, directors, representatives, agents or
affiliates shall, directly or indirectly, encourage, solicit or initiate
discussions or negotiations (with any person other than Crestar) concerning
any merger, sale of substantial assets, tender offer, sale of shares of
stock or similar transaction involving TideMark or TideMark Bank or
disclose, directly or indirectly, any information not customarily disclosed
to the public concerning TideMark or TideMark Bank, afford to any other
person access to the properties, books or records of TideMark or TideMark
Bank or otherwise assist any person preparing to make or who has made such
an offer, or enter into any agreement with any third party providing for a
business combination transaction, equity investment or sale of significant
amount of assets, except in a situation in which a majority of the full
Board of Directors of TideMark has determined in good faith, upon advice of
counsel, that such Board has a fiduciary duty to consider and respond to a
bona fide proposal by a third party (which proposal was not directly or
indirectly solicited by TideMark or TideMark Bank or any of their officers,
directors, representatives, agents or affiliates) and provides written
notice of its intention to consider such proposal and the material terms
thereof to Crestar at least five days before responding to the proposal.
TideMark and TideMark Bank will promptly communicate to Crestar the terms
of any proposal which it may receive in respect to any of the foregoing
transactions.
4.5. Dividends. TideMark agrees that since June 30, 1994 it has
not, and prior to the Effective Time of the Holding Company Merger it will
not, declare any cash dividends without the prior written consent of
Crestar.
4.6. Regulatory Filings; Best Efforts. Crestar and TideMark
shall jointly prepare all regulatory filings required to consummate the
transactions contemplated by the Agreement and the Plan of Merger and
submit the filings for approval with the Federal Reserve Board, the OTS,
the FDIC and the SCC as soon as practicable after the date hereof. Crestar
and TideMark shall use their best efforts to obtain approvals of such
filings.
4.7. Public Announcements. Each party will consult with the
other before issuing any press release or otherwise making any public
statements with respect to the Transaction and shall not issue any press
release or make any such public statement prior to such consultations and
approval of the other party, which approval shall not be unreasonably
withheld, except as may be required by law.
4.8. Operating Synergies; Conformance to Reserve Policies, Etc.
Between the date hereof and the Effective Time of the Holding Company
Merger, TideMark's and TideMark Bank's management will work with Crestar
Bank to achieve appropriate operating efficiencies following the Closing
Date. Subject to TideMark Bank's approval, which will not be unreasonably
withheld, Crestar notification to TideMark Bank's customers and Crestar's
direct contact with customers will commence following receipt of Federal
Reserve Board approval but not earlier than 60 days prior to the Closing
Date. At the request of Crestar Bank and upon receipt by TideMark and
TideMark Bank of written confirmation from Crestar and Crestar Bank that
there are no conditions to the obligations of Crestar and Crestar Bank
under this Agreement set forth in Article V which they believe will not be
fulfilled so as to permit them to consummate the Transaction and the other
transactions contemplated hereby, not more than three days before the
Effective Time of the Holding Company Merger TideMark shall establish such
additional accruals, reserves and charge-offs, through appropriate entries
in its accounting books and records, provided such adjustments are in
accordance with GAAP and applicable law and regulation as may be necessary
to conform TideMark's accounting and credit loss reserve practices and
methods to those of Crestar Bank (as such practices and methods are to be
applied from and after the Effective Time of the Holding Company Merger)
and to Crestar Bank's plans with respect to the conduct of the business of
TideMark and TideMark Bank following the Transaction, as well as for the
anticipated recapture of the bad debt reserve established by TideMark Bank
for federal income tax purposes (and state income tax purposes, if
applicable) prior thereto and the costs and expenses relating to the
consummation by TideMark and TideMark Bank of the Transaction and the other
transactions contemplated hereby. Any such accruals, reserves and charge-
offs shall not be deemed to cause any representation and warranty of
TideMark and TideMark Bank to be untrue or inaccurate as of the Effective
Time of the Holding Company Merger.
At the same time that the accruals referred to in the two
immediately preceding sentences are established, TideMark and TideMark Bank
will convey any OREO properties that are titled in its name to a TideMark
subsidiary to be identified by Crestar. Such subsidiary will be merged
into a Crestar or Crestar Bank subsidiary at the time of the Bank Merger.
4.9. Crestar Rights Agreement. Crestar agrees that any rights
issued pursuant to the Rights Agreement adopted by it in 1989 shall be
issued with respect to each share of Crestar Common Stock issued pursuant
to the terms hereof and the Holding Company Plan of Merger, regardless
whether there has occurred a Distribution Date under the terms of such
Rights Agreement prior to the occurrence of the Effective Time of the
Holding Company Merger.
4.10. Agreement as to Efforts to Consummate. Subject to action
taken by the Board of Directors of TideMark pursuant to or as a result of
the exception clause to the first sentence of Section 4.4 hereof and to the
other terms and conditions of this Agreement, each of Crestar and TideMark
agrees to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make
effective, as soon as practicable after the date of this Agreement, the
transactions contemplated by this Agreement, including, without limitation,
using reasonable effort to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated herein. Each of Crestar and
TideMark shall use its best efforts to obtain consents of all third parties
and governmental bodies necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
4.11. Adverse Changes in Condition. Crestar and TideMark each
agrees to give written notice promptly to the other concerning any event or
circumstance which would cause or constitute a breach of any of the
representations, warranties or covenants of such party contained herein.
Each of Crestar and TideMark shall use its best efforts to prevent or
promptly to remedy the same.
4.12. NYSE Listing. If the shares of Crestar Common Stock to be
issued in the Holding Company Merger are not repurchased on the open
market, Crestar will file with the New York Stock Exchange a Supplemental
Listing Application for the shares of Crestar Common Stock to be issued in
the Holding Company Merger and have such shares approved for listing on the
New York Stock Exchange prior to the Effective Time of the Merger.
4.13. Updating of Schedules. TideMark shall notify Crestar, and
Crestar shall notify TideMark, of any changes, additions or events which
may cause any change in or addition to any Schedules delivered by it under
this Agreement, promptly after the occurrence of same and at the Closing
Date by delivery of updates of all Schedules, including future quarterly
and annual TideMark Financial Statements. No notification made pursuant to
this Section 4.13 shall be deemed to cure any breach of any representation
or warranty made in this Agreement or any Schedule unless Crestar or
TideMark, as the case may be, specifically agree thereto in writing, nor
shall any such notification be considered to constitute or give rise to a
waiver by TideMark or TideMark Bank on the one hand, or Crestar or Crestar
Bank on the other hand of any condition set forth in this Agreement.
4.14. Transactions in Crestar Common Stock. Other than the
issuance or acquisition of Crestar Common Stock pursuant to Crestar
employee benefit plans, or the purchase or sale of Crestar Common Stock by
Crestar Bank in its capacity as trustee under Crestar employee benefit
plans or in any other fiduciary capacity in which it is directed to sell or
purchase Crestar Common Stock, none of Crestar, Crestar Bank, TideMark or
TideMark Bank will, directly or indirectly, purchase, publicly sell or
publicly acquire any shares of Crestar Common Stock during the 10 trading
days ending on the 10th day prior to the Effective Time of the Holding
Company Merger.
ARTICLE V
Conditions of Merger
5.1. Conditions of Obligations of Crestar and Crestar Bank. The
obligations of Crestar and Crestar Bank to perform this Agreement are
subject to the satisfaction at or prior to the Effective Time of the Merger
of the following conditions unless waived by Crestar and Crestar Bank.
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of TideMark and
TideMark Bank set forth in Section 3.l hereof shall be true and
correct in all material respects as of the date of this Agreement
and as of the Effective Time of the Merger as though made on and
as of the Effective Time of the Merger (or on the date when made
in the case of any representation and warranty which specifically
relates to an earlier date); TideMark and TideMark Bank shall
have in all material respects performed all obligations required
to be performed by them and satisfied all conditions required to
be satisfied by them under this Agreement prior to the Effective
Time of the Merger; and Crestar and Crestar Bank shall have
received a certificate signed by the Chief Executive Officer and
by the Chief Financial Officer of TideMark and TideMark Bank,
which may be to their best knowledge after due inquiry, to such
effects.
(b) Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of this
Agreement by TideMark and TideMark Bank and the consummation of
the transactions contemplated herein (including the shareholder
action referred to in Section 4.2) shall have been duly and
validly taken by the Boards of Directors of TideMark and TideMark
Bank and by the shareholders of TideMark and TideMark Bank, and
TideMark and TideMark Bank shall have full power and right to
merge into Crestar and Crestar Bank, respectively, on the terms
provided herein.
(c) Opinion of Counsel. Crestar and Crestar Bank shall
have received an opinion of Elias, Matz, Tiernan & Herrick
L.L.P., special counsel to TideMark and TideMark Bank, dated the
Closing Date and satisfactory in form and substance to counsel to
Crestar and Crestar Bank, in the form attached hereto as
Exhibit C.
(d) The Registration Statement. The Registration
Statement shall be effective under the 1933 Act and Crestar shall
have received all state securities laws or "blue sky" permits and
other authorizations or there shall be exemptions from
registration requirements necessary to offer and issue the
Crestar Common Stock in connection with the Holding Company
Merger, and neither the Registration Statement nor any such
permit, authorization or exemption shall be subject to a stop
order or threatened stop order by the SEC or any state securities
authority.
(e) Tax Opinion. Crestar and Crestar Bank shall have
received, in form and substance satisfactory to them, an opinion
of Hunton & Williams to the effect that, for federal income tax
purposes, each of the Holding Company Merger and the Bank Merger
will qualify as a "reorganization" under Section 368(a) of the
Code, and no taxable gain will be recognized by Crestar, Crestar
Bank, TideMark or TideMark Bank (i) in the Holding Company Merger
(a) upon the transfer of TideMark's assets to Crestar in exchange
for Crestar Common Stock, cash and the assumption of TideMark's
liabilities or (b) upon the distribution of such Crestar Common
Stock and cash to TideMark shareholders or (ii) in the Bank
Merger, (a) upon the transfer of TideMark Bank's assets to
Crestar Bank in exchange for the assumption of TideMark Bank's
liabilities and in constructive exchange for Crestar Bank common
stock (but TideMark Bank or Crestar Bank may be required to
include certain amounts in income as a result of the termination
of any bad-debt reserve maintained by TideMark Bank for federal
income tax purposes and other possible required changes in tax
accounting methods) or (b) upon the constructive distribution of
such Crestar Bank common stock to Crestar.
(f) Regulatory Approvals. All required approvals from
federal and state regulatory authorities having jurisdiction to
permit Crestar and Crestar Bank to consummate the Transaction and
to issue Crestar Common Stock to TideMark shareholders shall have
been received and shall have contained no conditions deemed in
good faith to be materially disadvantageous by Crestar, including
such approval necessary to consummate the Bank Merger in an
"Oakar" transaction as described in Section 1.1 hereof.
(g) Affiliate Letters. Within 60 days of the date hereof,
each shareholder of TideMark who is a TideMark Affiliate shall
have executed and delivered a commitment and undertaking in the
form of Exhibit E to the effect that (1) such shareholder will
dispose of the shares of Crestar Stock received by him in
connection with the Holding Company Merger only in accordance
with the provisions of paragraph (d) of Rule 145 under the 1933
Act; (2) such shareholder will not dispose of any of such shares
until Crestar has received, at its expense, an opinion of counsel
acceptable to it that such proposed disposition will not violate
the provisions of paragraph (d) of Rule 145 and any applicable
securities laws which opinion shall be rendered promptly
following counsel's receipt of such shareholder's written notice
of its intent to sell shares of Crestar Common Stock; and (3) the
certificates representing said shares may bear a legend referring
to the foregoing restrictions.
(h) Title Matters. Crestar shall have received evidence
reasonably satisfactory to it as to the accuracy of the
representations made by TideMark and TideMark Bank with respect
to branch real estate in Section 3.1(i).
(i) NYSE Listing. If the shares of Crestar Common Stock
to be issued in the Holding Company Merger are not repurchased on
the open market, such shares to be issued in the Merger shall
have been approved for listing, upon notice of issuance, on the
New York Stock Exchange.
(j) Acceptance by Crestar and Crestar Bank Counsel. The
form and substance of all legal matters contemplated hereby and
of all papers delivered hereunder shall be reasonably acceptable
to counsel for Crestar and Crestar Bank.
5.2. Conditions of Obligations of TideMark and TideMark Bank.
The obligations of TideMark and TideMark Bank to perform this Agreement are
subject to the satisfaction at or prior to the Effective Time of the Merger
of the following conditions unless waived by TideMark and TideMark Bank:
(a) Representations and Warranties; Performance of
Obligations. The representations and warranties of Crestar and
Crestar Bank set forth in Section 3.2 hereof shall be true and
correct in all material respects as of the date of this Agreement
and as of the Effective Time of the Merger as though made on and
as of the Effective Time of the Merger (or on the date when made
in the case of any representation and warranty which specifically
relates to an earlier date); Crestar and Crestar Bank shall have
in all material respects performed all obligations required to be
performed by them and satisfied all conditions required to be
satisfied by them under this Agreement prior to the Effective
Time of the Holding Company Merger; and TideMark and TideMark
Bank shall have received a certificate signed by the Chief
Executive Officer and by the Chief Financial Officer of Crestar
and Crestar Bank, which may be to their best knowledge after due
inquiry, to such effects.
(b) Authorization of Transaction. All action necessary to
authorize the execution, delivery and performance of this
Agreement by Crestar and Crestar Bank and the consummation of the
transactions contemplated hereby shall have been duly and validly
taken by the Boards of Directors of Crestar and Crestar Bank and
the shareholders of TideMark and the sole shareholder of TideMark
Bank, and Crestar and Crestar Bank shall have full power and
right to merge with TideMark and TideMark Bank, respectively, on
the terms provided herein.
(c) Opinion of Counsel. TideMark and TideMark Bank shall
have received an opinion of Hunton & Williams, counsel to Crestar
and Crestar Bank, dated the Closing Date and satisfactory in form
and substance to counsel to TideMark and TideMark Bank, in the
form attached hereto as Exhibit D.
(d) The Registration Statement. The Registration
Statement shall be effective under the 1933 Act and Crestar shall
have received all state securities laws or "blue sky" permits and
other authorizations or there shall be exemptions from
registration requirements necessary to offer and issue the
Crestar Common Stock in connection with the Holding Company
Merger, and neither the Registration Statement nor any such
permit, authorization or exemption shall be subject to a stop
order or threatened stop order by the SEC or any state securities
authority.
(e) Regulatory Approvals. All required approvals from
federal and state regulatory authorities having jurisdiction to
permit TideMark and TideMark Bank to consummate the Transaction
and to permit Crestar to issue Crestar Common Stock to TideMark
shareholders shall have been received, including such approval
necessary to consummate the Bank Merger in an "Oakar" transaction
as described in Section 1.1 hereof.
(f) Tax Opinion. Crestar, Crestar Bank, TideMark and
TideMark Bank shall have received, in form and substance
reasonably satisfactory to them, an opinion of Hunton & Williams
to the effect that, for federal income tax purposes, each of the
Holding Company Merger and the Bank Merger will qualify as a
"reorganization" under Section 368(a) of the Code; no taxable
gain will be recognized by Crestar, Crestar Bank, TideMark or
TideMark Bank (i) in the Holding Company Merger (a) upon the
transfer of TideMark's assets to Crestar in exchange for Crestar
Common Stock, cash and the assumption of TideMark's liabilities
or (b) upon the distribution of such Crestar Common Stock and
cash to TideMark shareholders or (ii) in the Bank Merger, (a)
upon the transfer of TideMark Bank's assets to Crestar Bank in
exchange for the assumption of TideMark Bank's liabilities and in
constructive exchange for Crestar Bank stock (but TideMark Bank
or Crestar Bank may be required to include certain amounts in
income as a result of the termination of any bad-debt reserve
maintained by TideMark Bank for federal income tax purposes and
other possible required changes in tax accounting methods) or (b)
upon the constructive distribution of such Crestar Bank stock to
Crestar; no taxable gain will be recognized by a TideMark
shareholder on the exchange by such shareholder of shares of
TideMark Common Stock solely for shares of Crestar Common Stock
(including any fractional share interest) in the Holding Company
Merger; a TideMark shareholder who receives cash and shares of
Crestar Common Stock (including any fractional share interest)
for shares of TideMark Common Stock in the Holding Company Merger
pursuant to the cash election will recognize any gain realized
(including any gain treated as a dividend) up to the amount of
cash received (excluding cash in lieu of a fractional share of
Crestar Common Stock), but will not recognize any loss; a
TideMark common shareholder's basis in Crestar Common Stock
(including any fractional share interest) received in the Holding
Company Merger will be the same as the shareholder's basis in the
TideMark Common Stock surrendered in exchange therefor, decreased
by the amount of any cash received (excluding cash in lieu of a
fractional share of Crestar Common Stock) and increased by the
amount of any gain recognized (including any gain treated as a
dividend) by the shareholder; the holding period of such Crestar
Common Stock (including any fractional share interest) for a
TideMark shareholder will include the holding period of the
TideMark Common Stock surrendered in exchange therefor, if such
TideMark Common Stock is held as a capital asset by the
shareholder at the Effective Time of the Holding Company Merger;
and a TideMark common shareholder who receives cash in lieu of a
fractional share of Crestar Common Stock will recognize gain or
loss equal to any difference between the amount of cash received
and the shareholder's basis in the fractional share interest.
(g) NYSE Listing. If the shares of Crestar Common Stock
to be issued in the Holding Company Merger are not repurchased on
the open market, such shares to be issued in the Holding Company
Merger shall have been approved for listing, upon notice of
issuance, on the New York Stock Exchange.
(h) Fairness Opinion. The opinion of Scott &
Stringfellow, Inc., dated the date hereof, to the effect that the
consideration to be received by the shareholders of TideMark as a
result of the Holding Company Merger is fair to the shareholders
of TideMark from a financial point of view, and shall not have
been withdrawn prior to the mailing of the Proxy Statement for
the meeting of shareholders of TideMark referred to in Section
4.2 hereof.
(i) Acceptance by TideMark's Counsel. The form and
substance of all legal matters contemplated hereby and of all
papers delivered hereunder shall be acceptable to counsel for
TideMark.
ARTICLE VI
Closing Date; Effective Time
6.1. Closing Date. Unless another date or place is agreed to in
writing by the parties, the closing of the transactions contemplated in
this Agreement shall take place at the offices of Crestar, 919 East Main
Street, Richmond, Virginia, at 10:00 o'clock A.M., local time, on such date
as Crestar shall designate to TideMark at least 10 days prior to the
designated Closing Date and as reasonably acceptable to TideMark; provided,
that the date so designated shall not be earlier than 30 days after Federal
Reserve Board approval, and shall not be later than 60 days after such
approval and, in no event, shall be later than June 30, 1995 (the "Closing
Date"). The parties agree to use their best efforts to make the Merger
effective on or before March 31, 1995.
6.2. Filings at Closing. Subject to the provisions of
Article V, at the Closing Date, Crestar shall cause Articles of Merger
relating to the Holding Company Plan of Merger to be filed in accordance
with the VSCA and Articles of Merger to be filed relating to the Bank Plan
of Merger in accordance with the VSCA, the rules and regulations of the OTS
and the SCC, and each of Crestar and TideMark shall take any and all lawful
actions to cause the Holding Company Merger and the Bank Merger to become
effective.
6.3. Effective Time. Subject to the terms and conditions set
forth herein, including receipt of all required regulatory approvals, the
Holding Company Merger shall become effective at the time Articles of
Merger filed with the SCC are made effective (the "Effective Time of the
Holding Company Merger") and the Bank Merger shall become effective at the
time the Articles of Merger filed with the SCC are made effective.
ARTICLE VII
Termination; Survival of Representations,
Warranties and Covenants; Waiver and Amendment
7.1. Termination. This Agreement shall be terminated, and the
Transaction abandoned, if the shareholders of TideMark shall not have given
the approval required by Section 4.2. Notwithstanding such approval by
such shareholders, this Agreement may be terminated at any time prior to
the Effective Time of the Holding Company Merger, by:
(a) The mutual consent of Crestar, Crestar Bank, TideMark
and TideMark Bank, as expressed by their respective Boards of
Directors;
(b) Either Crestar or Crestar Bank on the one hand or
TideMark or TideMark Bank on the other hand, as expressed by
their respective Boards of Directors, if the Holding Company
Merger has not occurred by June 30, 1995, provided that the
failure of the Holding Company Merger to so occur shall not be
due to a willful breach of any representation, warranty, covenant
or agreement by the party seeking to terminate this Agreement;
(c) By Crestar and Crestar Bank in writing authorized by
its respective Board of Directors if TideMark or TideMark Bank
has, or by TideMark or TideMark Bank in writing authorized by
their respective Boards of Directors, if Crestar or Crestar Bank
has, in any material respect, breached (i) any covenant or
agreement contained herein, or (ii) any representation or
warranty contained herein, in any case if such breach has not
been cured by the earlier of 30 days after the date on which
written notice of such breach is given to the party committing
such breach or the Closing Date unless such breach by TideMark or
TideMark Bank is due to the failure or inability of Crestar
Securities Corporation to consummate the Commitment in a timely
fashion to permit consummation of the Bay Agreement by TideMark
Bank pursuant to the terms and conditions thereof; provided that
it is understood and agreed that either party may terminate this
Agreement on the basis of any such material breach of any
representation or warranty which is not cured within 30 days of
written notice thereof contained herein notwithstanding any
qualification therein relating to the knowledge of the other party;
(d) Either Crestar or Crestar Bank on the one hand or
TideMark or TideMark Bank on the other hand, as expressed by
their respective Boards of Directors, in the event that any of
the conditions precedent to the obligations of such parties to
consummate the Transaction have not been satisfied or fulfilled
or waived by the party entitled to so waive on or before the
Closing Date, provided that no party shall be entitled to
terminate this Agreement pursuant to this subparagraph (d) if the
condition precedent or conditions precedent which provide the
basis for termination can reasonably be and are satisfied within
a reasonable period of time, in which case, the Closing Date
shall be appropriately postponed;
(e) Crestar and Crestar Bank, if the Boards of Directors
of Crestar and Crestar Bank shall have determined in their sole
discretion, exercised in good faith, that the Transaction, has
become inadvisable or impracticable by reason of (A) the issuance
of any order, decree or advisory letter of regulatory authority
containing conditions or requirements reasonably deemed
objectionable to Crestar, (B) the threat or the institution of
any litigation, proceeding or investigation (including under
federal antitrust laws) to restrain or prohibit the consummation
of the Transaction or to obtain other relief in connection with
this Agreement or (C) public commencement of a competing offer
for TideMark Common Stock which is significantly better than
Crestar's offer, and which Crestar certifies to TideMark, in
writing, it is unwilling to meet;
(f) TideMark and TideMark Bank, if the Boards of Directors
of TideMark and TideMark Bank shall have determined in their sole
discretion, exercised in good faith, that the Transaction has
become inadvisable or impracticable by reason of (A) the issuance
of any order, decree or advisory letter of regulatory authority
containing conditions or requirements reasonably deemed
objectionable to TideMark, (B) the threat or the institution of
any litigation, proceeding or investigation (including under
federal antitrust laws) to restrain or prohibit the consummation
of the Transaction or to obtain other relief in connection with
this Agreement, or (C) commencement of a competing offer for
TideMark Common Stock which is significantly better than
Crestar's offer, and which Crestar has certified to TideMark, in
writing, it is unwilling to meet;
(g) Crestar, Crestar Bank, TideMark or TideMark Bank, if
the Federal Reserve Board, the OTS, the FDIC or the SCC deny
approval of the Transaction and the time period for all appeals
or requests for reconsideration has run;
(h) Crestar if, following Crestar's pre-merger review,
such pre-merger review reveals that there has been a material
adverse change in the asset quality of TideMark's loan portfolio
which would result in a reduction of TideMark's stockholders'
equity by 10% or more from that shown by the TideMark Financial
Statements as of June 30, 1994. For purposes of this paragraph
(h), the term "material adverse change" shall not include the
following: (i) changes in the value of TideMark's consolidated
assets and liabilities resulting from movements in general market
interest rates, (ii) changes in laws, rules and regulations and
accounting principles, (iii) adjustments determined by Crestar
resulting from Crestar's due diligence review of TideMark's books
and records through July 31, 1994, as disclosed in Schedule N
attached hereto, (iv) changes in the capital structure of
TideMark due to the issuance of securities to accomplish the
transaction contemplated by the Bay Agreement, and (v) any other
matters mutually agreed by the parties contained in this
Agreement;
(i) TideMark if there has been a material adverse change
in the business operations or consolidated financial condition of
Crestar from that shown by the Crestar Financial Statements as of
June 30, 1994. For purposes of this paragraph (i), the term
"material adverse change" shall not include the following: (i)
changes resulting from movements in general market interest
rates, (ii) changes in laws, rules and regulations and accounting
principles, and (iii) any other matters mutually agreed by the
parties contained in this Agreement.
7.2. Effect of Termination. In the event of the termination and
abandonment of this Agreement and the Transaction pursuant to Section 7.1,
this Agreement, other than the provisions of Sections 4.1 (last three
sentences) and 9.1, shall become void and have no effect, without any
liability on the part of any party or its directors, officers or
shareholders, provided that nothing contained in this Section 7.2 shall
relieve any party from liability for any willful breach of this Agreement.
7.3. Survival of Representations, Warranties and Covenants. The
respective representations and warranties, obligations, covenants and
agreements (except for those contained in Sections 1.2, 1.3, 2.1, 2.2, 2.3,
2.4, 2.5, 2.6, 4.1 (second sentence), 8.1, 8.2, 8.3, 8.4, 8.5 and 9.1,
which shall survive the effectiveness of the Transaction) of Crestar,
Crestar Bank, TideMark and TideMark Bank contained herein shall expire
with, and be terminated and extinguished by, the effectiveness of the
Transaction and shall not survive the Effective Time of the Holding Company
Merger.
7.4. Waiver and Amendment. Any term or provision of this
Agreement may be waived in writing at any time by the party which is, or
whose shareholders are, entitled to the benefits thereof and this Agreement
may be amended or supplemented by written instructions duly executed by all
parties hereto at any time, whether before or after the meeting of TideMark
shareholders referred to in Section 4.2 hereof, excepting statutory
requirements and requisite approvals of shareholders and regulatory
authorities, provided that any such amendment or waiver executed after
shareholders of TideMark have approved this Agreement and the Holding
Company Plan of Merger shall not modify either the amount or form of the
consideration to be received by such shareholders for their shares of
TideMark Common Stock or TideMark Series A or otherwise materially
adversely affect such shareholders without their approval.
ARTICLE VIII
Additional Covenants
8.1. Indemnification of TideMark Officers and Directors;
Liability Insurance. After the Effective Time of the Holding Company
Merger, Crestar acknowledges its obligation to provide, and agrees to
provide, indemnification to the directors, employees and officers of
TideMark and TideMark Bank and the subsidiaries thereof for events
occurring prior to or subsequent to the Effective Time of the Holding
Company Merger as if they had been directors, employees or officers of
Crestar prior to the Effective Time of the Holding Company Merger, to the
extent permitted under the VSCA and the Articles of Incorporation and
Bylaws of Crestar as in effect as of the date of this Agreement. Such
indemnification shall continue for six years after the Effective Time of
the Holding Company Merger, provided that any right to indemnification in
respect of any claim asserted or made within such six year period shall
continue until final disposition of such claim. Crestar will provide
officers and directors liability insurance coverage to all TideMark and
TideMark Bank and subsidiaries thereof directors and officers, whether or
not they become part of the Crestar organization after the Effective Time
of the Holding Company Merger, to the same extent it is provided to
Crestar's officers and directors, provided that coverage will not extend to
acts as to which notice has been given prior to the Effective Time of the
Holding Company Merger. The right to indemnification and insurance
provided in this Section 8.1 is intended to be for the benefit of
directors, employees and officers of TideMark and TideMark Bank and the
subsidiaries thereof and as such may be personally enforced by them at law
or in equity.
8.2. Employee Matters. (a) TideMark Bank Senior Management
Group. Each member of TideMark Bank's senior management who might be
displaced as a result of the Holding Company Merger or Bank Merger will be
interviewed by his/her Crestar Bank counterpart with the goal of
determining if there are mutually beneficial employment opportunities
available within Crestar Bank or another subsidiary of Crestar.
(b) Gentry, Springer, Meade, Lawson Agreements. Crestar will
honor the terms of the employment agreements with Gordon L. Gentry, Jr.,
Robert Springer, John Meade and Pamela Lawson described on Schedule E.
(c) Other Employees. Crestar Bank will undertake to continue
employment of those retail branch personnel who meet Crestar's employment
qualification requirements and needs, either at existing TideMark or
TideMark Bank offices or at Crestar offices. TideMark non-branch personnel
displaced as a result of the Holding Company Merger will be interviewed
prior to the Effective Time of the Holding Company Merger for open
positions within Crestar Bank or a subsidiary of Crestar. Crestar or
Crestar Bank will pay a severance benefit to each person, other than those
persons who have employment agreements described in subsection 8.2(b) with
TideMark or TideMark Bank, who is an employee of TideMark or TideMark Bank
at the Effective Time of the Holding Company Merger and who (x) is not
offered a comparable position with Crestar Bank or a subsidiary of Crestar
(the acceptance of a position with Crestar Bank or a subsidiary of Crestar
shall establish that such position was comparable) or (y) is terminated
without cause within six months after the Effective Time of the Holding
Company Merger. The amount of such severance benefit will equal one week
of such employee's base pay (as in effect immediately before the Effective
Time of the Holding Company Merger) for each full year of service with
TideMark or TideMark Bank up to 20 years and two weeks of such base pay for
each full year of service with TideMark or TideMark Bank over 20 years;
provided, however, that the severance benefit shall not be less than six
weeks of base pay. Each person who is a TideMark or TideMark Bank employee
at the Effective Time of the Holding Company Merger shall be paid promptly
after the Effective Time of the Holding Company Merger for all accrued but
unused vacation time through the end of the last full month prior to the
Effective Time of the Holding Company Merger. TideMark and TideMark Bank
shall take such actions as are necessary to terminate its or their
severance pay policies or plans effective prior to the Effective Time of
the Merger. Out-placement counseling will be available through the
Virginia Employment Commission for any TideMark or TideMark Bank employees
who are entitled to severance benefits from Crestar under this
Section 8.2(c) or under a written severance agreement that is identified on
Schedule E.
8.3. Employee Benefit Matters. (a) Transferred Employees. All
employees of TideMark or TideMark Bank immediately prior to the Effective
Time of the Merger who are employed by Crestar, Crestar Bank or another
Crestar subsidiary immediately following the Effective Time of the Merger
("Transferred Employees") will be covered by Crestar's employee benefit
plans as to which they are eligible based on their length of service,
compensation, job classification, and position, including, where
applicable, any incentive compensation plan. Notwithstanding the
foregoing, Crestar may determine to continue any of the TideMark or
TideMark Bank benefit plans for Transferred Employees in lieu of offering
participation in Crestar's benefit plans providing similar benefits (e.g.,
medical and hospitalization benefits), to terminate any of the TideMark or
TideMark Bank benefit plans, or to merge any such benefit plans with
Crestar's benefit plans. Except as specifically provided in this Section
8.3 and as otherwise prohibited by law, Transferred Employees' service with
TideMark or TideMark Bank which is recognized by the applicable benefit
plan of TideMark or TideMark Bank at the Effective Time of the Holding
Company Merger shall be recognized as service with Crestar for purposes of
eligibility to participate and vesting, if applicable (but not for purposes
of benefit accrual) under the corresponding Crestar benefit plan, if any,
subject to applicable break-in-service rules.
(b) Health Plans. Crestar agrees that any pre-existing
condition, limitation or exclusion in its health plans shall not
apply to Transferred Employees or their covered dependents who
are covered under a medical or hospitalization indemnity plan
maintained by TideMark or TideMark Bank on the date of the
Holding Company Merger and who then change that coverage to
Crestar's medical or hospitalization indemnity health plan at the
time such Transferred Employees are first given the option to
enroll in Crestar's health plans.
(c) TideMark 401(k) Profit Sharing Plan. Crestar agrees
that immediately following the Merger, all participants who then
have accounts in the 401(k) profit sharing plan maintained by
TideMark or TideMark Bank (the "401(k) Plan") shall be fully
vested in their account balances. Crestar, at its election, may
continue the 401(k) Plan for the benefit of Transferred Employees
(as such plan may be amended as of the Effective Time of the
Holding Company Merger to provide current contributions and
eligibility provisions identical to those under the Crestar
Employees' Thrift and Profit Sharing Plan (the "Thrift Plan")),
may merge the 401(k) Plan into the Thrift Plan or any other
defined contribution plan maintained by Crestar, or may cease
additional benefit accruals under and contributions to the 401(k)
Plan and continue to hold the assets of such Plan until they are
distributable in accordance with its terms. In the event of a
merger of the 401(k) Plan into the Thrift Plan or a cessation of
accruals and contributions under the 401(k) Plan, the Thrift Plan
will recognize for purposes of eligibility to participate, early
retirement, and eligibility for vesting, all Transferred
Employees' service which is recognized under the 401(k) Plan,
subject to applicable break-in-service rules. TideMark and
TideMark Bank agree to cooperate with Crestar in implementing any
decision under this subsection (c) with respect to the 401(k)
Plan. TideMark and TideMark Bank agree that by December 31,
1994, but in all events prior to the Effective Time of the
Holding Company Merger, they will file an application with the
Internal Revenue Service requesting a new favorable determination
letter for the 401(k) Plan.
(d) Crestar Retirement Plan. The Retirement Plan for
Employees of Crestar Financial Corporation and Affiliated
Corporations ("Crestar's Retirement Plan") will recognize for
purposes of eligibility to participate, vesting and eligibility
for early retirement, but not for benefit accrual purposes
(except as provided in this Section 8.3(d)), all Transferred
Employees' service which is recognized under the Employees'
Retirement Plan of Newport News Savings Bank (the "TideMark
Pension Plan"), subject to applicable break-in-service rules.
TideMark and TideMark Bank agree that by December 31, 1994, but
in all events prior to the Effective Time of the Holding Company
Merger, they will file an application with the Internal Revenue
Service requesting a new favorable determination letter for the
TideMark Pension Plan. Crestar, at its option, may continue the
TideMark Pension Plan as a frozen plan or may terminate the
TideMark Pension Plan and pay out or annuitize benefits, or may
merge the TideMark Pension Plan into Crestar's Retirement Plan.
If the TideMark Pension Plan is merged into Crestar's Retirement
Plan, each Transferred Employee who becomes a participant in
Crestar's Retirement Plan will receive a pension benefit, as
calculated by the actuaries for Crestar's Retirement Plan, as the
greater of (x) such Transferred Employee's vested accrued benefit
under the TideMark Pension Plan with retirement options,
actuarial equivalent and early retirement factors protected as
required by law, or (y) his vested accrued benefit under
Crestar's Retirement Plan using service recognized under the
TideMark Pension Plan (subject to applicable break-in service
rules) and service recognized with Crestar or a Crestar affiliate
on and after the Effective Time of the Holding Company Merger
(subject to applicable break-in-service rules). If the TideMark
Pension Plan is not merged into Crestar's Retirement Plan, any
pension benefit payable to a Transferred Employee from Crestar's
Retirement Plan shall be the difference between (x) his pension
benefit under Crestar's Retirement Plan using Service recognized
under the TideMark Pension Plan (subject to applicable break-in-
service rules) and service recognized with Crestar or a Crestar
affiliate on and after the Effective Time of the Holding Company
Merger (subject to applicable break-in-service rules) and (y)
such Employee's pension benefit determined under the TideMark
Pension Plan.
8.4. Crestar Bank/Peninsula Local Advisory Board of Directors.
Crestar Bank will offer two to three members of the TideMark or TideMark
Bank board of directors a position on Crestar Bank's Peninsula advisory
board. Members who agree to serve on the Peninsula advisory board will be
paid on the usual terms and conditions that Crestar Bank pays members of
its other, similar, advisory boards. Crestar Bank, TideMark and TideMark
Bank will cooperate in identifying the members of the advisory board.
8.5. Stock Options. Each holder of outstanding TideMark Options
shall elect, by giving notice to TideMark prior to the Closing Date, either
to (a) allow the TideMark Options to terminate at the Effective Time of the
Holding Company Merger and promptly following the Effective Time of the
Holding Company Merger receive a cash payment (subject to all applicable
withholding taxes) equal to the excess of (i) the aggregate Price Per Share
of the TideMark Common Stock represented by his TideMark Options less (ii)
the aggregate exercise price of such TideMark Options, (b) exercise the
TideMark Options for TideMark Common Stock prior to the Closing Date and
convert such Common Stock into Crestar Common Stock or elect to receive
cash as provided in Section 2.1(c) hereof, or (c) have the TideMark Options
converted into options to purchase Crestar Common Stock as set forth in
Section 2.2(e) hereof. Crestar (on behalf of the Surviving Bank) agrees to
make any cash payment required under this Section promptly following
consummation of the Holding Company Merger. TideMark agrees not to amend
any option agreement to extend the three month period following termination
of employment during which TideMark Options may be exercised.
ARTICLE IX
Miscellaneous
9.1. Expenses. Each party hereto shall bear and pay the costs
and expenses incurred by it relating to the transactions contemplated
hereby.
9.2. Entire Agreement. This Agreement contains the entire
agreement among Crestar, Crestar Bank, TideMark and TideMark Bank with
respect to the Transaction and the related transactions and supersedes all
prior agreements (including the Letter Agreement), arrangements or
understandings with respect thereto.
9.3. Descriptive Headings. Descriptive headings are for
convenience only and shall not control or affect the meaning or
construction of any provisions of this Agreement.
9.4. Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage
prepaid, addressed as follows:
If to Crestar or Crestar Bank:
Crestar Financial Corporation
P. O. Box 26665
919 East Main Street
Richmond, Virginia 23261-6665
Attention: John C. Clark III
Corporate Senior Vice President,
Secretary and General Counsel
Copy to:
Lathan M. Ewers, Jr.
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
If to TideMark or TideMark Bank:
TideMark Bancorp Inc.
301 Hiden Boulevard
Newport News, Virginia 23606
Attention: Gordon L. Gentry, Jr.
Chairman of the Board
Copy to:
Raymond A. Tiernan
Philip Ross Bevan
Elias, Matz, Tiernan & Herrick L.L.P.
12th Floor, The Walker Building
734 15th Street, N.W.
Washington, D.C. 20005
9.5. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute
but one agreement.
9.6. Governing Law. Except as may otherwise be required by the
laws of the United States, this Agreement shall be governed by and
construed in accordance with the laws of Virginia.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf and its corporate seal to be
hereunto affixed and attested by its officers thereunto duly authorized,
all as of the day and year first above written.
CRESTAR FINANCIAL CORPORATION
By /s/C. Garland Hagen
Name: C. Garland Hagen
Title: Corporate Executive
Vice President
CRESTAR BANK
By /s/C. Garland Hagen
Name: C. Garland Hagen
Title: Corporate Executive
Vice President
TIDEMARK BANCORP, INC.
By /s/Gordon L. Gentry, Jr.
Name: Gordon L. Gentry, Jr.
Title: Chairman
TIDEMARK BANK
By /s/Gordon L. Gentry, Jr.
Name: Gordon L. Gentry, Jr.
Title: Chairman
/s/James S.G. Davenport /s/Anthony R. Santoro
/s/Robert L. Freeman, Jr. /s/Robert N. Springer
/s/John R. Lawson, II /s/Gary A. Suttle
/s/Nelson L. St. Clair, Jr. /s/Lindsay B. Trittipoe
/s/Alan S. Witt
All of the Directors of TideMark affix their signatures hereto for the
purpose of agreeing to vote all their shares of TideMark Common Stock
beneficially owned by them and with respect to which they have power to
vote in favor of the Merger and, subject to their fiduciary duties, to
cause the Merger to be recommended by the Board of Directors of TideMark to
the shareholders of TideMark in the proxy statement sent to shareholders in
connection with such shareholders' meeting.
<PAGE>
Exhibit A
PLAN OF MERGER
OF
TIDEMARK BANCORP, INC.
INTO
CRESTAR FINANCIAL CORPORATION
Section 1. Merger. TideMark BanCorp, Inc. ("TideMark") shall, upon
the time that Articles of Merger are made effective by the State
Corporation Commission of Virginia (the "Effective Time of the Holding
Company Merger"), be merged (the "Holding Company Merger") into Crestar
Financial Corporation ("Crestar"), which shall be the "Surviving
Corporation".
Section 2. Conversion of Stock. At the Effective Time of the Holding
Company Merger:
(i) Each share of Crestar Financial Corporation Common Stock
outstanding immediately prior to the Effective Time of the Merger
shall continue unchanged as an outstanding share of Common Stock of
the Surviving Corporation.
(ii) Subject to Section 4, each share of TideMark Common Stock
which is issued and outstanding immediately prior to the Effective
Time of the Holding Company Merger (other than shares held of record
by Crestar, shares to be exchanged for cash and shares as to which
dissenter's rights are being exercised) and which, under the terms of
Section 3, is to be converted into Crestar Common Stock, shall be
converted into the number of shares of Crestar Common Stock determined
by dividing $5.50 per share of TideMark Common Stock (the "Price Per
Share") by the average closing price of Crestar Common Stock as
reported on the New York Stock Exchange for each of the 10 trading
days ending on the 10th day prior to the day of the Effective Time of
the Holding Company Merger (the "Average Closing Price"). The result
of the quotient determined by dividing the Price Per Share by the
Average Closing Price and rounded to the nearest thousandths decimal
point is hereinafter called the "Exchange Ratio".
(iii) Subject to Section 4, each share of TideMark Common Stock
outstanding immediately prior to the Effective Time of the Holding
Company Merger which, under the terms of Section 3, is to be converted
into the right to receive cash, shall be converted into the right to
receive the Price Per Share in cash (subject to all applicable
withholding taxes).
(iv) Each share of TideMark Non-Cumulative Preferred Stock,
Series A ("Series A") other than shares held directly by Crestar shall
be converted into the number of shares of Crestar Common Stock
determined by dividing $10 per share by the Average Closing Price,
rounded to the nearest thousandths decimal point (the "Preferred
Exchange Ratio").
(v) At the Effective Time of the Holding Company Merger,
TideMark's transfer books shall be closed and no further transfer of
TideMark Common Stock or Series A shall be permitted.
(vi) Each holder of outstanding options to acquire shares of
TideMark Common Stock ("TideMark Options") shall elect, by giving
notice to TideMark prior to the Closing Date, either to (a) allow the
TideMark Options to terminate at the Effective Time of the Holding
Company Merger and promptly following the Effective Time of the
Holding Company Merger receive a cash payment (subject to all
applicable withholding taxes) equal to the excess of (i) the aggregate
Price Per Share of the TideMark Common Stock represented by his
TideMark Options less (ii) the aggregate exercise price of such
TideMark Options, (b) exercise the TideMark Options for TideMark
Common Stock prior to the Closing Date and convert such Common Stock
into Crestar Common Stock or elect to receive cash as provided in
Section 2.(iii) hereof, or (c) have the TideMark Options converted
into options to purchase Crestar Common Stock as set forth in the
Agreement and Plan of Reorganization.
Section 3. Manner of Conversion. The manner in which each
outstanding share of TideMark Common Stock shall be converted into Crestar
Common Stock or cash, as specified in Section 2 hereof, after the Effective
Time of the Holding Company Merger, shall be as follows:
(i) All shares for which cash elections shall have been made
and for which certificates representing such shares shall have been
delivered to TideMark subject to the terms of the Agreement (as
hereinafter defined) at or prior to the meeting of TideMark
shareholders at which the Holding Company Merger is considered, shall
be converted into the right to receive the Price Per Share in cash.
If the Holding Company Merger is approved by TideMark's shareholders,
a shareholder's election to receive the Price Per Share in cash shall
be irrevocable. Pursuant to the terms of the Agreement, TideMark
shall retain certificates for shares submitted for cash purchase until
either (i) termination of the Agreement (as hereinafter defined), upon
which TideMark shall return such certificates, or (ii) the Effective
Time of the Holding Company Merger, when Crestar Bank (which shall act
as exchange agent) shall exchange such certificates for cash, at the
Price Per Share, subject to Section 4. Certificates for shares of
TideMark Common Stock shall be submitted in exchange for cash
accompanied by a Letter of Transmittal (to be promptly furnished by
Crestar Bank, as exchange agent, to TideMark shareholders of record as
of the Effective Time of the Holding Company Merger). Until so
surrendered, each outstanding certificate which prior to the Effective
Time of the Holding Company Merger represented TideMark Common Stock
shall be deemed to evidence only the right to receive the Price Per
Share (less applicable withholding taxes) multiplied by the number of
shares evidenced by the certificates, without interest thereon.
(ii) Each share of TideMark Common Stock, other than shares
held of record by Crestar and shares for which a cash election has
been made (and are not exchanged for cash because of Section 4), shall
be exchanged for shares of Crestar Common Stock as determined by the
Exchange Ratio.
(iii) No fractional shares of Crestar Common Stock shall be
issued, but instead the value of fractional shares shall be paid in
cash (subject to all applicable withholding taxes), for which purpose
the Average Closing Price shall be employed.
(iv) Certificates for shares of TideMark Common Stock and
Series A shall be submitted in exchange for Crestar Common Stock
and/or cash accompanied by a Letter of Transmittal (to be promptly
furnished by Crestar Bank to TideMark's shareholders of record as of
the Effective Time of the Holding Company Merger). Until so
surrendered, each outstanding certificate which, prior to the
Effective Time of the Holding Company Merger, represented TideMark
Common Stock or Series A, shall be deemed to evidence only the right
to receive (a) shares of Crestar Common Stock as determined by the
Exchange Ratio or the Preferred Exchange Ratio, as appropriate, or (b)
in the case of shares for which cash elections shall have been made,
the Price Per Share in cash (subject to all applicable withholding
taxes) multiplied by the number of shares evidenced by the
certificates, without interest. Until such outstanding shares
formerly representing TideMark Common Stock or Series A are so
surrendered, no dividend payable to holders of record of Crestar
Common Stock as of any date subsequent to the Effective Time of the
Merger shall be paid to the holder of such outstanding certificates in
respect thereof. Upon such surrender, dividends accrued or declared
on Crestar Common Stock shall be paid in accordance with Section 2.2
of the Agreement and Plan of Reorganization (the "Agreement") among
Crestar, Crestar Bank, TideMark and TideMark Bank.
Section 4. Proration of Shares Purchased with Cash. The number of
shares of TideMark Common Stock to be exchanged for cash cannot exceed 40%
of the outstanding shares of TideMark Common Stock immediately prior to the
Effective Time of the Holding Company Merger. If the number of shares that
shareholders of TideMark elect to exchange for cash, when aggregated with
Dissenting Shares (as defined below), exceed this percentage of such
TideMark Common Stock, Crestar shall purchase all shares submitted by
holders of 100 or fewer shares (if such holder has submitted all his shares
for cash exchange) and then purchase shares submitted by other holders pro
rata so as to require Crestar to pay cash (including payments for
Dissenting Shares) for no more than 40% of the shares of TideMark Common
Stock. A shareholder submitting shares for cash purchase, all of whose
shares are not exchanged for cash because of the proration provisions of
this Section 4, shall receive shares of Crestar Common Stock at the
Exchange Ratio for all shares of TideMark Common Stock not exchanged for
cash.
Section 5. Dissenting Shares. Notwithstanding anything in this Plan
of Merger to the contrary, shares of TideMark Common Stock which are issued
and outstanding immediately prior to the Effective Time of the Holding
Company Merger and which are held by a shareholder who has the right (to
the extent such right is available by law) to demand and receive payment of
the fair value of his shares of TideMark Common Stock pursuant to Section
13.1-730 of the Virginia Stock Corporation Act ("VSCA") (the "Dissenting
Shares") shall be cancelled, and shall not be converted into or be
exchangeable for the right to receive the consideration provided in Section
2, but the holders thereof shall be entitled to payment of the fair value
of such shares in accordance with the provisions of Article 15 of the VSCA,
subject to compliance with the procedures and conditions specified in such
Article unless and until such holder shall fail to perfect his right to
dissent or shall have effectively withdrawn or lost such right under the
VSCA, as the case may be. If such holder shall have so failed to perfect
or shall have effectively withdrawn or lost such right, his shares of
TideMark Common Stock shall thereupon be deemed to have been converted
into, at the Effective Time of the Holding Company Merger, the right to
receive shares of Crestar Common Stock as provided in Section 2.
Section 6. Articles of Incorporation, Bylaws and Directors of the
Surviving Bank. At the Effective Time of the Holding Company Merger, there
shall be no change caused by the Holding Company Merger in the Articles of
Incorporation (except any change caused by the filing of Articles of Merger
relating to the Holding Company Merger), By-laws, or Board of Directors of
the Surviving Corporation.
Section 7. Conditions to Merger. Consummation of the Merger is
subject to the following conditions:
(i) The approving vote of the holders of more than two-thirds
of the outstanding shares of TideMark Common Stock entitled to vote.
(ii) The approval of the Merger by the Board of Governors of
the Federal Reserve System, the Office of Thrift Supervision, and the
State Corporation Commission of Virginia.
(iii) The satisfaction of the conditions contained in the
Agreement or the waiver of such conditions by the party for whose
benefit they were imposed.
Section 8. Effect of the Merger. The Merger shall have the effect
provided by Section 13.1-721 of the Code of Virginia.
Section 9. Amendment. Pursuant to Section 13.1-718(I) of the
Virginia Stock Corporation Act, the Board of Directors of Crestar reserves
the right to amend this Plan of Merger (with TideMark's consent) at any
time prior to issuance of the certificate of merger by the State
Corporation Commission of Virginia, provided, however, that any such
amendment made subsequent to the submission of this Plan of Merger to the
shareholders of TideMark may not: (i) alter or change the amount or kind
of shares, securities, cash, property or rights to be received in exchange
for or in conversion of all or any of the shares of TideMark Common Stock;
(ii) alter or change any of the terms and conditions of this Plan of Merger
if such alteration or change would adversely affect the shares of TideMark
Common Stock; or (iii) alter or change any term of the certificate of
incorporation of TideMark (except as provided herein).
EXHIBIT B
PLAN OF MERGER
OF
TIDEMARK BANK
INTO
CRESTAR BANK
Section 1. TideMark Bank shall, upon the issuance of certificates of
merger by the State Corporation Commission of Virginia and the Comptroller
of the Currency (the "Effective Time of the Bank Merger"), be merged (the
"Bank Merger") into Crestar Bank, which shall be the Surviving Bank.
Section 2. Conversion of Stock. At the Effective Time of the Bank
Merger:
(i) Each share of Crestar Bank Common Stock outstanding
immediately prior to the Effective Time of the Bank Merger shall
continue unchanged as a share of Common Stock of the Surviving Bank.
(ii) Each share of TideMark Bank Common Stock outstanding
immediately prior to the Effective Time of the Bank Merger shall be
cancelled, the transfer books of TideMark Bank shall be closed, and no
further transfer of TideMark Bank Common Stock shall be permitted.
Section 3. Articles of Incorporation, Bylaws and Directors of the
Surviving Bank. At the Effective Time of the Bank Merger, there shall be
no change caused by the Bank Merger in the Articles of Incorporation
(except any change caused by the filing of Articles of Merger relating to
the Bank Merger), Bylaws, or Board of Directors of the Surviving Bank.
Section 4. Conditions to Bank Merger. Consummation of the Bank
Merger is subject to the following conditions:
(i) The approving vote of the sole shareholder of the
outstanding shares of TideMark Bank Common Stock entitled to vote.
(ii) The approval of the Bank Merger by the State Corporation
Commission of Virginia, the Board of Governors of the Federal Reserve
System and the Office of Thrift Supervision.
(iii) The satisfaction of the conditions contained in the
Agreement and the Plan of Reorganization among Crestar Financial
Corporation, Crestar Bank, TideMark Bancorp Inc. and Tidemark Bank, or
the waiver of such conditions by the party for whose benefit they were
imposed.
Section 5. Effect of the Bank Merger. The Bank Merger, upon the
Effective Time of the Bank Merger, shall have the effect provided by
Sections 13.1-721 and 6.1-44 of the Code of Virginia.
ANNEX II
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of September 20, 1994 (the
"Agreement"), by and between TideMark Bancorp, Inc., a Virginia corporation
("Issuer"), and Crestar Financial Corporation, a Virginia corporation
("Grantee").
WHEREAS, Grantee and Issuer have entered into a binding letter of
agreement dated as of September 20, 1994 (the "Letter Agreement") which
Letter Agreement is intended to be merged into a definitive Agreement and
Plan of Reorganization (the "Plan"), providing for, among other things, the
merger of Issuer into Grantee, with Grantee as the surviving corporation
(the "Holding Company Merger") and the subsequent merger of TideMark Bank
for Savings FSB into Crestar Bank (together with the Holding Company
Merger, the "Transaction"); and
WHEREAS, as a condition and inducement to Grantee's execution of the
Letter Agreement and the Plan, Grantee has required that Issuer agree, and
Issuer has agreed, to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and
in the Letter Agreement and to be set forth in the Plan, and intending to
be legally bound hereby, Issuer and Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Letter
Agreement.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 1,380,000 shares (adjusted as set forth herein)
(the "Option Shares", which shall include the Option Shares before and
after any transfer of such Option Shares) of Common Stock ("Issuer Common
Stock") of Issuer at a purchase price of $4.25 per Option Share (the
"Purchase Price").
3. Exercise of Option.
(a) Provided that Grantee shall not be in material breach of
the agreements or covenants contained in this Letter Agreement or, when
executed, the Plan, and no preliminary or permanent injunction or other
order against delivery of shares covered by the Option issued by any court
of competent jurisdiction in the United States shall be in effect, Grantee
may exercise the Option, in whole or in part, at any time and from time to
time following the occurrence of a Purchase Event; provided, that the
Option shall terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time of the Holding Company Merger,
(B) termination of the Letter Agreement or, when executed, the Plan in
accordance with the terms thereof prior to the occurrence of a Purchase
Event or a Preliminary Purchase Event (other than a termination of the
Letter Agreement or, when executed, the Plan by Grantee due to a breach by
Issuer of a covenant or agreement contained in the Letter Agreement or,
when executed, the Plan, as the case may be (a "Default Termination")), (C)
12 months after the termination of the Letter Agreement or, when executed,
the Plan by Grantee pursuant to a Default Termination (provided, however,
that if within 12 months after such a termination of the Letter Agreement
or, when executed, the Plan, a Purchase Event or Preliminary Purchase Event
shall occur, then notwithstanding anything to the contrary contained herein
this option shall terminate 12 months after the first occurrence of such an
event), and (D) 12 months after termination of the Letter Agreement or,
when executed, the Plan (other than pursuant to a Default Termination)
following the occurrence of a Purchase Event or a Preliminary Purchase
Event; and provided, further, that any purchase of shares upon exercise of
the Option shall be subject to compliance with applicable law, including,
without limitation, the Bank Holding Company Act of 1956, as amended (the
"BHC Act").
(b) As used herein, a "Purchase Event" means any of the
following events:
(i) Without Grantee's prior written consent, Issuer
shall have authorized, recommended or publicly-proposed, or publicly
announced an intention to authorize, recommend or propose, or entered
into an agreement with any person (other than Grantee or any
subsidiary of Grantee) to effect an, Acquisition Transaction (as
defined below). As used herein, the term Acquisition Transaction
shall mean (A) a merger, consolidation or similar transaction
involving Issuer or any of its subsidiaries (other than transactions
solely between Issuer's subsidiaries), (B) the disposition, by sale,
lease, exchange or otherwise, of assets of Issuer or any of its
subsidiaries representing in either case 25% or more of the
consolidated assets of Issuer and its subsidiaries, or (C) the
issuance, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities
representing 25% or more of the voting power of Issuer or any of its
subsidiaries (any of the foregoing an "Acquisition Transaction"); or
(ii) any person (other than Grantee or any subsidiary
of Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "1934 Act")) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under
the 1934 Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any
of the following events:
(i) any person (other than Grantee or any subsidiary
of Grantee) shall have commenced (as such term is defined in Rule 14d-
2 under the 1934 Act) or shall have filed a registration statement
under the Securities Act of 1933, as amended (the "1933 Act"), with
respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such
person would own or control 10% or more of the then outstanding shares
of Issuer Common Stock (such an offer being referred to herein as a
"Tender Offer" or an "Exchange Offer", respectively); or
(ii) the holders of Issuer Common Stock shall not have
approved the Plan at the meeting of such stockholders held for the
purpose of voting on the Plan, such meeting shall not have been held
or shall have been canceled prior to termination of the Plan or
Issuer's Board of Directors shall have withdrawn or modified in a
manner adverse to Grantee the recommendation of Issuer's Board of
Directors with respect to the Plan, in each case after it shall have
been publicly announced that any person (other than Grantee or any
subsidiary of Grantee) shall have (A) made, or disclosed an intention
to make, a proposal to engage in an Acquisition Transaction, (B)
commenced a Tender Offer or filed a registration statement under the
1933 Act with respect to an Exchange Offer, or (C) filed an
application (or given a notice), whether in draft or final form, under
the BHC Act, the Bank Merger Act or the Change in Bank Control Act of
1978, for approval to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the 1934 Act.
(d) In the event Grantee wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of Option
Shares it intends to purchase pursuant to such exercise, and (ii) a place
and date not earlier than three business days nor later than 15 business
days from the Notice Date for the closing (the "Closing") of such purchase
(the "Closing Date"). If prior notification to or approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the
Office of Thrift Supervision (the "OTS") or any other regulatory authority
is required in connection with such purchase, Issuer shall cooperate with
Grantee in the filing of the required notice of application for approval
and the obtaining of such approval and the Closing shall occur immediately
following such regulatory approvals (and any mandatory waiting periods).
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Grantee shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated
by Issuer, an amount equal to the Purchase Price multiplied by the number
of Option Shares to be purchased on such Closing Date, and (ii) present and
surrender this Agreement to Issuer at the address of Issuer specified in
Section 11(f) hereof.
(b) At each Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided in
Section 4(a), (i) Issuer shall deliver to Grantee (A) a certificate or
certificates representing the Option Shares to be purchased at such
Closing, which Option Shares shall be free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever and subject to no
preemptive rights, and (B) if the Option is exercised in part only, an
executed new agreement with the same terms as this Agreement evidencing the
right to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder, and (ii) Grantee shall deliver to Issuer a letter
agreeing that Grantee shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
(c) In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each
Closing shall be endorsed with a restrictive legend which shall read
substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF SEPTEMBER 20,
1994. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Grantee shall
have delivered to Issuer a copy of a letter from the staff of the
Securities and Exchange Commission (the "SEC"), or an opinion of counsel in
form and substance reasonably satisfactory to Issuer and its counsel, to
the effect that such legend is not required for purposes of the 1933 Act.
5. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate
power and authority to enter into this Agreement and, subject to any
approvals referred to herein, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Issuer. This Agreement has been
duly executed and delivered by Issuer. The execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and
compliance by Issuer with any of the provisions hereof will not
(i) conflict with or result in a breach of any provision of its Charter or
By-laws or a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, debenture, mortgage, indenture, license,
material agreement or other material instrument or obligation to which
Issuer is a party, by which it or any of its properties or assets may be
bound, or (ii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Issuer or any of its properties or assets. No
consent or approval by any governmental authority, other than compliance
with applicable federal and state securities and banking laws, and
regulations of the Federal Reserve Board and the OTS, is required of Issuer
in connection with the execution and delivery by Issuer of this Agreement
or the consummation by Issuer of the transactions contemplated hereby.
(b) Authorized Stock. Issuer has taken all necessary
corporate and other action to authorize and reserve and to permit it to
issue, and, at all times from the date hereof until the obligation to
deliver Issuer Common Stock upon the exercise of the Option terminates,
will have reserved for issuance, upon exercise of the Option, the number of
shares of Issuer Common Stock necessary for Grantee to exercise the Option,
and Issuer will take all necessary corporate action to authorize and
reserve for issuance all additional shares of Issuer Common Stock or other
securities which may be issued pursuant to Section 7 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due exercise
of the Option, including all additional shares of Issuer Common Stock or
other securities which may be issuable pursuant to Section 7, upon issuance
pursuant hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of Issuer.
6. Representations and Warrants of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate
power and authority to enter into this Agreement and, subject to any
approvals or consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee. This
Agreement has been duly executed and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being,
and any Option Shares or other securities acquired by Grantee upon exercise
of the Option will not be, acquired with a view to the public distribution
thereof and will not be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the 1933 Act.
7. Adjustment upon Changes in Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by
reason of a stock dividend, stock split, split-up, recapitalization,
combination, exchange of shares or similar transaction, the type and number
of shares or securities subject to the Option, and the Purchase Price
therefor, shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction so that Grantee shall
receive, upon exercise of the Option, the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior to
such event, or the record date therefor, as applicable. If any additional
shares of Issuer Common Stock are issued after the date of this Agreement
(other than pursuant to an event described in the first sentence of this
Section 7(a)), the number of shares of Issuer Common Stock subject to the
Option shall he adjusted so that, after such issuance, it, together with
any shares of Issuer Common Stock previously issued pursuant hereto, equals
19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued
pursuant to the Option.
(b) In the event that Issuer shall enter in an agreement: (i)
to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and shall not be the continuing or surviving corporation
of such consolidation or merger, (ii) to permit any person, other than
Grantee or one of its subsidiaries, to merge into Issuer and Issuer shall
be the continuing or surviving corporation, but, in connection with such
merger, the then outstanding shares of Issuer Common Stock shall be changed
into or exchanged for stock or other securities of Issuer or any other
person or cash or any other property or the outstanding shares of Issuer
Common Stock immediately prior to such merger shall after such merger
represent less than 50% of the outstanding shares and share equivalents of
the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that upon the consummation of
any such transaction and upon the terms and conditions set forth herein,
Grantee shall receive for each Option Share with respect to which the
Option has not been exercised an amount of consideration in the form of and
equal to the per share amount of consideration that would be received by
the holder of one share of Issuer Common Stock less the Purchase Price
(and, in the event of an election or similar arrangement with respect to
the type of consideration to be received by the holders of Issuer Common
Stock, subject to the foregoing, proper provision shall be made so that the
holder of the Option would have the same election or similar rights as
would the holder of the number of shares of Issuer Common Stock for which
the Option is then exercisable).
8. Registration Rights.
(a) Demand Registration Rights. Issuer shall, subject to the
conditions of subparagraph (c) below, if requested by Grantee, as
expeditiously as possible prepare and file a registration statement under
the 1933 Act if such registration is necessary in order to permit the sale
or other disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by or are issuable to Grantee upon
exercise of the Option in accordance with the intended method of sale or
other disposition stated by Grantee in such request, including without
limitation a "shelf" registration statement under Rule 415 under the 1933
Act or any successor provision, and Issuer shall use its best efforts to
qualify such shares or other securities for sale under any applicable state
securities laws.
(b) Additional Registration Rights. If Issuer at any time
after the exercise of the Option proposes to register any shares of Issuer
Common Stock under the 1933 Act in connection with an underwritten public
offering of such Issuer Common Stock, Issuer will promptly give written
notice to Grantee (and any permitted transferee) of its intention to do so
and, upon the written request of Grantee (or any such permitted transferee
of Grantee) given within 30 days after receipt of any such notice (which
request shall specify the number of shares of Issuer Common Stock intended
to be included in such underwritten public offering by Grantee (or such
permitted transferee)), Issuer will cause all such shares, the holders of
which shall have requested participation in such registration, to be so
registered and included in such underwritten public offering; provided,
however, that Issuer may elect to not cause any such shares to be so
registered (i) if the underwriters in good faith object for valid business
reasons, or (ii) in the case of a registration solely to implement an
employee benefit plan or a registration filed on Form S-4; provided,
further, however, that such election pursuant to (i) may only be made one
time. If some but not all the shares of Issuer Common Stock, with respect
to which Issuer shall have received requests for registration pursuant to
this subparagraph (b), shall be excluded from such registration, Issuer
shall make appropriate allocation of shares to be registered among Grantee
and any other person (other than the Issuer) who or which is permitted to
register their shares of Issuer Common Stock in connection with such
registration pro rata in the proportion that the number of shares requested
to be registered by each such holder bears to the total number of shares
requested to be registered by all such holders then desiring to have Issuer
Common Stock registered for sale.
(c) Conditions to Required Registration. Issuer shall use all
reasonable efforts to cause each registration statement referred to in
subparagraph (a) above to become effective and to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective; provided, however, that Issuer may delay
any registration of Option Shares required pursuant to subparagraph (a)
above for a period not exceeding 90 days provided Issuer shall in good
faith determine that any such registration would adversely affect an
offering or contemplated offering of other securities by Issuer, and Issuer
shall not be required to register Option Shares under the 1933 Act pursuant
to subparagraph (a) above:
(i) prior to the earliest of (A) termination of the
Plan, and (B) a Purchase Event or a Preliminary Purchase Event;
(ii) on more than two occasions;
(iii) more than once during any calendar year;
(iv) within 90 days after the effective date of a
registration referred to in subparagraph (b) above pursuant to which
the holder or holders of the Option Shares concerned were afforded the
opportunity to register such shares under the 1933 Act and such shares
were registered as requested; and
(v) unless a request therefor is made to Issuer by the
holder or holders of at least 25% or more of the aggregate number of
Option Shares then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain
the effectiveness of any registration statement after the expiration of 120
days from the effective date of such registration statement. Issuer shall
use all reasonable efforts to make any filings, and take all steps, under
all applicable state securities laws to the extent necessary to permit the
sale or other disposition of the Option Shares so registered in accordance
with the intended method of distribution for such shares, provided,
however, that Issuer shall not be required to consent to general
jurisdiction or qualify to do business in any state where it is not
otherwise required to so consent to such jurisdiction or to so qualify to
do business.
(d) Expenses. Except where applicable state law prohibits
such payments, Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses,
accounting expenses and printing expenses incurred by it) in connection
with each registration pursuant to subparagraph (a) or (b) above and all
other qualifications, notifications or exemptions pursuant to subparagraph
(a) or (b) above. Underwriting discounts and commissions relating to
Option Shares, fees and disbursements of counsel to the holders of Option
Shares being registered and any other expenses incurred by such holders in
connection with any such registration shall be borne by such holders.
(e) Indemnification. In connection with any registration
under subparagraph (a) or (b) above, Issuer hereby indemnifies the holder
of the Option Shares, and each underwriter thereof, including each person,
if any, who controls such holder or underwriter within the meaning of
Section 15 of the 1933 Act, against all expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement of a
material fact contained in any registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission, or
alleged omission, to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such expenses, losses, claims, damages or liabilities of such
indemnified party are caused by any untrue statement or alleged untrue
statement that was included by Issuer in any such registration statement or
prospectus or notification or offering circular (including any amendments
or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party
expressly for use therein, and Issuer and each officer, director and
controlling person of Issuer shall be indemnified by such holder of the
Option Shares, or by such underwriter, as the case may be, for all such
expenses, losses, claims, damages and liabilities caused by any untrue, or
alleged untrue, statement that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such holder
or such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this subparagraph
(e) of notice of the commencement of any action against such indemnified
party in respect of which indemnity or reimbursement may be sought against
any indemnifying party under this subparagraph (e), such indemnified party
shall notify the indemnifying party in writing of the commencement of such
action, but, except to the extent of any actual prejudice to the
indemnifying party, the failure so to notify the indemnifying party shall
not relieve it of any liability which it may otherwise have to any
indemnified party under this subparagraph (e). In case notice of
commencement of any such action shall be given to the indemnifying party as
above provided, the indemnifying party shall be entitled to participate in
and, to the extent it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense of such action at its own
expense, with counsel chosen by it and reasonably satisfactory to such
indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party agrees to pay the same, (ii) the indemnifying party
fails to assume the defense of such action with counsel reasonably
satisfactory to the indemnified party, or (iii) the indemnified party has
been advised by counsel that one or more legal defenses may be available to
the indemnifying party that may be contrary to the interest of the
indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear
fees and expenses of such counsel. No indemnifying party shall be liable
for any settlement entered into without its consent, which consent may not
be unreasonably withheld.
If the indemnification provided for in this subparagraph (e) is
unavailable to a party otherwise entitled to be indemnified in respect of
any expenses, losses, claims, damages or liabilities referred to herein,
then the indemnifying party, in lieu of indemnifying such party otherwise
entitled to be indemnified, shall contribute to the amount paid or payable
by such party to be indemnified as a result of such expenses, losses,
claims, damages or liabilities in such proportion as is appropriate to
reflect the relative benefits received by Issuer, the selling shareholders
and the underwriters from the offering of the securities and also the
relative fault of Issuer, the selling shareholders and the underwriters in
connection with the statements or omissions which resulted in such
expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party
as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating
or defending any action or claim; provided however, that in no case shall
the holders of the Option Shares be responsible, in the aggregate, for any
amount in excess of the net offering proceeds attributable to its Option
Shares included in the offering. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Any obligation by any holder to
indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to subparagraph (a) or
(b) above, Issuer and each holder of any Option Shares (other than Grantee)
shall enter into an agreement containing the indemnification provisions of
this subparagraph (e).
(f) Miscellaneous Reporting. Issuer shall comply with all
reporting requirements and will do all such other things as may be
necessary to permit the expeditious sale at any time of any Option Shares
by the holder thereof in accordance with and to the extent permitted by any
rule or regulation permitting non-registered sales of securities
promulgated by the SEC from time to time, including, without limitation,
Rule 144A under the 1933 Act. Issuer shall at its expense provide the
holder of any Option Shares with any information necessary in connection
with the completion and filing of any reports or forms required to be filed
by them under the 1933 Act or the 1934 Act, or required pursuant to any
state securities laws or the rules of any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in
connection with the issuance and the sale of the Option Shares and in
connection with the exercise of the Option, and will save Grantee harmless,
without limitation as to time, against any and all liabilities, with
respect to all such taxes.
9. Quotation; Listing. If Issuer Common Stock or any other
securities to be acquired upon exercise of the Option are then authorized
for quotation or trading or listing on The Nasdaq National Market or any
securities exchange, Issuer, upon the request of Grantee, will promptly
file an application, if required, to authorize for quotation or trading or
listing the shares of Issuer Common Stock or other securities to be
acquired upon exercise of the Option on The Nasdaq National Market or such
other securities exchange and will use its best efforts to obtain approval,
if required, of such quotation or listing as soon as practicable.
10. Division of Option. Upon the occurrence of a Purchase Event or a
Preliminary Purchase Event, this Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of
Issuer for other Agreements providing for Options of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Issuer Common Stock purchasable hereunder. The
terms "Agreement" and "Option" as used herein include any other Agreements
and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed or mutilated shall
at any time be enforceable by anyone.
11. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 8, each
of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement: No Third-Party Beneficiary;
Severability. This Agreement, together with the Plan and the other
documents and instruments referred to herein and therein, between Grantee
and Issuer (i) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof, and (ii) is not intended to
confer upon any person other than the parties hereto (other than any
transferees of the Option Shares or any permitted transferee of this
Agreement pursuant to Section 11(h)) any rights or remedies hereunder. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction or a federal or state regulatory agency to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated. If for
any reason such court or regulatory agency determines that the Option does
not permit Grantee to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Section 3
(as adjusted pursuant to Section 7), it is the express intention of Issuer
to allow Grantee to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible without any amendment or
modification hereof.
(d) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Virginia
without regard to any applicable conflicts of law rules.
(e) Descriptive Heading. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to Issuer to: TideMark Bancorp, Inc.
301 Hiden Boulevard
Newport News, Virginia 23606
Attention: Gordon L. Gentry, Jr.
Chairman
with a copy to: Elias, Matz, Ternan & Herrick L.L.P.
12th Floor, The Walker Building
734 15th Street, N.W.
Washington, D.C. 20005
Attention: Philip Ross Revan
If to Grantee to: Crestar Financial Corporation
919 East Main Street
Richmond, VA 23219
Attention: John C. Clark, III
Corporate Senior Vice
President, General Counsel
and Corporate Secretary
with a copy to: Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
Attention: Lathan M. Ewers, Jr.
(g) Counterparts. This Agreement and any amendments hereto may
be executed in two counterparts, each of which shall be considered one and
the same agreement and shall become effective when both counterparts have
been signed, it being understood that both parties need not sign the same
counterpart.
(h) Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned by
any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, except that Grantee
may assign this Agreement to a wholly owned subsidiary of Grantee and
Grantee may assign its rights hereunder in whole or in part after the
occurrence of a Purchase Event. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit and be enforceable by
the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the
Option by Grantee, Issuer and Grantee shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree
to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto
may have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly
authorized, all as of the day and year first written above.
TIDEMARK BANCORP, INC.
By: /s/Gordon L. Gentry, Jr.
Gordon L. Gentry, Jr.
Chairman of the Board
CRESTAR FINANCIAL CORPORATION
By: /s/C. Garland Hagen
C. Garland Hagen
Corporate Executive Vice
President - Investment Bank
<PAGE>
ANNEX III
Scott & Stringfellow, Inc.
Established 1893
Investment Bankers and Brokers
Member 909 East Main Street Richmond, VA 23219 TEL (804) 643-1811
NYSE/SIPC FAX (804) 343-7184
December 30, 1994
Board of Directors
TideMark Bancorp, Inc.
301 Hiden Boulevard
Newport News, VA 23606
Gentlemen:
You have asked us to render our opinion relating to the fairness, from
a financial point of view, to the shareholders of TideMark Bancorp, Inc.
("TideMark") of the terms of an Agreement and Plan of Reorganization among
Crestar Financial Corporation ("Crestar"), Crestar Bank, and TideMark and
TideMark Bank dated October 31, 1994 and a related Plan of Merger of
Tidemark Bancorp, Inc., into Crestar Financial Corporation (the "Holding
Company Plan of Merger") and a related Plan of Merger of TideMark Bank into
Crestar Bank (the "Bank Plan of Merger") (collectively the "Merger
Agreement"). The Merger Agreement provides that each share of Common Stock
of TideMark which is issued and outstanding immediately prior to the
Effective Time of the Holding Company Merger (as defined in Article VI of
the Merger Agreement) shall be exchanged for cash of $5.50 per share or be
converted into, in a tax-free exchange, and shall become the number of
shares of Crestar Common Stock determined by dividing $5.50 per share
("Price Per Share") of TideMark Common Stock by the average closing price
of Crestar Common Stock as reported on the New York Stock Exchange for each
of the 10 trading days ending on the 10th day prior to the day of the
Effective Time of the Holding Company Merger. The number of shares that
may be exchanged for cash shall not exceed 40% of the outstanding shares of
TideMark Common Stock immediately prior to the Effective Time of the
Holding Company Merger.
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Merger Agreement; (2) the Registration Statement and Proxy
Statement/Prospectus; (3) TideMark's financial statements for the four years
ended June 30, 1994; (4) TideMark's unaudited financial statements for the
three months ended September 30, 1993 and 1994, and other internal
information relating to TideMark prepared by TideMark's management; (5)
information regarding the trading market for the common stocks of TideMark
and Crestar and the price ranges within which the respective stocks have
traded; (6) the relationship of prices paid to relevant financial data
such as net worth, assets, deposits and earnings in certain thrift and thrift
holding company mergers and acquisitions in Virginia in recent years; (7)
Crestar's annual reports to shareholders and its financial statements for the
four years ended December 31, 1993; and (8) Crestar's unaudited financial
statements for the quarter and nine months ended September 30, 1993 and
1994, and other internal information
Board of Directors
TideMark Bancorp, Inc.
December 30, 1994
Page 2 of 2
relating to Crestar prepared by Crestar's management. We have discussed
with members of
management of TideMark and Crestar the background to the Merger, reasons
and basis for the Merger and the business and future prospects of TideMark
and Crestar individually and as a combined entity. Finally, we have
conducted such other studies, analyses and investigations, particularly of
the banking and thrift industry, and considered such other information as
we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished
to us by or on behalf of TideMark and Crestar. We have not attempted
independently to verify such information, nor have we made any independent
appraisal of the assets of TideMark or Crestar. We have taken into account
our assessment of general economic, financial market and industry
conditions as they exist and can be evaluated at the date hereof, as well
as our experience in business valuation in general.
On the basis of our analyses and review and in reliance on the
accuracy and completeness of the information furnished to us and subject to
the conditions noted above, it is our opinion that, as of the date hereof
the terms of the Merger Agreement are fair from a financial point of view
to the shareholders of TideMark Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By: G. Jacob Savage III
Vice President
Financial Institutions Group
Corporate Finance Department
ANNEX IV
ARTICLE 15.
Dissenters' Rights.
Section 13.1-729. Definitions. In this article:
"Corporation" means the issuer of the shares held by a dissenter
before the corporate action, except that (i) with respect to a merger,
"corporation" means the surviving domestic or foreign corporation or
limited liability company by merger of that issuer, and (ii) with respect
to a share exchange, "corporation" means the acquiring corporation by share
exchange, rather than the issuer, if the plan of share exchange places the
responsibility for dissenters' rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 13.1-730 and who exercises that right when and
in the manner required by Sections 13.1-732 through 13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder. (1985, c. 522; 1992, c. 575.)
Section 13.1-730. Right to dissent. A. A Shareholder is entitled
to dissent from, and obtain payment of the fair value of his shares in the
event of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
13.1-718 or the articles of incorporation and the shareholder is entitled to
vote on the merger or (ii) if the corporation is a subsidiary that is merged
with its parent under Section 13.1-719;
2. Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation if the shareholder was entitled to vote
on the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that
such dissenter's rights shall not apply in the case of (i) a sale or
exchange pursuant to court order, or (ii) a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect
to a plan of merger or share exchange or a sale or exchange of property
there shall be no right of dissent in favor of holders of shares of any
class or series which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting at
which the plan of merger or share exchange or the sale or exchange of
property is to be acted on, were (i) listed on a national securities
exchange or (ii) held by at least 2,000 record shareholders, unless in
either case:
1. The articles of incorporation of the corporation issuing such
shares provide otherwise;
2. In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or share exchange
to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership interests
and cash in lieu of fractional shares (i) of the surviving or acquiring
corporation or limited liability company or (ii) of any other corporation
or limited liability company which, at the record date fixed to determine
the shareholders entitled to receive notice of and to vote at the meeting
at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities
exchange or held of record by at least 2,000 record shareholders or
members; or
c. A combination of cash and shares or membership interests as set
forth in subdivisions 2 a and 2 b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction" and
is not approved by a majority of "disinterested directors" as such terms
are defined in Section 13.1-725.
D. The right of a dissenting shareholder to obtain payment of the
fair value of his shares shall terminate upon the occurrence of any one of
the following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
3. His demand for payment is withdrawn with the written consent of the
corporation. (Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956, c. 428;
1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522; 1986, c.
540; 1988, c. 442; 1990, c. 229; 1992, c. 575.)
Section 13.1-731. Dissent by nominees and beneficial owners. A. A
record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation
in writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
1. He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
(Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733;
1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
Section 13.1-732. Notice of dissenters' rights. A. If proposed
corporate action creating dissenters' rights under Section 13.1-730 is
submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under Section
13.1-730 is taken without a vote of shareholders, the corporation, during the
ten- day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
13.1-734. (1985, c. 522.)
Section 13.1-733. Notice of intent to demand payment. A. If
proposed corporate action creating dissenters' rights under Section 13.1-730 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights (i) shall deliver to the corporation before the vote
is taken written notice of his intent to demand payment for his shares if the
proposed action is effectuated and (ii) shall not vote such shares in favor of
the proposed action.
B. A shareholder who does not satisfy the requirements of subsection A of
this section is not entitled to payment for his shares under this article.
(Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733;
1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
Section 13.1-734. Dissenters' notice. A. If proposed corporate
action creating dissenters' rights under Section 13.1-730 is authorized
at a shareholders' meeting, the corporation, during the ten-day period after
the effectuation of such corporate action, shall deliver a dissenters' notice
in writing to all shareholders who satisfied the requirements of Section
13.1- 733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before or after that date;
4. Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article. (Code 1950, Sections
13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c.
500; 1984, c. 613; 1985, c. 522.)
Section 13.1-735. Duty to demand payment. A. A shareholder sent
a dissenters' notice described in Section 13.1-734 shall demand payment,
certify that he acquired beneficial ownership of the shares before or after
the date required to be set forth in the dissenters' notice pursuant to
subdivision 3 of subsection B of Section 13.1-734, and, in the case
of certificated shares, deposit his certificates in accordance with the terms
of the notice.
B. The shareholder who deposits his shares pursuant to subsection A
of this section retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment and deposits his share
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
(Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968, c. 733;
1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
Section 13.1-736. Share restrictions. A. The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action. (Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956, c. 428;
1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
Section 13.1-737. Payment. A. Except as provided in Section 13.1-738,
within thirty days after receipt of a payment demand made pursuant to Section
13.1-735, the corporation shall pay the dissenter the amount the
corporation estimates to be the fair value of his shares, plus accrued
interest. The obligation of the corporation under this paragraph may be
enforced (i) by the circuit court in the city or county where the
corporation's principal office is located, or, if none in this Commonwealth,
where its registered office is located or (ii) at the election of any
dissenter residing or having its principal office in the Commonwealth, by the
circuit court in the city or county where the dissenter resides or has its
principal office. The court shall dispose of the complaint on an expedited
basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the
corporate action creating dissenters' rights, an income statement for that
year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair value of
the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
Section 13.1-739; and
4. A copy of this article. (Code 1950, Section 13-85, 13.1-75, 13.1-78;
1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c.
522.)
Section 13.1-738. After-acquired shares. A. A corporation may elect
to withhold payment required by Section 13.1-737 from a dissenter unless he was
the beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is
earlier, of the terms of the proposed corporate action, as set forth in the
dissenters' notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action,
it shall estimate the fair value of the shares, plus accrued interest, and
shall offer to pay this amount to each dissenter who agrees to accept it in
full satisfaction of his demand. The corporation shall send with its offer
an explanation of how it estimated the fair value of the shares and of how
the interest was calculated, and a statement of the dissenter's right to
demand payment under Section 13.1-739. (1985, c. 522).
Section 13.1-739. Procedure if shareholder dissatisfied with payment
or offer. A. A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate (less any payment under Section 13.1-737),
or reject the corporation's offer under Section 13.1-738 and demand payment of
the fair value of his shares and interest due, if the dissenter believes that
the amount paid under Section 13.1-737 or offered under Section 13.1-738 is
less than the fair value of his shares or that the interest due is
incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for his shares. (Code 1950, Sections 13-85, 13.1-75, 13.1-78;
1956, c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c.
522.)
Section 13.1-740. Court action. A. If a demand for payment under
Section 13.1-739 remains unsettled, the corporation shall commence a
proceeding within sixty days after receiving the payment demand and petition
the circuit court in the city or county described in subsection B of this
section to determine the fair value of the shares and accrued interest.
If the corporation does not commence the proceeding within the sixty-day
period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this
Commonwealth, where its registered office is located. If the corporation
is a foreign corporation without a registered office in this Commonwealth,
it shall commence the proceeding in the city or county in this Commonwealth
where the registered office of the domestic corporation merged with or
whose shares were acquired by the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to
the proceeding as in an action against their shares and all parties shall
be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of
the corporation, complied with the provisions of this article. If the
court determines that such shareholder has not complied with the provisions
of this article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is
commenced under subsection B of this section is plenary and exclusive. The
court may appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any amendment to
it. The dissenters are entitled to the same discovery rights as parties in
other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the
corporation or (ii) for the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold payment
under Section 13.1-738. (Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956,
c. 428; 1968, c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
Section 13.1-741. Court costs and counsel fees. A. The court in
an appraisal proceeding commenced under Section 13.1-740 shall determine all
costs of the proceeding, including the reasonable compensation and expenses
of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters did not act in good faith in demanding
payment under Section 13.1-739.
B. The court may also assess the reasonable fees and expenses of
experts, excluding those of counsel, for the respective parties, in amounts
the court finds equitable:
1. Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Sections 13.1-732 through 13.1-739; or
2. Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the rights
provided by this article.
C. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, the
court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
D. In a proceeding commenced under subsection A of Section 13.1-737
the court shall assess the costs against the corporation, except that the court
may assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court
finds that such parties did not act in good faith in instituting the
proceeding. (Code 1950, Sections 13-85, 13.1-75, 13.1-78; 1956, c. 428; 1968,
c. 733; 1972, c. 425; 1975, c. 500; 1984, c. 613; 1985, c. 522.)
<PAGE>
ANNEX V
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File Number 0-21058
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
TIDEMARK BANCORP, INC.
(exact name of registrant as specified in its charter)
VIRGINIA 54-1642520
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
301 Hiden Boulevard
Newport News, Virginia 23606
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code: (804) 599-1400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the 5,455,619 shares of Common Stock held by
nonaffiliates of the registrant based upon the last reported sales price of
$4.00 of its Common Stock on September 15, 1994, on the National
Association of Securities Dealers Automated Quotations National Market
System was $21,822,476.
The number of shares of Common Stock outstanding as of September 15, 1994:
6,931,321
DOCUMENTS INCORPORATED BY REFERENCE
PART I - Portions of the Annual Report to Stockholders for the fiscal year
ended June 30, 1994, are incorporated by reference into Part I, Items 1 - 3
hereof.
PART II - Portions of the Annual Report to Stockholders for the fiscal year
ended June 30, 1994, are incorporated by reference into Part II, Items 5 -
8 hereof.
PART I
ITEM 1. BUSINESS
Information relating to the business of TideMark Bancorp, Inc. ("TideMark"
or "the Company") and its subsidiaries is incorporated by reference from
pages 26 through 37 of the Annual Report to Stockholders for the fiscal
year ended June 30, 1994 and included herein as Exhibit 13 ("Annual
Report"). Information relating to the Company only is incorporated by
reference from Note 25 of the Annual Report included herein as Exhibit 13.
SUBSIDIARIES
The Company's sole subsidiary is TideMark Bank, a federally chartered
savings Bank ("TideMark Bank" or "the Bank"). Pursuant to the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), the
Bank is permitted to invest in the capital stock, obligations and other
securities of its service corporation in an aggregate amount not to exceed
2% of the Bank's assets, plus an additional 1% of assets, if such
investment is used for community development or inner-city purposes. In
addition, if the Bank's regulatory capital is in compliance with applicable
regulations, it can make additional conforming loans in an amount not
exceeding 50% of the Bank's regulatory capital to service corporations of
which the Bank owns more than 10% of the stock. This is a significant
reduction from equity investments permitted to the Bank in prior years.
FIRREA contains provisions which discourage thrift institution investments
in service corporation real estate development and other activities.
FIRREA requires that all of a savings association's investments and
extensions of credit prior to April 12, 1989 to subsidiaries engaged in
activities not permissible for a national bank must be deducted in
calculating capital in accordance with a five year phase-out schedule,
which ends June 30, 1994.
All investments made after April 12, 1989 in subsidiaries engaged in
impermissible activities must be fully deducted from capital.
Since investment in certain service corporation activities must be deducted
in accordance with the phase-out schedule in calculating an institution's
capital for compliance purposes and the Bank's subsidiaries are involved in
those types of activities, management has decided to divest the assets of
the subsidiaries of the Bank. During 1993, the Bank did not make any new
investments through its service corporation. The Bank is currently
operating under a plan to divest all of NNSC's assets by fiscal year end
1995. During fiscal 1994, the Company reduced its investment in NNSC from
$1.9 million to $1.8 million.
NNSC has 13 subsidiaries, all but one of which, Dominion Motor Inns, Inc.
("DMI"), are inactive. The Bank's divestiture plan involves transferring
all investments that are allowable activities for a national bank to the
Bank. The remaining assets, which are principally investments in real
estate joint ventures, are being dissolved as quickly as can be prudently
accomplished. In January 1990, the Bank filed a divestiture plan with the
FDIC. NNSC had total assets of $1.9 million at June 30, 1994, and 1993.
REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company and TideMark Bank. The
description of these laws and regulations does not purport to be complete
and is qualified in its entirety by reference to applicable laws and
regulations.
Regulation of the Company
Federal Regulation-General The Company is a savings and loan holding
company within the meaning of the Home Owners' Loan Act. As such, the
Company was required to register with the Office of Thrift Supervision
("OTS") and is subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding
company, TideMark Bank is subject to certain restrictions in its dealings
with the Company and affiliates thereof.
Federal Activities Restrictions There are generally no restrictions on the
activities of a savings and loan holding company which holds only one
subsidiary savings association. However, if the Director of the OTS
determines that there is reasonable cause to believe that the continuation
by a savings and loan holding company of an activity constitutes a serious
risk to the financial safety, soundness or stability of its subsidiary
savings association, the Director may impose such restrictions as deemed
necessary to address such risk, including limiting (i) payment of dividends
by the savings association; (ii) transactions between the savings
association and its affiliates; and (iii) any activities of the savings
association that might create a serious risk that the liabilities of the
holding company and its affiliates may be imposed on the savings
association. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
association subsidiary of such a holding company fails to meet the
Qualified Thrift Lender ("QTL") test, then such unitary holding company
also shall become subject to the activities restrictions applicable to
multiple savings and loan holding companies and, unless the savings
association requalifies as a QTL within one year thereafter, shall register
as, and become subject to the restrictions applicable to, a bank holding
company. See "Regulation of TideMark Bank - Qualified Thrift Lender Test."
If the Company were to acquire control of another savings association,
other than through merger or other business combination with TideMark Bank,
the Company would thereupon become a multiple savings and loan holding
company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL test, the activities of the Company and any of
its subsidiaries (other than TideMark Bank or other subsidiary savings
associations) would thereafter be subject to further restrictions. Among
other things, no multiple savings and loan holding company or subsidiary
thereof which is not a savings association shall commence or continue for a
limited period of time after becoming a multiple savings and loan holding
company or subsidiary thereof any business activity, upon prior notice to,
and no objection by the OTS, other than: (i) furnishing or performing
management services for a subsidiary savings association; (ii) conducting
an insurance agency or escrow business; (iii) holding, managing or
liquidating assets owned by or acquired from a subsidiary savings
association; (iv) holding or managing properties used or occupied by a
subsidiary savings association; (v) acting as trustee under deeds of trust;
(vi) those activities authorized by regulation as of March 5, 1987 to be
engaged in by multiple savings and loan holding companies; or (vii) unless
the Director of the OTS by regulation prohibits or limits such activities
for savings and loan holding companies, those activities authorized by the
Federal Reserve Board as permissible for bank holding companies. Those
activities described in (vii) above also must be approved by the Director
of the OTS prior to being engaged in by a multiple savings and loan holding
company.
Federal Limitations on Transactions with Affiliates Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B
of the Federal Reserve Act. An affiliate of a savings association is any
company or entity which controls, is controlled by or is under common
control with the savings association. In a holding company context, the
parent holding company of a savings association (such as the Company) and
any companies which are controlled by such parent holding company are
affiliates of the savings association. Generally, Sections 23A and 23B (i)
limit the extent to which the savings association or its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such association's capital stock and surplus, and contain an
aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (ii) require that all
such transactions be on terms substantially the same, or at least as
favorable, to the association or subsidiary as those provided to a non-
affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar other types of
transactions. In addition to the restrictions imposed by Sections 23A and
23B, no savings association may (i) loan or otherwise extend credit to an
affiliate, except for any affiliate which engages only in activities which
are permissible for bank holding companies, or (ii) purchase or invest in
any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
association.
In addition, Sections 22(g) and (h) of the Federal Reserve Act places
restrictions on loans by savings associations to executive officers,
directors and principal stockholders of the Company and TideMark Bank.
Under Section 22(h), loans to a director, an executive officer and to a
greater than 10% stockholder of a savings association or the company that
controls the savings association, and certain affiliated interests of such
insiders, may not exceed, together with all other outstanding loans to such
person and affiliated interests, the association's loans to one borrower
limit (generally equal to 15% of the institution's unimpaired capital and
surplus). Section 22(h) also requires that loans to directors, executive
officers and principal stockholders be made on terms substantially the same
as offered in comparable transactions to other persons and also requires
prior board approval for certain loans. In addition, the aggregate amount
of extensions of credit by a savings association to all insiders cannot
exceed the association's unimpaired capital and surplus. Furthermore,
Section 22(g) places additional restrictions on loans to executive
officers. At June 30, 1994, TideMark Bank was in compliance with the above
restrictions.
Restrictions on Acquisitions Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
association or savings and loan holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of a savings
association or holding company thereof which is not a subsidiary. Except
with the prior approval of the Director of the OTS, no director or officer
of a savings and loan holding company or person owning or controlling by
proxy or otherwise more than 25% of such company's stock, may acquire
control of any savings association, other than a subsidiary savings
association, or of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls
savings associations in more than one state if (i) the multiple savings and
loan holding company involved controls a savings association which operated
a home or branch office located in the state of the association to be
acquired as of March 5, 1987, (ii) the acquiror is authorized to acquire
control of the savings association pursuant to the emergency acquisition
provisions of the FDIA, or (iii) the statutes of the state in which the
association to be acquired is located specifically permit institutions to
be acquired by the state-chartered associations or savings and loan holding
companies located in the state where the acquiring entity is located (or by
a holding company that controls such state-chartered savings associations).
FIRREA amended provisions of the Bank Holding Company Act of 1956 ("BHCA")
to specifically authorize the Federal Reserve Board to approve an
application by a bank holding company to acquire control of a savings
association. FIRREA also authorized a bank holding company that controls a
savings association to merge or consolidate the assets and liabilities of
the savings association with, or transfer assets and liabilities to, any
subsidiary bank which is a member of the Bank Insurance Fund ("BIF") with
the approval of the appropriate federal banking agency and the Federal
Reserve Board. FDICIA further amended the BHCA to permit federal savings
associations to acquire or be acquired by any insured depository
institution. As a result of these provisions, there have been a number of
acquisitions of savings associations by bank holding companies in recent
years.
Regulation of TideMark Bank
General The OTS has extensive authority over the operations of savings
associations. As part of this authority, savings associations are required
to file periodic reports with the OTS and are subject to periodic
examinations by the OTS and the FDIC. The investment and lending authority
of savings associations are prescribed by federal laws and regulations and
they are prohibited from engaging in any activities not permitted by such
laws and regulations. Those laws and regulations generally are applicable
to all federally chartered savings associations and may also apply to
state-chartered savings associations. Such regulation and supervision is
primarily intended for the protection of depositors.
The OTS's enforcement authority over all savings associations and their
holding companies was substantially enhanced by FIRREA. This enforcement
authority includes, among other things, the ability to assess civil money
penalties, to issue cease and desist or removal orders and to initiate
injunctive actions. In general, these enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound practices.
Other actions or inactions may provide the basis for enforcement action,
including misleading or untimely reports filed with the OTS. FIRREA
significantly increased the amount of and grounds for civil money
penalties. FIRREA requires, except under certain circumstances, public
disclosure of final enforcement actions by the OTS.
Insurance of Accounts The deposits of TideMark Bank are insured up to
$100,000 per depositor (as defined by law and regulation) by the Savings
Association Insurance Fund ("SAIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC"), and are backed by the full faith
and credit of the United States Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-
insured institutions, such as TideMark Bank. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines
by regulation or order to pose a serious threat to the FDIC. The FDIC also
has the authority to initiate enforcement actions where the OTS has failed
or declined to take such action after receiving a request to do so from the
FDIC.
The annual assessment for SAIF members for deposit insurance for the period
from January 1, 1991 through December 31, 1992 was equal to .23% of insured
deposits, which was payable on a semiannual basis. The Federal Deposit
Insurance Corporation Improvement Act ("FDICIA"), which is discussed under
" - Prompt Corrective Regulatory Action" eliminated limitations on
increases in federal deposit insurance premiums and authorized the FDIC to
increase the assessment rates to the extent necessary to protect the SAIF
(as well as the comparable Bank Insurance Fund ("BIF") administered by the
FDIC which insures the deposits of commercial banks). The FDICIA also
requires the FDIC to adopt a regulation for assessing federal deposit
insurance premiums based on the riskiness of the activities conducted by an
individual institution, which must be effective no later than July 1, 1993.
Effective January 1, 1993, new rules increase the BIF and SAIF assessment
rates within the range of .23% to .31% of insured deposits, depending on,
among other things, the institution's regulatory capital levels and other
factors which relate to the institution's risk to the insurance funds
administered by the FDIC.
The FDIC may terminate the deposit insurance of any insured depository
institution, including TideMark Bank, if it determines after a hearing that
the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations, or has
violated any applicable law, regulation, order or any condition imposed by
an agreement with the FDIC. It also may suspend deposit insurance
temporarily during the hearing process for the permanent termination of
insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of the
termination, less subsequent withdrawals, shall continue to be insured for
a period of six months to two years, as determined by the FDIC. Management
is aware of no existing circumstances which could result in termination of
TideMark Bank's deposit insurance.
Regulatory Capital Requirements TideMark Bank is required to maintain
minimum levels of regulatory capital, as prescribed by OTS regulations.
These requirements, along with TideMark Bank's regulatory capital ratios,
are described in Note 18 of the Annual Report.
Real Estate Lending Standards Effective March 19, 1993, all financial
institutions were required to adopt and maintain comprehensive written real
estate lending policies that are consistent with safe and sound banking
practices. These lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies adopted by the
federal banking agencies, including the OTS, in December 1992
("Guidelines"). The Guidelines set forth, pursuant to the mandates of
FDICIA, uniform regulations prescribing standards for real estate lending.
Real estate lending is defined as extension of credit secured by liens on
interests in real estate or made for the purpose of financing the
construction of a building or other improvements to real estate, regardless
of whether a lien has been taken on the property.
The policies must address certain lending considerations set forth in the
Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards,
and documentation, approval and reporting requirements. These policies
must also be appropriate to the size of the institution and the nature and
scope of its operations, and must be reviewed and approved by the
institution's board of directors at least annually. The LTV ratio
framework, with a LTV ratio being the total amount of credit to be extended
divided by the appraised value of the property at the time the credit is
originated, must be established for each category of real estate loans. If
not a first lien, the lender must combine all senior liens when calculating
this ratio. The Guidelines, among other things, establish the following
supervisory LTV limits: raw land (65%); land development (75%);
construction (commercial, multi-family and nonresidential) (80%); improved
property (85%) and one-to-four family residential (owner occupied) (no
maximum ratio, however any LTV ratio in excess of 90% should require
appropriate insurance or readily marketable collateral).
Certain institutions can make real estate loans that do not conform with
the established LTV ratio limits up to 100% of the institution's total
capital. Within this aggregate limit, total loans for all commercial,
agricultural, multi-family and other non-one-to-four family residential
properties should not exceed 30% of total capital. An institution will
come under increased supervisory scrutiny as the total of such loans
approaches these levels. Certain loans are exempt from the LTV ratios
(e.g. those guaranteed by a government agency, loans to facilitate the sale
of real estate owned, loans renewed, refinanced or restructured by the
original lender(s) to the same borrower(s) where there is no advancement of
new funds, etc.).
Accounting Requirements FIRREA requires the OTS to establish accounting
standards to be applicable to all savings associations for purposes of
complying with regulations, except to the extent otherwise specified in the
capital standards. Such standards must incorporate generally accepted
accounting principles to the same degree as is prescribed by the Federal
banking agencies for banks or may be more stringent than such requirements.
Such standards must be fully implemented by January 1, 1994 and must be
phased-in as provided in Federal regulations in effect on May 1, 1989.
The OTS incorporates the following standards: (i) regulatory reports will
incorporate generally accepted accounting principles ("GAAP") when GAAP is
used by federal banking agencies; (ii) savings association transactions,
financial condition and regulatory capital must be reported and disclosed
in accordance with OTS regulatory reporting requirements that will be at
least as stringent as for national banks; and (iii) the Director of the OTS
may prescribe regulatory reporting requirements more stringent than GAAP
whenever the Director determines that such requirements are necessary to
ensure the safe and sound reporting and operation of savings associations.
The OTS has adopted a statement of policy ("Statement") set forth in Thrift
Bulletin 52 concerning (i) procedures to be used in the selection of a
securities dealer, (ii) the need to document and implement prudent policies
and strategies for securities, whether held for investment, trading or for
sale, and to establish systems and internal controls to ensure that
securities activities are consistent with the financial institution's
policies and strategies, (iii) securities trading and sales practices that
may be unsuitable in connection with securities held in an investment
portfolio, (iv) high-risk mortgage securities that are not suitable for
investment portfolio holdings for financial institutions, and (v)
disproportionately large holdings of long-term, zero-coupon bonds that may
constitute an imprudent investment practice. The Statement applies to
investment securities, high-yield corporate debt securities, loans,
mortgage-backed securities and derivative securities, and provides
guidance concerning the proper classification of an accounting for
securities held for investment, sale, and trading. Securities held for
investment, sale or trading may be differentiated based upon an
institution's desire to earn an interest yield (held for investment), to
realize a holding gain from assets held for indefinite periods of time
(held for sale), or to earn a dealer's spread between the bid and asked
prices (held for trading). Depository institution investment portfolios
are maintained to provide earnings consistent with the safety factors of
quality, maturity, marketability and risk diversification. Securities that
are purchased to accomplish these objectives may be reported at their
amortized cost only when the depository institution has both the intent and
ability to hold the assets for long-term investment purposes. Securities
held for investment purposes may be accounted for at amortized cost,
securities held for sale are to be accounted for at the lower of cost or
market, and securities held for trading are to be accounted for at market.
TideMark Bank believes that its investment activities have been and will
continue to be conducted in accordance with the requirements of OTS
policies and generally accepted accounting principles.
The FASB currently is reviewing the accounting requirements regarding
employee stock compensation plans, particularly stock option plans, set
forth in Accounting Principles Board Opinion No. 25. Recently, a committee
of the U.S. Senate heard testimony on this issue and certain members
thereof indicated that, in the absence of action by the FASB, they may
introduce legislation in the U.S. Congress which requires companies to
recognize compensation expense from employee stock option plans, which
currently generally do not result in expense for financial reporting
purposes either at the time of grant or exercise of options thereunder.
Financial Reporting Insured institutions are required by FDICIA to submit
independently audited annual reports to the FDIC and the appropriate agency
(and state supervisor when applicable). These publicly available reports
must include (a) annual financial statements prepared in accordance with
generally accepted accounting principles and such other disclosure
requirements as required by the FDIC or the appropriate agency and (b) a
report, signed by the chief executive officer and the chief financial
officer or chief accounting officer of the institution which contains
statements, attested to by independent auditors, about the adequacy of
internal controls and compliance with laws and regulations.
Insured institutions are required to monitor the above activities through
an independent audit committee which has access to independent legal
counsel.
Prompt Corrective Regulatory Action Under Section 38 of the Federal
Deposit Insurance Act ("FDIA"), as added by the FDICIA, each appropriate
agency and the FDIC is required to take prompt corrective action to resolve
the problems of insured depository institutions that do not meet minimum
capital ratios. Such action must be accomplished at the least possible
long-term cost to the appropriate deposit insurance fund.
In early September 1992, the federal banking agencies, including the OTS,
adopted substantially similar regulations which are intended to implement
Section 38 of the FDIA. These regulations became effective December 19,
1992. Under the regulations, an institution shall be deemed to be (i)
"well capitalized" if it has total risk-based capital of 10.0% or more, has
a Tier I risk-based capital ratio of 6.0% or more, has a Tier I leverage
capital ratio of 5.0% or more and is not subject to any order or final
capital directive to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or
more and a Tier I leverage capital ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of "well
capitalized," (iii) "undercapitalized" if it has a total risk-based capital
ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0%
(3.0% under certain circumstances), (iv) "significantly undercapitalized"
if it has a total risk-based capital ratio that is less than 6.0%, a Tier I
risk-based capital ratio that is less than 3.0% or a Tier I leverage
capital ratio that is less than 3.0%, and (v) "critically undercapitalized"
if it has a ratio of tangible equity to total assets that is equal to or
less than 2.0%. Section 38 of the FDIA and the regulations promulgated
thereunder also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next
lower category (except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
An institution generally must file a written capital restoration plan which
meets specified requirements with an appropriate federal banking agency
within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. A federal banking agency
must provide the institution with written notice of approval or disapproval
within 60 days after receiving a capital restoration plan, subject to
extensions by the agency.
An institution which is required to submit a capital restoration plan must
concurrently submit a performance guaranty by each company that controls
the institution. Such guaranty shall be limited to the lesser of (i) an
amount equal to 5.0% of the institution's total assets at the time the
institution was notified or deemed to have notice that it was
undercapitalized or (ii) the amount necessary to restore the relevant
capital measures of the institution to the levels required for the
institution to be classified as adequately capitalized. Such a guarantee
shall expire after the federal banking agency notifies the institution that
it has remained adequately capitalized for each of four consecutive
calendar quarters. An institution which fails to submit a written capital
restoration plan within the requisite period, including any required
performance guarantee(s), or fails in any material respect to implement a
capital restoration plan, shall be subject to the restrictions in Section
38 of the FDIA which are applicable to significantly undercapitalized
institutions.
Immediately upon becoming undercapitalized, an institution shall become
subject to the provisions of Section 38 of the FDIA (i) restricting payment
of capital distributions and management fees, (ii) requiring that the
appropriate federal banking agency monitor the condition of the institution
and its efforts to restore its capital, (iii) requiring submission of a
capital restoration plan, (iv) restricting the growth of the institution's
assets and (v) requiring prior approval of certain expansion proposals.
The appropriate federal banking agency for an undercapitalized institution
also may take any number of discretionary supervisory actions if the agency
determines that any of these actions is necessary to resolve the problems
of the institution at the least possible long-term cost to the deposit
insurance fund, subject in certain cases to specified procedures. These
discretionary supervisory actions include: requiring the institution to
raise additional capital; restricting transactions with affiliates;
restricting interest rates paid by the institution on deposits; requiring
replacement of senior executive officers and directors; restricting the
activities of the institution and its affiliates; requiring divestiture of
the institution or the sale of the institution to a willing purchaser; and
any other supervisory action that the agency deems appropriate. These and
additional mandatory and permissive supervisory actions may be taken with
respect to significantly undercapitalized and critically undercapitalized
institutions.
TideMark Bank has been notified by the OTS that it is classified as an
adequately capitalized institution.
Qualified Thrift Lender Test All savings associations, including TideMark
Bank, are required to meet a QTL test to avoid certain restrictions on
their operations. Under the recently enacted FDICIA, a depository
institution must have at least 65% of its portfolio assets (which consist
of total assets less intangibles, properties used to conduct the savings
association's business and liquid assets not exceeding 20% of total assets)
in qualified thrift investments on a monthly average basis in nine of every
12 months. Loans and mortgage-backed securities secured by domestic
residential housing, as well as certain obligations of the FDIC and certain
other related entities may be included in qualifying thrift investments
without limit. Certain other housing-related and non-residential real
estate loans and investments, including loans to develop churches, nursing
homes, hospitals and schools, and consumer loans and investments in
subsidiaries engaged in housing-related activities may also be included.
Qualifying assets for the QTL test include investments related to domestic
residential real estate or manufactured housing, the book value of property
used by an association or its subsidiaries for the conduct of its business,
an amount of residential mortgage loans that the association or its
subsidiaries sold within 90 days of origination, shares of stock issued by
any Federal Home Loan Bank ("FHLB") and shares of stock issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal National
Mortgage Association ("FNMA"). TideMark Bank was in compliance with the
new QTL test as of June 30, 1994, with 73.24% of its assets invested in
qualified thrift investments.
Any savings association that fails to meet the test on or after August 9,
1990 must convert to a bank charter, unless it requalifies as a QTL on an
average basis in at least three out of every four quarters for two out of
three years and thereafter remains a QTL. If such an association does not
requalify and converts to a bank charter, it must remain SAIF-insured until
at least December 31, 1993, or until the FDIC permits it to transfer to the
BIF, if later. Generally, such transfers are not permitted until August
1994. If an association that fails the test has not yet requalified and
has not converted to a bank, its new investments and activities are limited
to those permissible for a national bank, and it is limited to national
bank branching rights in its home state. In addition, the association is
immediately ineligible to receive any new FHLB advances and is subject to
national bank limits for payment of dividends. If such association has not
requalified or converted to a bank three years after the failure, it must
divest of all investments and cease all activities not permissible for a
national bank. In addition, it must repay promptly any outstanding FHLB
advances.
Restrictions on Capital Distributions The OTS has adopted a regulation
governing capital distributions by savings associations, which include cash
dividends, stock redemptions or repurchases, cash-out mergers, interest
payments on certain convertible debt and other transactions charged to the
capital account of a savings association to make capital distributions.
Generally, the regulation creates a safe harbor for specified levels of
capital distributions from associations meeting at least their minimum
capital requirements, so long as such associations notify the OTS and
receive no objection to the distribution from the OTS. Savings
associations and distributions that do not qualify for the safe harbor are
required to obtain prior OTS approval before making any capital
distributions.
Generally, Tier 1 associations, which are savings associations that before
and after the proposed distribution meet or exceed their fully phased-in
capital requirements, may make capital distributions during any calendar
year equal to 100% of net income for the calendar year-to-date plus 50% of
its "surplus capital ratio" at the beginning of the calendar year. The
"surplus capital ratio" is defined to mean the percentage by which the
association's ratio of total capital to assets exceeds the ratio of its
fully phased-in capital requirement to assets, and "fully phased-in capital
requirement" is defined to mean an association's capital requirement under
the statutory and regulatory standards to be applicable on December 31,
1994, as modified to reflect any applicable individual minimum capital
requirements imposed upon an association. The OTS has proposed an
amendment to this regulation to clarify the authority of such institutions
to make distributions equal to the greater of the standard set out above or
75% of net income over the most recent four quarter period.
Tier 2 associations, which are associations that before and after the
proposed distribution meet or exceed their minimum capital requirements,
may make capital distributions over the most recent four quarter period up
to a specified percentage of their net income during that four quarter
period, depending on how close the association is to meeting its fully
phased-in capital requirements. Tier 2 associations that meet the capital
requirements to be in effect on January 1, 1993 (including the 8% risk-
based requirement and then-applicable exclusions on non-permissible
subsidiary investments and goodwill) are permitted to make distributions
totalling up to 75% of net income over the four quarter period. Tier 2
associations that meet the January 1, 1991 capital requirements (including
the 7.2% risk-based requirement and the then-applicable exclusions of non-
permissible subsidiary investments and goodwill) are permitted to make
distributions totalling up to 50% of net income over the four quarter
period.
In order to make distributions under these safe harbors, Tier 1 and Tier 2
associations must submit 30 days written notice to the OTS prior to making
the distribution. The OTS may object to the distribution during that 30-
day period based on safety and soundness concerns. In addition, a Tier 1
association deemed to be in need of more than normal supervision by the OTS
may be downgraded to a Tier 2 or Tier 3 association as a result of such a
determination.
Tier 3 associations, which are associations that do not meet current
minimum capital requirements, or that have capital in excess of either
their fully phased-in capital requirement or minimum capital requirement
but which have been notified by the OTS that it will be treated as a Tier 3
association because they are in need of more than normal supervision,
cannot make any capital distribution without obtaining OTS approval prior
to making such distributions. TideMark Bank currently is a Tier 2
institution for purposes of the regulation dealing with capital
distributions.
Branching by Federal Associations The OTS Policy Statement on Branching by
Federal Savings Associations permits interstate branching to the full
extent permitted by statute (which is essentially unlimited). Generally,
federal law prohibits federal thrifts from establishing, retaining or
operating a branch outside the state in which the federal association has
its home office unless the association meets the Internal Revenue's
domestic building and loan test (generally, 60% of a thrift's assets must
be housing-related) ("IRS Test"). The IRS Test requirement does not apply
if: (i) the branch(es) result(s) from an emergency acquisition of a
troubled thrift (however, if the troubled association is acquired by a bank
holding company, does not have its home office in the state of the bank
holding company bank subsidiary and does not qualify under the IRS Test,
its branching is limited to the branching laws for state-chartered banks in
the state where the thrift is located); (ii) the law of the state where the
branch would be located would permit the branch to be established if the
federal association were chartered by the state in which its home office is
located; or (iii) the branch was operated lawfully as a branch under state
law prior to the association's conversion to a federal charter.
Furthermore, the OTS will evaluate a branching applicant's record of
compliance with the Community Reinvestment Act ("CRA"). A poor CRA record
may be the basis for denial of a branching application.
Federal Home Loan Bank System TideMark Bank is a member of the FHLB of
Atlanta, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations and commercial banks.
Each FHLB serves as a source of liquidity for its members within its
assigned region. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures
established by its Board of Directors. As of June 30, 1994, TideMark
Bank's advances from the FHLB of Atlanta amounted to $73.0 million.
As a member, TideMark Bank is required to purchase and maintain stock in
the FHLB of Atlanta in an amount equal to the greater of 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts or
similar obligations at the beginning of each year or 5% of total advances.
At June 30, 1994, TideMark Bank had $4.6 million in FHLB stock, which was
in compliance with this requirement.
As a result of FIRREA, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to affordable
housing programs through direct loans or interest subsidies on advances
targeted for community investment and low- and moderate-income housing
projects. These contributions have adversely affected the level of FHLB
dividends paid and could continue to do so in the future. These
contributions also could have an adverse effect on the value of FHLB stock
in the future. For the fiscal year ended June 30, 1994, dividends paid by
the FHLB of Atlanta to TideMark Bank totaled $242,000.
Federal Reserve System The Federal Reserve Board requires all depository
institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time
deposits. At June 30, 1994, TideMark Bank was in compliance with such
requirements.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy applicable liquidity
requirements. Because required reserves must be maintained in the form of
vault cash or a noninterest-bearing account at a Federal Reserve Bank, the
effect of this reserve requirement is to reduce an association's earning
assets. The amount of funds necessary to satisfy this requirement has not
had a material affect on TideMark Bank's operations.
TAXATION
Federal Income Tax TideMark Bancorp and its subsidiaries file
consolidated federal income tax returns reporting their income on the
accrual basis and generally must pay federal income taxes based on the
rules applicable to all corporations, except for certain special provisions
applicable to TideMark because of its status as a "savings and loan
association" and "financial institution."
Savings and loan associations are permitted to establish a reserve for bad
debts and to make annual additions thereto which qualify as deductions from
taxable income. For tax years beginning on or before December 30, 1986, a
qualifying savings and loan association could select annually one of three
methods to compute its allowable additions to bad debt reserves on
qualifying real property loans: (i) the percentage of taxable income
method, (ii) the experience method, or (iii) the percentage of eligible
loans method.
The Tax Reform Act of 1986 (the "1986 Act") repealed the percentage of
eligible loans method for tax years beginning after December 31, 1986. The
1986 Act also changed the percentage of taxable income method for such
years by reducing the deduction percentage from 40% (which was effectively
only 32% because of certain tax preference provisions) to 8%. Under the
percentage of taxable income method, a savings and loan association is
permitted, in general, to claim a deduction for additions to bad debt
reserves equal to 8% of the savings and loan association's taxable income
(calculated before taking such deduction into account), reduced by any
addition to bad debt reserves with respect to nonqualifying loans. For
this purpose, the taxable income of a savings and loan association for a
taxable year is calculated after utilization of net operating loss ("NOL")
carryforwards.
Under the Internal Revenue Code of 1986 (the "Code"), a portion of
TideMark's bad debt reserves that exceeds the amount that would have been
included under the experience method and certain supplemental reserves may
be reduced on account of dividends or other distributions with respect to
TideMark's capital stock (including distributions in redemption of stock or
in liquidation). The amount charged against TideMark's bad debt reserves
with respect to a distribution will be includable in TideMark's gross
income and will equal the amount of such distribution, increased by the
amount of federal income tax resulting from such inclusion. However,
TideMark's bad debt reserves will not be reduced on account of dividends to
the extent they do not exceed TideMark's current or accumulated earnings
and profits for years after 1951 as computed for federal income tax
purposes.
In order to be able to make additions to a bad debt reserve under a
percentage of taxable income method, at least 60% of the assets of a
savings and loan association must consist of "qualifying assets"
(generally, cash, obligations of the United States or an instrumentality
thereof, certain obligations of a state or political subdivision thereof,
certain residential and other real property related loans, loans secured by
deposits, and property used by the savings and loan association in the
conduct of its business). If such 60% of assets requirement is not met,
TideMark could be required to include in its income over a period of four
years the amount of its bad debt reserve. TideMark currently holds in
excess of 60% of its assets in the form of "qualifying assets" and
anticipates that it will continue to do so.
The 1986 Act made several other changes relating specifically to savings
and loan associations and other financial institutions. For example, the
Act added rules, effective for tax years ending after December 31, 1986,
that deny financial institutions any deduction for interest that is
allocable to the purchase or carrying of tax exempt obligations acquired
after August 7, 1986, (except for certain "qualified" tax exempt
obligations). The Act also provides that net operating losses incurred by
financial institutions in tax years beginning after December 31, 1986, may
be carried back not ten years, as under prior law, but only three years;
and may be carried forward not five years, as under prior law, but up to
fifteen years.
The 1986 Act made numerous changes in the Code that are applicable to
corporations in general. The Act lowered income tax rates and eliminated
the lower rates for capital gains. The Act also made significant changes
to the alternative minimum tax. Under the new provisions, a corporation's
income tax liability is equal to the greater of the regular tax or the
alternative minimum tax. The minimum tax is equal to 20% of a
corporation's alternative minimum taxable income, which is the
corporation's regular taxable income increased by tax preferences and
adjusted for certain items such as depreciation and a portion of book
income. Tax preferences that must be added to taxable income for purposes
of the minimum tax include certain tax-exempt interest and the excess of a
financial institution's bad debt deduction over the deduction that would
have been allowable had the institution maintained its bad debt
reserve for all taxable years on the basis of actual experience. The book
income adjustment for the corporation minimum tax involves adding to
taxable income 50% of the excess, if any, of book income (or 75% of the
excess of current earnings and profits for tax years beginning after 1989)
over alternative minimum taxable income (determined without regard to the
book income adjustment). In addition, alternative minimum tax net
operating losses may offset up to 90% of alternative minimum taxable
income. The changes in the alternative minimum tax increase the
probability that a savings and loan association such as TideMark will be
subject to the alternative minimum tax.
TideMark elected to use the experience method in fiscal 1994, 1993 and 1992
to calculate additions to its bad debt reserve, compared to previous years
when the percentage of taxable income method has been used. The experience
method is advantageous because of the amount of charge offs occurring
during the fiscal years.
The Bank's federal income tax returns open under the statute of limitations
are subject to review by the Internal Revenue Service ("IRS"). The Bank's
federal income tax returns for the fiscal years beginning July 1, 1987,
1988 and 1989 were audited by the IRS during fiscal year 1992 and material
adjustments to the returns filed have been recorded. Income tax returns
for fiscal years beginning July 1, 1990 are still open for review by the
IRS.
State Taxation Virginia imposes a corporate income tax on a base which is
similar to federal income tax, as adjusted by adding back the federal bad
debt deduction but taking into account a state bad debt deduction. The tax
rate is 6% of Virginia taxable income.
ITEM 2. PROPERTIES
Information relating to the properties of the Company is incorporated by
reference herein from Notes 9 and 10 of the Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information relating to the market for the Company's common stock and
related stockholder matters is incorporated by reference herein from the
inside back cover of the Annual Report included herein as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference from page 1 of
the Annual Report included herein as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required herein is incorporated by reference from pages 10
through 40 of the Annual Report included herein as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required herein are
incorporated by reference from pages 43 through 78 of the Annual Report
included herein as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Ernst & Young audited the Bank's financial statements for the years ended
June 30, 1992 and 1991. Ernst & Young advised the Bank on October 15,
1992, that it was resigning as the Bank's independent auditors. Ernst and
Young informed the Bank that such resignation was due to turnover in the
Norfolk office of Ernst & Young of personnel specializing in the thrift
industry and the fact that the Bank would be the only remaining thrift
client served by Ernst & Young's Norfolk office, and Ernst & Young
concluded that it could not provide the appropriate level of service for
the Bank in the future.
The resignation of Ernst & Young was not due to any disagreements with
Ernst & Young as to any matters of accounting principles or practices,
audit procedures or scope, or with respect to financial statement
disclosure. The independent auditor's reports on the Bank's financial
statements for the two most recent fiscal years preceding the resignation
of Ernst & Young neither contained an adverse opinion or disclaimer of
opinion nor were such reports qualified as to uncertainty, audit scope or
accounting principles; except the report on the Bank's 1991 financial
statements was modified to disclose uncertainties due to the Bank's failure
at the time of such report to meet all applicable regulatory capital
requirements. The report of Ernst & Young on the Bank's financial
statements at and for the period ended June 30, 1992 was not qualified or
modified.
During the fiscal years 1992 and 1991, and the subsequent interim period
preceding the resignation of Ernst & Young, there were no disagreements
with such firm on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Ernst & Young, would
have caused it to make a reference to the subject matter of the
disagreements in connection with the issuance of its report.
During the Bank's two fiscal years and the subsequent interim period
preceding Ernst & Young's resignation, Ernst & Young did not advise, and
has indicated to the Bank that it had no reason to advise, the Bank of any
of the following:
l. that the internal controls necessary for the Bank to develop reliable
financial statements did not exist; however, Ernst & Young did advise the
Bank of a material weakness whereby the internal control structure,
primarily the accounting system and control procedures for timely
reconciliation, review and approval of various custodial and consumer loan
accounts had not functioned effectively during the year ended June 30,
1991. Ernst & Young did consider this matter in considering the nature,
timing and extent of procedures performed in its audit of the Bank's 1991
financial statements and such matter did not affect its report on such
financial statements;
2. that information had come to Ernst & Young's attention that had led it
to no longer be able to rely on management's representations, or that made
it unwilling to be associated with the financial statements prepared by
management;
3. (a) of the need to expand significantly the scope of the Bank's audit,
or that information had come to Ernst & Young's attention during such time
period that if further investigated might (i) materially impact the
fairness or reliability of either: a previously issued audit report or the
underlying financial statements, or the financial statements issued or to
be issued covering the fiscal periods subsequent to the date of the most
recent financial statements covered by an audit report (including
information that may prevent it from rendering an unqualified audit report
on those financial statements), or (ii) cause it to be unwilling to rely on
management's representations or be associated with the Bank's financial
statements, and (b) that due to Ernst & Young's resignation or for another
reason, the issue has not been resolved to Ernst & Young's satisfaction
prior to its resignation;
4. (a) that information had come to Ernst & Young's attention that it had
concluded materially impacted the fairness or reliability of either (i) a
previously issued audit report or the underlying financial statements, or
(ii) the financial statements issued or to be issued covering the fiscal
periods subsequent to the date of the then most recent financial statements
covered by an audit report (including information that, unless resolved to
Ernst & Young's satisfaction, would prevent it from rendering an
unqualified audit report on those financial statements), and (b) due to
Ernst & Young's resignation, or for any other reason, the issue was not
resolved to Ernst & Young's satisfaction prior to its resignation.
On May 24, 1993, the Company engaged Coopers & Lybrand. During the Bank's
two most recent fiscal years and the subsequent interim period preceding
Coopers & Lybrand's appointment and with the respect to the Company from
the date of its incorporation until Coopers & Lybrand's appointment neither
the Bank nor the Company consulted Coopers & Lybrand regarding the
application of accounting principles, either completed or proposed, the
type of audit opinion that might be rendered on the Bank's or the Company's
financial statements or any other matters which would be required to be
reported herein.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning Directors of the
Company:
<TABLE>
Position with TideMark Amount and Percentage of
Age as of and Principal Occupation Director Term Shares Beneficially Owned as of
Name June 30, 1994 During Last Five Years Since (2) Expires the Voting Record Date (1)
Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
John R. Lawson, II 42 Director of TideMark and the Bank; 1992 1997 340,000 (3) 4.9l%
President and Chief Executive Officer
of W.M. Jordan Company, Inc., a general
contractor in Newport News, Virginia,
since 1975.
Anthony R. Santoro 55 Director of TideMark, the Bank and 1989 1997 1,600 *
Newport News Service Corporation
("NNSC"), a wholly-owned subsidiary of
the Bank; President of Christopher
Newport University, Newport News,
Virginia, since 1987.
Gary A. Suttle 39 Director of TideMark, the Bank and 1989 1997 502,000 (4) 7.24%
NNSC; Chief Financial Officer of Suttle
Motor Corporation, a Newport News,
Virginia based automobile dealership
since 1980.
Gordon L. Gentry, Jr. 57 Director of TideMark, the Bank 1989 1995 51,000 (5) *
and NNSC; Chief Executive Officer
from February 1989 to January 1993;
Chairman of the Board since
October 1989; President from February
1989 to August 1990; and previously with
Signet Banking Corporation, Newport
News, Virginia (from 1960 to 1989),
serving during the last five years as
Senior Vice President and Senior Retail
Officer, Eastern Region, and as
Peninsula Executive Officer.
Nelson L. St. Clair, Jr. 58 Director of TideMark and the Bank; 1989 1995 6,000 *
President and Chief Executive Officer,
Riverside Health System since 1982, a
Newport News, Virginia based corporation
which owns and operates various regional
hospitals and other health care related
facilities.
Lindsay B. Trittipoe 36 Director of TideMark and the Bank; since 1989 1995 113,100 (6) 1.63%
November 1989 institutional sales,
Craigie, Inc., Richmond, Virginia,
investment bankers; previously Vice
President, Anderson & Strudwick, Inc. a
Richmond, Virginia based stock brokerage
firm from September to November 1989;
previously in institutional sales with
Morgan Stanley Co., New York, New York
from February 1987 to December 1988.
James S. G. Davenport 69 Director of TideMark and the 1989 1996 52,774 *
Bank; since 1980 Chairman of the Board,
Davenport Dukes Associates, Inc., a
Newport News, Virginia based financial
planning firm.
Robert L. Freeman, Jr. 40 Director of Tidemark and the 1989 1996 314,000 (7) 4.53%
Bank; since 1986 Partner, Jones,
Blechman, Woltz and Kelly, P.C.,
a Newport News, Virginia based law
firm which serves as general counsel
to the Bank.
Robert N. Springer 39 Director of TideMark, the Bank and NNSC; 1990 1996 25,300 *
President and Chief Executive Officer
since January 1993; President and Chief
Operating Officer from October 1990 to
January 1993. Previously, Senior Vice
President and Chief Financial Officer
from September 1989 to October 1990;
previously with Signet Banking
Corporation, Baltimore, Maryland from
1986 to 1989 as Vice President Capital
Markets Group and Assistant Treasurer.
Alan S. Witt 39 Director of TideMark and the Bank; 1989 1996 27,833 (8) *
Partner, Rauch Witt & Co. since 1979
and, since 1989, managing partner of
Rauch, Witt & Co., a Newport News,
Virginia based public accounting firm.
</TABLE>
____________________________________
(Footnotes for pages 13 and 14)
*Represents less than 1%
(l) For the purposes of these tables, pursuant to rules promulgated under
the Exchange Act, an individual is considered to "beneficially own" any
shares of Common Stock if he or she has or shares, (a) voting power, which
includes the power to vote or direct the voting of the shares; or (b)
investment power, which includes the power to dispose or direct the
disposition of the shares. A person is deemed to have beneficial ownership
of any shares of Common Stock which may be acquired within 60 days of a
specific date pursuant to the exercise of stock options. Unless otherwise
indicated, a director has sole voting power and sole investment power with
respect to the indicated shares. Shares of Common Stock which may be
acquired within 60 days of the Voting Record Date are deemed to be
outstanding shares of Common Stock beneficially owned by such person(s) but
are not deemed to be outstanding for the purpose of computing the
percentage of Common Stock owned by any other person or group.
(2) All of the directors of the Company except Mr. Lawson were the initial
directors of the Company when it was incorporated in 1992 and served on the
Bank's Board as well. Except with respect to Mr. Lawson, date indicates
the year when each director became a member of the Board of Directors of
the Bank.
(3) Includes 320,000 shares owned directly by W.M. Jordan Company, Inc.
Does not include 100,000 shares owned by Mr. Lawson's father, Robert T.
Lawson. See "Security Ownership of Certain Beneficial Owners and
Management."
(4) Includes 168,000 shares held by SMC, of which Mr. Suttle is Chief
Financial Officer and 333,000 shares held by Associates, of which Mr.
Suttle is a general partner. See "Security Ownership of Certain Beneficial
Owners and Management."
(5) Includes 25,000 shares of Common Stock which may be acquired through
the exercise of options which are exercisable within 60 days after the
Voting Record Date.
(6) Includes 700 shares owned individually by Mr. Trittipoe's wife.
(7) Does not include 45,500 shares owned directly by Robert L. Freeman,
Sr., Mr. Freeman's father, 25,000 shares owned directly by Dorothy Freeman,
Mr. Freeman's mother, or 228,500 shares owned directly by Susan Freeman
Bryant, Mr. Freeman's sister.
(8) Includes 1,500 shares held in a trust account for the benefit of Mr.
Witt's children.
Executive Officers Who Are Not Directors
The following table sets forth information concerning executive officers of
the Company who do not serve on the Company's Board of Directors. All
executive officers serve for a term of one year. There are no arrangements
or understandings pursuant to which any officer was selected as an officer.
Position with the Bank or the Company
Age as of and Principal Occupation
Name June 30, 1994 During Last Five Years
Ralph R. Allen 47 Senior Vice President of the
Bank since 1986; Chief
Compliance Officer since
December 1991; Chief Lending
Officer from 1985 to December
1991.
Pamela B. Lawson 40 Executive Vice President and
Chief Financial Officer since
July 1994 and Senior Vice
Pesident and Chief Financial
Officer of the Bank and
the Company from December
l990 to July 1994; from 1980
to 1990 served as Senior
Vice President and Treasurer
of Bay Savings Bank, FSB,
Newport News, Virginia.
John M. Lunsford 49 Senior Vice President,
Commercial Lending, since
April 1992; from 1971 to 1992
was employed by Crestar Bank,
Newport News, Virginia,
serving as Senior Vice
President, Commercial Lending
from 1989 to 1992.
John D. Meade, III 41 Senior Vice President, Retail
Banking, since July 1994.
From 1978 to 1994 was employed
by NationsBank, serving as Senior
Vice President and Area Executive
Officer since 1984.
Robert L. Midgette 46 Senior Vice President,
Mortgage Banking, since
October 1993. Served as
First Vice President and
General Auditor from June
1992 to September 1993; from
1976 to 1992 was employed by
Dominion Bankshares, Roanoke,
Virginia, serving as a
general auditor.
ITEM 11. EXECUTIVE COMPENSATION
Summary of Compensation in 1994, 1993 and 1992:
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to the Company's
Chief Executive Officer and the only other executive officer of the Company
or the Bank whose total compensation during fiscal 1994 exceeded $100,000
for each of the three years ended June 30, 1994. No compensation was paid
directly by the Company to its executive officers, all of which also serve
as executive officers of the Bank:
<TABLE>
Name and Principal Fiscal Other Annual All Other Position
Year Salary Bonus(1) Compensation (2) Compensation(3)
<S> <C> <C> <C> <C> <C>
Gordon L. Gentry, Jr. l994 $110,250 $12,500 $4,629 $28,380
Chairman of 1993 110,250 25,000 - 24,886
the Board of the 1992 110,250 - - 22,036
Company and the Bank
Robert N. Springer 1994 100,000 12,500 6,521 2,769
President and CEO 1993 100,000 15,000 - 1,500
of the Company and 1992 100,000 - - 2,481
the Bank
</TABLE>
____________________
(l) Annual profit sharing and any bonus.
(2) Includes value for use of Company-owned vehicle and value of life
insurance which exceeds $ 50,000, the value of which did not exceed the
lesser of either $50,000 or 10% of the total annual salary and bonus
reported for the individual.
(3) All other compensation includes:
(a) accrued amounts deferred pursuant to Section 40l(k) of the
Internal Revenue Code of 1986 ("Code"), as amended, in accordance
with the Bank's Profit Sharing and Savings Plan which totaled
$3,053 for Mr. Gentry and $2,769 for Mr. Springer,
(b) the cost of a contribution to a non-qualifying executive
retirement plan on behalf of Mr. Gentry, which totaled $18,105 for
fiscal 1994.
(c) the dollar value of the premium paid, $7,222 during fiscal 1994, on
a split dollar life insurance policy in which Mr. Gentry has an
interest in the cash value, along with the premiums paid by the
Company. Mr. Gentry pays an assumed term cost of the coverage
and the Company pays the remainder of the policy. If all assumptions
as to life expectancy and other factors occur in accordance with
projections, the Company expects to recover the cost of the policy.
Stock Options
The following table sets forth information concerning the value of
unexercised stock options at the end of fiscal 1994 held by Messrs. Gentry
and Springer. No stock options were granted or exercised by either of
these individuals during fiscal 1994.
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Name June 30, 1994 (1) June 30, 1994(2)
Gordon L. Gentry, Jr. 25,000 $ -
Robert N. Springer - $ -
__________________________________
(l) During fiscal 1989, options to acquire 25,000 shares of common stock
were granted to Mr. Gentry, which options became exercisable in annual 20%
installments. All options are currently exercisable and all options may be
exercised on a cumulative basis.
(2) The exercise price on all options is greater than the market price of
the Company's common stock at June 30, 1994.
Profit Sharing and Savings Plan
The Bank maintains a non-contributory profit sharing plan intended to
qualify under Section 401 of the Code (the "401(k) Plan"). The 401(k) Plan
was amended effective March 1, 1986 primarily to include Section 401(k)
features of the Code.
Any employee who is at least 21 years old and who has completed 1,000 hours
of service during the 12-month period from date of employment will enter
the 401(k) Plan as of the January 1 or July 1 coinciding with or next
following the date in which the employee has completed such service. Any
contributions to the profit sharing portion of the 401(k) Plan by the Bank
are to be determined each year by the Banks Board of Directors. Such
contributions, if any, are solely at the discretion of the Board of
Directors. Contributions by the Bank generally are allocated among the
accounts of participants in proportion to their respective amounts of
compensation for the plan year, and vest in accordance with a schedule of
years of service set forth in the 40l(k) plan, with full vesting occurring
after five years of service.
Voluntary contributions to the savings portion of the 401(k) Plan may be
made by participants, subject to limitations specified in the 401(k) Plan.
Until June 30, 1994, participants could contribute from one percent to ten
percent of their base pay to the Plan. Effective in 1994, the maximum
amount of elective contributions for each participant is $8,994 or 25
percent of the compensation of the employee that is included as gross
income for the tax year. The Bank matched employee contributions up to six
percent at a rate of 50 percent of employee contributions. In fiscal 1994,
the Bank contributed $60,000 to the 401(k) Plan. Beginning July 1, 1994,
participants may contribute from one percent to ten percent of their base
pay to the plan, with the Company matching employee contributions up to ten
percent of their base pay at a rate of 50 percent of employee
contributions.
Trustees are appointed by TideMark's Board of Directors to administer the
plan. Current trustees are Messrs. Davenport, Witt, Gentry, Santoro,
Springer and Ms. Lawson. All assets of the Plan are held in trust and
invested by the trustees. Payments begin at retirement, subject to vested
amounts. Payments may either be lump sum distribution or periodic payments
as elected by the participant. The following table sets forth the benefits
contributed by the Bank under this plan to the executive officers whose
compensation exceeded $100,000.
Amount Set Aside for
Name of Individual Fiscal Year 1994
Gordon L. Gentry, Jr. $3,053
Robert N. Springer $2,769
Pension Plan
Until June 30, 1994, TideMark had a qualified, defined benefit, non-
contributory retirement plan in which all employees were eligible to
participate after attaining age 21 and completing 12 months of employment
which includes at least 1,000 hours of service ("Retirement Plan"). As of
June 30, 1994, the accrual of benefits under the Retirement Plan was
frozen; thus, all compensation and periods of service after that date are
no longer used to compute benefits. The Retirement Plan continues to be in
existence, and all participants in the Retirement Plan as of June 30, 1994
became immediately vested in the benefits accrued as of that date. The
Company has no plans to terminate the Retirement Plan at this time, but
reserves the right to revise or discontinue the Retirement Plan in the
future. No new participants will be allowed to enter the retirement plan
after June 30, 1994.
The Retirement Plan provides for monthly payments to, or on behalf of, each
covered employee upon retirement at age 65 or disability or death, with the
benefits based upon predetermined formulas reflecting years of credited
service and factors applied to average compensation and Social Security
benefits.
The following table sets forth, in annuity amounts payable for life with
five years guaranteed, the estimated annual benefits payable upon
retirement in fiscal 1994 to participants at normal retirement age in the
average annual salary and years of credited service classifications
specified.
Highest
Consecutive
Sixty Month Estimated Annual Pension for
Average Representative Years of
Compensation Credited Service (1)(2)(3)
10 Years 20 Years 30 Years 40 Years
$20,000 $ 2,200 $ 4,400 $ 5,800$ 7,200
40,000 5,376 10,752 14,528 17,816
60,000 8,796 17,592 23,988 29,286
80,000 12,216 24,432 33,448 40,756
100,000 15,636 31,272 42,908 52,226
120,000 19,056 38,112 52,368 63,696
140,000 22,476 44,952 61,828 75,166
____________________________________________
(1) The amounts shown are determined using the 1993 Social Security
Covered Compensation for persons having attained age 65 as of June 30, 1994.
(2) Messrs. Gentry and Springer each have five years of credited service.
(3) Projected annual retirement benefits are $3,022 for Mr. Gentry and
$4,406 for Mr. Springer.
Executive Retirement Plan
TideMark has established a non-qualifying, defined contribution retirement
plan for Mr. Gentry. The plan calls for annual contributions of $11,694
until Mr. Gentry attains the age of 60. The non-qualifying plan was
amended effective June 30, 1994, commensurate with the freezing of the
Company's Retirement Plan, requiring additional annual contributions of
$6,411 until Mr. Gentry attains the age of 65. The Company has established
an account at a local financial institution to which the contributions are
deposited and held in trust. At retirement, defined as the first day of
the month coincident with or next following Mr. Gentry's attainment of age
60, the plan shall provide benefits equal to monthly, quarterly, semi-
annual or annual installments at Mr. Gentry's option over a period of l0
years. Projected annual retirement benefits under the plan are $26,272.
Employment Agreements
In September 1993, TideMark entered into employment agreements with Mr.
Gentry, Mr. Springer and Ms. Lawson, which superseded any other contracts
in existence at that time.
The agreement with Mr. Gentry provides for employment for a period of three
years, commencing January 1, 1993, at an annual base salary of $110,250,
plus discretionary bonuses and fringe benefits commensurate with his
position as Chairman of the Board of the Company and the Bank. The base
salary can be modified by action of the Board. Mr. Gentry is eligible
under the agreement for a cash bonus in an amount up to $25,000, determined
by applying a factor weighted 30 percent towards actual earnings of the
Company compared to budgeted earnings and 70 percent towards actual deposit
levels of the Bank compared to budgeted deposit levels. Mr. Gentry is also
eligible under the agreement to be awarded shares of restricted Common
Stock of the Company according to the formula described above. The stock
awarded is restricted for investment only for a period of three years from
the date of the award. The Common Stock may not be sold, transferred, or
assigned during the restrictive period without prior written consent of the
Company. Mr. Gentry was not eligible for a bonus for fiscal 1994 pursuant
to his agreement; however, on July 28, 1994, the Board of Directors awarded
Mr. Gentry a discretionary bonus of $10,000 in cash and 3,265 shares of
restricted Common Stock of the Company.
The agreement contains a provision which provides Mr. Gentry with specified
benefits in the event that he is terminated subsequent to a change in
control of TideMark or he terminates his employment subsequent to a change
in control for good reason, defined as: (a) a change in control of the
Bank, (b) a failure by the Bank to comply with any material provision of
this agreement, (c) subsequent to a change in control of the Bank and
without Mr. Gentry's express written consent, any of the following
occurring: the assignment to Mr. Gentry of any duties inconsistent with
Mr. Gentry's positions, duties, responsibilities and status with the Bank
immediately prior to a change in control of the Bank; a change in his
reporting responsibilities, titles or offices as in effect immediately
prior to a change in control of the Bank; any removal of Mr. Gentry from,
or the failure to elect him to, any of such positions, except in connection
with a termination of employment for just cause, disability, death or
retirement; a reduction by the Bank in Mr. Gentry's annual base salary as
in effect immediately prior to a change in control or as the same may be
increased from time to time; or the failure of the Bank to continue in
effect any bonus, benefit or compensation plan, life insurance plan, health
and accident plan or disability plan in which Mr. Gentry is participating
at any time of a change in control of the Bank, or the taking of any action
by the Bank which would adversely affect Mr. Gentry's participation in or
materially reduce his benefits under any of such plans; or (d) any
purported termination of Mr. Gentry's employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of the
agreement. In such an event, he would be entitled to receive 2.99 times
his average annual compensation for the preceding five years. Assuming
that such average was Mr. Gentry's existing salary level, his severance pay
would amount to approximately $330,000.
The agreements with Mr. Springer and Ms. Lawson provide for employment for
a one year period, ending June 30, 1995, at an annual base salary of
$100,000 and $80,000, respectively, plus discretionary bonuses and fringe
benefits commensurate with their positions as President and Chief Executive
Officer of the Company and the Bank, in the case of Mr. Springer, and
Executive Vice President and Chief Financial Officer of the Company and the
Bank, in the case of Ms. Lawson. The base salary can be modified by action
of the Board of Directors of the Bank. Mr. Springer is eligible under his
agreement for a cash bonus in an amount up to $25,000, determined by
applying a factor weighted 70 percent towards actual earnings of the
Company compared to budgeted earnings and 30 percent towards actual deposit
levels of the Bank compared to budgeted deposit levels. Mr. Springer is
also eligible under his agreement to be awarded shares of restricted common
stock of the Company in accordance with the same formula described above.
The common stock awarded is restricted for investment only for a period of
three years from the date of the award. The common stock may not be sold,
transferred, or assigned during the restrictive period without prior
written consent of the Company. Mr. Springer was not eligible for a bonus
for fiscal 1994 pursuant to his agreement; however, on July 28, 1994, the
Board of Directors awarded Mr. Springer a discretionary bonus of $5,000 in
cash and 3,265 shares of restricted Common Stock of the Company.
Ms. Lawson is eligible under her agreement for a bonus in an amount to be
determined by the Board of Directors, and based on such factors as the
financial performance of the Company. Ms. Lawson is also eligible under
her agreement to be awarded shares of restricted common stock of the
Company in accordance with the formula described above. The common stock
awarded is restricted for investment only for a period of three years from
the date of the award. The common stock may not be sold, transferred, or
assigned during the restrictive period without prior written consent of the
Company. On July 28, 1994, the Board of Directors awarded Ms. Lawson a
discretionary bonus of $2,500 in cash and 1,633 shares of restricted Common
Stock of the Company.
In the event that the Company or the Bank is sold, merged or consolidated
with another financial or other institution or business, and the successor
institution does not offer the executive a comparable position of
employment for a period of at least one year to the then current position
that Mr. Springer or Ms. Lawson has with the Bank (in the Tidewater,
Virginia geographical area, with respect to Ms. Lawson), with compensation
at least equal to the base salary stated in the respective agreements, then
the agreements terminate and the executive is entitled to receive the
aggregate sum of $300,000 in the case of Mr. Springer, and $150,000 in the
case of Ms. Lawson, payable by the Company or the successor institution in
12 monthly installments beginning on the date of termination.
Employment may be terminated under the agreements with Messrs. Gentry and
Springer and Ms. Lawson for "just cause," defined therein as dishonesty,
incompetence, willful misconduct, breach of fiduciary duty, intentional
failure to perform stated duties, willful violation of other than minor
laws or regulations, breach or neglect of duties, persistent negligence or
misconduct in the performance of duties, or breach of any provision of the
agreement. In the event employment is terminated for just cause, the
employee has no right to compensation or other benefits for any period
after such date of termination. The agreements can also be terminated by
the executives, but in such event, the executives have no right after the
date of termination to compensation or other benefits as provided for in
the agreements.
The agreements may be terminated by the Company for any other reason not
constituting "just cause." In such event the Company shall be obligated to
pay the executive's base salary and accrued benefits for the remaining term
of the agreements after the date of termination. Further the Company may
provide notice that the agreements shall not be renewed for the next term
and shall terminate at the end of the then current term without further
expense or obligation of the Company to the executive.
All three agreements provide that severance benefits will be limited such
that they will not constitute "excess parachute payments" for purposes of
the penalties to TideMark and the executive imposed on such payments by the
Tax Reform Act of 1984. The agreements do not contain any provision
restricting the executives' right to compete against TideMark upon
termination of employment.
On July 5, 1994, TideMark entered into an employment agreement with John D.
Meade, III, Senior Vice President, Retail Banking. The agreement provides
Mr. Meade for a period of one year from the date of his employment, in the
event of a public announcement by TideMark of a sale or merger of the
Company, with specific benefits in the event he is terminated or offered a
position with significantly reduced duties and compensation which he does
not accept. In such an event, Mr. Meade would be entitled to receive a sum
of $75,000 within 30 days after this termination or rejection of an
inferior offer.
Compensation of the Board
In fiscal 1994, Directors who were not officers of the Company or the Bank,
received $550 for attendance at each Board meeting and $150 for each
Committee meeting attended. No executive officer who serves as a director
receives any remuneration for such service.
Executive Compensation Committee Report on Executive Compensation
Compensation for the Chairman and the President and Chief Executive Officer
("CEO") is determined by the Board of Directors in the absence of the
Chairman and the President and CEO. In determining compensation for the
Chairman and for the President and CEO, the directors consider the
recommendation of the Executive Compensation Committee of the Board which
bases its recommendations on the consideration of several factors including
the financial performance of the Bank, the individual performance of the
Chairman and of the President and CEO, and the compensation paid to persons
in comparable positions within the industry.
Compensation for executive officers other than the Chairman and the
President and CEO is determined by the Board of Directors based upon the
recommendation of the President and CEO. Compensation levels of all
executive officers are determined with initial consideration being given to
the overall performance of the Bank. Additionally, the performance of the
individual unit or units for which the executive officer had responsibility
is evaluated and compared with budgeted levels of performance.
Consideration is also given to the compensation paid to executives in
similar positions in the industry, with emphasis placed on pay levels for
those operating in the Bank's marketplace.
The major component of executive compensation during fiscal 1994 was base
salary. Increases in base salary are made annually based upon the criteria
outlined above. In addition to base salary, bonuses were paid during
fiscal 1994 to each of Messrs. Gentry and Springer in the amount of
$12,500. These bonuses were paid based upon the subjective evaluation of
executive performance as made by the Board of Directors. Additionally,
during fiscal year 1994 the Chief Financial Officer, Ms. Lawson, was
granted a five percent salary increase and a bonus in the amount of $7,500
based upon corporate performance as well as the performance of the areas
for which she was responsible.
During fiscal 1994 a bonus program was developed for all employees of the
Bank based upon subjective and objective evaluation of the employee's
performance as well as the performance of the Bank during any period. The
plan provides that for any year, the Board of Directors can establish a
bonus pool for employees based upon Bank performance. This pool is divided
among operating units based upon that unit's relative performance as
determined by the President, Chairman and Chief Financial Officer. Each
unit head is responsible for making a recommendation as to how the bonus
pool is to be divided among the employees of that unit based upon specific
employee performance.
TIDEMARK BOARD OF DIRECTORS
James S.G. Davenport Anthony R. Santoro
Robert L. Freeman, Jr. Gary A. Suttle
John R. Lawson, II Lindsay B. Trittipoe
Nelson L. St. Clair, Jr. Alan S. Witt
Comparative Performance of the Company
The following chart compares the Company's common stock with (i) the NASDAQ
National Market Index for U.S. Companies, and (ii) the thrift stocks traded
on the NASDAQ National Market System. The chart assumes an investment of
$100 on July 1, 1989, in each of the Company's common stock, the NASDAQ
National Market Index and the stocks in the selected thrift peer group.
Each year's performance is for the fiscal year ended June 30. The overall
performance assumes dividend reinvestment throughout the period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG TIDEMARK BANCORP, INC.
NASDAQ NATIONAL MARKET INDEX AND NASDAQ THRIFT INDEX
LEGEND
<TABLE>
Symbol Index Description 6/30/89 6/29/90 6/28/91 6/30/92 6/30/93 6/30/94
<S> <C> <C> <C> <C> <C> <C> <C>
(star) TideMark Bancorp, Inc. 100.0 42.1 31.6 28.1 21.1 40.4
(triangle) NASDAQ Market Index 100.0 107.8 114.2 137.1 172.4 173.0
(box) NASDAQ Thrift Index 100.0 80.5 84.6 125.1 183.6 235.3
</TABLE>
NOTE: The preceding chart indicates the relative performance of the
1,380,000 shares of Common Stock issued in the Company's 1986 initial
public offering issued at $10 per share. It excludes the effect of an
additional 5,551,321 shares of Common Stock issued on January 15, 1992 at
$1.00 per share. Based on the last traded sales price on June 30, 1994 of
$2.875, those shares have appreciated 287.5 percent during that period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to TideMark's Common Stock
beneficially owned, as of September 16, 1994, by the only persons or
entities known to the Company to be the beneficial owners of more than five
percent of TideMark Common Stock and by all directors and officers of the
Company and TideMark Bank (the "Bank"), the Company's wholly-owned
subsidiary, as a group. For information regarding the ownership interests
in TideMark Common Stock by individual directors and nominees, see
"Information with Respect to Nominees for Director, Directors Whose Terms
Continue and Executive Officers."
Amount and Nature of
Name and Address of Beneficial Ownership as of Percent of
Beneficial Owner September 16, 1994 (1) Outstanding Shares
W. M. Jordan Company, Inc. 440,000 (2) 6.35%
11010 Jefferson Avenue
Newport News, Virginia 23601
Gary A. Suttle 502,000 (3) 7.24%
Suttle Motor Corporation
12525 Jefferson Avenue
Newport News, Virginia 23602
Value Partners Ltd. (4) 652,000 9.41%
2200 Ross Avenue
Suite 4600 West
Dallas, Texas 75201
Directors and Officers 1,475,702 (5) 21.17%
as a group (20 persons)
________________________________________
(l) Except as indicated otherwise, based on information furnished by the
respective individuals or entity and filings made pursuant to the
Securities Exchange Act of 1934, as amended ("Exchange Act"). Under
applicable regulations, shares are deemed to be beneficially owned by a
person if he or she directly or indirectly has or shares the power to vote
or dispose of the shares, whether or not he or she has any economic
interest in the shares. Unless otherwise indicated, the named beneficial
owner has sole voting and dispositive power with respect to the shares.
(2) Includes 100,000 shares of Common Stock owned directly by Robert T.
Lawson, the Chairman of the Board of W.M. Jordan Company, Inc. ("WMJC"),
and 20,000 shares owned directly by John R. Lawson II, the President of
WMJC. John R. Lawson is a director of the Company and is the son of Robert
T. Lawson. WMJC has sole voting and dispositive power over the 320,000
shares it owns directly and each of Messrs. Robert T. and John R. Lawson,
II have sole voting and dispositive power over the shares directly owned by
them.
(3) Includes 168,000 shares directly owned by Suttle Motor Corporation
("SMC") over which SMC has sole voting and dispositive power, 333,000
shares directly owned by SMC Associates ("Associates"), over which
Associates has sole voting and dispositive power, and 1,000 shares directly
owned by Gary A. Suttle. Mr. Suttle, a TideMark director, is Chief
Financial Officer of SMC and is the general partner of Associates.
(4) Value Partners Ltd. ("VP") is a Texas limited partnership, the general
partner of which is Fisher-Ewing Partners, a Texas general partnership, the
general partners of which are Richard W. Fisher and Timothy G. Ewing. VP
has sole voting and dispositive power over all 652,000 shares.
(5) Included are officers of the Bank. Includes 37,800 shares with
respect to which certain officers and directors have the right to acquire
beneficial ownership through the exercise of stock options, which stock
options are exercisable within 60 days of the Voting Record Date. Such
shares are deemed to be outstanding for the purpose of computing the
percentage of outstanding shares of TideMark's Common Stock beneficially
owned by directors and officers as a group. See "Executive Compensation -
Employee Compensation Stock Option Plan." Also includes all beneficial
ownership as footnoted above for Messrs. Lawson and Suttle.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TideMark offers various types of loans to its directors, officers and
employees. Effective August 1989, the Company does not offer loans of any
type to officers or directors at other than market rates or terms. In the
judgment of management, the loans do not involve more than the normal risk
of collectibility.
The following table sets forth certain information with respect to each
director and executive officer of the Company during fiscal 1994 and their
affiliates who had aggregate borrowings of $60,000 or greater from the
Company during fiscal 1994. These loans were made on substantially the
same terms as those prevailing at the time for comparable transactions with
unaffiliated persons.
<TABLE>
HIGHEST
PRINCIPAL
BALANCE FROM BALANCE INTEREST
YEAR JULY 1, 1993 TO ON RATE ON
NAME TYPE OF LOAN MADE JUNE 30, 1994 JUNE 30, 1994 JUNE 30, 1994
<S> <C> <C> <C> <C> <C>
Gordon L. Gentry, Jr. Mortgage 1993 $ 99,685 (l) $ --- (2) ---
Chairman of the Board
Robert N. Springer, Mortgage 1990 201,472 --- (2) ---
President and CEO Equity Line 1990 17,301 16,264 8.75%
106 Associates Mortgage 1983 109,173 106,508 6.375%
James Davenport,
Director, Partner
Robert L. Freeman, Jr. Unsecured 1993 128,500 28,500 7.25%
Director Line of Credit
</TABLE>
______________________________
(1) Mr. Gentry has an approved equity line-of-credit of $40,000 which was
not drawn upon during fiscal 1994.
(2) Loans were sold in the secondary market during fiscal 1994.
Transactions with the Company
Director Robert L. Freeman, Jr. is a partner in the law firm of Jones,
Blechman, Woltz and Kelly, P.C., which firm serves as general counsel and
provides legal services to the Company and its subsidiaries. Director
Lindsay B. Trittipoe is an institutional salesman with Craigie, Inc., an
investment banking firm in Richmond, Virginia which is an approved dealer
for the Bank. In the ordinary course of business, and strictly on a
competitive bid basis, the Bank has purchased from and sold certain
investment securities to Craigie, Inc. using Mr. Trittipoe as the broker
for such transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are incorporated by
reference to Item 8 hereof from Exhibit 13 hereof:
Report of Coopers & Lybrand, L.L.P.
Consolidated Statements of Financial Condition as of June
30, 1994 and 1993
Consolidated Statements of Operations for each of the years
in the three-year period ended June 30, 1994
Consolidated Statements of Changes in Stockholders' Equity
for each of the years in the three-year period ended June
30, 1994
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended June 30, 1994
Notes to Consolidated Financial Statements
(a)(2) Financial statement schedules are omitted because of the
absence of the conditions under which they are required or
because the required information is set forth in the Con-
solidated Financial Statements or Notes thereto.
(a)(3) The following exhibits are filed as part of this annual
report on Form 10-K and this list includes the Exhibit
Index.
No. Exhibits Page
3.1 Articles of Incorporation *
3.2 Bylaws *
4 Specimen Stock Certificate *
10.1 Employee Compensatory Stock Option Plan *
10.2 Employment Agreement by and between
TideMark and Gordon L. Gentry, Jr. **
10.3 Employment Agreement by and between
TideMark and Pamela B. Lawson **
10.4 Employment Agreement by and between
TideMark and Robert N. Springer **
10.5 Employment Agreement by and between E-1
TideMark and John D. Meade, III
11 Computation of per share earnings -
the computation of earnings per share
can be clearly determined from the
financial statements of the Registrant
contained herein ---
13 Annual Report to Stockholders E-2
22 Subsidiaries of the Registrant --
Reference is made to Item 1,
"Business - Subsidiaries" for the
required information ---
99 Report of Ernst & Young, L.L.P. E-3
- -----------------------
* Incorporated herein by reference from the like numbered
exhibit included in the Registrant's registration statement
on Form S-4 (File No. 33-5254).
** Incorporated herein be reference from the Registrant's Form
10-K filed September 27, 1993.
(b) The Company filed no current reports on Form 8-K during the
last quarter of the period covered by this report.
(c) See (a)(3) above for all exhibits filed herewith and the
Exhibit Index.
(d) See (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on behalf by the undersigned, thereunto duly authorized.
TIDEMARK BANCORP, INC.
The Registrant
by:
/s/ Robert N. Springer
Robert N. Springer, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on September 22, 1994 by the following officers in
the capacities indicated.
TIDEMARK BANCORP, INC.
The Registrant
by:
/s/ Gordon L. Gentry, Jr.
Gordon L. Gentry, Jr., Chairman
of the Board
/s/Robert N. Springer /s/Pamela B. Lawson
Robert N. Springer Pamela B. Lawson, C.P.A.
President and Chief Executive Executive Vice President and
Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on September 22, 1994 by the following persons
(constituting a majority of the Registrant's Board of Directors) on behalf
of the Registrant.
/s/James S. G. Davenport /s/Robert N. Springer
James S. G. Davenport, Director Robert N. Springer, Director
/s/Robert L. Freeman, Jr. /s/Nelson L. St. Clair
Robert L. Freeman, Jr., Nelson L. St. Clair, Director
Director
/s/Gary A. Suttle
/s/John R. Lawson, II Gary A. Suttle, Director
John R. Lawson, II, Director
/s/
/s/Gordon L. Gentry, Jr. Lindsay B. Trittipoe, Director
Gordon L. Gentry, Jr., Director
/s/Alan S. Witt
/s/ Anthony R. Santoro Alan S. Witt, Director
Anthony R. Santoro, Director
<PAGE>
ANNEX VI
TIDEMARK BANCORP, INC.
1994 ANNUAL REPORT
Contents 1 Selected Financial and Other Data
2 Report To Our Stockholders
4 Our Strategy for Success
10 Management's Discussion and Analysis of Financial
Condition and Results of Operations
43 Consolidated Statements of Financial Condition
44 Consolidated Statements of Operations
45 Consolidated Statements of Changes in
Stockholders' Equity
46 Consolidated Statements of Cash Flows
48 Notes to Consolidated Financial Statements
75 Report of Independent Accountants
76 Consolidated Financial History
79 Glossary of Financial Terms
80 Board of Directors, Corporate Officers and
Corporate Information
Corporate Profile
TideMark Bancorp, Inc. ("TideMark" or the "Company") is a Virginia-chartered
savings and loan holding company headquartered in Newport News, Virginia.
Substantially all of TideMark's assets and operations are in TideMark Bank
(the "Bank"), a federal stock savings bank, formerly known as Newport News
Savings Bank.
At June 30, 1994, TideMark had consolidated assets of $386.6 million,
deposits of $232.7 million and stockholders' equity of $18.6 million. The Bank
converted from mutual to stock ownership in June 1986 with an offering of
1,380,000 shares of common stock. In December 1992, the Bank
reorganized into the holding company form of organization with the Company
becoming the holding company for the Bank. In January 1992, the Company
issued an additional 5,551,321 shares of common stock resulting in total
outstanding shares of 6,931,321 at June 30, 1994.
TideMark serves more than 30,000 customers through its ten retail banking
offices in its primary market areas - the Virginia Peninsula, Middle
Peninsula and Northern Neck. Additionally, TideMark originates mortgage
loans through its TideMark Mortgage Division offices located in Newport News
and Chesapeake, Virginia.
Through its retail banking offices, TideMark delivers a wide range of
banking products and services to meet the needs of individuals, businesses
and organizations. TideMark Bank attracts retail deposits from the general
public and the business community through a variety of deposit products.
Deposits are insured by the Savings Association Insurance Fund,
administered by the Federal Deposit Insurance Corporation, within
applicable limits.
The Company's lending activities focus on meeting the needs in its market
area by offering permanent and construction residential loans, second
mortgages and equity lines of credit, consumer loans, commercial real
estate and business loans and lines of credit to local individuals and
businesses.
The Company's common stock trades on the NASDAQ National Market System
under the symbol "TDMK." The Bank has been in business since 1887 and is
the oldest and largest financial institution headquartered on the Virginia
Peninsula. The Virginia Peninsula, along with the cities of Chesapeake,
Norfolk, Portsmouth, Suffolk and Virginia Beach comprise Hampton Roads, the
United States' 27th largest metropolitan statistical area.
Selected Financial and Other Data
<TABLE>
<CAPTION>
As of June 30, 1994 1993 1992 1991 1990
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Financial Condition Data
Total assets $386,576 $379,572 $354,894 $359,605 $361,193
Trading account assets 1,997 --- --- --- ---
Securities available for sale 19,722 7,765 17,805 --- ---
Mortgage-backed securities available for sale 56,705 --- --- --- ---
Loans held for sale 3,331 24,961 20,900 16,817 ---
Investment securities and federal funds sold --- 8,849 7,997 9,991 30,080
Mortgage-backed securities 102,952 125,213 100,614 93,222 81,321
Loans receivable 170,591 180,319 177,026 204,221 210,136
Deposits 232,725 219,324 209,663 227,662 246,648
Borrowed funds 131,111 136,402 125,512 112,601 99,931
Stockholders' equity 18,637 18,064 15,448 8,623 8,073
Book value per share $ 2.69 $ 2.61 $ 2.23 $ 6.25 $ 5.85
Book value per share
excluding effect of SFAS 115 $ 2.80 $ 2.61 $ 2.23 $ 6.25 $ 5.85
Other Data
Mortgage loans serviced for others $199,850 $194,850 $194,465 $170,831 $165,427
Full service offices 10 10 9 9 11
Mortgage loan origination offices 2 5 5 6 ---
Fiscal Year Ended June 30, 1994 1993 1992 1991 1990
(Dollars in thousands, except per share data)
Operating Data
Interest income $23,711 $25,699 $28,496 $32,479 $ 34,412
Interest expense 14,986 16,898 20,821 26,759 29,460
Net interest income 8,725 8,801 7,675 5,720 4,952
Provision for losses on loans 83 65 1,982 1,895 9,436
Total other income 5,294 4,197 5,921 5,229 2,092
Total other expense 11,835 11,955 9,892 8,504 11,031
Provision for (benefit from) income taxes 776 389 747 461 (1,895)
Extraordinary item --- --- 590 461 ---
Cumulative effect of accounting change --- 2,027 --- --- ---
Net income (loss) $ 1,325 $2,616 $1,565 $ 550 $(11,528)
Earnings (loss) per share $ 0.19 $ 0.38 $ 0.40 $ 0.40 $ (8.35)
Average number of shares outstanding 6,931,321 6,931,321 3,912,980 1,380,000 1,380,000
Selected Ratios
Return (loss) on average assets 0.36% 0.74% 0.46% 0.15% (3.16)%
Return (loss) on average equity 6.82% 15.99% 13.19% 6.60% (73.57)%
Average equity to average assets 5.23% 4.61% 3.46% 2.31% 4.29%
Average yield on earning assets 6.84% 7.61% 8.94% 10.00% 10.61%
Average cost of funds 4.36% 5.07% 6.56% 7.90% 8.73%
Net interest rate spread 2.48% 2.54% 2.38% 2.10% 1.88%
Net interest rate margin 2.52% 2.61% 2.41% 1.76% 1.53%
Nonperforming and restructured assets
to total assets 3.54% 5.50% 6.99% 5.97% 8.42%
</TABLE>
To Our Stockholders:
As we reflect on the year just ended, we are most proud of the
accomplishments made in the Company's balance sheet. The asset and
liability improvements which were initiated during the past year should
prove to have a significant impact on the Bank's earnings potential over
both the near- and long-term future. In last year's letter and in our
report to you at our annual meeting, we stated that we would focus our
efforts on three areas during fiscal 1994 - the enhancement of our retail
banking capabilities, the continued improvement in troubled assets and more
efficient operation of the Bank. It is largely because of these
improvements that were able to announce on September 20, 1994 the execution
of an agreement with Crestar Financial Corporation whereby they will
acquire TideMark. While the future of the Company is now tied to the
performance of our new partner, it is still appropriate that we review with
you our activities over the past year.
Retail Banking In the area of retail banking and expanding market share we
continued the progress which began in 1993 with our name change and retail
product promotion. As of June 30, 1994, we have increased the number of
transaction accounts by 21% to more than 13,000 customers. This important
measure of market acceptance reflects the success the Bank is realizing in
achieving its stated strategy of becoming the premier banking organization
on the Virginia Peninsula. Perhaps the most important retail banking
action of the year is the acquisition announced in July 1994 of the
deposits and branches of Newport News based Bay Savings Bank, FSB. This
transaction will increase deposit levels by over 30%. In the important
category of transaction accounts, the number of accounts will increase by
approximately 70%. The proposed acquisition will significantly enhance
TideMark's position as a leader in providing retail banking products to the
Virginia Peninsula market. This transaction is proceeding on schedule and
we anticipate closing by December 1994. During the year we installed five
Automated Teller Machines ("ATMs") throughout the market and have continued
to see the volume of transactions increase at these locations. We
continued our program of upgrading our delivery system by relocating our
Newmarket branch to a larger and more convenient location and improving our
Coliseum office and have finalized plans for renovation of the Grafton
office.
Asset Quality The second area of focus last year was that of continuing
improvement in the quality of the Bank's assets. During the fiscal year
ended June 30, 1994, we succeeded in reducing the level of nonperforming
assets by $8.3 million or 58% to a June 30, 1994 level of $6.1 million. A
broader definition of troubled assets often used by our industry is termed
"classified assets". We are pleased that fiscal 1994 also showed
significant improvement in this broad-based measure of asset quality, with
classified assets declining by $8.0 million or 31% from June 30, 1993
levels.
Several ratios are used within the industry and its regulatory agencies to
measure the quality of an institution's asset base. One of the most widely used
is the ratio of classified assets to capital plus general loss allowances. This
ratio is generally used to compare an institution's potential problems with
its ability to withstand those potential problems. As of June 30, 1994,
TideMark's ratio was 78%, down from 115% at June 30, 1993 and an annual high
of 136% as of December 31, 1993. One additional ratio used is that of
nonperforming assets to capital plus general loss allowance. As of June 30,
1994 this ratio was 27%, down from 65% as of June 30, 1993. We are
extremely pleased with these accomplishments made in asset quality during the
past year.
Efficient Bank Operations Improved operating efficiency is always an
important component of bottom line performance of any company but becomes
increasingly so during times of intense competition and challenging
external factors. We see the 1990's as just such a time and are committed
to keeping expenses at levels which are appropriate for institutions with
strategies, markets and size similar to our own. During fiscal 1994, some
of the major tactics undertaken in order to maintain expense levels related
to branch offices. We chose to sell three mortgage loan origination
offices which were outside of our targeted market areas. The branches were
sold during the height of the refinance boom in mortgage originations in
recognition that the market could not maintain such activity and that the
branch offices had little ability to add value to the core banking
franchise of TideMark. Additionally, we agreed during fiscal 1994 to sell
our Kilmarnock branch office. Our reason for exiting this market relates
largely to its distance from our major market and a resulting inability to
effectively and efficiently service our customers in that area.
Merger with Crestar Over the past two years, consolidation within the
financial services industry has been increasing rapidly. It has been
expedited by the interstate banking movement, the relatively high
profitability of commercial banks, decreased loan demand due to a
relatively slow economic recovery and the opportunity to reduce operating
costs through consolidation and merger of institutions. For TideMark, the
opportunity to enhance shareholder value through a merger came as we were
going to press with this letter. On September 20, 1994, TideMark announced
that it had signed a binding letter agreement under which Crestar will
acquire TideMark. TideMark shareholders would receive $5.50 per share, or
2.1 times the stock's book value at June 30, 1994, in cash or a tax-free
exchange of Crestar common stock for each share of TideMark common stock
held. TideMark has granted Crestar an option to purchase an additional 1.4
million shares of common stock under certain conditions. The merger is
expected to be completed during the first quarter of 1995 and is subject to
the execution of a definitive agreement and to approval by TideMark
shareholders and applicable regulatory authorities. It is expected that
prior to its acquisition by Crestar, TideMark will complete the
acquisition, announced in July 1994, of Bay Savings, a division of FirstFed
Michigan Corporation. It would also conclude the pending sale of its
Kilmarnock branch. To facilitate the timely completion of the Bay Savings
acquisition, Crestar has agreed to negotiate a firm commitment with
TideMark by September 26, 1994 to infuse approximately $2.0 million into
TideMark, which would become Tier 1 capital in TideMark Bank. The
investment would be in the form of TideMark preferred stock, and would be
subject to certain redemption provisions should the merger be abandoned.
This is a move we are undertaking because of the immediate and
substantially increased value it brings to our shareholders. We attribute
our success and the creation of this value to the hard work and dedication
of our staff and officers and to the support of our directors, stockholders
and customers. To each of you, we extend our most sincere appreciation for
your valued support and loyalty.
Sincerely,
Gordon L. Gentry, Jr. Robert N. Springer
Chairman of the Board President and Chief Executive Officer
<PAGE>
(Tidemark ad showing two checks side-by-side with the caption "We're smart
enough to know that free checking alone isn't enough to make you switch banks.")
OUR STRATEGY FOR SUCCESS
The mission of TideMark Bank focuses on creating value for its
stockholders, customers, employees and the communities it serves by
becoming the premier community banking organization in the greater Virginia
Peninsula area. TideMark's long-term strategy centers on attaining
consistent, sustained high-performing levels of profitability, developing a
solid capital position with adequate reserves and increasing its market
share by becoming a customer-driven, service-oriented bank delivering top
quality financial products and services. IMPROVING ASSET QUALITY has been
a constant focus at TideMark since 1989, when management began to address
its nonperforming loans, primarily its concentration in the hospitality
industry. Since that time nonperforming assets, excluding troubled-debt
restructurings, have been reduced by 57.6% to $6.1 million or 1.6% of
assets. TideMark's current lending activities focus on residential
mortgage lending, which has traditionally been characterized by low credit
risk, commercial loans to small and medium sized local businesses, retail
loans to individuals and construction loans. Prudent underwriting
guidelines and appraisal standards, avoidance of speculative lending
activities and actively pursuing permanent resolutions to previously
identified problem assets have been responsible for not only bringing
delinquent loans to a level below industry standards but for significantly
reducing the level of nonperforming assets. DEVELOPING EFFICIENT, HIGHLY
AUTOMATED OPERATIONS is part of a commitment to increasing operating
efficiency and focusing marketing and lending efforts in the local
community. During the year, TideMark consummated the sale of three of its
mortgage origination offices located outside its primary market area. In
addition, TideMark announced the sale, subject to regulatory approval, of
its Kilmarnock branch office, which is expected to be completed during
fiscal 1995. A profit enhancement program was implemented during the year,
designed to focus the attention of every employee on ways to improve the
efficiency and operating results of the Bank. The program is beginning to
show results and management remains committed to continuing and expanding
upon those efforts already underway. TideMark installed a state-of-the-art
[LOGO and the words, "PrimeMark Checking"]
computer system to manage its new indirect automobile lending division,
automated its mortgage origination and processing functions and selected
new commercial and construction lending systems which should be installed
during 1995. The efficiency of its operating systems is one key component
of the Bank's goal of becoming a low-cost provider of financial services.
In addition to reducing operating costs, these efficiencies significantly
enhance the Bank's ability to deliver outstanding customer service.
EXPANDING THE FRANCHISE THROUGH INCREASED MARKET SHARE For the second
[Headline that reads, "Tidemark to buy Bay Savings"]
consecutive year, TideMark increased its deposit base, reversing a four-
year trend of declining deposit balances. Of particular importance has
been the growth in demand deposit accounts, a primary focus of the Bank and
the major deposit account on which profitable relationships are built. The
successful emphasis on retail banking should continue to enable TideMark to
widen the spread between its yield on earning assets and its cost of funds,
as well as realize greater fee income. Obtaining more retail deposits and
increasing the levels of short-term and adjustable-rate assets are areas of
particular focus. ENSURING CUSTOMER SATISFACTION The Bank is driven by a
commitment to meet and exceed its customers' expectations in retail
service, product design and operational efficiency. Achieving a high level
of customer satisfaction enables TideMark to build customer loyalty, retain
its existing customers, increase the number of services used by those
customers and attract new customers. ENHANCING PROFITABILITY THROUGH
RELATIONSHIP MARKETING Customer loyalty and longevity in the banking
business are often directly related to the number of services utilized.
TideMark has developed several programs designed to track and increase
cross-selling and customer-retention ratios for purposes of enhancing the
value of each customer relationship over time. We believe our success in
retail banking will largely be attributable to our success in this area,
along with referrals from our existing customers. To further enhance
services provided to our customers, TideMark recently instituted an
affiliation with Bankers Financial Partners, Inc., a subsidiary of Legg
Mason, Inc., a Mid-Atlantic financial services company, to offer a wide
range of investment products and services to Bank customers. EXPANDING OUR
MARKET SHARE On July 12, 1994 TideMark entered into an agreement to
acquire the branch offices and deposits of Bay Savings Bank, FSB,
headquartered in Newport News, Virginia, a wholly-owned subsidiary of First
Federal of Michigan. Bay Savings operates eight branch offices on the
Virginia Peninsula, with deposits of over $74 million. As a result of the
acquisition, which is scheduled to close in the Fall of 1994, TideMark's
deposit base will grow by more than 30% and transaction accounts will grow
by more than 75%. In addition, Tidemark will purchase the residential loan
servicing portfolio of Bay Savings, which totals more than $209 million,
increasing the loan servicing portfolio by 59%. SERVING OUR CUSTOMER NEEDS
TideMark provides customers with a complete line of retail and commercial
banking products and services, offering professionalism and courtesy with a
personalized touch. RESIDENTIAL MORTGAGE LENDING TideMark has increased
its residential mortgage lending activities significantly over the last
[Ad for Mortgage lending at TideMark Bank that reads, "Yes"]
three years by understanding and meeting the needs of both buyers and
sellers of residential real estate. TideMark serves home buyers with a
full range of mortgage products, including 15- and 30-year fixed-rate
loans, adjustable-rate mortgages with a lifetime convertibility feature and
FHA/VA loans. These products provide financing alternatives to suit a
variety of consumers and produce a stable source of revenue for the Bank.
In addition, an on-line application and processing system and computerized
document preparation have helped TideMark deliver fast, efficient service.
RETAIL DEPOSITS Gathering retail deposits, which provide the most
economical and least volatile funding source for TideMark's operations, is
one of the Bank's primary business activities. A complete range of savings
and checking programs, competitive pricing and excellent service are
primary reasons why more and more consumers bank with TideMark. The Bank
offers checking accounts, savings accounts, money market accounts and
certificates of deposit with maturities ranging from several days to ten
years. The customer relationships gained and preserved through these
programs should be beneficial to the Bank for years to come. ELECTRONIC
BANKING TideMark offers a variety of electronic banking services, which
allow customers to transact business with the Bank 24 hours a day, seven
days a week. TideMark installed 5 ATM's this year and has plans to have an
ATM in every market it serves by the end of next year. TideMark is a
member of the MOST network which provides our customers with access to
over 40,000 MOST ATM and point of sale terminals around the world.
TideMark also offers customers the ability to have their paycheck, pension
or social security checks automatically deposited and their loan and
insurance payments automatically drafted, free of charge, into or from
their savings or checking accounts - added convenience at no added cost.
CONSUMER LENDING TideMark offers a wide variety of secured and unsecured
loans to meet the borrowing needs of its customers. Short-term and
adjustable-rate consumer loans help the Bank's asset/liability management
efforts because they can be funded with retail deposits on a closely
matched, profitable basis. The Bank's principal consumer loan product is
the home equity line, which offers the borrower certain tax advantages and
is secured by residential real estate. The Bank also furnishes fixed-rate
home equity loans for borrowers who seek potential tax savings but prefer a
fixed interest rate and repayment term. Automobile loans, personal and
boat loans are also available. TideMark began an indirect automobile
lending program in June 1994 which finances automobile loans for customers'
purchases through local automobile dealers. RESIDENTIAL MORTGAGE LOAN
SERVICING TideMark believes in the value of mortgage loan servicing and
[AD for loans at TideMark Bank, that reads, "YOU DON'T HAVE TO BE A BIG SHOT,
BIG WHEEL, BIG WIG, FAT CAT, OIL BARON, ROBBER BARON, TOP CAT, TOP DOG, MONEY
GRUBBER, MOGUL, HIGH ROLLER, MAGNATE, MILLIONAIRE, HEIRESS, SHEIK, KING, CZAR,
MERCHANT PRINCE OR ROCKEFELLER TO GET A LOAN AT TIDEMARK.]
continues to add to its servicing portfolio. Loan servicing provides an
opportunity to generate additional revenue in the form of loan servicing
fees and other income. Besides servicing loans in its own portfolio, the
Bank services loans which it has originated and sold in the secondary
market and loans the servicing rights for which it has purchased from other
lenders. COMMERCIAL LENDING TideMark offers a complement of small-
business and commercial loans and services, including short-term business
loans, commercial lines of credit, secured commercial lines of credit,
secured commercial loans, Small Business Administration ("SBA") loans and
letters of credit, among others. Other non-credit products offered include
lock box services, sweep accounts and various commercial checking and
savings products. Additionally, the Bank has a very active construction
lending program, which focuses on residential properties and developments.
The one closing construction-to-permanent loan has been very popular with
customers seeking to minimize the paperwork and cost associated with
building a home. TIDEMARK AND THE COMMUNITY TideMark reinvests in the
communities it serves in order to maintain its position as a corporate
leader and to help ensure the potential for long-term growth and
profitability. The Company reinvests deposits raised in each community
with loans that meet the residential mortgage, personal and business
financial needs of that community. The Company's primary regulator, the
Office of Thrift Supervision, has granted its highest rating of
"Outstanding" to TideMark Bank for its community reinvestment activities.
The Company employs a community reinvestment officer who spearheads our
efforts to maintain active dialogue with community groups, administers
affirmative marketing programs and organizes community homebuyer's seminars
and other community programs. COMMUNITY REINVESTMENT PROGRAMS AND
COMMUNITY OUTREACH ACTIVITIES More than just offering loan products and
[TideMark logo with 55 superimposed on the word TideMark]
services in accordance with uniform non-discriminatory credit standards,
community reinvestment has been the commitment of TideMark's financial and
human resources to the communities it serves for over 100 years. Following
are just a few examples of our community reinvestment commitment.
COMMUNITY HOME BUYERS PROGRAM The Community Home Buyers Program makes home
mortgage loans more affordable by increasing the maximum debt-to-income
ratios and using alternative credit sources in lieu of conventional credit
histories. The Federal National Mortgage Association (FNMA) has authorized
TideMark to present the Community Home Buyers Seminar. The seminar covers
a wide range of topics of particular benefit to prospective low- and
moderate-income home buyers. The seminars are presented to groups in a
workshop format and to individuals in home study and individual counseling
sessions. The Company issues graduation certificates to seminar
participants. The certificates document successful completion of the
seminar, which is required by FNMA for any borrower who wishes to qualify
under the more liberal underwriting ratios contained in the Community Home
Buyer Program. TRANSITIONAL HOUSING TideMark provided bridge financing
and played a vital role in bringing together local and state agency
representatives for the creation of a transitional housing shelter for
battered women. The coordinated efforts of all involved were acknowledged
by receipt of the FNMA Foundation's Award of Excellence. LOW/MODERATE
INCOME HOME BUYERS: THE AFFORDABLE HOUSING PROGRAM ("AHP") TideMark
sponsored two local organizations in their efforts to obtain financial
assistance for the construction of 24 homes for very low-to- moderate
income families within our Community. TideMark submitted applications to
the Federal Home Loan Bank of Atlanta on behalf of Peninsula Habitat for
Humanity and the James City County Office of Housing and Community
Development. Although the competition for AHP funds is intense, both
applications were approved. Now 24 families who thought home ownership was
only a dream are moving into their new homes. EDUCATION: AN ACHIEVABLE
DREAM / ADOPT-A-SCHOOL TideMark's Chairman serves as Finance Chairman of
An Achievable Dream, an educational enhancement program designed to assist
at-risk students in the Newport News public school system. The Company's
branch offices participate in the Virginia Peninsula Business and
Educational Partnership Program. Branch staff adopted a school nearest
their branch office and donated their time tutoring students from their
adopted school and providing other valuable educational resources. This
program is administered in conjunction with the Virginia Peninsula Chamber
of Commerce and a TideMark Bank officer serves on the program's steering
committee. COMMUNITY RELATIONS: PEOPLE-TO-PEOPLE People-to-People is a
city-wide committee of concerned citizens whose purpose is to improve the
quality of life of the citizens of Newport News by improving race relations
within the city. The Company's Chairman was a founder of this Committee
and serves on its Executive Committee. OTHER COMMUNITY REINVESTMENT
ACTIVITIES TideMark Bank actively supports many activities and
[Ad showing ocean waves saying "Today, in these turbulent times, you need
a smarter bank than you had yesterday."]
organizations that benefit our communities including the Mariners Museum,
the Virginia Air and Space Museum, the Association for Retarded Citizens,
the Virginia Living Museum, the Peninsula Fine Arts Museum, the Peninsula
Crime Line, USO, Habitat for Humanity, the Peninsula Food Bank, the United
Way Day of Caring, D.A.R.E., Christopher Newport University, Yorktown Art
Foundation, the American Red Cross, the Literacy Council and Williamsburg
Community Hospital. CORPORATE CITIZENSHIP Your Bank is most fortunate to
have associates who seek out ways in which to make a positive difference in
our communities. Some of the other community organizations served by
TideMark and its associates include: Junior Achievement, United Way and
many of its member agencies, Cystic Fibrosis Foundation, Riverside
Rehabilitation Hospital, Girl Scouts, Boys and Girls Clubs, Leukemia
Society, Virginia Stage Company, American Heart Association, Special
Olympics, March of Dimes, Boy Scouts, Chamber of Commerce, Lion's Club,
Rotary Club, Kiwanis, Newport News Now, YMCA, National Conference of
Christians and Jews and Virginia Peninsula Economic Development Council.
While we are most pleased with our "Outstanding" community reinvestment
rating, we will not rest on our laurels. TideMark remains deeply committed
to the letter and the spirit of the of the Community Reinvestment Act. We
will continue to search for new ways to meet the changing financial needs
of the communities we serve because . . . it's just good business.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position
of TideMark for the fiscal years ended June 30, 1992 through 1994. This
review should be read in conjunction with TideMark's audited consolidated
financial statements, accompanying footnotes and supplemental financial
data included herein.
Results of Operations
TideMark reported net income for the fiscal year ended June 30, 1994 of $1.3
million or $0.19 per share, compared with $2.6 million or $0.38 per share for
fiscal 1993 and $1.6 million or $0.40 per share for fiscal 1992. The fiscal
1994 performance reflected stable net interest income as compared to
fiscal 1993, growth in noninterest sources of revenue and stable operating
expenses in a year of expanding services. However, fiscal 1994 financial
results also reflected the effects of the operating costs associated with
the achievement of the significant improvement made in asset quality
during the fiscal year. Fiscal 1993 results were positively impacted
by increased net interest income and the gains generated by TideMark's
mortgage banking division, offset in part by a $1.1 million settlement with
the Company's former Chairman of his claim for indemnification under Virginia
law as well as loss provisions and operating costs associated with
properties foreclosed during the fiscal year. Fiscal 1993 results were also
impacted by a $2.0 million benefit from the cumulative effect of a change
in accounting for income taxes. Fiscal 1992 earnings were net of
extraordinary income of $590,000 arising from the utilization of a net
operating loss carryforward.
The following table highlights major components of net income for the
fiscal years ended June 30, 1994, 1993 and 1992:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Interest income $23,711 $25,699 $28,496
Interest expense 14,986 16,898 20,821
Net interest income 8,725 8,801 7,675
Provision for losses on loans 83 65 1,982
Net interest income after
provision for losses on loans 8,642 8,736 5,693
Other income 5,294 4,197 5,921
Provision for losses on REO
and losses from real estate
operations 1,824 1,226 827
Other expense 10,011 9,612 9,065
Net operating income 2,101 2,095 1,722
Legal settlement expense --- 1,117 ---
Income before income taxes,
extraordinary item and
cumulative effect of an
accounting change 2,101 978 1,722
Provision for income taxes 776 389 747
Income before extraordinary
item and cumulative effect
of an accounting change 1,325 589 975
Extraordinary item - Reduction
of income taxes arising
from the carryforward of
prior years' operating losses --- --- 590
Cumulative effect of change in
accounting for income taxes --- 2,027 ---
Net income $1,325 $2,616 $1,565
Core Operating Results
To ensure continued financial strength, TideMark must continue its focus on
increasing core operating earnings such as net interest income, loan fees
and gains derived from mortgage-banking operations and deposit-related fees
and charges. Over the past four years, TideMark's reported earnings
have been impacted significantly by certain non-core income and expense
items including gains on sales of securities, expenses associated with
operating and selling real estate owned properties and a nonrecurring
legal settlement expense. The graph which follows shows the progress which has
been made since fiscal 1991 in improving the core operating results of the
Bank. Core operating income for this purpose is equal to income before
taxes, extraordinary item and cumulative effect of an accounting change,
less gains on sales of securities, provisions for losses on REO and losses
from real estate operations and certain nonrecurring income and expense
items.
Core Operating Income before Taxes
(Dollars in thousands)
[Graph as defined by the following data points:]
PRETAX INCOME $550 $1,722 $978 $2,101
CORE OPERATING INCOME ($509) $554 $3,114 $2,946
Net Interest Income
Net interest income is the Bank's fundamental source of recurring earnings
and is impacted by the volume and mix of interest-earning assets and
interest-bearing liabilities, the general level of interest rates and other
factors.
Fiscal 1994 began with market interest rates declining slightly during the
first two quarters. Low inflation rates and a sluggish economy during the
period resulted in little action being taken by the Federal Reserve Board,
following actions taken in 1991 and 1992 to lower the general level of
interest rates. Long-term rates fell by a greater degree than short-term
rates during the first half of fiscal 1994. In response to perceived
strength in the economy and the fear of inflation, the Federal Reserve
raised the discount rate it charges to banks four times during the last
half of the fiscal year, resulting in general increases in both short-
term and long-term interest rates. Net interest income for the fiscal
year ended June 30, 1994 totaled $8.7 million, substantially the same as the
prior fiscal year. The Company's net interest income was affected by the decline
in long-term interest rates during the first two quarters of fiscal 1994
which led to significant prepayments in the mortgage loan and mortgage-
related securities portfolios, as borrowers refinanced their loans to take
advantage of the low interest rate environment. The rapid prepayment
activity resulted in increased amortization of premiums paid on many
mortgage-related securities, causing a significant decline in interest
income. Increasing market rates during the latter part of the fiscal year
have significantly reduced prepayment rates; consequently, yields on these
portfolios have returned to anticipated levels. Net interest income for
fiscal year 1994 was also adversely affected by the high level of real
estate acquired through foreclosure ("REO"), substantially all of which
were sold as of June 30, 1994.
Interest income totaled $23.7 million for the fiscal year ended June 30,
1994, down $2.0 million or 7.7% from the prior year's level. The
Company's average interest-earning assets increased by $9.1 million or 2.7%
over fiscal 1993 levels to $346.6 million for the year ended June 30, 1994.
Interest income was reduced by the 77 basis point decrease in the yield on
average interest-earning assets to 6.84% for fiscal 1994 from 7.61% for
fiscal 1993 reflecting the effect of generally lower levels of market
interest rates, which led to significant prepayments in TideMark's mortgage
loan and mortgage-backed securities portfolios for much of the year as well
as the downward repricing of a significant portion of the Company's
adjustable-rate loans and securities. Although interest income also
suffered as the result of high levels of nonperforming assets during the
year, TideMark disposed of substantially all its REO during the last two
quarters of fiscal 1994, returning those assets to earning status. This
should result in an improvement in interest income.
Interest expense for the fiscal year ended June 30, 1994 totaled $15.0
million, a decline of $1.9 million or 11.3% from fiscal 1993. The
declining levels of market interest rates combined with a change in the
composition of the Company's deposit portfolio reduced the average cost of
interest-bearing liabilities for the fiscal year ended June 30, 1994 by 71
basis points from 5.07% in fiscal 1993 to 4.36% for fiscal 1994. Levels of
average interest-bearing liabilities increased by $10.8 million over fiscal
1993 levels to $344.0 million for the fiscal year ended June 30, 1994. In
addition, the mix of core deposits continued to change during the year as
depositors transferred funds from savings and time deposits into higher-
yielding money market and demand deposit products as a result of the lower
interest rate environment. Interest expense for fiscal years 1994 and 1993
was increased somewhat by the decision to reduce the Company's exposure to
changes in interest rates through several methods including interest-rate
caps and borrowing on a longer term basis from the Federal Home Loan Bank
of Atlanta ("FHLB"). For a further discussion of these transactions, refer
to "Asset/Liability Management" and Note 21 of the Notes to Consolidated
Financial Statements.
The increased premium amortization on mortgage-backed securities discussed
above, along with a general compression in interest rate spreads and a
reduction in net interest-earning assets experienced during the second
half of the year, partially offset by improved net interest income
resulting from increased levels of core deposits and reductions in
nonearning assets throughout fiscal 1994, combined to decrease TideMark's
net interest margin to 2.52% during the fiscal year ended June 30, 1994,
compared to 2.61% during the prior year.
Fiscal 1993 Compared to Fiscal 1992 Net interest income for fiscal 1993
totaled $8.8 million, an increase of $1.1 million or 14.7% from fiscal year
1992 net interest income of $7.7 million. This improvement reflected
several factors, the most significant being the effect of the decline in
market interest rates experienced during the period. The yield on average
interest-earning assets declined by 133 basis points from the fiscal 1992
level to 7.61% for fiscal 1993. Net interest income was also affected by a
$18.8 million increase in average earning assets for fiscal year 1993 to
$337.5 million, from $318.7 million in fiscal 1992 as TideMark began to
leverage the capital raised during the subscription rights and community
stock offering completed in January 1992. The net result of these two
factors was a $2.8 million or 9.8% decline in interest income to $25.7
million in fiscal 1993 from $28.5 million in fiscal 1992. Interest expense
for the fiscal year ended June 30, 1993 totaled $16.9 million, down $3.9
million or 18.8% from fiscal 1992. The declining levels of market interest
rates in combination with a change in the composition of the Company's
deposit portfolio reduced the average cost of the Company's interest-
bearing liabilities for the fiscal year ended June 30, 1993 by 149 basis
points from 6.56% in fiscal 1992 to 5.07% for fiscal 1993. Levels of
average interest-bearing liabilities increased by $15.5 million over fiscal
1992 levels to $333.2 million for the fiscal year ended June 30, 1993. In
addition, the mix of core deposits changed dramatically during the year as
depositors transferred funds from savings and time deposits into money
market and demand products as a result of the lower interest rate envi-
ronment. Interest expense for fiscal years 1993 and 1992 was also affected
by the decision to reduce the Company's exposure to changes in interest
rates through several methods including interest-rate swaps, interest-rate
caps and borrowing on a longer term basis from the FHLB.
The combination of lower levels of market interest rates discussed above
and the $3.3 million increase in the Company's excess of average interest-
earning assets over average interest-bearing liabilities increased
TideMark's net interest margin to 2.61% during the fiscal year ended June
30, 1993, compared to 2.41% during the prior year.
Yields Earned and Rates Paid
The following table sets forth for the years indicated information
regarding (i) the total dollar amount of interest income of the Company
from interest-earning assets and resultant average yields, (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost, (iii) net interest income, (iv) interest rate
spread and (v) net yield on interest-earning assets (net interest margin).
Average balances are determined on a monthly basis and nonaccrual loans are
included in the average loan amounts.
<TABLE>
<CAPTION>
June
Fiscal Year Ended June 30, 1994 1993 1992 1994
(Dollars in thousands) Average Average Average Average Average Average
Balance(1) Interest Rate Balance Interest Rate Balance Interest Rate Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans $187,890 $15,078 8.02% $208,051 $17,576 8.45% $218,893 $20,776 9.49% 8.36%
Mortgage-backed securities 140,387 7,456 5.31 112,471 7,037 6.26 81,547 6,505 7.98 5.71
Investment securities 16,815 1,128 6.71 15,161 1,028 6.78 11,855 944 7.96 6.66
Other interest-earning
assets 1,531 49 3.21 1,800 58 3.23 6,368 271 4.25 4.33
Total $346,623 $23,711 6.84% $337,483 $25,699 7.61% $318,663 $28,496 8.94% 7.08%
Interest-bearing liabilities
Deposits $225,994 $9,249 4.09% $208,066 $9,907 4.76% $215,200 $13,963 6.49% 3.95%
FHLB advances and
other borrowings 117,970 5,737 4.86 125,129 6,991 5.59 102,463 6,858 6.69 5.02
Total $343,964 $14,986 4.36% $333,195 $16,898 5.07% $317,663 $20,821 6.56% 4.32%
Net interest-earning assets
and interest rate spread $ 2,659 2.48% $4,288 2.54% $ 1,000 2.38% 2.76%
Net interest income $8,725 $8,801 $7,675
Net interest margin 2.52% 2.61% 2.41%
</TABLE>
(1) Average balances reflect average historical cost and exclude adjustments
for net unrealized holding gains (losses) which are not considered basis
adjustments for yield calculations.
The following table presents certain information regarding changes in
interest income and interest expense of the Company for the years
indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided with respect to changes
attributable to (1) changes in volume (change in volume multiplied by old
rate); (2) changes in rate (change in rate multiplied by old volume); and
(3) changes in volume and rate (change in rate multiplied by the change in
volume).
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993
Compared to Fiscal 1993 Compared to Fiscal 1992
Volume Rate Volume/Rate Total Volume Rate Volume/Rate Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans $(1,704) $ (884) $ 90 $(2,498) $ (1,029) $ (2,276) $ 105 $(3,200)
Mortgage-backed securities 1,748 (1,068) (261) 419 2,468 (1,405) (531) 532
Investment securities 112 (11) (1) 100 263 (140) (39) 84
Other interest-earning assets (9) --- --- (9) (194) (65) 46 (213)
Total $147 $(1,963) $ (172) $(1,988) $ 1,508 $ (3,886) $ (419) $(2,797)
Interest-bearing liabilities
Deposits $853 $(1,386) $ (125) $ (658) $ (463) $ (3,720) $ 127 $(4,056)
FHLB advances and other
borrowings (400) (910) 56 (1,254) 1,516 (1,127) (256) 133
Total $453 $(2,296) $ (69) $(1,912) $ 1,053 $ (4,847) $ (129) $(3,923)
Change in net interest income $ (306) $333 $ (103) $ (76) $ 455 $ 961 $ (290) $ 1,126
</TABLE>
Provisions and Allowances for Losses
The provision for loan losses is the periodic expense of maintaining an
adequate allowance to absorb possible future losses, net of recoveries,
inherent in the existing loan portfolio. In evaluating the adequacy of the
provision and the allowance for loan losses, management takes into
consideration several factors including national and local economic trends and
conditions; historical losses; trends in delinquencies, bankruptcies and
nonperforming loans; off-balance sheet credit risk; known deterioration and
concentrations of credit; effects of any changes in lending policies and
procedures; credit evaluations; experience and ability of lending
management and staff; and the liquidity and volatility of the markets in
which TideMark conducts business. In making these evaluations, particular
emphasis is placed on adversely classified loans. TideMark's charge-off
policy is closely integrated with the loan review process. Commercial
and real estate loan charge-offs are recorded when any loan or portions of
loans are determined to be uncollectible. Consumer loans are typically
charged off when they are 120 days past due. TideMark continues to pursue the
collection of principal and interest even after the loan has been charged off.
In addition to specific allowances provided, a general allowance for losses is
maintained and analyzed no less frequently than quarterly. The level of the
general allowance is established based upon an analysis of the potential
for losses which may exist in the Company's asset portfolio. The Company's
method of calculating the general allowance requires that assets be analyzed
according to perceived risk category. Certain percentage allowances are
provided based upon the perceived risk associated with each asset category.
The following table summarizes the activity in the allowances for loan and
real estate owned losses during fiscal years 1993 and 1994:
<TABLE>
<CAPTION>
Real
Loans Estate Equity
General Specific Total Owned Investments Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1992 $5,014 $2,173 $7,187 $1,076 $782 $9,045
Fiscal 1993 provisions 65 --- 65 435 --- 500
Charge-offs (197) (886) (1,083) (764) --- (1,847)
Recoveries 627 --- 627 --- --- 627
Transfers to specific allowances (1,541) 1,541 --- --- --- ---
Balance June 30, 1993 3,968 2,828 6,796 747 782 8,325
Fiscal 1994 provisions 83 --- 83 627 --- 710
Charge-offs (263) (2,278) (2,541) (754) --- (3,295)
Recoveries 280 --- 280 --- --- 280
Transfers to specific allowances (300) 300 --- --- --- ---
Balance June 30, 1994 $3,768 $850 $4,618 $ 620 $782 $6,020
</TABLE>
The Company reported provisions for losses on loans for fiscal years ended
June 30, 1994 and 1993 of $83,000 and $65,000, respectively, and provisions
for losses on REO properties of $627,000 and $435,000 for the same
respective periods. Net charge-offs amounted to $3.0 million for fiscal
1994, compared to $1.2 million for fiscal 1993, as a result of the charge-
off of specific allowances allocated to properties sold or restructured
during the year. (See "Asset Quality".) Charge-offs during fiscal 1994 and
1993 related primarily to the hospitality loan portfolio, as indicated in the
chart on the following page. TideMark allocated $300,000 and $1.5 million from
its general allowance for loan losses during the years ended June 30, 1994 and
1993, respectively, to allowances for specific loans, substantially all of
which were in the hospitality industry.
The following table summarizes loan charge-offs and recoveries, by major
loan category, for the periods indicated:
Fiscal Year Ended June 30, 1994 1993 1992 1991 1990
(Dollars in thousands)
Loans charged off
Residential $ 71 $ 57 $ 123 $ 70 $ 256
Multi-family --- --- 54 39 339
Hospitality industry 2,426 563 157 573 4,550
Commercial real estate --- 230 --- --- ---
Other commercial --- 50 97 --- ---
Consumer --- 3 30 --- 12
Community Finance Company 44 180 734 1,763 1,408
Total loans charged off 2,541 1,083 1,195 2,445 6,565
Recoveries of loans previously
charged off
Residential 20 18 7 140 ---
Multi-family --- --- 960 20 ---
Hospitality industry --- 114 332 87 ---
Commercial real estate --- 129 --- --- ---
Other commercial --- --- 22 --- ---
Consumer 11 --- --- --- ---
Community Finance Company 249 366 323 556 104
Total recoveries 280 627 1,644 803 104
Net loans charged off
(recovered) $2,261 $ 456 $ (449) $1,642 $6,461
The following table sets forth more detailed information concerning the
activity in the Company's allowance for losses on loans during the periods
indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1994 1993 1992 1991 1990
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average loans outstanding $187,890 $208,051 $218,893 $219,127 $249,645
Allowance at the beginning of period $ 6,796 $ 7,187 $ 5,538 $ 5,285 $ 2,310
Total charge-offs and
reclassifications (2,541) (1,083) (1,195) (2,445) (6,565)
Recoveries 280 627 1,644 803 104
Additions charged to operating expense 83 65 1,200 1,895 9,436
Allowance at the end of period $ 4,618 $ 6,796 $ 7,187 $ 5,538 $ 5,285
Ratio of net charge-offs to
average loans outstanding 1.20% 0.22% 0.20% 0.75% 2.59%
Ratio of total allowance to
period-end loans 2.59% 3.20% 4.06% 2.71% 2.52%
</TABLE>
On December 21, 1993 the OTS with three other federal banking agencies
issued an Interagency Policy Statement on the Allowance for Loan and Lease
Losses, which provides guidance to savings associations and OTS examination
staff regarding the appropriate level of general valuation allowances an
association should maintain. The policy requires that a savings
association classify its assets on a regular basis and establish general
valuation allowances that are adequate to absorb probable losses in their
portfolios that are not clearly attributable to specific loans. For
classified assets, the OTS recommends general valuation allowances equal to
15% of assets classified substandard and 50% of assets classified doubtful.
For unclassified and unreviewed assets, the OTS policy states that general
valuation allowances should equal expected credit losses during the next
year, which should be based on the level of annual net charge-offs
experienced by the institution over the previous two to three years on
similar assets, adjusted for current economic conditions and trends and
certain qualitative factors. The policy only addresses the loan and lease
portfolio and does not address allowances on other assets, such as REO,
investments in subsidiaries or real estate held for investment. Allowances
on assets other than loans should continue to be established based on
current OTS policy. Furthermore, such policy statement is only a guideline
and not a requirement establishing either a floor or a ceiling. Management
has reviewed the allowance for loan and lease losses in accordance with the
guidelines set forth therein and believes it to be adequate to comply with
the policy.
The allowance for loan losses at June 30, 1994 was $4.6 million, or 2.6% of
year-end loans, compared with the June 30, 1993 allowance of $6.8 million,
or 3.2% of loans. The fiscal 1994 allowance for loan losses was 39.4% of
year-end gross nonperforming loans and 30.5% of year-end gross
nonperforming assets, compared to 47.6% and 27.6%, respectively, in the
prior year. Management believes that the current level of the allowance
should provide adequate protection against currently estimated losses from
credit risk. However, changes in the economy or operating results of the
properties could result in the need for additional allowances in future
periods.
Other Income
While TideMark's net interest income provided a stable base for total reve-
nues, income from other operating sources improved during fiscal 1994.
Other income totaled $5.3 million for the fiscal year ended June 30, 1994
compared to $4.2 million for the prior year. Income derived from mortgage
banking operations, consisting of loan fees, service charges and gains on
sales of loans, declined in the aggregate by $551,000 or 19.1% compared to the
prior year's levels to $2.3 million in fiscal 1994. The high level of
residential loan refinance activity occurring during fiscal 1993 and much of
fiscal 1994 resulted in increases in income from mortgage-banking
operations, notwithstanding management's decision to retain servicing
rights on many of the residential loans originated and sold. Rising market
interest rates during the last quarter of fiscal 1994 resulted in
significant declines in refinancing activity, as well as smaller gains on
loans sold. Additionally, the carrying value on loans held for sale as of June
30, 1994 was reduced to current market prices, resulting in a loss of $75,000,
which was recognized as of June 30, 1994. The level of future sales and
gains is dependent upon the level and composition of loan originations and
the general level of market interest rates. Due to these factors, gains
recognized upon the sales of loans are subject to significant fluctuations from
period to period and no assurance can be given that the current levels of
activity will be maintained. In response to decreased mortgage activity
experienced during the last quarter of fiscal 1994, the Company has reduced
the staff in that division and closed loan origination offices outside of its
primary market area. The Company continually monitors this important
business unit to ensure continued profitability.
Income from loan servicing fees increased by $361,000 from fiscal 1993 to
$558,000 during fiscal 1994. The increase resulted primarily from
decreased amortization during fiscal 1994 of the cost of TideMark's
purchased mortgage servicing rights as the result of slowing levels of loan
repayments experienced in the serviced portfolio along with increased fees
from loans serviced. At June 30, 1994, loans serviced for others totaled
$271.7 million, an increase of $28.2 million compared to the $243.5 million
serviced at June 30, 1993. In addition to loan servicing fee income (net
of the amortization of purchased mortgage servicing rights), the Company
derives net interest income from loan servicing as a result of the use of
the related cash balances.
Gains on sales of mortgage-backed and investment securities available for
sale totaled $1.1 million for the fiscal year ended June 30, 1994, compared
to $282,000 in the prior fiscal year. Net gains recorded during the
current fiscal year resulted from sales of certain assets available for
sale, as described more fully in the "Financial Condition" section. While
certain unrealized holding losses currently exist in the Company's
portfolio of assets available for sale as of June 30, 1994 which have been
recorded in the equity section of the balance sheet, the level of future
sales and gains or losses is dependent upon the levels and composition of
the assets available for sale and the general levels of market interest
rates. Due to these factors, gains recognized upon the sales of such
assets are subject to significant fluctuations from period to period.
Fiscal 1993 Compared to Fiscal 1992 Other income totaled $4.2 million for the
fiscal year ended June 30, 1993 compared to $5.9 million for the prior year.
Income derived from mortgage-banking operations, consisting of loan fees,
service charges and gains on sales of loans, increased in the aggregate
by $533,000 or 22.7% over the prior year's level to $2.9 million in fiscal
1993. The high level of residential loan refinancing activity which occurred
during fiscal 1993 resulted in significant increases in income from
mortgage-banking operations as new loans were originated in connection with
such refinancing and sold into the secondary market. Income from loan
servicing fees declined by $390,000 from fiscal 1992 levels to $197,000
during fiscal 1993. The decrease resulted primarily from increased
amortization during fiscal 1993 of the cost of TideMark's purchased mortgage
servicing rights caused by high levels of loan repayments experienced in
the serviced portfolio during such period. Net gains on sales of
mortgage-backed and investment securities available for sale totaled $207,000
for the fiscal year ended June 30, 1993, a decrease from $2.0 million for
the prior fiscal year. Fiscal 1992 gains related largely to the sale of $70.0
million of mortgage- backed securities undertaken in preparation for
potential downsizing to meet regulatory capital requirements in the event the
subscription rights and community stock offering completed in January 1992
had not been successful. Fiscal 1993 gains were attributable to the sale of
certain U.S. Treasury securities held for sale.
Other Expense
The following table presents the Company's overhead efficiency ratio, a
widely used industry measure of its ability to manage and control costs.
As this ratio decreases, more of the net interest income earned flows
through to net income.
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Operating and administrative expense $10,011 $9,612 $9,065
Real estate operations 1,824 1,226 827
Legal settlement --- 1,117 ---
$11,835 $11,955 $9,892
Net operating revenue
(net interest income plus
other recurring operating income) $13,146 $12,791 $11,601
Efficiency Ratio
Operating and administrative expenses 76.1% 75.1% 78.1%
Real estate operations 13.9% 9.6% 7.1%
Total 90.0% 84.7%(1) 85.2%
(1) Excludes legal settlement
These ratios indicate that the weak net interest margin caused largely by
high levels of nonperforming assets, the high cost of operating and selling
REO properties, along with the relative operating inefficiencies which
exist in a company the size of TideMark operating in an expensive
regulatory environment tend to make it inefficient. Progress has been made
during fiscal 1994 in implementing various programs aimed at improving
customer service and reducing delivery cost. A Profit Enhancement Program
has been implemented and is designed to focus the attention of every
employee of the Company on ways to improve the efficiency and operating
results of their respective department. The program is beginning to show
results and management is committed to improve the Company's efficiency
ratio during fiscal 1995.
Other expenses totaled $11.8 million for the fiscal year ended June 30,
1994, a decrease of $120,000 from the prior fiscal year. As indicated in the
table on the following page, operating and administrative expense for the
fiscal year ended June 30, 1994 totaled $10.0 million, compared to $9.6
million in fiscal 1993 and $9.1 million in fiscal 1992. Compensation and
benefits represent the largest component of this expense category. The
slightly higher expense reflects an increase in the number of employees needed
to service the commercial, private banking and indirect lending operations of
the Company and to support a new retail facility as well as expenses required
to aggressively deal with the Company's problem assets. These expenses were
offset in fiscal 1994 by reductions arising from the closing and sale of
three out-of-market mortgage-origination offices, staff reductions and cost
reduction programs. Fiscal 1992 compensation included the addition of the
mortgage-banking staff of a former subsidiary which was merged into the
Company during the first quarter of fiscal 1992. The number of
full-time-equivalent employees was 152 at June 30, 1994, compared with 157 and
143 at June 30, 1993 and 1992, respectively.
The following table presents major components of other expense for the
periods indicated:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Compensation and employee benefits $5,000 $4,957 $4,554
Occupancy and equipment 1,783 1,634 1,551
Federal deposit insurance premiums 660 510 507
Professional services 507 597 624
Other 2,061 1,914 1,829
Total operating and administrative
expenses 10,011 9,612 9,065
Provision for losses and operating costs
of real estate operations 1,824 1,226 827
Legal settlement expense --- 1,117 ---
Total other expense $11,835 $11,955 $9,892
Total operating and administrative
expenses as a percentage of
average assets 2.70% 2.70% 2.66%
Total other expense as a
percentage of average assets 3.19% 3.43% 2.89%
Occupancy and equipment expense increased by $149,000 or 9.1% for the
fiscal year ended June 30, 1994 over fiscal 1993, due to the increased cost
associated with maintaining and operating ATMs and an additional retail
branch, partially offset by savings resulting from the closure of three
outlying mortgage origination offices. Occupancy expense increases during
fiscal 1992 reflected the addition of the mortgage division as discussed
above. Federal deposit insurance premiums increased by $150,000 or 29.4%
from fiscal 1993 levels to $660,000 for fiscal 1994, as the result of
growing deposit levels. Federal deposit insurance premiums were relatively
constant over the two-year period ended June 30, 1993, as the declining
levels of insured deposits during much of the period offset continuing
increases in the deposit insurance premium rates established pursuant to
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA").
Provision for losses and operating costs associated with REO properties
totaled $1.8 million for fiscal 1994, compared with $1.2 million for
fiscal 1993 and $827,000 for fiscal 1992. While aggressively pursuing the
resolution of problem assets serves to improve the future earnings
potential of the Company, it can have a detrimental effect on current
earnings, as evidenced in fiscal 1994. Costs include not only the
provision for losses and gains and losses on sales of REO, but also the
operating costs associated with managing and improving the operating REO
properties (largely hotels) during the period of ownership. See "Asset
Quality" for a further discussion of REO properties.
Legal settlement expense for fiscal year ended June 30, 1993, which totaled
$1.1 million represented the Company's settlement with its former Chairman
of the legal expenses incurred in his successful defense of an action
brought against him by the OTS, the Bank's primary regulator, along with
TideMark's expenses associated with such settlement.
Provision for Income Taxes
The provision for income taxes for fiscal 1994 totaled $776,000, or 36.9%
of income before taxes compared with $389,000 or 39.8% and $747,000 or
43.4% for fiscal 1993 and 1992, respectively. TideMark implemented
Statement of Financial Standards No. 109, "Accounting for Income Taxes"
("SFAS 109") as of July 1, 1992 and recorded $2.0 million of income from
the cumulative effect of this accounting change. SFAS 109 generally allows
recognition of a deferred tax asset for an institution's book bad debt
reserve and requires the recognition of a deferred tax liability for
increases in tax bad debt reserves subsequent to 1987. See Note 15 to the
Notes to Consolidated Financial Statements for a further discussion of the
implementation of SFAS 109. The Company's net income for fiscal 1992 was
affected by a $590,000 reduction arising from the utilization of net
operating loss carryforwards, which were fully utilized in the fiscal year
ended June 30, 1992 and refunds of state income taxes totaling $206,000
received during the year.
Asset Quality
One of management's primary areas of focus during the past four years has
been reducing the level of nonperforming and classified assets held by the
Company while concurrently developing quality loans supporting area
businesses and the local community. In addition to changing its lending
practices and de-emphasizing nontraditional savings association activities,
the Company has sought to reduce the risk inherent in its lending
operations by improving its ability to identify and resolve existing and
potential problem assets. The steps which have been taken over the past
four years by the Company in furtherance of such goal include:
(bullet) improved credit administration through the hiring of additional
loan officers with more direct experience in the origination,
evaluation and management of commercial business and real estate loan
portfolios;
(bullet) the establishment of a Loan Administration Department and an
Asset Review Committee to review, evaluate and adopt plans to resolve
as well as establish appropriate allowances on problem assets.
TideMark's Asset Review Committee, composed of both senior officers
of the lending and finance divisions and executive officers meets on
a quarterly basis to review the status of loans and other assets
which have either become delinquent or exhibited other indications
that their collectibility is in doubt. The Loan Administration
Department is responsible for the day-to-day review and evaluation of
new and existing loans; and
(bullet) more aggressive collection efforts.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, accruing loans past due
90 days or more, REO, real estate held for development or resale equity
investments in troubled projects and troubled-debt restructurings.
Generally, the accrual of income is discontinued if management believes,
after considering economic conditions, the borrower's financial condition and
collection efforts, that the collection of principal or interest is in doubt, or
when the payment of principal or interest has become contractually 90 days past
due.
Real estate acquired by the Company as a result of foreclosure, deed-in-
lieu of foreclosure or deemed in-substance foreclosure is classified as
REO. When property is acquired, or in-substance acquired, it is recorded
at the lower of cost or fair market value less estimated costs to sell.
Any subsequent write-down is charged to the allowance for estimated losses
on REO. Interest accrual ceases on the date of acquisition, if not sooner
and all costs incurred in maintaining the property from that date forward
are expensed. Costs incurred for the improvement or development of such
property may be capitalized as long as the capitalization of such costs
would not result in the property being carried at more than the estimated
fair value of the property. In-substance foreclosure classifications are
made under generally accepted accounting principles for those loans that
meet certain established criteria. Although the collateral underlying
these loans has not been formally repossessed, the borrower has
little or no equity in the collateral at its current estimated fair value,
proceeds for repayment are expected to come only from the operation or sale
of the collateral and the borrower has either abandoned the project or it
is doubtful that the borrower will rebuild sufficient equity in the
collateral or repay the loan by other means in the foreseeable future. The
properties collateralizing such loans are accordingly reflected by the
Company in its consolidated financial statements as REO at their respective
fair values.
The following table represents TideMark's nonperforming assets and
restructured loans, net of specific loss allowances, for the five years
ended June 30, 1994. Nonperforming assets without restructured loans
declined by $8.3 million or 57.6% from $14.4 million as of June 30, 1993 to
$6.1 million as of June 30, 1994. Total nonperforming and restructured
assets decreased $7.2 million or 34.5% from $20.9 million as of June 30,
1993 to $13.7 million as of June 30, 1994. Significant changes are
discussed below, by category of nonperforming assets.
As of June 30, 1994 1993 1992 1991 1990
(Dollars in thousands)
Nonaccrual loans
Residential, 1-4 family homes $ 887 $ 359 $ 574 $ 2,338 $1,130
Multi-family 578 --- 973 --- ---
Hospitality industry 2,464 5,142 10,260 1,000 ---
Other commercial 43 --- 90 117 1,878
Consumer 152 107 250 103 148
Accruing loans past due
90 days or more --- --- --- --- ---
4,124 5,608 12,147 3,558 3,156
Real estate acquired in
settlement of loans
or in-substance foreclosure
Residential, 1-4 family homes 431 796 1,547 2,031 2,941
Hospitality industry --- 6,344 5,627 2,000 7,570
Other commercial --- 38 96 176 4,569
431 7,178 7,270 4,207 15,080
Real estate held for
development or resale 786 865 965 1,044 1,049
Equity investment 782 782 782 1,563 ---
Total nonperforming assets 6,123 14,433 21,164 10,372 19,285
Troubled debt restructurings 7,549 6,455 3,663 11,125 11,131
Total nonperforming and
troubled debt restructurings $13,672 $20,888 $24,827 $21,497 $30,416
Ratio of nonperforming assets
to total assets 1.58% 3.80% 5.96% 2.88% 5.34%
Ratio of nonperforming
and troubled debt restructurings
to total assets 3.54% 5.50% 6.99% 5.97% 8.42%
As previously noted, the Company began a p rogram in 1990 to aggressively
pursue the resolution of problem assets a nd reduce the Company's overall
exposure to the risks associated with a concentration of loans in the
hospitality industry. The program focused on the following areas:
(bullet) Disposing of existing REO properties. During fiscal 1994, the
Company sold all REO properties it owned, with the exception of
several residential properties, having an aggregate carrying value
of $431,000;
(bullet) Taking advantage of discounts from loan participants (including
the Resolution Trust Corporation ("RTC") and the Federal Deposit
Insurance Corporation ("FDIC")) to restructure loans and reduce
the Company's exposure;
(bullet) Offering discounts to borrowers on selected hospitality industry
properties to encourage refinancing of the loans;
(bullet) Utilizing all available opportunities to improve the legal
documentation of and the Company's collateral position related to
problem loans;
(bullet) Working with borrowers on selected problem assets to restructure
the terms of the loans to ones which can be supported by the
operations of the properties securing them, obtaining additional
principal curtailments or collateral, whenever possible; and
(bullet) Exercising call options, when possible.
Nonaccrual Loans
Nonaccrual residential and multi-family loans increased by $1.1 million to
$1.5 million as of June 30, 1994, as a result of certain loans on small
multi-family and single-family investor properties extended to two
individual borrowers. The Company is in the process of restructuring those
relationships to gain additional collateral and improve the borrowers'
ability to service the debt.
Nonaccrual hospitality loans decreased by $2.7 million from June 30, 1993
to a level of $2.5 million at June 30, 1994, largely as the result of the
restructuring of a loan on a hotel property located in Virginia Beach,
Virginia which had a carrying value of $1.4 million at June 30, 1993. The
loan was restructured in December 1993, with the Company purchasing a
participant's interest at a discount and the borrower infusing funds to
reduce the principal balance and make certain capital improvements, in
exchange for reamortizing the loan over 25 years and reducing the interest
rate to 8.5% for the first two years. The loan is carried as a
restructured loan at June 30, 1994 and was performing in accordance with
its restructured terms. Nonaccrual hospitality loans were additionally
reduced by the prepayment of a loan secured by a hotel in North Carolina,
which had a carrying value of $1.3 million. The borrower was offered a
discount to prepay the loan at the $1.2 million level and obtained the
refinancing funds from another bank.
Hospitality industry loans remaining on nonaccrual status as of June 30, 1994
include two loans secured by properties located in Colonial Heights, Virginia
and Pennsylvania, both of which are operating in bankruptcy. Such loans were
also on nonaccrual status as of June 30, 1993 and 1992. One is a participation
loan in the amount of $1.7 million, which was current at June 30, 1994, in
which the Company owns a $1.3 million interest in subordinated deeds of
trust on two hotel properties in Pennsylvania. The borrower placed these
properties in bankruptcy in May 1992. According to recent appraisals, these
properties have a combined value of more than $9.0 million. Since the
Company's loan is subordinated to only $3.4 million of prior liens, no loss of
principal is anticipated. The Company has filed suit against two individual
guarantors of this loan but no prediction can be made as to the ultimate
outcome of such action. Adequate protection payments are being made monthly
to the Company until the borrower's Chapter 11 Plan of Reorganization is
approved. The other hospitality loan classified as nonaccrual status at June
30, 1994 totaled $1.1 million and is secured by a property located in
Colonial Heights, Virginia. The property is operating in bankruptcy
with the Company receiving adequate protection payments, which were current as
of June 30, 1994. The property has been listed for sale for more than one
year, with no success. If the borrower fails to make any of the required
payments within 20 days of the due date, the Company will be automatically
entitled to relief from the stay to proceed with foreclosure. The
Company is currently working with the borrower to negotiate a payment plan
which can be supported by the operations of the property and anticipates a
plan will be in place in the first quarter of fiscal 1995.
In May 1993, the FASB issued Statement of Financial Accounting Standards
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), which
requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A loan
is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all principal and interest
amounts due according to the contractual terms of the loan agreement. SFAS
114 applies to financial statements for fiscal years beginning after
December 15, 1994, and is not expected to have a material effect on the
financial condition of the Company based on current accounting guidance.
In a related matter, in August 1993, the Office of Thrift Supervision
("OTS") issued Regulatory Bulletin 31, "Classification of Assets", which
incorporates the OTS's policy on the classification of troubled,
collateral-dependent loans. Effective September 1993, OTS's policy for
troubled, collateral-dependent loans (where proceeds for repayment can be
expected to come only from the operation and sale of the collateral) is as
follows:
(bullet) For a loan where it is probable that the lender will be unable to
collect all amounts due (both principal and interest) according to the
original contractual terms, any excess of the recorded investment in
the loan over its fair value should be classified Loss and the
remainder should generally be classified Substandard.
(bullet) For a troubled, collateral-dependent loan (whether or not
restructured) where, based on current information it is probable, but
not reasonably assured, that the lender will be able to collect all
amounts due according to the original contractual terms, any excess of
the recorded investment in the loan over its value should be
classified Doubtful and the remainder should generally be classified
Substandard.
For loans restructured before March 31, 1994, the evaluation for
probability of collection may be based on the collectibility of principal
and interest under the restructured contractual terms. For all
restructured loans, including loans modified before and after March 31,
1994, that become impaired after modification, the measurement of value is
based on the same standard discussed above.
OTS does not allow savings associations to use general valuation allowances
to cover any amount considered to be a Loss under the above policy;
however, specific valuation allowances may be used in lieu of charge-offs.
The Bank experienced no material write-downs as the result of complying
with Regulatory Bulletin 31.
Real Estate Acquired in Settlement of Loans or In-substance Foreclosure
("REO")
REO levels decreased by $6.7 million or 94.0% from $7.2 million as of June
30, 1993 to $431,000 as of June 30, 1994. REO properties collateralized by
residential one-to-four family homes decreased by $365,000 during that time
as a result of the sale of thirteen properties at an aggregate loss of
$8,000 partially offset by the foreclosure of one residential property with
a carrying value of $39,000. Additionally, the Company has classified as in-
substance foreclosure six loans on residential properties made to one
investor, due to the lack of equity on the part of the owner. The Company is
in the process of restructuring the loans, requiring the borrower to make
necessary improvements to the properties so that operating income from the
properties can support the debt service. The only remaining property in REO
as of June 30, 1994 consisted of five residential building lots in a development
in Middlesex County, Virginia, near the town of Urbanna, with an aggregate
carrying value of $137,000.
The Company owned no REO secured by hospitality industry properties at June
30, 1994, compared with owning four properties with carrying values of $6.3
million at June 30, 1993.
During fiscal 1994, the Company sold three hotel properties and returned
one hotel property previously classified as an in-substance foreclosure to
accruing loan status. One property sold in March 1994 was a hotel located
in South Carolina, which had a carrying value of $3.1 million. The
property was sold for $3.1 million, with the Company providing financing of
$2.4 million at market rates and terms. The new loan has been placed on
accrual status. The second hotel property sold during March 1994 was a
small independent motel in Williamsburg, Virginia, with a carrying value of
$509,000. The property was sold for $560,000, with the Company providing
$475,000 in financing at market rates and terms. The new loan has been
placed on accrual status. The final hotel property sold in June 1994 had a
carrying value of $637,000 and was located in Illinois. The property was
sold for $600,000, with the Company providing financing of $200,000 for
improvements. Total losses on the sales of the three REO properties
recorded in fiscal 1994 were $191,000. The last hotel removed from REO was
an oceanfront property located in North Carolina with a carrying value of
$3.0 million. TideMark bought one of the participants' interest in the
loan at a discount and received a $1.0 million principal curtailment from
the borrower, reducing the loan balance to a level which can be supported
by the operations of the property. As a result, the loan was returned to
accruing status. Both the discount and the recovery of a previous
writedown on the property are being accreted to interest income using the
level yield method over the life of the loan.
Real Estate Held for Development or Resale
Real estate held for development or resale consists of two unimproved
properties owned by Newport News Service Corporation ("Service
Corporation"), the Bank's wholly-owned subsidiary, in Charlotte, North
Carolina, which are zoned for multi-family housing. These properties are
carried at values of $654,000 and $132,000, which represent their current
appraised values less selling costs. The $56,000 reduction in carrying
values between June 30, 1993 and June 30, 1994 represents an additional
loss allowance taken to write the properties down to their reduced sales
price. The market for these properties in Charlotte is improving, but
remains limited due to over construction in past years and as a result,
disposal of the properties cannot be anticipated in the near future. Due
to the limited expense of holding these properties, the Company has elected
to retain them until the market for such properties strengthens.
Equity Investment
The Company's only equity investment consists of the Service Corporation's
limited partnership interest in a time-share development located in
Williamsburg, Virginia in which the managing partner filed for Chapter 11
bankruptcy in October 1990. The managing partner's reorganization plan
received final approval from the bankruptcy judge in August 1992 and the
Company anticipates that the equity investment will be dissolved during the
first quarter of fiscal 1995. In accordance with the plan, the Company
will exchange its partnership interest for a note and common stock from the
managing partner. See Note 11 to the Notes to Consolidated Financial
Statements for a further discussion of this equity investment.
Troubled Debt Restructurings
Troubled debt restructurings ("TDR's") totaled $7.5 million at June 30,
1994, compared to $6.5 million at June 30, 1993. The $1.0 million increase
during fiscal 1994 was the result of additional restructuring of a hotel
loan which was also included in restructured loans as of June 30, 1993,
along with the addition of one hotel loan during fiscal 1994.
The loan listed as restructured at both June 30, 1993 and 1994 is a
relationship secured by a hotel in Richmond, Virginia. The loan has
been modified several times over the past three years in an effort to
improve the collateral position of the Company and the ability of the
property to service the debt from operations. During fiscal 1994, the
Company offered the borrower a discount to encourage infusion of cash to
reduce the outstanding balance of the note to $5.4 million, which was
accomplished in June, 1994. As a result of the restructuring, two related
collateral notes were released and the Company now carries one adjustable-
rate loan of $5.4 million, secured by the hotel having an estimated fair
value of $6.1 million.
Based on the hotel's historical ability to service the debt at this
level, the Bank has deleted the loan from its classified assets and expects
to remove it from nonperforming loan status at the end of fiscal 1995,
assuming satisfactory performance under the restructured terms. The
remaining loan classified as restructured during fiscal 1994 totaled $2.1
million and is secured by a hotel property in Virginia Beach, Virginia.
The loan is discussed in "Nonaccrual Loans," which precedes this section.
Although carried as nonaccrual or restructured loans, many of the loans
listed in the nonperforming assets table are earning income. The table
below provides additional information as to the nonaccrual and restructured
loans.
Book Contractual
June 30, 1994 Balance Balance
(Dollars in thousands)
Contractually past due with
Limited performance $2,516 $2,516
No performance 1,608 1,658
Contractually current, however
Payment in full of principal or
interest in doubt 7,5497,549
Total $11,673 $11,723
Asset Classification
In addition to rating loans according to their performance, the Bank has
adopted a policy concerning the classification of problem assets pursuant
to applicable OTS regulations. Under the policy, problem loans and other
assets are classified into three categories: (i) substandard, (ii) doubtful
and (iii) loss.
An asset is classified "substandard" if it is determined to involve a
distinct possibility that the Bank could sustain some loss if deficiencies
associated with the loan are not corrected. An asset is classified as
"doubtful" if full collection is highly questionable or improbable. An
asset is classified as "loss" if it is considered uncollectible, even if a
partial recovery could be expected in the future. While nonperforming status
indicates a current problem with a loan, the classification process
encompasses a much broader review, including current and potential credit
or collateral weaknesses. The following table details information concerning
the Bank's classified assets, net of specific allowances for losses, at June
30, 1994 and June 30, 1993. Included in classified assets below are
all nonperforming assets previously discussed. All such nonperforming assets
were classified as substandard as of June 30, 1994 with the exception of the
Service Corporation's investment in the Williamsburg time-share of $782,000
and consumer loans more than 120 days delinquent aggregating $30,000, which
assets were classified as doubtful.
The following table represents TideMark's classified assets as of June 30,
1994 and 1993.
<TABLE>
June 30, 1994 June 30, 1993
Substandard Doubtful Loss Total Substandard Doubtful Loss Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable
Residential $ 826 $--- $--- $ 826 $418 $--- $--- $ 418
Multi-family 578 --- --- 578 --- --- --- ---
Hospitality Industry 13,629 --- --- 13,629 15,822 --- --- 15,822
Other Commercial 181 --- --- 181 182 --- --- 182
Consumer 172 30 --- 202 103 104 --- 207
15,386 30 --- 15,416 16,525 104 --- 16,629
REO
Residential 431 --- --- 431 796 --- --- 796
Hospitality Industry --- --- --- --- 6,344 --- --- 6,344
Other Commercial --- --- --- --- 38 --- --- 38
431 --- --- 431 7,178 --- --- 7,178
Real estate
held for development 786 --- --- 786 865 --- --- 865
Equity investment --- 782 --- 782 --- 782 --- 782
Total classified assets $16,603 $812 $ --- $17,415 $24,568 $886 $--- $25,454
% of total assets 4.29% .21% --- 4.50% 6.47% 0.23% --- 6.70%
</TABLE>
Total classified assets decreased by $8.0 million or 31.6% to $17.4 million
as of June 30, 1994 from $25.5 million as of June 30, 1993. This decrease
substantially mirrors the changes in nonperforming assets and reflects the
effects of the substantial decrease in REO
As of June 30, 1994 assets classified substandard totaled $16.6 million;
of this total, $5.3 million were nonperforming and were discussed in the
previous section. The remaining significant performing loans
classified as substandard are discussed below.
One hospitality loan classified substandard relates to a loan on a hotel
property located in North Carolina with a carrying value of $1.8 million.
Renovations to improve the hotel's condition to franchise standards were
substantially complete and the loan was current as of June 30, 1994. Due to
the lack of experienced management and timely financial information, the
Bank has continued to classify the loan. Management estimates that this loan
is carried at its fair value.
The second loan classified substandard relates to a loan on a hotel
property located in Florida which has a carrying value of $1.8 million and
is classified due to both poor operating performance of the hotel and the
need for maintenance and furniture replacement. A hotel in North Carolina
with a carrying value of $645,000 is also classified because it is cross-
collateralized with this property. Management estimates that the loans are
carried at fair value. As of June 30, 1994 these loans were 60 days and 30
days delinquent, respectively.
Another hotel loan classified as substandard is secured by a former
REO property located in Richmond, Virginia which has a carrying value
of $1.0 million. The loan was modified in December 1992 and extended for
six months in February 1994, allowing the owner to make needed capital
improvements in exchange for a short term reduction in interest rate. The
owner has substantially completed the improvements needed to meet franchise
requirements and is attempting to sell the property. The loan was current
in accordance with the modified terms as of June 30, 1994.
Added to substandard classification in fiscal 1994 was one relationship
consisting of three loans which are cross-collateralized and secured by
hotel properties located in eastern Virginia, which have a carrying value
of $5.4 million. The loans were restructured in December 1992, with the
Bank receiving additional collateral property and were current under their
restructured terms at June 30, 1994. While cash flows from operations are
sufficient to cover the debt service on two of the properties, the
remaining property has a deficiency which must be supported by cash flows
from other properties. Due to the cross-collateralization of the loans,
the entire relationship has been classified as substandard. The loans were
current as of June 30, 1994.
While levels of nonperforming and classified assets remain a concern,
management continues to deal with the problem credits aggressively,
assess their fair values realistically and provide specific allowances
where indicated. In addition to addressing known problem assets within the
loan portfolio, management reviews delinquency trends and certain
concentrations of loans quarterly and performs regular financial reviews
and inspections of operating properties securing loans.
The following graph shows trends in nonperforming and classified assets,
net of specific allowances, for the past five years as well as the level of
total capital plus general allowances compared to total problem assets:
Trends in Capital and General Allowances, Nonperforming
Assets and Classified Assets
(Dollars in thousands)
[graph as defined by the following data points:]
CLASSIFIED ASSETS $37,818 $23,723 $25,960 $25,454 $17,415
NONPERFORMING ASSETS $30,416 $21,497 $24,827 $20,888 $13,672
CAPITAL PLUS GENERAL
ALLOWANCE $12,746 $13,697 $20,462 $22,032 $22,405
Financial Condition
A financial institution's primary sources of revenue are generated by its
interest-earning assets, while its major expenses are produced by the
interest-bearing liabilities which fund those assets. Effective management
of those sources and uses of funds is essential in attaining a financial
institution's maximum profitability while maintaining acceptable levels of
credit and interest-rate risk.
In fiscal 1994, average earning assets grew to $346.6 million, a 2.7%
increase over fiscal 1993. Average deposits, the primary source of funds
supporting earning assets, increased 8.6% over fiscal 1993 levels to $226.0
million at June 30, 1994.
Consolidated assets of TideMark grew 1.8% from June 30, 1993 to $386.6
million as of June 30, 1994. The following graph shows major changes in
the asset profile of the Company at June 30, 1994 and 1993 and the
discussion which follows focuses on changes in interest-earning assets and
interest-bearing liabilities.
ASSET PROFILE
(Dollars in thousands)
[graph as defined by the following data points]
1994 1993
Loans $173,922 $205,280
Investments $28,198 $18,814
Other Assets $23,582 $22,222
MBS $159,657 $125,213
REO & Equity Investments $1,217 $8,043
Securities
The investment and mortgage-backed securities portfolios play a primary role
in the management of interest rate sensitivity of TideMark and generate
substantial interest income. In addition, the portfolios serve as a source of
liquidity and are used as needed to meet collateral requirements. The
decision to purchase securities is based upon an assessment of economic
conditions, TideMark's liquidity position and the interest rate environment.
These conditions are subject to unexpected changes and, as a result,
restructuring the composition of the portfolios may be appropriate. Trading
Account Assets
Trading account assets are those which are held principally for the purpose
of selling them in the near term. As of June 30, 1994, trading account
assets totaled $2.0 million and consisted of three mortgage-backed
securities pools arising from the securitization of loans originated for
resale.
Assets Available for Sale
Assets available for sale at June 30, 1994 totaled $76.4 million, an
increase of $68.7 million over the June 1993 levels of $7.8 million and
included $19.7 million of securities and $56.7 million of mortgage-related
securities. The objective of the securities portfolios is to complement
TideMark's asset/liability position while offering a balanced rate of
return with attention to liquidity needs for funding future loan growth.
As a result, the growth of the securities portfolio available for sale was
blended between fixed and variable-rate short to intermediate-term U.S.
Treasury and government agency securities. Mortgage-related securities
available for sale consist primarily of adjustable-rate U.S. Government
agency securities with expected average lives of three to five years and
certain short-term collateralized mortgage obligations with average lives
of less than two years. These securities are liquid assets that carry
little or no credit risk and should have a favorable impact on interest
rate sensitivity and margin. Due to the lifting of regulatory lending
restrictions with respect to the Company in fiscal 1992 and hiring of new
commercial lending personnel, it is expected that the importance and level
of mortgage-backed securities in the future will decline as new loan
activity becomes the predominant means for reinvesting proceeds from loan
principal reductions and repayments. On July 1, 1993 the Company adopted
Statement of Financial Accounting Standard No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). It expands the
use of fair value accounting but retains the use of the amortized cost
method for investments in debt securities that the Company has the positive
intent and ability to hold to maturity. Under SFAS 115, investments are
classified in three categories based on the Company's current intent. The
Company has reclassified substantially all of its investment securities as
available for sale. Such securities are reported on a fair value basis,
with unrealized gains and losses excluded from earnings but reported as a
separate component of stockholders' equity. See Note 3 of the Notes to
Consolidated Financial Statements.
Investment Securities
No securities were identified as held to maturity as of June 30, 1994.
Investment securities totaling $8.8 million as of June 30, 1993 were
transferred to the available for sale classification upon the adoption of
SFAS No. 115, as discussed above.
Mortgage-backed Securities
The Company's level of mortgage-backed and mortgage-related securities held
to maturity totaled $103.0 million as of June 30, 1994, a decline of $22.2
million from prior year levels of $125.2 million. The decrease was
primarily attributable to the reclassification of certain securities as
available for sale, as described above. Additionally, during the first
half of fiscal 1994, significant prepayment activity was experienced on the
assets underlying the Company's portfolio of mortgage-related securities,
causing yields to decline. Increasing market interest rates during the
last quarter of fiscal 1994 have resulted in lower prepayments;
consequently, yields on these investments have returned to anticipated
levels.
REO
Real estate as of June 30, 1994 totaled $1.2 million, a decline of $6.8
million or 84.5% from the June 30, 1993 level of $8.0 million. For
additional information concerning REO, please refer to Note 9 of the Notes
to Consolidated Financial Statements as well as "Asset Quality".
Lending
TideMark's lending activities for the fiscal year ended June 30, 1994
focused on the origination of one-to-four family residential mortgage
loans, construction loans, commercial real estate and business loans to
businesses in its market area and consumer loans consisting primarily of
home equity lines of credit, automobile and deposit loans.
Interest rates charged by the Company on loans are affected principally by
the demand for such loans and the supply of funds available for lending
purposes. These factors are in turn affected by general economic
conditions, monetary policies of the federal government, including the
Board of Governors of the Federal Reserve System ("Federal Reserve Board"),
legislative tax policies and governmental budgetary matters.
The following table sets forth information concerning the composition of
the Company's loan portfolio by type of loan at the dates indicated:
<TABLE>
As of June 30, 1994 1993 1992 1991 1990
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable
Real estate mortgage loans
Residential - one-to-four family $85,898 $104,175 $98,167 $126,833 $123,057
Residential - multi-family 2,560 6,567 6,790 3,336 3,089
Construction - one-to-four family 17,481 13,919 8,097 3,633 3,193
Commercial - existing property 55,416 48,731 55,970 56,692 67,495
Commercial - construction 1,425 1,526 --- --- ---
Loans to facilitate sale of REO 6,263 8,230 8,222 10,630 4,796
169,043 183,148 177,246 201,124 201,630
Less Loans in process (11,522) (9,654) (3,568) (1,054) (1,690)
Deferred fees and discounts (818) (872) (734) (1,410) (703)
Allowance for losses (4,395) (6,605) (6,629) (4,893) (4,654)
Net real estate mortgage loans 152,308 166,017 166,315 193,767 194,583
Commercial business loans 7,318 4,239 --- --- ---
Consumer loans 19,166 15,047 14,141 11,973 18,518
Less Loans in process (7,957) (4,756) (2,584) (121) ---
Unearned income (21) (37) (288) (753) (2,334)
Allowance for losses (223) (191) (558) (645) (631)
Net consumer loans 10,965 10,063 10,711 10,454 15,553
Net loans receivable $170,591 $180,319 $177,026 $204,221 $210,136
</TABLE>
Origination, Purchase and Sale of Loans
The following table shows the Company's lending activity during the periods
indicated:
Fiscal Year Ended June 30, 1994 1993 1992 1991 1990
(Dollars in thousands)
Net loans receivable and
loans held for sale,
beginning of year $205,280 $197,926 $221,038 $210,136 $289,155
Loans originated
Residential real estate 90,731 155,082 103,479 107,087 62,973
Commercial real estate 15,973 2,312 110 --- 400
Construction 15,012 21,533 10,222 --- 1,000
Commercial business 7,192 1,613 679 --- ---
Consumer 11,801 8,901 7,102 4,775 14,388
Total loans originated 140,709 189,441 121,592 111,862 78,761
Loans purchased
Residential real estate --- --- --- 643 163
Commercial real estate 1,628 --- --- --- ---
Total loans purchased 1,628 --- --- 643 163
Loans sold 20,037 15,690 61,894 71,538 19,137
Securitization of mortgage
loans 89,771 114,194 38,357 --- 27,212
Loan principal repayments 63,511 50,478 37,764 24,015 94,712
Provision for losses on loans 83 65 1,200 1,895 9,436
Reclassification as real
estate owned 293 1,660 5,489 4,155 7,446
Total loan repayments, sales
and allowance for losses 173,695 182,087 144,704 101,603 157,943
Net increase (decrease) in
balances (31,358) 7,354 (23,112) 10,902 (79,019)
Net loans receivable and
loans held for sale, end
of year $173,922 $205,280 $197,926 $221,038 $210,136
Real Estate Lending - Residential
Residential one-to-four family loans decreased by $18.3 million or 17.5%
from fiscal year end 1993 to $85.9 million as of June 30, 1994 and
comprised 50.8% of the total real estate mortgage loan portfolio.
Exclusive of the securitization of $24.0 million of adjustable-rate loans
during the first quarter of fiscal 1994, residential mortgage loan balances
grew by $5.7 million, or 5.49% from June 1993 levels. Residential loan
growth was generally the result of retaining certain loans (primarily ARMs)
originated by the mortgage division in the Company's portfolio, offset by
increased levels of prepayments during the first half of fiscal 1994, which
were the result of declining market interest rates. During fiscal 1994,
TideMark originated $90.7 million of mortgage loans on single-family
residential properties, compared with $155.1 million during fiscal 1993.
Of that amount, $18.9 million were retained for the Bank's portfolio during
fiscal 1994. Loan principal repayments reduced the loan portfolio by
$63.5 million for the fiscal year ended June 30, 1994, compared to $50.5
million for fiscal 1993.
The primary lending activity of TideMark has been granting loans to enable
borrowers to purchase existing homes, refinance existing home loans or
construct new homes located in its primary market areas. Residential loans
originated generally fall in three categories:
(bullet) Loans which are insured by the Federal Housing Authority ("FHA")
or partially guaranteed by the Department of Veteran's Affairs
("VA"). These loans are originated through the mortgage
division's loan origination offices and are generally sold in the
secondary market to a variety of private investors after being
packaged into securities guaranteed by the Government National
Mortgage Association ("GNMA");
(bullet) Conforming conventional loans, which are loans with principal
balances of less than $203,150, which are not guaranteed by a
government agency. These loans may be held in the Company's loan
portfolio or sold in the secondary market to such investors as the
Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"); and
(bullet) Nonconforming conventional loans, which are loans with balances
greater than $203,150 for which there is no ready market for sale.
These loans are either held by the Company in its portfolio
and have adjustable rates of interest or fixed rates of interest
with terms of 15 years or less, or are sold to investors on an
individual loan basis.
The Company currently offers both fixed-rate and adjustable-rate mortgage
loans. Of the residential mortgage loans, 25.7% were invested in fixed-
rate mortgage loans and 74.3% were invested in ARMs, with terms from 15 to
30 years. The ARMs currently offered by the Company have up to 30-year
terms and interest rates which adjust periodically based upon changes in an
index of United States Treasury securities published by the Federal Reserve
Board or the monthly weighted average cost of funds for the Eleventh
District Savings Institutions plus a margin. Currently, the amount of any
increase or decrease in the interest rate is limited to 2% per year and
generally has a 6% lifetime cap based on the initial interest rate of the
loans. Some of these loans can be converted to fixed-rate loans.
The Company does not offer ARM loans that contain provisions permitting
negative amortization. ARM loans generally decrease the Company's exposure
to interest-rate risk arising from increases in prevailing interest rates
but create other potential risks for the Company in a steadily rising
interest rate environment. If general interest rates were to rise steadily
over several years, interest rates on the Company's ARM portfolio could
reach fully indexed levels and the resulting higher mortgage payments for
the Company's borrowers could increase the potential for loan defaults.
The Company requires appraisals on all property securing first mortgage
loans. The Company has specific appraisal guidelines for use by appraisers
evaluating real property securing residential mortgage loans made by the
Company. The Company's policy is also to obtain a physical survey and a
title insurance policy on all residential first mortgage loans. Borrowers
must obtain paid hazard insurance policies before closing as well as paid
flood insurance policies when the real property that secures the loan is
located in a designated flood plain. In addition to the monthly payment of
principal and interest, borrowers are generally required to pay on a
monthly basis money sufficient to fund a mortgage escrow account from which
the Company makes disbursements for items such as real estate taxes and
hazard and flood insurance.
The Company's policy is generally to make residential mortgage loans in
amounts up to 80% of the appraised value of the real property securing the
loan where such properties are to be occupied by the borrower and up to 75%
of the appraised value of the real property securing the loan where the
property will not be occupied by the borrower. When the loan-to-value
ratio for a residential mortgage loan exceeds these amounts, the Company
requires the borrower to purchase private mortgage insurance to secure
further the repayment of the loan.
The Company has established written, non-discriminatory loan origination
and underwriting policies for residential mortgage loans. Before making a
residential mortgage loan, the Company assesses the applicant's ability to
repay the loan and the value of the property securing the loan. Loans must
be approved at various levels of management depending on the amount of the
loan.
The Company sells substantially all government insured or guaranteed loans
originated by the mortgage division and may from time to time sell other
loans from its portfolio to fund additional loan production as well as to
meet the objectives of the Company's asset/liability management policies.
The Company's residential loans are sold both to private investors, as well
as to FNMA, FHLMC and GNMA in pools of loans, which are exchanged for an
equal amount of their participation certificates ("PCs"). During fiscal
1994, TideMark securitized $89.8 million of loans, of which $76.3 million
were sold, compared to $114.6 million securitized and sold during fiscal
1993. Securitizing and selling loans to the various agencies increases the
liquidity of TideMark's loan portfolio and reduces its credit exposure. In
these transactions, TideMark retains a negotiated yield on the loans or
participation interests sold or exchanged. In addition, these types of
loans may be used as collateral for borrowings or to secure local devel-
opment bonds.
In certain instances, purchasers of loans sold by TideMark may have
recourse against the Company for a specified period of time, generally
ranging from 30 days to one year if, among other factors, the loan sold
does not perform in accordance with its terms. At June 30, 1994, under such
recourse arrangements, which generally require the Company to repur- chase
loans sold, the Company had exposure with respect to $5.5 million of recourse
liabilities. The Company attempts to minimize the potential for recourse
against it by selling to institutions which either do not require recourse or
which require it for shorter periods of time. During fiscal 1994, the
mortgage division sold $20.0 million of residential mort- gage loans.
Construction Lending
The Company has an active construction lending program, which consists
primarily of one-to-four family residential properties being constructed by
established builders. These loans are generally originated for
individual home buyers for the construction of their primary residence or
are originated under lines of credit established for builders based upon
their financial strength and secured by the property under construction.
Most of the homes are pre-sold to borrowers who have been prequalified for
permanent financing. The Company's residential construction loans have
floating rates and are indexed to the prime interest rate. Construction
loans are generally for a term of six to nine months with advances made on
a percentage of completion basis. A limited number of residential land
acquisition and development loans have been approved during 1994 and the
Company plans to continue to provide such financing on a limited basis in
the future.
The Company also makes loans for the construction of business facilities
and other nonresidential projects if the borrower will occupy or use the
property in connection with its normal business operations. The Company
will also consider making such nonresidential construction loans to
borrowers for other purposes if those borrowers have a strong financial
condition and present a substantial business opportunity for the Company.
Commercial construction loans may be for longer terms, but generally do not
exceed 18 months and have interest rates indexed to the prime rate. The
Company may also provide the permanent financing upon completion of the
construction loan.
Construction loans for nonresidential projects and multi-unit residential
projects are generally larger and involve a greater degree of risk to the
Company than residential mortgage loans. The Company attempts to minimize
such risks by making construction loans in accordance with the Company's
underwriting standards to customers in its primary market area, by monitor-
ing the quality, progress and cost of construction and by obtaining the
personal guarantees of the borrower. The maximum loan-to-value established by
the Company for nonresidential projects and multi-unit residential
projects is 75%. At June 30, 1994, $18.9 million, or 11.0%, of the
Company's total net loans held for investment were construction loans, of
which $11.5 million remained to be disbursed. Of these construction loans,
all but $1.4 million were for residences.
Commercial Real Estate
One of TideMark's primary lending focuses is on commercial and mortgage
loans to small and medium-sized businesses in its local market area.
During the last three years, the Bank has hired four commercial account
officers who are dedicated to this function. Loan originations for com-
mercial real estate loans totaled $16.0 million in fiscal 1994, compared to
$2.3 million in fiscal 1993. Prior to fiscal 1990, multi-family
residential and commercial real estate loans, including construction loans,
had been emphasized in order to shorten the average maturity of the
Company's loan portfolio, generate increased fee income and increase the
loan portfolio yield. The majority of the Company's multi-family
residential and commercial real estate loans are secured by properties
located in Virginia, although the Company has, prior to fiscal 1988,
originated and purchased participations in such loans secured by properties
in several states, including Florida, Georgia, North Carolina and Texas.
The majority of the Company's commercial real estate loans are secured by
hospitality industry properties. See Note 20 of the Notes to Consolidated
Financial Statements, "Concentration of Credit Risk". The Company is no
longer involved in commercial real estate lending out of its local market
area, except in loan workout situations. For information with respect to
possible loss exposure on such loans, see "Asset Quality".
At June 30, 1994, commercial real estate and construction loans, including
loans made to facilitate the sale of REO properties, totaled $61.7 million
or 36.2% of gross loans receivable compared to $57.0 million at June 30,
1993. The majority of the loans in the portfolio were made in the late
1980's on income-producing properties such as hotels and motels,
condominiums, apartment buildings and shopping centers.
Commercial real estate lending entails significant additional risks
compared with residential property lending. Commercial real estate loans
typically involve large balances to single borrowers or groups of related
borrowers and the payment experience on such loans is typically dependent on
the successful operation of the real estate project. To lessen the risks
associated with commercial lending, the Company has established
strict lending guidelines which detail the limits under which such
loans will be originated. In addition, the Company has established a Loan
Administration Department which reviews loan originations to ensure that the
Company's underwriting standards have been followed and credit risk has been
assessed in accordance with such standards. All loan relationships in excess
of $250,000 require approval by a committee comprised of senior credit and
executive officers of the Bank. All loan relationships in excess of
$750,000 require approval by the Bank's Executive Loan Committee which
consists of executive officers of the Bank as well as outside Directors, and
any loan relationship exceeding $1.5 million requires approval by the full
Board of Directors. Under FIRREA, the aggregate amount of loans secured by
non-residential real estate which can be maintained by a savings association
such as the Company may not exceed 400% of total capital. At June 30, 1994,
the Company's commercial real estate and construction loans, including loans
made in connection with the sale of REO properties, totaled $63.1 million, or
approximately 338.6% of capital.
FIRREA mandated new loans-to-one-borrower limits for savings associations,
generally equal to 15% of the Bank's unimpaired capital and surplus. At
June 30, 1994, the largest amount the Bank could lend to one borrower under
the 15% standard was approximately $3.3 million. At such date, three
relationships exceeded the Bank's loans-to-one-borrower limitations, with
loans aggregating $15.8 million. However, all of such loans were
originated prior to the enactment of FIRREA. Loans and extensions of credit
committed to prior to enactment of FIRREA are grandfathered; however, the
Bank continues its efforts to reduce those loan balances to within
allowable limits. Management does not believe the loans-to-one-borrower
limit has had or will have a substantial impact on the Bank with respect to
loan originations to new customers, but the limitation will affect certain
historical lending relationships with borrowers. As to such borrowers, the
Bank could be obliged to sell existing loans, enter into participation
agreements (without recourse), or not enter into any additional loans
pending reduction of outstanding loan balances with such borrowers before
making any new loans or other extensions of credit.
As discussed above, the Company originated numerous loans secured by hotel
and motel properties in the late 1980's, many of which have required that
significant loss allowances be established. At June 30, 1994 and 1993,
the Company had $42.0 million and $49.6 million, respectively, in permanent
loans secured by hospitality industry properties. Due to the significant
risks involved and the losses incurred by the Company in past years
related to these loans, in 1989, TideMark imposed a moratorium on any new
loans to projects in the hospitality industry. Other than loans to
facilitate the sale of REO and refinancings of existing loans, the Company has
made no new loan commitments with respect to the hospitality industry since
its imposition of the moratorium and it has no present intention to resume
this type of lending.
Commercial Business Lending
The objective of the Company's commercial business lending program is to
make commercial business loans available, consistent with the Company's
underwriting policies and procedures, as an additional service to existing
and prospective business customers. The types of commercial business loan
products offered by the Company include short-term general business loans,
commercial lines of credit, secured commercial loans, letters of credit and
other commercial loans. As of June 30, 1994 and 1993, the Company
had a total of $7.3 million and $4.2 million, respectively, of
commercial business loans.
Consumer Lending
The Company offers a variety of consumer loans, including home equity and
second mortgage loans and other consumer loans, which include automobile
loans, personal loans (secured and unsecured) and loans secured by deposit
accounts. The Company offers consumer loans to its customers as part of its
consumer and small business banking strategy and because the shorter terms
and generally higher interest rates on such loans help the Company
maintain a profitable spread between its average loan yield and its average cost
of funds. The Company's underwriting standards for consumer loans include
detailed, written loan applications, a determination of the applicant's
payment history on other debts and an assessment of the borrower's
ability to meet existing obligations and payments on the pro- posed loan.
Home equity loans generally have terms of five to fifteen years and
interest rates ranging from 7.25% to 9.5%. The home equity lines of credit
may require a minimum initial disbursement of $10,000 when the Company
funds the closing costs and are a revolving credit facility to the bor-
rower. The loans have a five-year term, but are subject to annual credit
reviews and annual renewals at the option of the lender. The interest
rates on these loans are tied to the prime rate and therefore float with
any changes in general interest rate levels. The new and used car
financing currently provided by the Company ranges in terms of 24 to 60
months with interest rates ranging between 8.50% and 10.00% depending on
the length of the loan, the amount of funds borrowed and the age of the
automobile. The interest rate on deposit account loans is typically 3.0%
above the rate paid on the underlying deposit account and adjusts if the
rate on the deposit account changes. Such loans are generally made for up
to 90% of the amount in the deposit account, with interest accrued monthly.
At June 30, 1994, $19.2 million or 11.23% of TideMark's loan portfolio
consisted of consumer loans, compared to $15.0 million as of June 30, 1993.
Although the Company has not experienced significant difficulties, outside
the activities of Community Finance Company ("CFC"), a former subsidiary of
the Bank, related to consumer lending, such loans typically involve more
credit risk than mortgage loans because of the type or lack of collateral.
In addition, consumer lending collections are dependent on the borrower's
continuing financial stability and, thus, are more likely to be adversely
affected by job loss, marital status, illness or personal bankruptcy.
Loan and Mortgage-backed Securities Portfolios Maturities
The following table sets forth the contractual maturities of the loan and
mortgage-backed securities portfolios of TideMark as of June 30, 1994, by
type of loan and type of interest rate. Adjustable, variable-rate and
fixed-rate loans, net of undisbursed proceeds, are shown in the period in
which they are contractually due.
<TABLE>
Principal
Balance at Contractual Maturities as of June 30,
June 30, 1998- 2000- 2005 and
1994 1995 1996 1997 1999 2004 thereafter
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Residential loans $90,682 $ 6,042 $ 750 $ 305 $ 1,319 $ 5,607 $ 76,659
Commercial loans 70,969 18,723 6,520 4,202 7,663 11,736 22,125
Mortgage-backed
securities 161,209 --- --- 258 4,166 38,571 118,214
Consumer loans 14,397 4,150 1,781 2,757 3,998 1,195 516
Total $337,257 $28,915 $9,051 $7,522 $17,146 $57,109 $217,514
Fixed-rate
Residential loans $ 23,347 $ 269 $ 44 $ 285 $ 831 $ 3,306 $ 18,612
Commercial loans 32,844 6,840 2,024 1,359 2,622 8,357 11,642
Mortgage-backed
securities 113,648 --- --- 258 4,166 38,571 70,653
Consumer loans 6,590 1,420 508 1,151 2,051 1,195 265
Total fixed-rate 176,429 8,529 2,576 3,053 9,670 51,429 101,172
Adjustable and
variable-rate
Residential loans 67,335 5,773 706 20 488 2,301 58,047
Commercial loans 38,125 11,883 4,496 2,843 5,041 3,379 10,483
Mortgage-backed
securities 47,561 --- --- --- --- --- 47,561
Consumer loans 7,807 2,730 1,273 1,606 1,947 --- 251
Total adjustable
and variable-rate 160,828 20,386 6,475 4,469 7,476 5,680 116,342
Total $337,257 $28,915 $9,051 $7,522 $17,146 $57,109 $217,514
</TABLE>
Contractual maturities of loans do not necessarily reflect the actual term
of the Company's loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments
and because of enforcement of due-on-sale clauses giving the Company the
right to declare a loan immediately due and payable in the event that the
borrower sells the real property subject to the mortgage. The average life of
mortgage loans tends to increase when current mortgage loan rates
substantially exceed rates on existing mortgage loans and conversely, decrease
when rates on existing mortgage loans substantially exceed current mortgage
loan rates. The effect of this can be seen in the high level of
residential mortgage loan repayments experienced by the Company during
fiscal years ended June 30, 1994 and 1993.
Liabilities and Stockholders' Equity
The Company's primary funding sources include deposits, capital, borrowings
from the FHLB and other sources, including securities sold under agreements
to repurchase.
The following chart shows the major components of the Company's liabilities
and equity as of June 30, 1994 and 1993:
LIABILITIES AND EQUITY PROFILE
(Dollars in thousands)
[graph as defined by the following data points:]
1994 1993
Time Deposits $146,534 $143,305
Other Liabilities $4,103 $5,782
Transaction Accounts $86,191 $76,019
Borrowings $131,111 $136,402
Equity $18,637 $18,064
Deposits
The most effective way for a retail banking institution to maximize net
interest income without undue credit or interest-rate risk is to use retail
liabilities, such as savings, checking and demand deposit accounts, to fund
its retail and commercial lending operations. As such, TideMark's business
plan emphasizes growth in core deposit relationships which tend to be more
stable and relatively less expensive funds. Sustained deposit growth is
necessary to support growth in earning assets and also represents the
foundation on which additional business relationships are based.
The following table shows the distribution and weighted average rate of the
Company's deposits by type of deposit as of the dates indicated:
<TABLE>
As of June 30, 1994 1993 1992
(Dollars in thousands) % of Average % of Average % of Average
Type of Account Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $10,365 4.45% ---% $ 9,777 4.46% ---% $ 5,519 2.63% ---%
NOW accounts 12,114 5.21 2.34 13,856 6.32 2.10 12,647 6.03 3.68
Money market
deposits 41,022 17.63 3.17 33,381 15.22 3.74 14,380 6.86 3.98
Savings deposits 22,690 9.75 2.92 19,005 8.66 3.08 18,889 9.01 4.03
Time deposits 146,534 62.96 4.72 143,305 65.34 5.05 158,228 75.47 6.10
Total deposits
and weighted
average rates $232,725 100.00% 3.94% $219,324 100.00% 4.27% $209,663 100.00% 5.46%
</TABLE>
Total deposits rose by $13.4 million, or 6.1%, during fiscal 1994 to a
level of $232.7 million as of June 30, 1994, following growth of $9.7
million or 4.6% in deposits for fiscal 1993. Several factors contributed
to the growth including retail deposits from a new branch office opened
during fiscal 1993, growth in small business checking accounts generated
through the efforts of TideMark's commercial officers and a money market
deposit promotion offering designed to compete aggressively with money
funds. Noninterest bearing demand deposits grew by $588,000 from fiscal
year end 1993 to $10.4 million at June 30, 1994. This followed an increase
of $4.3 million during the prior year. While growth in small business and
organization checking accounts, which comprise a large percentage of the
demand deposit accounts, is difficult to achieve quickly, the programs
developed and officers hired during the past three fiscal years are having
a positive impact on the level of demand accounts.
Money market deposit accounts grew by $7.6 million during fiscal 1994 to a
level of $41.0 million, following an increase of $19.0 million during
fiscal 1993. This increase was the result of declining rates for much of
fiscal 1994 and the related response by consumers to shorten maturities and
increase liquidity, along with a special promotion offered during the
fourth quarter of fiscal 1993. In response to rising interest rates,
Tidemark offered a promotion during the last quarter of fiscal 1994 to
entice customers to move certain funds into intermediate-term certificates of
deposit. The $3.2 million, or 2.3%, increase in certificates of deposit ("CDs")
during fiscal 1994, while modest, is evidence of the beginning movement by
customers of funds back into intermediate-term CDs, as rates have begun to
rise.
TideMark competes for deposits not only with other savings institutions,
but also with commercial banks, the bond and stock markets and non-bank
financial service providers, including money market funds and credit
unions. Deposits are obtained primarily from residents of the communities
in the Company's market area. TideMark has increased its deposit and
customer base during the year through new products, innovative marketing
techniques, competitive interest rates and quality customer service;
however, the competition among the various financial institutions and
consumer awareness and desire for a higher return on their funds have
effectively increased the relative cost of the deposits.
The Company also offers large denomination certificates ("Jumbo
Certificates"), which have balances of $99,000 or more. Large denomination
certificates are sold to existing customers, both individual and corporate,
and the demand for such funds depends upon the customer's varying financing
needs and also reflects the previously mentioned shifting of deposits to
shorter, more liquid products. As a result, the interest rates are based
upon market competition for these funds. As of June 30, 1994, the Company
had $33.1 million in Jumbo certificates, an increase of $8.0 million
compared to the June 30, 1993 level. Jumbo certificates have been allowed
to grow during fiscal 1994 in anticipation of the funding needs which may
be required to complete the sale of TideMark's Kilmarnock branch, which is
currently anticipated to be consummated during fiscal 1995. See Note 22 of
Notes to Consolidated Financial Statements.
The following table sets forth the deposit account activity for the years
indicated:
For Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Total deposits at beginning
of year $219,324 $209,663 $227,662
Deposit increase (decrease)
before interest credited 7,146 2,386 (29,889)
Interest credited 6,255 7,275 11,890
Net increase (decrease)
in deposits 13,401 9,661 (17,999)
Total deposits at end
of year $232,725 $219,324 $209,663
Borrowings
While it is generally preferable to fund assets with core deposits,
borrowings such as reverse repurchase agreements and FHLB advances are an
accessible source of moderately priced funds and are an important part of
TideMark's asset/liability management program. As of June 30, 1994, the
Company had $58.1 million in reverse repurchase agreements and other short- term
borrowings, an increase of $509,000 from prior year levels. In addition
FHLB advances totaled $73.0 million at June 30, 1994, compared to $78.8 million
at June 30, 1993. The decreased borrowing requirements of the Company were
the result of the growth in deposits, offset in part by growth in assets.
TideMark borrows funds on both a short-term and long- term basis, depending
upon the funding needs of the Company, market conditions and the
availability of other funding sources (primarily deposits). The balance between
short- and long-term borrowings is monitored on an ongoing basis by the
Asset and Liability Management Committee as described in
"Asset/Liability Management."
The following table sets forth certain information regarding the short-term
borrowings (borrowings with a remaining maturity of one year or less) of
TideMark during the years indicated. The Company also had long-term
borrowings totaling $11.0 million and $36.4 million at June 30, 1994 and
1993, respectively. The weighted average interest rate during fiscal 1994
on short-term FHLB advances was decreased by the payoff of two 11.95%
advances totaling $9.8 million which matured in the first quarter of fiscal
1994.
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Securities sold under agreements to
repurchase identical securities
Average daily balance outstanding $26,845 $51,125 $44,483
Maximum amount outstanding at any
month-end during the year $47,917 $65,603 $76,526
Weighted average interest rate during
the year 3.37% 3.42% 4.94%
Securities sold under agreements to
repurchase substantially identical
securities
Average daily balance outstanding $14,477 --- ---
Maximum amount outstanding at any
month-end during the year $32,823 --- ---
Weighted average interest rate during
the year 3.00% --- ---
Short-term FHLB advances
Average daily balance outstanding $59,727 $17,933 $12,317
Maximum amount outstanding at any
month-end during the year $68,000 $42,800 $25,400
Weighted average interest rate during
the year 4.96% 8.98% 7.04%
Total average short-term borrowings $101,049 $69,058 $56,800
Weighted average interest rate on total
average short-term borrowings 4.25% 4.86% 5.40%
Total short-term borrowings at end of year $119,566 $100,015 $57,764
Stockholders' Equity
Stockholders' equity provides a source of permanent
funding, allows for future growth and provides the Company a cushion to
withstand unforeseen, adverse developments. At June 30, 1994, stockholders'
equity totaled $18.6 million, an increase of $573,000 from the previous fiscal
year-end level of $18.1 million. Stockholders' equity at June 30, 1994
contained a writedown of $752,000 required to reduce the carrying
value of assets classified as available for sale to their current market
prices, as required by SFAS No. 115. See "Assets Available for Sale."
Book value per share was $2.69. Consolidated equity of the Company included
$23,000 attributable to the parent company, which is not a component of
TideMark Bank's regulatory capital.
At June 30, 1994, TideMark Bank was in compliance with all current
regulatory capital ratio requirements of the OTS, with a tangible ratio of
4.58%, a core capital ratio of 4.61% and a risk-based capital ratio of
10.79%. These compared to regulatory requirements of 1.5%, 3.0% and 8.0%,
respectively.
Under current requirements, the regulatory capital requirements must be
fully phased in at January 1, 1995. At that time the Bank's investment in
its service corporations and equity investments will be eliminated as a
component of core and total capital. TideMark Bank's capital ratios as of
June 30, 1994 exceed the fully phased-in 1995 required levels. See
Note 18 of the Notes to Consolidated Financial Statements for a discussion
of the capital rules.
The Bank is subject to certain operating restrictions as imposed by a
supervisory agreement with the OTS. These restrictions are discussed more
fully in Note 18 of the Notes to Consolidated Financial Statements. As a
result of the losses incurred during the fourth quarter of fiscal 1988, the
payment of dividends was suspended. The payment and amount of future
dividends will be determined by the Board of Directors of the Company,
based upon the results of operations and financial condition of TideMark,
economic conditions at the time of declaration and regulatory restrictions.
The following graph shows TideMark Bank's regulatory capital position as of
June 30, 1994, along with its regulatory requirements:
REGULATORY CAPITAL
(Dollars in thousands)
[graph as defined by the following data points]
ACTUAL $17,658 $17,756 $20,070
REQUIREMENT $5,782 $11,566 $14,887
Asset/Liability Management
The objective of TideMark's Asset/Liability Management Committee ("ALCO")
is to direct management in the acquisition and deployment of funds in order
to optimize the Company's net interest income within the constraints of
interest rate sensitivity, liquidity and capital adequacy. The ALCO
monitors the Company's exposure to interest-rate risk using a third-party
simulation model which is well recognized in the industry. The ALCO then
develops strategies to attain profitability and performance goals under
various interest rate scenarios.
Interest rate sensitivity is a function of the repricing characteristics of
the Company's portfolio of assets and liabilities --- the time and extent
to which interest-earning assets and interest-bearing liabilities mature or
are subject to changes in interest rates.
Due to the low interest rate environment which has existed since fiscal
1991 and continued through the first half of fiscal 1994, many of the
Company's deposit customers have opted for shorter term certificates of
deposit with maturities of two years or less or money market accounts which
allow for immediate withdrawal. During fiscal years 1993 and 1994, the
Company was successful in attracting primary checking accounts which are
typically less sensitive to interest rate movements. As interest rates
moved upward toward the end of fiscal 1994, the Company began a promotion
designed to entice customers into intermediate-term CDs, in an attempt to
reduce its exposure to continued interest rate increases.
To better match their funding sources, proceeds from repayments and
prepayments of the Company's loans and mortgage-backed securities during
fiscal 1994 were reinvested in mortgage-backed securities with estimated
average lives of one to three years.
To the extent that liabilities reprice more quickly than assets within a
given time period, an institution is said to be "negatively gapped".
Conversely, a "positive gap" indicates a situation where assets reprice
more quickly than liabili- ties. TideMark has maintained a negative one year
gap over the last three years and has benefited from the general decline in
interest rates. To minimize the risks associated with rising interest rates,
the Company began a program two years ago of systematically reducing its
exposure to such shifts in interest rates through the use of interest-rate
caps and swaps and longer term borrowings. During fiscal 1994, the Company
purchased five interest-rate caps with notional amounts totaling $25.0 million.
Interest-rate agreements, including interest-rate swaps and caps, obligate
two parties to exchange one or more payments calculated with reference to
fixed or periodically reset rates of interest applied to a specified
notional principal amount. Notional principal is the amount upon which
interest rates are applied to determine the payment streams under interest-
rate agreements. Such notional principal amounts often are used to express
the volume of these transactions but are not actually exchanged between the
counterparties. Interest-rate swaps obligate each party to make periodic
payments based upon a contractually fixed or periodically reset rate of
interest. Interest- rate caps obligate a contract "seller" to make pay-
ments to the Company in the event a designated interest rate index exceeds
a contractual "ceiling" level. As of June 30, 1994 the Company had entered
into $45.0 million of interest-rate caps to reduce its exposure to
increases in market rates of interest.
Interest-Rate Sensitivity
The following table displays the distribution of TideMark's interest-
earning assets and interest-bearing liabilities at June 30, 1994, maturing
or repricing over various time periods, adjusted for estimated loan
prepayments, deposit decay and for the effect of its interest-rate caps:
<TABLE>
<CAPTION>
Maturity/Rate Sensitivity at June 30, 1994
0-6 7-12 1-3 3-5 More than 5
Months Months Years Years Years Total
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning
assets $104,795 $91,879 $75,413 $50,766 $53,406 $376,259
Interest-bearing
liabilities 202,204 62,251 58,381 24,586 15,951 363,373
(Deficiency) excess of
interest-earning assets
over interest-bearing
liabilities (97,409) 29,628 17,032 26,180 37,455 12,886
Effect of interest-
rate caps and
exchange
agreements (1) 45,000 --- (30,000) (15,000) --- ---
Adjusted GAP (52,409) 29,628 (12,968) 11,180 37,455 12,866
Cumulative adjusted GAP $ (52,409) $(22,781) $(35,749) $(24,569) $12,886 ---
Cumulative adjusted GAP as
a percent of total assets (13.6)% (5.9)% (9.2)% (6.4)% 3.33% ---
</TABLE>
(1) Interest-rate caps are included at 100% of their
notional amounts. The strike rates or the rates at
which the index (three-month London Interbank Offering
Rate, "LIBOR") must exceed before the Company would be
entitled to interest payments range from 5.0% to 6.5%.
As of June 30, 1994, the three-month LIBOR was 4.8125%.
Liquidity
Liquidity represents TideMark's ability to provide adequate funding sources
for loan growth as well as unforeseen transactional requirements affecting
the asset and liability structure of the balance sheet. The standard
measure of liquidity in the thrift industry is the ratio of cash and
eligible investments, as defined by regulation, to the sum of net
withdrawable deposits and borrowings due within one year.
All savings associations are required to maintain an average daily balance of
liquid assets equal to a certain percentage of the sum of its average
daily balance of net withdrawable deposit accounts and borrowings payable in
one year or less. The liquidity requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and deposit flows of
all savings associations. At the present time, the required liquid asset
ratio is 5%. Short-term liquid assets currently must constitute at least 1%
of an association's average daily balance of net withdrawable deposit
accounts and current borrowings. Monetary penalties may be imposed upon
associations for violations of liquidity requirements.
TideMark Bank, as a component of its overall asset and liability management
strategy, maintains qualifying liquid assets at levels which exceed
regulatory requirements. At June 30, 1994 and 1993, the Bank's average
liquidity ratios were 5.1% and 6.8%, respectively.
The Company's primary sources of funds are customer deposits, loan and
mortgage-backed security principal repayments and sales, advances from the
FHLB, reverse repurchase agreements, net interest income and cash generated
from operations. While these sources are expected to continue to be
available to provide funds in the future, the mix and availability of funds
will depend upon future economic and market conditions. TideMark does not
foresee any difficulty in meeting its liquidity requirements.
Mortgage-backed security principal repayments totaled $45.1 million during
fiscal 1994, representing an increase of $23.6 million compared to fiscal
1993. The increase was primarily attributable to a general decline in
the levels of interest rates which resulted in a significant increase
in the volume of customer refinances during early parts of the year.
Sales of one-to-four family mortgage loans and mortgage-backed securities
arising from the securitization of mortgage loans totaled $84.5 million in
fiscal 1994, compared to $129.9 million sold in fiscal 1993. The decreased
level of sales recorded during fiscal 1994 was generally due to waning
demand for single-family loan refinancings in the increasing interest rate
environment experienced during the later half of the fiscal year.
Customer deposits increased $13.4 million, or 6.1%, from fiscal 1993 levels
to $232.7 million at June 30, 1994.
The Company borrows funds in a variety of ways including reverse repurchase
agreements which generally range in maturities from overnight to 90 days.
The total amount borrowed by reverse repurchase agreements was $58.1
million at June 30, 1994, compared to $57.6 million at the end of fiscal
1993.
During fiscal 1994, the Company decreased its borrowings from the FHLB by
$5.8 million. The Company utilizes this borrowing source to provide
operational liquidity and to assist in funding its level of mortgage-backed
security investments as well as loan originations.
Stockholders' equity increased $573,000 to $18.6 million at June 30, 1994.
This level of stockholders' equity represented 4.8% of total assets at June
30, 1994.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in
historical dollars without considering changes in the relative purchasing
power of money over time due to inflation.
TideMark has an asset and liability structure that is essentially monetary
in nature. As a result, interest rates have a more significant impact on
the Company's performance than the effects of general levels of inflation.
Periods of high inflation are often accompanied by relatively higher
interest rates and periods of low inflation are accompanied by relatively
lower interest rates. As market interest rates rise or fall in relation to
the rates earned on TideMark's loans and investments, the value of these
assets decreases or increases, respectively.
<PAGE>
[Tidemark Logo]
1994 Consolidated Financial Statements
Statement of Management's Responsibility
TideMark Bancorp, Inc. is responsible for the preparation, integrity and
fair presentation of its published financial statements. The financial
statements, presented on pages 43 to 74, have been prepared in accordance
with generally accepted accounting principles and, as such, include amounts
based on judgments and estimates made by management. The Company also
prepared the other information included in the annual report and is
responsible for its accuracy and consistency with the financial statements.
The financial statements have been audited by the independent accounting
firm, Coopers & Lybrand, L.L.P., which was given unrestricted access to all
financial records and related data, including minutes of all meetings of
stockholders, the board of directors and committees of the board. The
Company believes that all representations made to the independent auditors
during their audit were valid and appropriate. Coopers & Lybrand, L.L.P.'s
audit report is presented on page 75.
The Company maintains a system of internal control over financial
reporting, which is designed to provide reasonable assurance to the
Company's management and board of directors regarding the preparation of
reliable published financial statements. The system includes a documented
organizational structure and division of responsibility, established
policies and procedures including a code of conduct to foster a strong
ethical climate, which are communicated throughout the Company, and the
careful selection, training and development of our people. Internal
auditors monitor the operation of the internal control system and report
findings and recommendations to management and the board of directors, and
corrective actions are taken to address control deficiencies and other
opportunities for improving the system as they are identified. The board,
operating through its audit committee, which is composed of directors who
are not officers or employees of the Company, provides oversight to the
financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even an effective
internal control system can provide only reasonable assurance with respect
to financial statement preparation. Furthermore, the effectiveness of an
internal control system can change with circumstances.
The Company continually evaluates its internal control system in relation
to criteria for effective internal control over financial reporting
described in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The
Company believes that its system of internal control over financial
reporting met those criteria.
Robert N. Springer
President and Chief Executive Officer
TideMark Bancorp, Inc. and TideMark Bank
Pamela B. Lawson, C.P.A.
Executive Vice President and Chief Financial Officer
TideMark Bancorp, Inc. and TideMark Bank
Johnny G. Evans, C.P.A.
First Vice President and Controller
TideMark Bank
TideMark Bancorp, Inc.
Consolidated Statements of Financial Condition
As of June 30, 1994 1993
(Dollars in thousands, except per share amounts)
Assets
Cash $ 5,843 $ 3,650
Interest-bearing deposits in other banks 6,479 2,200
Trading account assets (cost $2,141) 1,997 ---
Assets available for sale
Securities (cost 1994 - $20,080 and fair value
1993 - $7,852) 19,722 7,765
Mortgage-backed securities (cost 1994 - $57,056) 56,705 ---
Loans held for sale (cost 1994 - $3,406 and fair
value 1993 - $25,387) 3,331 24,961
Investment securities (fair value 1993 - $9,280) --- 8,849
Mortgage-backed securities (fair value 1994 -
$99,471 and 1993 - $126,559) 102,952 125,213
Loans receivable 170,591 180,319
Accrued interest receivable 2,304 2,133
Real estate 1,217 8,043
Premises and equipment 3,954 3,652
Federal Home Loan Bank stock, at cost 4,606 4,426
Other assets 6,875 8,361
Total assets $386,576 $379,572
Liabilities
Deposits $232,725 $219,324
Advances from Federal Home Loan Bank 73,000 78,800
Securities sold under agreements to
repurchase and other borrowings 58,111 57,602
Advance payments by borrowers for
taxes and insurance 493 774
Other liabilities 3,610 5,008
Total liabilities 367,939 361,508
Stockholders' Equity
Common stock, $0.01 par value;
authorized 20,000,000 shares;
issued and outstanding 6,931,321
shares 69 69
Preferred stock, $0.01 par value;
authorized 5,000,000 shares; no
shares issued or outstanding --- ---
Additional paid-in capital 18,191 18,191
Retained earnings (deficit) 1,129 (196)
Net unrealized holding loss on
assets available for sale (752) ---
Total stockholders' equity 18,637 18,064
Commitments and contingencies
Total liabilities and
stockholders' equity $386,576 $379,572
See accompanying Notes to Consolidated Financial Statements.
TideMark Bancorp, Inc.
Consolidated Statements Of Operations
1994 1993 1992
Fiscal Year Ended June 30,
(Dollars in thousands, except per share amounts)
Interest Income
Loans $15,078 $17,576 $20,776
Mortgage-backed securities 7,456 7,037 6,505
Investment securities 1,128 1,028 944
Other 49 58 271
Total interest income 23,711 25,699 28,496
Interest Expense
Deposits 9,249 9,907 13,963
Advances from Federal Home Loan Bank 3,819 4,648 4,582
Reverse repurchase agreements and
other borrowings 1,918 2,343 2,276
Total interest expense 14,986 16,898 20,821
Net interest income 8,725 8,801 7,675
Provision for Losses on Loans 83 65 1,982
Net interest income after provision
for losses on loans 8,642 8,736 5,693
Other Income
Mortgage-banking gains 2,004 2,387 1,780
Loan fees and service charges 324 492 566
Loan servicing fees 558 197 587
Gains on sales of securities 1,079 207 1,995
Other 1,329 914 993
Total other income 5,294 4,197 5,921
Other Expense
Compensation and employee benefits 5,000 4,957 4,554
Occupancy and equipment 1,783 1,634 1,551
Federal deposit insurance premiums 660 510 507
Professional services 507 597 624
Provision for losses on real estate owned,
net of sales 810 425 374
Losses from real estate operations 1,014 801 453
Other 2,061 3,031 1,829
Total other expense 11,835 11,955 9,892
Income before income taxes,
extraordinary item and cumulative
effect of an accounting change 2,101 978 1,722
Provision for Income Taxes 776 389 747
Income before extraordinary item
and cumulative effect of an accounting change 1,325 589 975
Extraordinary item - Reduction of income taxes
arising from the carryforward of prior years'
net operating losses --- --- 590
Cumulative effect of change in accounting for
income taxes --- 2,027 ---
Net Income $1,325 $2,616 $1,565
Earnings Per Share
Earnings before extraordinary item and
cumulative effect of accounting
change $ 0.19 $ 0.09 $ 0.25
Extraordinary item --- --- 0.15
Cumulative effect of accounting change --- 0.29 ---
Net Earnings Per Share $ 0.19 $0.38 $0.40
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
TideMark Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Net Unrealized
Additional Retained Holding Loss Total
Common Paid-In Earnings on Assets Stockholders'
Stock Capital (Deficit) Available for Sale Equity
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance as of June 30, 1991 $1,380 $11,620 $(4,377) $--- $8,623
Issuance of common stock 5,551 (291) --- --- 5,260
Net income for the year ended
June 30, 1992 --- --- 1,565 --- 1,565
Balance as of June 30, 1992 6,931 11,329 (2,812) --- 15,448
Net income for the year ended
June 30, 1993 --- --- 2,616 --- 2,616
Change in par value of common
stock of Holding Company (6,862) 6,862 --- --- ---
Balance as of June 30, 1993 69 18,191 (196) --- 18,064
Net income for the year ended
June 30, 1994 --- --- 1,325 --- 1,325
Net unrealized holding loss on
assets available for
sale at July 1, 1993 --- --- --- 436 436
Change in net unrealized holding
loss on assets available for sale --- --- --- (1,188) (1,188)
Balance as of June 30, 1994 $ 69 $18,191 $1,129 $(752) $18,637
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
TideMark Bancorp, Inc.
Consolidated Statements of Cash Flows
1994 1993 1992
<S> <C> <C> <C>
Fiscal Year Ended June 30,
(Dollars in thousands)
Operating Activities
Net income $1,325 $2,616 $1,565
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Provision for losses on loans 83 65 1,982
Provision for losses on real estate owned 810 425 374
Depreciation 453 446 417
Amortization of premiums on investments 1,353 379 20
Amortization of intangible assets 582 578 358
Amortization of deferred loan fees (292) (82) (187)
Market value adjustment on trading account assets
and loans held for sale 219 --- ---
Mortgage-banking activities
Proceeds from sales of loans held for sale 20,545 15,690 50,012
Realized gains from sales of loans held for sale (862) (1,787) (987)
Loan originations (67,932) (133,626) (91,954)
Proceeds from sales of mortgage-backed securities
arising from securitization of mortgage loans 63,955 114,194 35,484
Principal payments on loans held for sale 428 --- ---
Gains on sales of trading account assets (18) --- ---
Purchase of trading account assets (4,004) --- ---
Proceeds from sales of trading account assets 4,023 --- ---
(Gains) losses on sales of mortgage-backed
securities --- 69 (1,976)
Gains on sales of mortgage-backed securities
available for sale (1,045) --- ---
Losses on disposal of premises and equipment 8 24 43
Gains on sales of mortgage servicing rights (1,360) (1,336) ---
Gains on sales of investment securities
available for sale (16) (276) (19)
Decrease (increase) in interest receivable (171) 645 278
Decrease (increase) in income tax receivable 1,004 (2,794) 2,127
Increase in other assets (373) (956) (484)
Increase (decrease) in other liabilities (128) 1,662 (5,773)
Increase (decrease) in deferred income 184 883 (197)
(Income) loss from equity investment and joint
ventures --- (5) 774
Equity investment in joint ventures (6) --- ---
Federal Home Loan Bank stock dividend (180) (256) (287)
Net cash provided by (used in) operating
activities 18,585 (3,442) (8,430)
Investing Activities
Loan principal repayments (originations)
net of originations (repayments) (2,779) (1,512) 7,421
Loans purchased (1,628) --- ---
Proceeds from sales of mortgage loans --- 573 12,869
Purchases of securities held for sale --- (2,797) (17,823)
Proceeds from sales of investment securities
available for sale 5,423 --- ---
Purchase of investment securities available
for sale (9,272) --- ---
Purchases of mortgage-backed securities
available for sale (57,005) --- ---
Proceeds from sales of mortgage-backed
securities available for sale 53,262 19,987 2,019
Principal repayments on mortgage-backed
securities available for sale 29,842 --- ---
Purchases of investment securities --- (7,923) (17,996)
Principal repayments on investment securities 287 149 ---
Proceeds from maturity of investment securities --- --- 18,000
Purchases of mortgage-backed securities held
to maturity (53,033) (55,591) (70,454)
Principal repayments on mortgage-backed
securities held to maturity 15,280 21,555 12,486
Balances carried forward $(19,623) $(25,559) $(53,478)
</TABLE>
<TABLE>
TideMark Bancorp, Inc.
Consolidated Statements of Cash Flows (Continued)
1994 1993 1992
<S> <C> <C> <C>
Fiscal Year Ended June 30,
(Dollars in thousands)
Balances brought forward $(19,623) $(25,559) $(53,478)
Purchase of mortgage servicing rights (810) --- ---
Proceeds from sales of mortgage servicing rights 1,625 990 ---
Proceeds from sales of mortgage-backed securities --- 5,955 55,636
Additions to real estate owned (1,623) (430) (262)
Proceeds from sales of real estate 1,191 1,527 2,475
Purchases of premises and equipment (769) (862) (366)
Proceeds from sales of equipment 6 --- ---
Proceeds from sale of branch offices and
equipment 61 11 15
Net capital withdrawals from real estate joint
ventures --- 29 ---
Net cash provided by (used in) investing
activities (19,942) (18,339) 4,020
Financing Activities
Net increase in non-time deposits 10,172 24,584 14,375
Net increase (decrease) in time deposits 3,229 (14,923) (32,374)
Repayments of Federal Home Loan Bank advances (57,800) (6,000) (40,400)
Proceeds from Federal Home Loan Bank advances 52,000 12,000 50,000
Net increase in securities sold under
agreements to repurchase and other borrowings 509 4,890 3,311
Decrease in advance payments by borrowers
for taxes and insurance (281) (151) (675)
Proceeds from issuance of common stock --- --- 5,260
Net cash provided by (used in) financing
activities 7,829 20,400 (503)
Increase (decrease) in cash and cash equivalents 6,472 (1,381) (4,913)
Cash and cash equivalents at beginning of year 5,850 7,2311 2,144
Cash and cash equivalents at end of year $ 12,322 $5,850 $7,231
Supplemental Schedules and Cash Flow Information
Cash and cash equivalents include
Cash $ 5,843 $3,650 $4,884
Interest-bearing deposits in other banks 6,479 2,200 2,347
$12,322 $5,850 $7,231
Supplemental disclosures of cash flow information
Cash paid for interest $15,391 $16,752 $21,334
Cash paid for income taxes 3 --- 171
Schedule of noncash operating activities
Real estate acquired in settlement of loans,
net of allowances $ 293 $ 1,660 $ 5,489
Securitization of mortgage loans 89,771 109,966 38,357
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
TideMark Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of TideMark Bancorp, Inc., a thrift
holding company, ("TideMark" or "the Company") and TideMark Bank ("the
Bank") and subsidiaries (formerly known as Newport News Savings Bank)
conform to generally accepted accounting principles within the industry.
The following is a summary of the more significant accounting policies
which the Company follows:
(a) Principles of Consolidation The accompanying consolidated
financial statements include the accounts of TideMark Bancorp, Inc. and
TideMark Bank and its wholly-owned subsidiaries, Newport News Service
Corporation ("NNSC") and Dominion Motor Inns, Inc. ("DMI"). The
subsidiaries are engaged in real estate development and ownership and a
real estate joint venture. All significant intercompany transactions and
balances have been eliminated in the consolidation.
Both NNSC and DMI have investments in general and limited real estate joint
ventures which are accounted for by the equity method.
(b) Trading Account Assets, Assets Available for Sale, and
Assets Held to Maturity Upon adoption of Statement of Financial Accounting
Standards No. 115 ("SFAS 115") Accounting for Certain Investments in Debt
and Equity Securities, effective July 1, 1993, the Company classifies its
debt and equity securities into one of three categories: held-to-maturity,
available-for-sale or trading.
Debt securities are classified as held-to-maturity when the Company has a
positive intent and ability to hold them to maturity and are carried at
cost, adjusted for amortization of premiums and accretion of discounts,
both computed by the level yield method.
Debt and equity securities that are held principally for the purpose of
selling in the near term, reflecting frequent purchases and sales, and
mortgage-backed securities that are held for sale in conjunction with
mortgage banking activities are classified as trading securities. These
securities are carried at their fair value in the Consolidated Statements
of Financial Condition with the net unrealized holding gains and losses
included in earnings.
Debt, equity and mortgage-backed securities that are not classified as
held-to-maturity or trading are classified as available-for-sale
securities. These securities are carried at their fair value and the net
unrealized holding gains and losses are reported net of applicable income
taxes as a separate component of stockholders' equity.
Prior to the adoption of SFAS 115, investment securities and mortgage-
backed securities were classified as held for sale if it was management's
intent to sell the securities in the foreseeable future. These securities
were carried at the lower of aggregate cost or fair value. When these
securities were sold, gains and losses were recognized on the specific
identification method. Investment securities and mortgage-backed
securities that were not held for sale were classified as investments if it
was management's intent and the Company had the ability to hold them to
maturity. Such securities were carried at cost, adjusted for amortization
of premiums and accretion of discounts, both computed by the level yield
method. Mortgage-backed securities created through the mortgage-banking
operations of the Company were classified as held for sale and carried at
the lower of aggregate cost or market.
(c) Loans Held for Sale Loans which are expected to be sold in
the foreseeable future have been classified as "held for sale" in the
Consolidated Statements of Financial Condition and are recorded at the
lower of aggregate cost or market value. Adjustments necessary to record
these assets at the lower of aggregate cost or market value are included in
mortgage-banking gains.
The Company hedges a portion of its interest-rate risk on mortgage
commitments that are expected to close and on the inventory of mortgage
loans held for sale through a combination of mandatory forward contracts
and options. Hedging gains and losses are recognized when the related
loans are sold.
(d) Loans Receivable Loans receivable held for investment
purposes are stated at cost, adjusted for amortization of premiums and
accretion of discounts, both computed by the level yield method. Interest
on loans is computed using methods which generally result in level rates of
return on principal amounts outstanding. It is management's practice to
cease accruing interest on commercial and real estate loans when payments
are 90 days delinquent. However, management may elect to continue the
accrual of interest when the estimated fair value of collateral is
sufficient to cover the principal balance and accrued interest and the loan
is in the process of collection.
For those loans on which the accrual of interest is discontinued, the
accrued interest for the current period is reversed from the Consolidated
Statements of Operations.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and generally amortized as an adjustment of the related
loan's yield over the contractual life of the related loans.
(e) Allowance for Losses on Loans The allowance for losses on
loans is maintained to absorb possible future losses, net of recoveries,
inherent in the existing loan portfolio. The provision for estimated
losses on loans is the periodic cost of maintaining an adequate allowance.
In evaluating the adequacy of the allowance for losses on loans, management
takes into consideration the following factors: the condition of
industries and geographic areas experiencing or expected to experience
particular economic adversities; historical charge-off and recovery
activity (noting any particular trend changes over recent periods); trends
in asset classifications, delinquencies, bankruptcies and non-performing
loans; trends in loan volume and size of credit risks; any irrevocable
commitments to extend funds; the degree of risk inherent in the composition
of the loan portfolio; current and anticipated economic conditions; credit
evaluations; underwriting policies; and the liquidity and volatility of the
markets in which the Company does business.
(f) Real Estate Owned Properties acquired through foreclosure
or deed-in-lieu of foreclosure and properties classified as in-substance
foreclosure are recorded at fair value less estimated selling costs as of
the foreclosure or reclassification date, as provided by independent
appraisals. Costs related to the development of the real estate are
capitalized. Capitalizable costs in excess of the estimated fair value of
the property and net costs related to holding the asset are expensed.
Subsequent to foreclosure, management continues to monitor the valuation of
the assets and an allowance for losses is established by a charge to
earnings if the carrying value of the assets exceeds their estimated fair
value less estimated selling costs.
Loans secured by property on which there is an indication that the borrower
no longer has the ability to repay the loan and it is doubtful that equity
will be rebuilt are classified as in-substance foreclosures.
(g) Premises and Equipment Premises and equipment are carried
at cost, less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets ranging from 3 to 30 years or, for leasehold
improvements, over the shorter of the estimated life of the asset or the
lease term.
(h) Securities Sold under Agreements to Repurchase The
Company enters into sales of securities under agreements to repurchase
which are treated as financings. The obligations to repurchase the
securities sold are reflected as a liability in the consolidated statements
of financial condition while the securities underlying the agreements
remain as an asset.
(i) Loan Sales Gains and losses on sales of loans are
determined by the difference between the selling price and carrying amount
of the loans sold, adjusted by the present value of estimated future
interest collections in excess of future interest payments to investors and
an allowance for servicing revenues if servicing is retained.
(j) Purchased Mortgage Servicing Rights Purchased mortgage
servicing rights ("PMSR") represent the cost of acquiring the right to
service mortgage loans. These costs are initially capitalized and
subsequently amortized in proportion to, and over the period of, estimated
net loan servicing income. In accordance with Statement of Financial
Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities," the Bank capitalizes PMSR in connection with loans and loan
servicing rights purchased.
(k) Income Taxes TideMark files a consolidated federal income
tax return with its subsidiaries. The provision for federal income taxes
is based upon earnings reported for financial statement purposes rather
than amounts reported on the Company's tax returns.The Company's policy is
to claim the maximum bad debt deduction allowed using the experience method
of computing the bad debt deduction. Deferred income taxes for fiscal 1992,
which resulted from timing differences in the recognition of income and
expense for financial statement and tax return purposes, are included in
the calculation of income tax expense. As of July 1, 1992, the Company
changed from the deferred method of accounting for income taxes to the
asset and liability method, and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1993
Consolidated Statement of Operations. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(l) Interest-rate Swaps and Caps Net interest received (paid)
on contracts that qualify as hedges is recognized over the life of the
contract as an adjustment to interest income (expense) of the hedged
financial instrument.
(m) Earnings per Share Earnings per share of common stock was
based on the weighted average number of shares outstanding during the
periods presented, a total of 6,931,321 shares for fiscal years ended June
30, 1994 and 1993 and 3,912,980 shares for fiscal year ended June 30, 1992.
Earnings per share would not be materially diluted by the outstanding stock
options granted pursuant to the Employee Compensatory Stock Option Plan.
(n) Statement of Cash Flows For purposes of reporting cash
flows, cash and cash equivalents include cash, interest-bearing deposits
and federal funds sold.
(o) Reclassifications Prior years' financial statements have
been reclassified to conform with any changes in current financial
statement presentation.
(p) New Pronouncements In May 1993, the FASB issued Statement
of Financial Accounting Standards 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS 114"), which requires that impaired loans be
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. SFAS 114 applies to
financial statements for fiscal years beginning after December 15, 1994,
and based on current accounting guidance is not expected to have a material
effect on the financial condition of the Company.
Note 2 - Trading Account Assets
As described in Note 1, the Company adopted SFAS 115 on July 1, 1993 and
classified its debt and equity securities into one of three categories -
trading, available for sale or held to maturity.
Trading account assets at June 30, 1994 consist of:
<TABLE>
Gross Gross
Unrealized Unrealized
Amortized Market Holding Holding Average
June 30, 1994 Cost Value Gains Losses Yield
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
GNMA $1,383 $1,288 $--- $(95) 7.10%
FNMA 758 709 --- (49) 6.92%
$2,141 $1,997 $--- $(144) 6.98%
</TABLE>
Sales of trading account assets for the year ended June 30, 1994 resulted
in realized gains of $19,000.
Gross unrealized holding losses on trading account assets in the amount of
$144,000 are included in the Consoldiated Statements of Operations for the
fiscal year ended June 30, 1994.
Note 3 - Assets Available for Sale
At the time of adoption of SFAS 115, the Company transferred approximately
$8.8 million of securities held for investment to securities available for
sale, thereby increasing the securities available for sale to $16.6
million. These securities had a market value of approximately $17.1
million with net unrealized holding gains of $322,000, net of applicable
income taxes of $197,000, at the time of the transfer.
Securities available for sale consist of the following:
<TABLE>
Gross Gross
Unrealized Unrealized
Amortized Market Holding Holding Average
June 30, 1994 Cost Value Gains Losses Yield
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
U.S. Government and Agency securities
Due within one year $4,000 $4,074 $ 74 $ --- 8.60%
Due after one year through five years 3,081 2,976 --- (105) 5.34%
Due after five years through ten years 1,993 1,920 --- (73) 6.05%
Corporate notes and other securities
Due within one year 2,999 3,022 23 --- 8.27%
Due after one year through five years 732 729 --- (3) 4.54%
FHLMC preferred stock -
callable by issuer June 1997 7,275 7,001 --- (274) 5.89%
$20,080 $19,722 $ 97 $(455) 6.67%
June 30, 1993
U.S. Government and Agency securities
Due after one year through five years $4,001 $4,031 $ 30 $ --- 4.22%
Corporate notes and other securities
Due after one year through five years 3,764 3,821 57 --- 6.21%
$7,765 $7,852 $ 87 $ --- 5.97%
</TABLE>
Proceeds from sales of securities available for sale for the year ended
June 30, 1994 totaled $5.4 million with realized gains of $28,000 and
realized losses of $12,000. For the year ended June 30, 1993, proceeds
from sales of securities held for sale totaled $20.0 million with realized
gains of $282,000 and realized losses of $6,000. No securities identified
as being held for sale were sold during the fiscal year ended June 30,
1992. At June 30, 1994, net unrealized holding losses on securities
available for sale of $222,000, net of applicable income taxes of $136,000,
are included in stockholders' equity.
The securities described above were neither pledged nor otherwise
encumbered as of June 30, 1994.
On July 1, 1993, the Company also transferred approximately $72.3 million
from mortgage-backed securities held for investment to mortgage-backed
securities available for sale. The securities had a fair value of
approximately $72.5 million with net unrealized holding gains of $114,000,
net of applicable income taxes of $69,000, at the time of transfer.
Following is a summary of the Company's mortgage-backed securities
available for sale:
<TABLE>
Gross Gross
Unrealized Unrealized
Amortized Market Holding Holding Average
June 30, 1994 Cost Value Gains Losses Yield
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
FHLMC $14,274 $14,145 $ 20 $(149) 5.98%
GNMA 9,289 9,036 5 (258) 5.48%
FNMA 19,737 19,860 275 (152) 5.55%
Private Issuer Collateralized
Mortgage Obligations 13,756 13,664 14 (106) 5.59%
$57,056 $56,705 $314 $(665) 5.65%
</TABLE>
At June 30, 1994, net unrealized holding losses on mortgage-backed
securities available for sale of $218,000, net of applicable income taxes
of $133,000, are included in stockholders' equity.
Sales of mortgage-backed securities available for sale, including
securities arising from the origination of loans for resale, for the year
ended June 30, 1994 resulted in realized gains of $1.0 million and realized
losses of $5,000. No mortgage-backed securities classified as available
for sale were sold during fiscal years ended June 30, 1993 or 1992.
The amortized cost of the Company's mortgage-backed securities available
for sale at June 30, 1994 by maturity is as follows:
<TABLE>
1996- 2001- 2011 and
Maturing in Fiscal Year Ending June 30, 1995 2000 2010 Thereafter Total
<S> <C> <C> <C> <C> <C>
Amount in thousands $ --- $6,939 $12,014 $38,103 $57,056
Average Yield ---% 6.01% 5.32% 5.69% 5.65%
</TABLE>
Note 4 - Loans Held for Sale
At June 30, 1994 and 1993, the Company had $3.3 million and $25.0 million,
respectively, in loans classified as being held for sale. The loans
consisted of one-to-four family residential loans originated by the
mortgage banking division of the Bank. The loans had a market value of
approximately $3.3 million (cost of $3.4 million) and $25.4 million at June
30, 1994 and 1993, respectively.
Note 5 - Investment securities
No investment securities were classified as held to maturity at June 30,
1994. Investment securities held to maturity at June 30, 1993 consist of
the following:
<TABLE>
Gross Gross
Carrying Market Unrealized Unrealized
June 30, 1993 Value Value Gains Losses
<S> <C> <C> <C> <C>
(Dollars in thousands)
U.S. Government and Agency securities
Due after one year through five years $5,000 $5,271 $271 $---
Corporate notes and other securities
Due after one year through five years
(Issuer - Tennessee Valley Authority) 2,998 3,158 160 ---
Due after five years through ten years 851 851 --- ---
$8,849 $9,280 $431 $---
</TABLE>
The weighted average interest rate on investment securities was 7.65% at
June 30, 1993.
No investment securities were sold during fiscal years ended June 30, 1994
or 1993. Proceeds from sales of investment securities for the year ended
June 30, 1992 totaled $2.0 million with gross gains of $19,000.
Note 6 - Mortgage-backed Securities
The following is a summary of the Company's mortgage-backed securities
classified as held to maturity:
<TABLE>
Gross Gross
Unrealized Unrealized
Carrying Market Holding Holding Average
June 30, 1994 Value Value Gains Losses Yield
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
FHLMC $31,474 $30,302 $ 102 $(1,274) 6.23%
GNMA 17,478 17,497 28 (9) 7.60%
FNMA 40,480 38,247 10 (2,243) 5.93%
Resolution Trust Corporation 13,520 13,425 42 (137) 5.97%
$102,952 $99,471 $ 182 $(3,663) 6.31%
</TABLE>
<TABLE>
Gross Gross
Unrealized Unrealized
Carrying Market Holding Holding Average
June 30, 1993 Value Value Gains Losses Yield
<S>
(Dollars in thousands) <C> <C> <C> <C> <C>
FHLMC $55,921 $56,547 $ 804 $(178) 6.14%
GNMA 35,573 36,094 521 --- 5.47%
FNMA 11,118 11,118 51 (51) 5.29%
Resolution Trust Corporation 18,391 18,592 227 (26) 6.32%
Prudential-Bache CMO Trust 3,199 3,207 8 --- 5.63%
Other 1,011 1,001 --- (10) 7.59%
$125,213 $126,559 $1,611 $(265) 5.90%
</TABLE>
At June 30, 1994, $16.4 million of adjustable-rate mortgage-backed
securities were transferred at a market value of $15.9 million from
available for sale to held to maturity. Gross unrealized holding losses of
$312,000, net of applicable income taxes of $190,000, were written off as
of June 30, 1994 as a component of stockholders' equity, and will be
amortized as yield adjustments to the mortgage-backed securities.
Mortgage-backed securities with an amortized cost plus accrued interest
receivable of approximately $39.6 million at June 30, 1994 were pledged to
secure advances from the Federal Home Loan Bank of Atlanta. At that same
date, mortgage-backed securities with an amortized cost plus accrued
interest receivable of approximately $41.6 million had been sold under
agreements to repurchase and mortgage-backed securities with amortized cost
plus accrued interest receivable of approximately $19.5 million had been
sold under dollar reverse repurchase agreements.
There were no sales of mortgage-backed securities held to maturity during
the year ended June 30, 1994. Sales of mortgage-backed securities held for
investment for the year ended June 30, 1993 resulted in realized losses of
$69,000. Sales of mortgage-backed securities held for investment for the
year ended June 30, 1992 resulted in gross gains of $2.1 million and gross
losses of $153,000.
The carrying value of the Company's mortgage-backed securities held to
maturity at June 30, 1994 by maturity date is as follows:
<TABLE>
1996- 2001- 2011 and
Maturing in Fiscal Year Ending June 30, 1995 2000 2010 Thereafter Total
<S> <C> <C> <C> <C> <C>
Amount in thousands $ --- $2,528 $63,035 $37,389 $102,952
Average Yield ---% 5.35% 5.92% 7.02% 6.31%
</TABLE>
Note 7 - Loans Receivable
Loans receivable consist of the following:
As of June 30, 1994 1993
(Dollars in thousands)
Real estate loans
Residential
Existing property
One-to-four family $ 85,898 $104,175
Multi-family 2,560 6,567
Construction, one-to-four family 17,481 13,919
Commercial
Real estate 55,416 48,731
Construction 1,425 1,526
Loans to facilitate the sale of real estate owned 6,263 8,230
169,043 183,148
Less
Loans in process (11,522) (9,654)
Deferred fees and discounts (818) (872)
Allowance for losses (4,395) (6,605)
Net real estate loans 152,308 166,017
Commercial business loans 7,318 4,239
Consumer and other loans 19,166 15,047
Less
Loans in process and unused lines of credit (7,957) (4,756)
Unearned income (21) (37)
Allowance for losses (223) (191)
Net consumer loans 18,283 14,302
Net loans receivable $170,591 $180,319
The carrying value of loans on nonaccrual status, including troubled debt
restructurings, at June 30, 1994 totaled $11.7 million. The amount of
interest that was contractually due but not recognized because loans were
placed on nonaccrual status was $290,000. Loans are placed on nonaccrual
status when, in the judgment of management, the probability of collection
of interest is deemed to be insufficient to warrant further accrual. When
a loan is placed on nonaccrual status, previously accrued but unpaid
interest is deducted from interest income.
Loans whose terms have been modified through the reduction of interest
totaled approximately $15.0 million as of June 30, 1994 including $7.5
million classified as troubled debt restructurings. Interest income that
would have been recorded under the original terms of such loans and
interest income actually recognized totaled $979,000 and $766,000,
respectively, for the year ended June 30, 1994. The Company had no
outstanding commitments to fund additional loans to these parties as of
June 30, 1994.
Following are balances of loans serviced by the Company as of the dates
indicated:
As of June 30, 1994 1993 1992
(Dollars in thousands)
Whole loans originated $83,891 $149,831 $201,800
Loans in which the Company owns a partial
interest 11,169 26,440 19,100
Whole loans sold, servicing retained 188,681 177,960 126,100
Loans servicing purchased 71,808 39,140 49,254
Total loans serviced $355,549 $393,371 $396,254
In 1990, the Company acquired the right to service approximately $62.7
million in loans for $1.1 million. Amortization of the premium amounted to
$126,000, $476,000 and $170,000 in fiscal years ended June 30, 1994, 1993
and 1992, respectively. The Company acquired additional servicing rights
related to $80.5 million in loans in June 1993 at a premium of $1.1
million. Amortization of the premium on these servicing rights amounted to
$238,000 in fiscal year ended June 30, 1994. No amortization of the
premium on these servicing rights was made in fiscal 1993.
The Company had outstanding loan origination commitments aggregating
approximately $11.3 million and $10.6 million at June 30, 1994 and 1993,
respectively. No commitments for loans to facilitate the sale of real
estate owned were included in the outstanding commitments at June 30, 1994
or 1993.
Note 8 - Allowances for Losses
Changes in the allowances for losses are presented in the following
summary:
<TABLE>
Loans Real Estate Equity
General Specific Total Owned Investments Total
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance June 30, 1991 $5,074 $ 464 $5,538 $692 $--- $6,230
Provision for losses 1,200 --- 1,200 303 782 2,285
Transfers to specific
allowances (2,883) 2,782 (101) 101 --- ---
Net (charge-offs) recoveries 1,623 (1,073) 550 (20) --- 530
Balance June 30, 1992 5,014 2,173 7,187 1,076 782 9,045
Provision for losses 65 --- 65 435 --- 500
Transfers to specific
allowances (1,541) 1,541 --- --- ---
- -- ---
Net (charge-offs) recoveries 430 (886) (456) (764) --- (1,220)
Balance June 30, 1993 3,968 2,828 6,796 747 782 8,325
Provision for losses 83 --- 83 627 --- 710
Transfers to specific allowances (300) 300 --- --- --- ---
- --
Net (charge-offs) recoveries 17 (2,278) (2,261) (754) --- (3,015)
Balance June 30, 1994 $3,768 $ 850 $4,618 $620 $782 $6,020
</TABLE>
Note 9 - Real Estate Owned
Real estate owned by the Company is summarized as follows:
Fiscal Year Ended June 30, 1994 1993
(Dollars in thousands)
Acquired by foreclosure $ 176 $4,242
Classified as in-substance foreclosure 255 3,119
Held for development or resale 1,406 1,429
Allowance for losses (620) (747)
$1,217 $8,043
The amount of costs capitalized, principally for improvements, on real
estate acquired and under development during the years ended June 30, 1994
and 1993 was $502,000 and $612,000, respectively.
Land held for development or resale consists primarily of two parcels of
undeveloped land located in Charlotte, North Carolina which are zoned for
multi-family development and are carried at their estimated fair value less
selling costs. The parcels were purchased for an aggregate of $946,000.
As of June 30, 1994, the undeveloped land had a book value of approximately
$786,000.
Provision for losses on real estate owned, net of sales, consists of the
following:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Provision for losses $ 627 $435 $ 303
Losses (gains) on sales of REO properties 183 (10) 71
$ 810 $425 $ 374
Loss from real estate operations is summarized as follows:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Income (loss) from equity investments and
joint ventures $ --- $ 3 $(19)
REO operating costs (1,014) (804) (434)
$(1,014) $(801) $(453)
Note 10 - Premises and Equipment
Premises and equipment are summarized as follows:
Fiscal Year Ended June 30, 1994 1993
(Dollars in thousands)
Land $ 736 $ 736
Buildings and building improvements 4,847 5,259
Furniture, fixtures and equipment 2,015 2,163
Leasehold improvements 140 128
7,738 8,286
Less accumulated depreciation and amortization 3,784 4,634
$3,954 $3,652
The Company owns the building and land for eight of its retail offices and
leases its remaining property. In addition, the Company operates one
leased mortgage origination office outside its home office building.
Note 11 - Equity Investments
The Company, through its subsidiaries NNSC and DMI, has equity investments
in real estate ventures which are included in other assets in the
Consolidated Statements of Financial Condition and are reflected in the
following schedule:
<TABLE>
Carrying Value As of June 30, 1994 1993 Ownership Type
<S> <C> <C> <C>
(Dollars in thousands)
Investment in real estate partnerships
Country Club Partners $173 $169 50% General Partnersip Interest
VM Investors 1,564 1,564 33% General Partnership Interest
Allowance for losses (782) (782)
$955 $951
</TABLE>
The following is a summary of condensed combined financial information for
Country Club Partners and VM Investors:
1994 1993
(Dollars in thousands, unaudited)
Assets
Cash and investments $ 3 $ 5
Loans and contracts receivable 16,471 16,471
Accounts receivable 88 88
Land held for development 585 595
Prepaid and other assets 26 26
Total assets $17,173 $17,185
Liabilities
Notes payable $ 129 $ 144
Accounts payable 917 917
Total liabilities 1,046 1,061
Owners' equity
NNSC and DMI 2,801 2,800
Other investors 13,326 13,324
Total owners' equity 16,127 16,124
Total liabilities and owners' equity $17,173 $17,185
Following is a summary of condensed combined results of operations of the
above equity investments:
1994 1993 1992
(Dollars in thousands, unaudited)
Operations
Sales $ 32 $ 356 $1,782
Cost of sales 31 328 1,423
Gross profit 1 28 359
Other income, net --- 1,072 1,812
General and administrative expenses 1 40 161
Net income $--- $1,060 $2,010
The balances included in the combined financial information of the equity
investments are for Country Club Partners and VM Investors. These balances
are as of December 31, 1993 and 1992 and for the twelve months ended
December 31, 1993, 1992 and 1991, except operations information for VM
Investors is for the eight months ended August 31, 1992 and the twelve
months ended December 31, 1992 and May 31, 1991. The Company's portion of
income recognized was approximately $5,000 and $7,000 for the years ended
June 30, 1993 and 1992, respectively. No income was recognized for the
year ended June 30, 1994. The Bank had outstanding loans receivable to the
equity investment and joint venture parties totaling $266,000 and $469,000
at June 30, 1994 and 1993, respectively.
NNSC, through its wholly-owned subsidiary, DMI, is a partner in VM
Investors. VM Investors is a partner with the Managing Partner (the
"Managing Partner") for a timesharing project called Fairfield Williamsburg
Joint Venture (the "Joint Venture"). On October 3, 1990, the Managing
Partner, along with its parent company (the "Parent Company") filed for
voluntary Chapter 11 bankruptcy. On August 18, 1992, the Parent Company's
Amended and Restated Joint Plan of Reorganization was confirmed by the U.S.
Bankruptcy Court. On June 20, 1994, the final liquidation and settlement
documents were filed with the Court. Under these terms, the Joint Venture
will be dissolved and the pre-petition claims of VM Investors will be
converted to a note from the Parent Company. This note is to be
collateralized by certain assets of the Parent Company to be mutually
agreed upon by VM Investors, the Parent Company and certain senior
creditors of the Parent Company. There are restrictions on any cash
disbursements by the Parent Company to unsecured creditors or stockholders
until the VM Investors' note is paid or fully collateralized. It is
currently estimated that DMI's portion of the note will be approximately
$2.0 million and will accrue interest at a rate of 10% annually until paid.
The ultimate realization of proceeds from the note is dependent upon the
successful post bankruptcy operations of the Parent Company. In addition
to the note, the post-petition claim of VM Investors is to be satisfied by
approximately 56,000 shares of common stock of the reorganized Parent
Company. The common stock of the Parent Company is traded on the NASDAQ
Stock Market System, and closed at $6.125 per share on June 30, 1994.
While management of the Parent Company is optimistic about its future, it
is in large part dependent upon the state of the economy and the
availability of continued funding to support the Parent Company's
operations. The Company discontinued the recognition of income from its
equity interest in VM Investors in fiscal year 1990 and established a loss
allowance of $782,000 in fiscal year 1992, representing 50% of its
investment therein. The Company anticipates final dissolution during the
first quarter of fiscal 1995.
Note 12 - Deposits
Deposits consist of the following:
As of June 30, 1994 1993
(Dollars in thousands)
Demand deposits $10,365 $9,777
NOW accounts -- 2.35% at June 30, 1994 12,114 13,856
Money market deposit accounts -- 3.00% to 3.25%
at June 30, 1994 41,022 33,381
Savings deposits -- 2.75% to 3.00% at June 30, 1994 22,690 19,005
86,191 76,019
Time deposits 146,534 143,305
$232,725 $219,324
Weighted average rate 3.94% 4.27%
The following table presents by various interest rate categories the
amounts of time deposits at the dates indicated and the amounts of time
deposits at June 30, 1994 which mature during the periods indicated:
<TABLE>
Amounts Outstanding at June 30, 1994
Maturing During the Periods
June 30, Ending June 30,
1998 and
(Dollars in thousands) 1994 1993 1995 1996 1997 Thereafter
<S> <C> <C> <C> <C> <C> <C>
Less than 4.00% $59,002 $54,916 $58,695 $256 $ 51 $ ---
4.00% to 5.99% 64,308 51,604 39,254 12,068 4,423 8,563
6.00% to 7.99% 9,877 17,019 1,814 1,090 2,670 4,303
8.00% to 9.99% 11,699 17,355 1,892 9,187 --- 620
10.00% and over 1,648 2,411 818 830 --- ---
Total time deposits
at end of year $146,534 $143,305 $102,473 $23,431 $7,144 $13,486
</TABLE>
Included in total deposits at June 30, 1993 were $396,000 in funds obtained
through arrangements with brokers. As of September 1990, the Company
discontinued accepting or renewing brokered deposits.
Included in time deposits at June 30, 1994 and 1993 are $33.1 million and
$25.1 million, respectively, in large denomination deposits ("Jumbo
certificates"). These deposits carry interest rates ranging between 2.75%
and 10.00% at June 30, 1994 and mature within two years of June 30, 1994.
The following is a summary of interest expense on deposits:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
NOW accounts $ 317 $ 393 $ 547
Savings deposits 632 646 734
Money market deposit accounts 1,368 642 632
Time deposits 6,961 8,269 12,125
9,278 9,950 14,038
Early withdrawal penalties (29) (43) (75)
Net interest expense $9,249 $9,907 $13,963
Note 13 - Advances from Federal Home Loan Bank
Advances from the Federal Home Loan Bank of Atlanta ("FHLB") are as
follows:
<TABLE>
Weighted Weighted
1994 Average 1993 Average
Amounts Maturing in Fiscal Year Ending June 30, Amount Rate Amount Rate
<S> <C> <C> <C> <C>
(Dollars in thousands)
1994 $ --- ---% $42,800 6.47%
1995 62,000 6.33% 25,000 5.33%
1996 3,000 4.61% 3,000 4.61%
1997 5,000 6.49% 5,000 6.49%
1998 3,000 5.49% 3,000 5.49%
Total advances $73,000 6.23% $78,800 6.00%
</TABLE>
At June 30, 1994 and 1993, the advances were collateralized by the
Company's stock in the FHLB and by a specific assignment of first mortgage
loans, mortgage-backed securities and FHLB Bonds. Qualifying first
mortgage loans approximating $54.8 million, mortgage-backed securities
approximating $39.6 million and FHLB Bonds approximating $4.0 million were
pledged as collateral for advances from the FHLB at June 30, 1994. For the
year ended June 30, 1994, interest expense on advances maturing in one year
or less totaled approximately $3.0 million and totaled $939,000 on advances
maturing in more than one year. For the year ended June 30, 1994, the FHLB
paid quarterly a rebate, averaging 10.26 basis points based on the
aggregate average daily outstanding advance balance.
At June 30, 1994 the Company had no outstanding line of credit or
commitments from the FHLB to fund additional advances.
Note 14 - Securities Sold Under Agreements to Repurchase and Other
Borrowings
A summary of securities sold under agreements to repurchase and other
borrowings follows:
<TABLE>
Weighted Weighted
1994 Average 1993 Average
As of June 30, Amount Rate Amount Rate
<S> <C> <C> <C> <C>
(Dollars in thousands)
Securities sold under agreements to
repurchase identical securities $39,129 4.52% $57,215 3.39%
Securities sold under agreements to
repurchase substantially identical securities
(Dollar reverse repurchase agreements) 18,437 4.01% --- ---
Other borrowings
Bank remittances, unsecured 466 --- 304 ---
Other 79 10.00% 831 0.00%
Total $ 58,111 4.33% $ 57,602 3.38%
</TABLE>
The following is a summary of certain information regarding the Company's
repurchase agreements:
Fiscal Year Ended June 30, 1994 1993
(Dollars in thousands)
Agreements to repurchase identical securities
Average month-end balance during the year $26,845 $51,125
Maximum amount outstanding at any month
end during the year $47,917 $ 65,603
Weighted average interest rate during the year 3.37% 3.42%
Weighted average interest rate at the end of year 4.52% 3.39%
Agreements to repurchase substantially identical securities
Average month-end balance during the year $14,477 ---
Maximum amount outstanding at any month
end during the year $32,823 ---
Weighted average interest rate during the year 3.00% ---
Weighted average interest rate at the end of year 4.01% ---
At June 30, 1994 and 1993, the Company had mortgage-backed securities with
amortized cost plus accrued interest receivable of $41.6 million and $59.8
million, respectively, and market values of $39.9 million and $59.6
million, respectively, collateralizing the repurchase agreements. At June
30, 1994, the Company had mortgage-backed securities with amortized cost
plus plus accrued interest receivable of $19.5 million and market values of
$18.2 million collateralizing the dollar reverse repurchase agreements.
All securities sold under agreements to repurchase mature in less than one
year.
The securities sold under agreements to repurchase were delivered to the
primary dealers or bank trustees who arranged or were party to the
transactions. They may have sold, loaned, or otherwise disposed of such
securities to other parties and have agreed to resell to the Company the
same securities.
The securities sold under dollar reverse repurchase agreements were
delivered to the primary dealers or bank trustees who arranged or were
party to the transactions. They may have sold, loaned, or otherwise
disposed of such securities to other parties and have agreed to resell to
the Company substantially identical securities.
At June 30, 1994, $39.7 million was outstanding with a Virginia-based
commercial bank and $17.9 million was outstanding with two nationally
recognized dealers.
The Company has an agreement with a national banking concern to utilize a
payment instrument drawn on the national bank. The agreement provides that
the proceeds of each sale are to be held in trust for the bank and then
transferred to the bank on the first business day following the date of
sale. The Company utilizes these payment instruments for disbursements in
its operations.
Note 15 - Income Taxes
As discussed in Note 1, Summary of Significant Accounting Policies, the
Company changed its method of accounting for income taxes as of the
beginning of fiscal year 1993. The cumulative effect of this change in
accounting for income taxes of $2.0 million is reported separately in the
Consolidated Statement of Operations for the year ended June 30, 1993.
Exclusive of this amount, the impact on 1993 pretax earnings resulting from
the application of SFAS 109 was not material. Prior years' financial
statements have not been restated to apply the provisions of SFAS 109.
Provision for income taxes before extraordinary items and the cumulative
effect of the accounting change includes:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Current $561 $--- $ 758
Deferred 215 389 (11)
$776 $389 $747
The valuation allowance for deferred tax assets as of July 1, 1992 was
$227,000. Significant components of the Company's deferred tax assets and
liabilities as of June 30, 1994 and 1993 are as follows:
As of June 30, 1994 1993
(Dollars in thousands)
Deferred tax assets
Book bad debt reserves $1,088 $1,105
Excess of tax over book basis of
equity investments 690 692
Loan origination fees, deferred for book purposes 332 374
Accrued, unfunded pension cost 6 92
Accrued vacation pay 57 53
Other 8 48
2,181 2,364
Less valuation allowance 299 210
Total deferred tax assets 1,882 2,154
Deferred tax liabilities
FHLB dividends 564 495
Loan swap principal recovery deferred for
tax purposes 169 297
Tax over book depreciation 137 113
Installment sale gains deferred for tax purposes 75 79
Excess servicing gains 14 60
Other 6 5
Tax effect of net unrealized holding loss
of assets available for sale (368) ---
Total deferred tax liabilities 597 1,049
Net deferred tax assets, included in other assets $1,285 $1,105
The following is a reconciliation of the provision for federal income taxes
at the statutory federal income tax rate to the provision at the effective
income tax rate:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Provision for income taxes at statutory rates $714 $371 $585
Statutory bad debt tax deduction under book
provision for estimated losses --- --- 121
State income taxes, net of federal benefit 18 --- 51
Tax exempt income and dividends (91) (26) ---
Amortization of intangible assets 33 39 36
Resolution of taxing authority examinations, net (31) --- (51)
Change in valuation allowance for deferred tax
assets 139 --- ---
Other (6) 5 5
Provision for income taxes $776 $389 $747
In connection with the adoption of SFAS 109, the Company now recognizes a
net deferred tax asset for its bad debt reserve for financial reporting
purposes for changes from the base year amount in its bad debt reserves for
income tax purposes, as defined by the Internal Revenue Code. Accordingly,
beginning July 1, 1992, changes in these reserves will no longer be
considered permanent differences for purposes of the provision for income
taxes and will not create a reconciling item between the income tax
provision calculated at the federal statutory rate and the effective tax
rate on pre-tax accounting income.
The components of the provision for deferred income taxes for the years
ended June 30, 1994, 1993 and 1992 are as follows:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Gain (loss) from joint ventures $ 2 $ 10 $(126)
Principal recovery on loans sold at a loss for
tax purposes as part of reciprocal loan sale (128) (73) (98)
Allowance for uncollected interest 26 13 5
Deferred loan fees 42 39 120
FHLB stock dividends 68 97 109
Gain on sales of loans (47) (30) (27)
Effect of allowable federal bad debt deduction 76 397 ---
Increase (decrease) in balance of the valuation
allowance for deferred tax assets 66 (17) ---
Gain on curtailment of pension plan 85 --- ---
Other 25 (47) 6
$215 $ 389 $(11)
As of June 30, 1994, the Company had $2.8 million of carryforwards
available to offset future alternative minimum tax liability.
Note 16 - Pension and Stock Compensation Program
Until June 30, 1994, the Company had a defined benefit pension plan
("Plan") covering substantially all of its employees. As of June 30, 1994,
the accrual of benefits under the Plan was curtailed; thus, all
compensation and periods of service after that date are no longer used to
compute benefits. As a result, a net gain on plan curtailment of $323,000
is included in net periodic pension benefit for the year ended June 30,
1994. The gain consists primarily of a decrease in the projected benefit
obligation. The Plan continues to be in existence, and all participants in
the Plan as of June 30, 1994 became immediately vested in the benefits
accrued as of that date. The Company has no plans to terminate the Plan at
this time, but reserves the right to revise or discontinue the Plan in the
future. The Company's funding is determined by an annual actuarial
valuation. For fiscal 1994, the Plan required funding of $100,000.
Contributions are intended to provide for benefits attributed to service to
date.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated statements of financial condition:
Fiscal Year Ended June 30, 1994 1993
(Dollars in thousands)
Actuarial present value of benefit obligations
Accumulated benefit obligation, including vested
benefits of $465 and $235 $(465) $(303)
Projected benefit obligation for service rendered to date $(465) (535)
Plan assets at fair value, primarily mortgage-backed
securities and cash equivalents at June 30, 1994 and 1993 541 501
Plan assets in excess of (less than) projected benefit
obligation 76 (34)
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (89) (209)
Prior service cost not yet recognized --- 5
Unrecognized net asset at July 1, 1985, being recognized over
15 years (4) (4)
Accrued pension cost included in other liabilities $ (17) $(242)
Net pension cost includes the following components:
Fiscal Year Ended June 30, 1994 1993 1992
(Dollars in thousands)
Service cost -- benefits earned during the periods $107 $ 74 $47
Interest cost on projected benefit obligation 43 35 34
Actual return on Plan assets (13) (19) (36)
Net amortization and deferral (39) (35) (22)
Gain on Plan curtailment (323) --- ---
Net periodic pension cost (benefit) $(225) $ 55 $23
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5 percent for the
year ended June 30, 1994 and 8.0 percent for the years ended June 30, 1993
and 1992. The rate of increase in future compensation levels was 5.0
percent prior to curtailment. The expected long-term rate of return on
assets was 8 percent.
The Company also maintains a profit sharing plan which qualifies under
Section 401 of the Internal Revenue Code for employees meeting certain
eligibility requirements. Voluntary contributions to the 401(k) portion of
the profit sharing plan may be made by participants, subject to specified
limitations in the plan. Until June 30, 1994, participants could
contribute from 1% to 10% of their base pay to the plan. The Company
matched employee contributions up to 6% of their base pay at a rate of 50%
of employee contributions. Beginning July 1, 1994, participants may
contribute from 1% to 10% of their base pay to the plan, with the Company
matching employee contributions up to 10% of their base pay at a rate of
50% of employee contributions. The Company's matching contributions
amounted to approximately $60,000, $43,000 and $36,000 for the years ended
June 30, 1994, 1993 and 1992, respectively. Any additional contributions
to the profit sharing portion of the plan by the Company are to be
determined each year by the Board of Directors. Such contributions, if
any, are solely at the discretion of the Board of Directors. No
discretionary contributions were made to the plan in fiscal 1994, 1993 or
1992. A 2.0 percent discretionary contribution will be made in fiscal
1995.
The Company has an Employee Compensatory Stock Option Plan for the benefit
of selected officers and other selected employees. Options to purchase
common stock of the Company are granted at no less than market value on the
date of grant and are exercisable in varying amounts over a five-year
period. All options expire on July 1, 1996. At June 30, 1994, 138,000
shares of common stock were reserved for issuance under the Plan, of which
options for 42,000 shares had been granted at option prices ranging from $2
to $11 per share. Options for all such shares are exercisable beginning
July 1, 1994. No options were exercised during the fiscal years ended June
30, 1994, 1993 and 1992.
The Company does not provide postretirement or postemployment benefits.
Note 17 - Lease Commitments
The Company has various leases for land and real property under long-term
operating lease arrangements. Total lease expense for the fiscal years
under such arrangements was $124,000 in 1994, $154,000 in 1993 and $190,000
in 1992. At June 30, 1994, future minimum rental payments due under
noncancelable operating leases that have initial or remaining lease terms
in excess of one year are as follows:
Fiscal Year Ending June 30,
(Dollars in thousands)
1995 $114
1996 117
1997 103
1998 94
1999 78
Later years 124
Total minimum lease payments $630
Note 18 - Stockholders' Equity and Regulatory Capital
Following is a reconciliation of the Company's consolidated stockholders'
equity for financial reporting purposes to its tangible, core and risk-
based capital available to meet the Bank's regulatory capital requirements:
Fiscal Year Ended June 30, 1994 1993
(Dollars in thousands)
Stockholders' equity of TideMark Bancorp, Inc. as
reported in the accompanying financial statements $18,637 $18,064
Less
Capitalization of parent company 23 74
Goodwill 148 215
Other intangible assets 98 343
Phase-out of investment in non-includable subsidiary 513 573
Nonqualifying deferred tax asset 197 537
Tangible capital of the Bank 17,658 16,322
Plus qualifying intangibles 98 183
Core capital of the Bank 17,756 16,505
Plus supplementary capital
Allowable general loss reserves 2,344 2,427
Less phase-out of equity investments 30 20
Risk-based capital of the Bank $20,070 $18,912
The following information presents the Bank's regulatory capital levels and
ratios relative to its minimum capital requirements:
1994 1993
Fiscal Year Ended June 30, Amount % Amount %
(Dollars in thousands)
Tangible capital $17,658 4.58% $16,322 4.32%
Tangible capital requirement 5,782 1.50% 5,668 1.50%
Excess $11,876 3.08% $10,654 2.82%
Core capital $17,756 4.61% $16,505 4.37%
Core capital requirement 11,566 3.00% 11,342 3.00%
Excess $6,190 1.61% $5,163 1.37%
Risk-based capital $20,070 10.79% $18,912 9.78%
Risk-based capital requirement 14,887 8.00% 15,464 8.00%
Excess $5,183 2.79% $3,448 1.78%
Federally insured savings associations are required to maintain minimum
levels of regulatory capital. Pursuant to FIRREA, the OTS has established
capital standards applicable to all savings associations. These standards
generally must be no less stringent than the capital requirements
applicable to national banks. The OTS also is authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis. The capital regulations create three capital
requirements: a tangible capital requirement, a leverage or core capital
requirement and a risk-based capital requirement.
Tangible Capital Requirement Under current OTS regulations, each savings
association must maintain tangible capital equal to at least 1.5% of its
adjusted total assets. Tangible capital includes common stockholders'
equity (including retained earnings), noncumulative perpetual preferred
stock and related surplus, and minority interests in the equity accounts of
fully consolidated subsidiaries. In calculating tangible capital, the
following items are deducted from capital: (i) 100% of intangible assets
(other than purchased mortgage servicing rights ("PMSRs")); (ii) the
amount, if any, by which PMSRs exceed the lower of 90% of their
determinable fair market value, 90% of their original cost or current
amortized book value; and (iii) equity in and loans to subsidiaries that
are not "includable subsidiaries," which are defined as subsidiaries
engaged solely in activities permissible for a national bank, engaged in
activities impermissible for a national bank but only as an agent for its
customers or engaged solely in mortgage banking activities.
In calculating adjusted total assets, adjustments are made to total assets
to give effect to the exclusion of certain assets from capital and to
appropriately account for the investments in and assets of both includable
and nonincludable subsidiaries.
Core Capital Requirement Under current OTS regulations, each savings
association must maintain core capital equal to at least 3% of its adjusted
total assets. Core capital includes common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related
surplus, minority interest in the equity accounts of fully consolidated
subsidiaries and (subject to phase-out) qualifying supervisory goodwill.
At June 30, 1994, TideMark Bank did not have any supervisory goodwill.
Risk-based Capital Requirement The risk-based capital standard adopted by
the OTS requires savings associations to maintain a minimum ratio of total
capital to risk-weighted assets of 8.0%. Total capital consists of core
capital, defined above, and supplementary capital. Supplementary capital
consists of certain capital instruments that do not qualify as core capital
and general valuation loan and lease loss allowances up to a maximum of
1.25% of risk-weighted assets. Supplementary capital may be used to
satisfy the risk-based requirement only in an amount equal to the amount of
core capital. In determining the required amount of risk-based capital,
total assets, including certain off-balance sheet items, are multiplied by
a risk weight based on the risks inherent in the type of assets. The risk
weights assigned by the OTS for principal categories of assets are (i) 0%
for cash and securities issued by the U.S. Government or unconditionally
backed by the full faith and credit of the U.S. Government; (ii) 20% for
securities (other than equity securities) issued by U.S. Government
sponsored agencies and mortgage-backed securities issued by, or fully
guaranteed as to principal and interest by, the FNMA or the FHLMC, except
for those classes with residual characteristics or stripped mortgage-
related securities; (iii) 50% for prudently underwritten permanent one-to-
four family first lien mortgage loans not more than 90 days delinquent and
having a loan-to-value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or the FHLMC; and
(iv) 100% for all other loans and investments, including consumer loans,
commercial loans, and one-to-four family residential real estate loans more
than 90 days delinquent, and all repossessed assets or assets more than 90
days past due. In January 1993, the OTS amended its risk-weighting
classifications to remove the 200% risk weight category and to place all
assets previously assigned to the 200% risk-weight category, including
foreclosed assets, into the 100% risk-weight category. This change was
made in view of the requirement to value foreclosed assets at fair value
pursuant to Statement of Position 92-3 ("Accounting for Foreclosed
Assets").
In April 1991, the OTS proposed to modify the 3% of adjusted total assets
core capital requirement in the same manner as was done by the Comptroller
of the Currency for national banks. Under the OTS proposal, only savings
associations rated composite 1 under the OTS MACRO (now CAMEL) rating
system will be permitted to operate at the regulatory minimum core capital
ratio of 3%. For all other savings associations, the minimum core capital
ratio will be 3% plus at least an additional 100 to 200 basis points, which
will increase the core capital ratio requirement to 4% or 5% of adjusted
total assets. In determining the amount of additional capital, the OTS
will assess both the quality of risk management systems and the level of
overall risk in each individual savings association through the supervisory
process on a case-by-case basis. As set forth above, TideMark Bank's core
capital ratio at June 30, 1994 was 4.61%.
In August 1993, the OTS adopted a final rule incorporating an interest-rate
risk component into the risk-based capital regulation. Under the rule, an
institution with a greater than "normal" level of interest-rate risk will
be subject to a deduction of its interest-rate risk component from total
capital for purposes of calculating the risk-based capital requirement. As
a result, such an institution will be required to maintain additional
capital in order to comply with the risk-based capital requirement. An
institution with a greater than "normal" interest-rate risk is defined as
an institution that would suffer a loss of net portfolio value exceeding
2.0% of the estimated market value of its assets in the event of a 200
basis point increase or decrease (with certain minor exceptions) in
interest rates. The interest-rate risk component will be calculated, on a
quarterly basis, as one-half of the difference between an institution's
measured interest-rate risk and 2.0% multiplied by the market value of its
assets. The rule also authorizes the director of the OTS, or his designee,
to waive or defer an institution's interest-rate risk component on a case-
by-case basis. The latest revision to this rule includes a provision to
require an institution to maintain additional capital equal to the lowest
interest-rate risk component calculated by the OTS using data from the
three previous quarters. An institution with greater than "normal" risk
will not be subject to any deduction from total capital until September 30,
1994. Finally, the OTS indicated in the final rule that it intended to
lower the leverage ratio requirement (in its prompt corrective action
regulation) to 3.0% from the current level of 4.0%, on July 1, 1994. The
new regulation is not expected to have a material effect on the Bank's
regulatory capital position.
Any savings association that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such
actions could include a capital directive, a cease and desist order, civil
money penalties, the establishment of restrictions on an association's
operations and the appointment of a conservator or receiver. The OTS
capital regulation provides that such actions, through enforcement
proceedings or otherwise, could require one or more of a variety of
corrective actions.
TideMark has not paid a cash dividend on its common stock since the last
quarter of fiscal 1988. The payment and amount of future dividends will be
determined by the Board of Directors of the Company, based upon the results
of operations and financial condition of TideMark, economic conditions at
the time of declaration and regulatory restrictions.
Note 19 - Other Regulatory Matters
Due to its relatively high level of classified assets, the OTS has retained
certain provisions of the Bank's Supervisory Agreement entered into on
August 23, 1990, even though the lending restrictions were removed in
fiscal year 1992 upon achievement of capital compliance.
Under the remaining terms of the Supervisory Agreement, the Bank is
required to conduct its lending activities in a manner consistent with its
three-year business plan and adhere to the Bank's loan underwriting
policies and procedures as submitted to the OTS. Provisions of the
agreement require the Bank to submit quarterly status reports of classified
assets and to review quarterly the sufficiency of general and specific
valuation allowances, review and revise annually the three-year business
plan previously submitted and to discontinue the indirect lending
activities of CFC. The Bank is in compliance in all material respects
with the remaining provisions of the Supervisory Agreement.
During Fiscal 1994, TideMark was subject to certain growth restrictions as
contained in Regulatory Bulletin 3a-1. Effective August 19, 1994, these
growth restrictions were lifted, with the condition that TideMark adhere to
the projections contained in its fiscal 1995 operating budget.
Note 20 - Concentrations of Credit Risk
The Company's current primary lending emphasis is on the origination of
residential one-to-four family mortgage loans, small commercial loans and
consumer loans. Other than loans in the hospitality industry discussed
below, the Company's loan portfolio is geographically concentrated in the
Hampton Roads area of Virginia, the primary market for the Company's
activities; however, the inventory of loans held for sale is comprised of
loans secured by property located throughout the Commonwealth of Virginia.
The Company's loan portfolio at June 30, 1994 contains $42.0 million of
loans collateralized by properties in the hospitality industry, a decrease
of $6.9 million or 14.1% from June 30, 1993 levels. The current portfolio
consists of 33 properties with carrying values that range from $96,000 to
$5.4 million and are primarily located throughout the Mid-Atlantic region.
Management diligently monitors all loans in this industry including, when
possible, making inspections of the properties, maintaining current
operating statements and performing fair value calculations, with
allowances for losses established as necessary to properly reflect the
value of the properties. Management believes the current loss allowances
are sufficient to cover the credit risk estimated to exist at June 30,
1994.
Note 21 - Off-Balance Sheet Items and Contingent Liabilities
In addition to undisbursed construction and commercial loan funds of $11.5
million and $9.7 million at June 30, 1994 and 1993, respectively, it is in
the normal course of business, for the Company to be a party to financial
instruments with off-balance sheet risk to meet the financing needs of
customers and to reduce its own exposure to interest rate fluctuations.
These financial instruments include commitments to extend credit,
commercial letters of credit, put options, forward sales of mortgage
loans and mortgages sold with recourse. These items involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amount
recognized in the balance sheet. Notional principal amounts are often used
to express the volume of the transaction; however, the amounts potentially
subject to credit risk are much smaller.
The table below presents the contract or notional amount of each class of
instrument at June 30, 1994 and 1993:
Fiscal Year Ended June 30, 1994 1993
(Dollars in thousands)
Financial instruments whose notional or
contract amounts represent credit risk
(risk that counter-party defaults and collateral proves
to be worth less than notional amounts)
Legally binding unfunded commitments to extend credit $11,327 $10,597
Commercial letters of credit 1,233 3,924
Unused lines of credit 7,957 8,077
Mortgages sold with recourse, including
forward sales 5,456 3,834
Total $25,973 $26,432
Financial instruments whose notional or contract
amounts exceed the amount of credit risk
Commitments to purchase securities $2,236 $4,890
Commitments to sell securities 4,726 29,000
Commitments to sell whole loans 766 2,017
Options purchased to hedge lending commitments 1,000 3,000
Interest-rate caps 45,000 45,000
Interest-rate swaps --- 15,000
Total $53,728 $98,907
Commitments to extend credit are legally binding agreements to lend to a
customer which typically contain clauses that permit cancellation of the
commitment in the event of the credit deterioration of the borrower.
Commercial letters of credit are conditional commitments issued by TideMark
in return for a commitment fee to guarantee the performance of customers to
a third party. The credit risk associated with commitments to extend
credit and letters of credit is similar to direct lending; therefore, all
of these items are subject to the Company's loan approval and review
policies and procedures. The Company evaluates each customer's credit
worthiness individually; the amount of collateral deemed necessary, if any,
is based on management's credit evaluation of the counterparty and the
particular transaction and may include residential homes, accounts
receivable, marketable securities, inventory and plant and equipment.
Commitments generally have fixed expiration dates and may require payment
of a fee by the counterparty. Since some of the commitments are
expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments is represented
by the contractual amount of those instruments. No significant
losses are anticipated as a result of these transactions.
TideMark sells certain residential mortgage loans to third party investors,
some of which require the Company to repurchase the loans in the event of
default or faulty documentation. Recourse periods vary from 90 days up to
210 days and conditions for repurchase vary with the investor. As of June
30, 1994, the Company had sold loans with recourse which remained
outstanding to five investors. Credit risk exists to the extent of
recourse, which totaled $5.5 million at June 30, 1994. Mortgages are
collateralized by one-to-four family residential homes, many of which are
guaranteed by an agency of the United States government and have loan-to-
value ratios of 80% or less, unless they have mortgage insurance.
Repurchase obligations have historically been minimal and no material
losses are expected to occur.
At June 30, 1994, the Company had commitments totaling $2.2 million to
purchase securities from three national securities dealers. Failure of the
counterparties would not result in an accounting loss as the Company could
purchase similar securities from alternate dealers at current market
prices.
In addition, as of June 30, 1994, the Company had commitments to sell
mortgage-backed securities and whole loans of $4.7 million and $766,000,
respectively. Failure of the counterparties would result in the assets
remaining in the Company's portfolio or in selling them to alternate
investors at potentially different prices.
The Company enters into a variety of interest-rate contracts to manage its
interest rate exposure. As of June 30, 1994, the Company had purchased
$1.0 million of long put options to hedge its mortgage loan commitments.
Failures of the counterparties in these transactions would not result in an
accounting loss except to the extent of payments for the options which are
included in the balance sheet as assets ($3,000 at June 30, 1994).
At June 30, 1994, the Company had purchased interest-rate caps totaling
$45.0 million to lessen the interest-rate risk associated with a balance
sheet based on longer term assets funded by short-term deposits and
borrowings. Risk arises from the possible inability of the counterparties
to meet the terms of the contracts. Interest-rate caps provide the Company
protection from rising interest rates; whereby, in exchange for a fee, the
counterparty agrees to pay to the Company an amount based upon the degree
to which a specified interest rate exceeds an established "strike" rate.
The Company attempts to minimize that risk by carefully choosing the
counterparty to the transaction and by limiting the exposure with any one
party. Failure of the counterparties in the transaction would not result
in an accounting loss except to the extent of payments for the caps which
are included in the balance sheet as other assets ($1.4 million at June 30,
1994), or to the extent that the Company's cost of funds could increase in
a rising interest rate environment if the counterparty failed to make the
contracted payments. The interest-rate caps were purchased from three
national securities dealers and a regional bank headquartered in Virginia.
Interest-rate swap transactions involve the exchange of fixed- and
floating-rate interest payment obligations without the exchange of the
underlying principal amounts and are used as part of asset and liability
management. Notional principal amounts often are used to express the
volume of these transactions and represent the base upon which interest
payments are calculated; therefore, the amounts potentially subject to
credit risk are much smaller. Should an individual counterparty default,
the interest rate on the swapped instrument would revert to its original
form, i.e., fixed payments would revert to floating payments and floating
payments would revert to fixed payments, thus creating exposure to
interest-rate risk. Risks are monitored in accordance with the Company's
asset and liability management guidelines and counterparties are monitored
as with interest-rate caps. At June 30, 1994, the Company had no interest-
rate swap agreements.
On June 26, 1986, the Bank converted to a capital stock form of
organization and ownership. As a result of the conversion, the Bank
established a liquidation account in an amount equal to its net worth as of
March 31, 1986. The liquidation account is maintained for the benefit of
depositors who hold a savings or demand account at a specified eligibility
date. At June 30, 1994, the amount remaining in this liquidation account
was $613,000.
Note 22 - Acquisitions and Divestitures
On September 21, 1993, the Company executed an agreement to sell the loans
in process, business equipment and leasehold improvements in three of its
mortgage origination offices located in Roanoke, Staunton and Colonial
Heights, Virginia (the "Branches") to Columbia National, Inc., ("Columbia")
a subsidiary of Paine Webber. In addition, Columbia assumed the remaining
lease obligations on the branches transferred. Pursuant to the agreement,
TideMark received consideration of $55,000 plus prorated operating
expenses, in exchange for $5.4 million of the Branches' loans not yet
closed as well as new loan applications taken by the Branches between
September 1, 1993 and September 21, 1993, and equipment with a net book
value of $6,000. The transaction resulted in a gain of $8,000, after the
write-off of $53,000 of goodwill associated with the offices, which were
purchased by TideMark in 1990 as part of the acquisition of Johnson
Mortgage Company, a former subsidiary of the Bank.
On December 15, 1993, the Company executed a definitive agreement, subject
to regulatory approval, to sell its retail branch office located in
Kilmarnock, Virginia to Bank of Lancaster. The sale will include the
building, furniture and equipment and deposit account loans originated in
that branch location. In addition, the deposits in the branch as of the
closing date will be transferred. The application was submitted to the
Federal Reserve Bank of Richmond in January 1994. The regulators expressed
concern with respect to the effect on competition in the Kilmarnock market
of such sale. To resolve those concerns, certain deposits of customers
residing closer to the Gloucester area were transferred from TideMark's
Kilmarnock branch office to its Gloucester branch office and will not be
assumed, leaving deposits totaling $5.2 million as of June 30, 1994 in the
Kilmarnock branch office. The application has been resubmitted and
TideMark and Bank of Lancaster are awaiting regulatory approval. The sale
is expected to be completed during fiscal 1995.
On July 12, 1994, the Company announced the execution of a definitive
agreement whereby TideMark will acquire the branch offices and deposits of
Bay Savings Bank, FSB ("Bay"), a subsidiary of FirstFed Michigan
Corporation. On July 28, 1994, TideMark executed agreements whereby
TideMark would acquire the right to service the residential loan portfolio
of Bay. The agreements call for TideMark to pay a premium of $1.8 million
(approximately 2.5%) for the deposits of approximately $71.0 million at
June 30, 1994. The deposit premium is to be reduced by an amount equal to
2.5% of the difference between $70.0 million and the amount of the deposits
to be assumed as of the closing date in the event the amount of deposits
assumed falls below $70.0 million. In addition, TideMark will acquire
approximately $581,000 of related customer loans at book value. The
premises and equipment and real property are to be purchased for an amount
equal to the net book value of such property on the closing date, with the
exception of two branch locations which will be adjusted to current market
prices, which are estimated to be lower than net book value. The estimated
purchase price for the property and equipment as of June 30, 1994 is
$747,000. The residential loan servicing rights are to be purchased at a
price equal to approximately 90 basis points of the outstanding principal
balance of the loans on the sale date, which is estimated to be $1.9
million, based on June 30, 1994 balances. The servicing rights are
scheduled to be purchased and transferred on August 31, 1994. The
application for the purchase of assets and assumption of deposit
liabilities was filed with the OTS in August 1994. TideMark, as of the
date hereof, plans to finance the transaction through the sale of common
stock during the Fall of 1994. The transaction is expected to be
consummated during the second quarter of fiscal 1995.
Note 23 - Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 107, "Disclosures About Fair Value of
Financial Instruments" ("SFAS 107"). The pronouncement requires disclosure
of fair value information about financial instruments, whether or not
recognized on the balance sheet, for which it is practicable to estimate
the value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Certain financial instruments and all nonfinancial instruments
are excluded from the scope of SFAS 107; accordingly, the fair value
disclosures required by SFAS 107 provide only a partial view of the value
of the Company. For example, TideMark has not included the fair value in
its long-term relationships with its customers through its deposit base,
commonly referred to as core deposit intangibles, or the value of
foreclosed real estate. In the aggregate, these items may add significant
value to the Company.
Active markets may not exist for a portion of the Company's financial
instruments, especially commercial real estate loans, and thus the
estimated fair value is based upon management's assumptions of the fair
value and not on independent markets.
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments. Much of
the information used to determine fair value is highly subjective and
judgmental in nature and therefore the results may not be precise. The
subjective factors include, among other things, estimates of cash flows,
risk characteristics, credit quality and interest rates. Since the fair
value is estimated as of the balance sheet date, the amounts which will
actually be realized or paid upon settlement or maturity of the various
instruments could be significantly different.
The following table sets forth the fair value of the Company's financial
instruments at June 30, 1994:
Carrying Fair
Fiscal Year Ended June 30, Value Value
(Dollars in thousands)
Financial Instruments
Assets
Cash and short-term investments $12,322 $12,322
Trading account assets 1,997 1,997
Securities available for sale 19,722 19,722
Mortgage-backed securities available
for sale 56,705 56,705
Loans held for sale 3,331 3,331
Mortgage-backed securities held to
maturity 102,952 99,471
Loans receivable 170,591 173,423
Purchased mortgage loan servicing rights 1,027 1,210
Liabilities
Deposits
Demand deposits and savings deposits 86,191 86,191
Time deposits 146,534 145,706
FHLB advances 73,000 72,917
Securities sold under agreements to
repurchase and other borrowings 58,111 58,135
The fair value of cash and short-term investments approximates the carrying
value. The fair values of investments and mortgage-backed securities are
based on quoted market prices, if available. If a quoted market price is
not available, fair value is estimated using quoted market prices for
similar securities. The fair values of loans held for sale and loans
receivable held in the portfolio are based on current market prices for
securities backed by similar loans. Loans receivable have been valued on a
pooled basis by discounting the estimated future cash flows to their
present value using an assigned discount rate. Each pool was assigned a
discount rate at which a loan with similar credit risk and remaining
maturity would be offered as of the balance sheet date. Purchased mortgage
loan servicing rights are valued based on a comparison of the estimated
discounted net cash flows to be received and the estimated market cost of
servicing.
The fair value of demand deposits and savings deposits approximates the
carrying value. The fair value of time deposits is estimated using the
rates currently offered for deposits of similar remaining terms. The fair
value of FHLB advances is estimated based on current rates for borrowings
with similar terms. The fair value of securities sold under agreements to
repurchase approximates the carrying value.
The Company has off-balance sheet financial instruments in the form of
commitments to extend credit, letters of credit and mandatory forward
commitments to sell loans. There are no material differences between the
notional amounts and fair values of these commitments.
Management uses its best judgment in estimating the fair value of non-
traded financial instruments but there are inherent limitations in any
estimation technique. For example, liquid markets do not exist for many
categories of loans held by the Company. By definition, the function of a
financial intermediary is, in large part, to provide liquidity where
organized markets do not exist. Therefore, the fair value estimates
presented herein are not necessarily indicative of the amounts which the
Company could realize in a current transaction.
The information presented is based on pertinent information available to
management as of June 30, 1994. Although management is not aware of any
factors, other than changes in interest rates, that would significantly
affect the estimated fair values, the current estimated fair value of these
instruments may have changed significantly since that point of time.
Note 24 - Other Matters
On December 30, 1992, a motion for judgment and award of execution was
filed in the Circuit Court of the City of Newport News against Newport News
Savings Bank (now TideMark Bank) and NNSC by Caleb D. West, Jr., former
Chairman of the Board of the Bank, for reimbursement of legal fees and
expenses totaling $1.2 million incurred in his successful defense against
charges brought against him by the OTS plus his additional reasonable
expenses, including legal fees, incurred in pursuing his claim for
indemnification.
On December 4, 1992, Timothy Ryan, then Director of the OTS, issued the
agency's final decision in the administrative action, dismissing all
charges against Mr. West. On December 17, 1992, the Company announced
receipt of a claim by Mr. West for indemnification for legal fees and
expenses totaling $1.2 million incurred in connection with his defense
against the OTS action. Virginia law requires a Virginia institution to
indemnify a director or officer or former director or officer against
reasonable legal fees and expenses incurred in his defense in the event
such person prevails entirely in the defense of any proceeding to which he
was a party because he is or was a director of the institution.
On January 30, 1993, the Company filed its Answer and Grounds of Defense to
the Motion for Judgment, stating that the unresolved issue in the case was
whether the claim constituted reasonable expenses as contemplated by the
applicable provisions of Virginia law.
Upon advice of legal counsel and after due consideration of the matter, on
May 14, 1993, the Board of Directors of TideMark, determined to reimburse
Mr. West in the amount of $1.1 million, which represented settlement in
full of the legal fees and expenses for which he was entitled to
indemnification. The reimbursement is included in other expense in the
Consolidated Statements of Operations for the year ended June 30, 1993.
Note 25 - Parent Company Financial Statements
On December 31, 1992, TideMark acquired all of the outstanding stock of the
Bank in connection with the reorganization of the Bank into the holding
company form of ownership.
The following Condensed Statement of Financial Condition as of June 30,
1994 and 1993 and Condensed Statement of Operations and Cash Flows for the
period from December 31, 1992 to June 30, 1993 and for the year ended June
30, 1994 for TideMark (parent only) should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Condensed Statement of Financial Condition June 30, 1994 June 30, 1993
(Dollars in thousands)
Assets
Cash $ 19 $ 73
Equity interest in net assets of the Bank 18,613 17,990
Other assets 21 1
Total assets $18,653 $18,064
Liabilities and Stockholders' Equity
Liabilities $ 16 $ ---
Stockholders' Equity
Common stock 69 69
Additional paid-in capital 18,191 18,191
Net unrealized holding loss on assets
available for sale (752) ---
Retained earnings (deficit) 1,129 (196)
Total stockholders' equity 18,637 18,064
Total liabilities and stockholders'
equity $ 18,653 $18,064
<TABLE>
Period from
Year Ended December 31, 1992 to
Condensed Statement of Operations June 30, 1994 June 30, 1993
<S> <C> <C>
(Dollars in thousands)
Equity interest in earnings of the Bank $ 1,375 $ 211
Other expense 80 ---
Income before income taxes 1,295 211
Benefit from income taxes (30) ---
Net income $ 1,325 $ 211
</TABLE>
<TABLE> Period from
Year Ended December 31, 1992 to
Condensed Statement of Cash Flows June 30, 1994 June 30, 1993
<S> <C> <C>
(Dollars in thousands)
Operating activities
Net income $ 1,325 $ 211
Add (deduct) items not affecting
cash
Equity interest in earnings of the
Bank, less distributions (1,375) (136)
Increase in other assets (20) (1)
Increase in liabilities 16 ---
Net cash used by operations (54) (74)
Investing activities
Purchase of common stock of the Bank --- (1)
Net increase (decrease) in cash and
cash equivalents (54) 73
Cash and cash equivalents at beginning
of period 73 ---
Cash and cash equivalents at end of period $ 19 $ 73
</TABLE>
Note 26 - Quarterly Results of Operations (unaudited)
<TABLE>
September 30, December 31, March 31, June 30,
1993 1992 1993 1992 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Interest income $5,799 $6,716 $5,979 $6,584 $5,845 $6,306 $6,088 $6,093
Interest expense 3,941 4,514 3,790 4,340 3,586 3,980 3,669 4,064
Net interest income 1,858 2,202 2,189 2,244 2,259 2,326 2,419 2,029
Provision for (recoveries from) losses on
loans --- (83) --- (96) 73 178 10 66
Net interest income after provision
for losses on loans 1,858 2,285 2,189 2,340 2,186 2,148 2,409 1,963
Other income 1,226 1,048 1,696 1,102 1,210 1,036 1,162 1,011
Other expense 2,603 2,530 3,443 3,618 2,944 2,687 2,845 3,120
Income (loss) before income taxes 481 803 442 (176) 452 497 726 (146)
Provision for (benefit from) income taxes 99 319 109 (70) 119 198 449 (58)
Income (loss) before cumulative
effect of an accounting change 382 484 333 (106) 333 299 277 (88)
Cumulative effect of change in
accounting for income taxes --- 2,027 --- --- --- --- --- ---
Net income (loss) $382 $2,511 $333 $(106) $ 333 $299 $277 $ (88)
Earnings (loss) per share (6,931,321 shares
outstanding for all periods) $0.06 $0.37 $0.05 $(0.02) $0.05 $0.04 $0.03 $(0.01)
</TABLE>
Note: The above quarterly results of operations for fiscal 1993 have been
adjusted for the effects of adoption of SFAS 109 ("Accounting for Income
Taxes") as of July 1, 1992. Also, certain reclassifications were made for
fiscal 1992 financial statement presentation which are not reflected in the
quarterly results above.
Report of Independent Accountants
The Board of Directors and Stockholders
TideMark Bancorp, Inc.
We have audited the accompanying consolidated statements of financial
condition of TideMark Bancorp, Inc. and Subsidiaries ("the Company") as of
June 30, 1994 and 1993 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of
TideMark Bancorp, Inc. and Subsidiaries, formerly Newport News Savings
Bank, for the year ended June 30, 1992 were audited by other auditors,
whose report, dated September 9, 1992, expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the
Company and Subsidiaries as of June 30, 1994 and 1993 and the consolidated
results of their operations and their cash flows for the years ended June
30, 1994 and 1993 in conformity with generally accepted accounting
principles.
As discussed in Notes 1, 2, 3, 6 and 15 to the consolidated financial
statements, the Company changed its method of accounting for certain
investments in debt and equity securities effective July 1, 1993 and
changed its method of accounting for income taxes effective July 1, 1992.
Coopers & Lybrand, L.L.P.
Newport News, Virginia
August 11, 1994
<TABLE>
TideMark Bancorp, Inc.
Consolidated Financial History
As of June 30, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Year-End Balances
Assets
Cash and temporary investments $ 12,322 $ 5,850 $ 7,231 $ 12,144 $ 24,471
Trading account assets 1,997 --- --- --- ---
Assets available for sale
Securities 19,722 7,765 17,805 --- ---
Mortgage-backed securities 56,705 --- --- --- ---
Loans held for sale 3,331 24,961 20,900 16,817 ---
Investment securities --- 8,849 7,997 9,991 10,080
Mortgage-backed securities 102,952 125,213 100,614 93,222 81,321
Loans receivable
Real estate - residential mortgage 85,898 104,175 98,167 126,833 123,057
Real estate - multi-family 2,560 6,567 6,790 3,336 3,089
Real estate - construction 18,906 15,445 8,097 3,633 3,193
Real estate - commercial 61,679 56,961 64,192 67,322 72,291
Commercial business and consumer 26,484 19,286 14,141 11,973 18,518
Total loans 195,527 202,434 191,387 213,097 220,148
Less Loans in process and unused
lines of credit (19,479) (14,410) (6,152) (1,175) (1,690)
Unearned income (21) (37) (288) (753) (2,334)
Deferred fees and discounts (818) (872) (734) (1,410) (703)
Allowances for losses (4,618) (6,796) (7,187) (5,538) (5,285)
Net loans receivable 170,591 180,319 177,026 204,221 210,136
Real estate owned and held for sale 1,217 8,043 8,235 5,251 16,129
Premises and equipment 3,954 3,652 3,271 3,378 3,888
Other assets 13,785 14,920 11,815 14,581 15,168
Total assets $386,576 $379,572 $354,894 $359,605 $361,193
Liabilities And Stockholders' Equity
Liabilities
Deposits
Demand deposits $ 10,365 $ 9,777 $ 5,519 $ 951 $ ---
NOW accounts 12,114 13,856 12,647 9,214 6,948
Savings deposits 22,690 19,005 18,889 14,317 17,672
Money market deposit accounts 41,0223 3,381 14,380 12,578 16,157
Time deposits 146,534 143,305 158,228 190,602 205,871
Total deposits 232,725 219,324 209,663 227,662 246,648
Securities sold under agreements to
repurchase and other borrowings 58,111 57,602 52,712 49,401 36,731
Advances from Federal Home Loan Bank 73,000 78,800 72,800 63,200 63,200
Other liabilities 4,103 5,782 4,271 10,719 6,541
Total liabilities 367,939 361,508 339,446 350,982 353,120
Stockholders' Equity 18,637 18,064 15,448 8,623 8,073
Total liabilities and stockholders'
equity $386,576 $379,572 $354,894 $359,605 $361,193
Average Yields
Temporary investments 3.21% 3.23% 4.25% 7.55% 8.83%
Investment securities 6.71% 6.78% 7.96% 8.45% 8.69%
Mortgage-backed securities 5.31% 6.26% 7.98% 9.03% 8.72%
Loans 8.02% 8.45% 9.49% 10.55% 11.07%
Weighted average yield on average
interest-earning assets 6.84% 7.61% 8.94% 10.00% 10.61%
Average Rates
Deposits 4.09% 4.76% 6.49% 7.84% 8.42%
Borrowed funds 4.86% 5.59% 6.69% 8.02% 9.91%
Weighted average rate on interest-bearing
liabilities 4.36% 5.07% 6.56% 7.90% 8.73%
Net interest margin 2.52% 2.61% 2.41% 1.76% 1.53%
</TABLE>
<TABLE>
TideMark Bancorp, Inc.
Consolidated Financial History
As of June 30, 1994 1993 1992
<S> <C> <C> <C>
(Dollars in thousands)
Average Balances
Assets
Cash and temporary investments $ 8,379 $ 5,376 $ 12,167
Trading account assets 161 --- ---
Assets available for sale
Securities 16,998 8,189 ---
Mortgage-backed securities 69,411 235 ---
Loans held for sale 10,714 23,786 18,805
Investment securities --- 6,972 11,855
Mortgage-backed securities 71,373 112,236 81,547
Loans receivable
Real estate - residential mortgage 93,117 99,884 118,439
Real estate - multi-family 4,793 5,998 6,679
Real estate - construction 17,192 10,268 10,073
Real estate - commercial 57,009 61,211 60,557
Commercial business and consumer 22,424 15,510 15,588
Total loans 194,535 192,871 211,336
Less Loans in process and unused
lines of credit 16,391 7,624 10,281
Unearned income 21 137 163
Deferred fees and discounts 947 845 804
Allowances for losses 6,263 7,270 6,281
Net loans receivable 170,913 176,995 193,807
Real estate owned and held for sale 6,769 7,828 6,646
Premises and equipment 3,762 3,504 3,378
Other assets 12,951 9,681 14,745
Total assets $371,431 $354,802 $342,950
Liabilities And Stockholders' Equity
Liabilities
Deposits
Demand accounts $10,357 $6,467 $ 2,078
NOW accounts 12,126 14,249 10,628
Savings accounts 20,914 20,357 15,677
Money market deposit accounts 41,176 24,124 12,190
Time deposits 141,421 142,869 174,627
Total deposits 225,994 208,066 215,200
Securities sold under agreements to
repurchase and other borrowings 41,359 51,125 55,209
Advances from Federal Home Loan Bank 76,611 74,004 47,254
Other liabilities 8,041 5,251 13,432
Total liabilities 352,005 338,446 331,095
Stockholders' Equity 19,426 16,356 11,855
Total liabilities and stockholders'
equity $ 371,431 $354,802 $342,950
</TABLE>
<TABLE>
TideMark Bancorp, Inc.
Consolidated Financial History
Fiscal Year Ended June 30, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Summary of Operations
Interest Income
Loans $15,078 $17,576 $20,776 $23,121 $28,932
Mortgage-backed securities 7,456 7,037 6,505 7,963 3,792
Investment securities 1,128 1,028 944 847 1,178
Other 49 58 271 548 510
Total interest income 23,711 25,699 28,496 32,479 34,412
Interest Expense
Deposits 9,249 9,907 13,963 18,091 22,520
Advances from Federal Home Loan Bank 3,819 4,648 4,582 5,904 4,909
Reverse repurchase agreements and other borrowings 1,918 2,343 2,276 2,764 2,031
Total interest expense 14,986 16,898 20,821 26,759 29,460
Net interest income 8,725 8,801 7,675 5,720 4,952
Provision for Losses on Loans 83 65 1,982 1,895 9,436
Net interest income (expense) after
provision for losses on loans 8,642 8,736 5,693 3,825 (4,484)
Operating Income
Loan fees and service charges 324 492 566 427 834
Loan servicing fees 558 197 587 658 369
Mortgage-banking gains 2,004 2,387 1,780 1,747 429
Other 1,329 914 993 1,200 696
Total operating income 4,215 3,990 3,926 4,032 2,328
Operating Expense
Compensation and employee benefits 5,000 4,957 4,554 3,987 3,863
Occupancy and equipment 1,783 1,634 1,551 1,430 1,568
Federal deposit insurance premiums 660 510 507 511 553
Professional services 507 597 624 731 614
Other 2,061 1,914 1,829 1,707 2,039
Total operating expense 10,011 9,612 9,065 8,366 8,637
Operating Income (Loss) 2,846 3,114 554 (509) (10,793)
Nonoperating Income (Expense)
Gains (losses) on sales of
securities 1,079 207 1,995 1,197 (236)
Loss from real estate operations
and sales (1,824) (1,226) (827) (138) (2,394)
Legal settlement --- (1,117) --- --- ---
Total nonoperating income (expense) (745) (2,136) 1,168 1,059 (2,630)
Income (loss) before income taxes, extraordinary item
and cumulative effect of an accounting change 2,101 978 1,722 550 (13,423)
Provision for (Benefit from) Income Taxes 776 389 747 461 (1,895)
Income (loss) before extraordinary item and cumulative
effect of an accounting change 1,325 589 975 89 (11,528)
Extraordinary item - Reduction of income taxes arising
from the carryforward of prior years' operating losses --- --- 590 461 ---
Cumulative effect of change in accounting for income
taxes --- 2,027 --- --- ---
Net Income (Loss) $1,325 $2,616 $1,565 $550 $(11,528)
Earnings (Loss) Per Share
Earnings before extraordinary item $0.19 $0.09 $0.25 $0.07 $(8.35)
Extraordinary item --- --- 0.15 0.33 ---
Cumulative effect of accounting change --- 0.29 --- --- ---
Net Earnings (Loss) $0.19 $0.38 $0.40 $0.40 $(8.35)
</TABLE>
<PAGE>
GLOSSARY OF FINANCIAL TERMS
BASIS POINT - a measurement unit defined as one hundredth of one
percent, which usually refers to an interest rate.
BOOK VALUE PER SHARE - the value of a share of common stock determined by
dividing stockholders' equity at the end of the same period by the shares
outstanding.
CLASSIFIED ASSETS - the sum of problem loans, other assets and real estate
which has been acquired through foreclosure which contain certain
weaknesses and the Company has determined involve the possibility that the
Company could sustain some loss if the deficiencies are not corrected.
CORE CAPITAL RATIO - common stockholders' equity less certain intangible
assets, such as goodwill, divided by regulatory assets. Current regulatory
minimum requires that at least a 3% ratio be maintained.
CORE DEPOSITS - demand deposits, savings accounts, NOW accounts, insured
money-market accounts and certificates of deposit under $100,000. This is
a more stable source of funds than funds purchased in the money market on
the basis of rates.
COST OF FUNDS - interest on deposits and borrowed funds divided by the
average balance of such funds.
EARNINGS PER SHARE - net income divided by the average number of common
shares outstanding during the period.
EFFICIENCY RATIO - noninterest expense divided by net operating revenue,
excluding nonrecurring items and securities gains and losses.
EQUITY CAPITAL/ STOCKHOLDERS' EQUITY - a balance sheet amount which
represents the total investment in the Company by holders of common and
preferred stock; it includes amounts added through the retention of
earnings.
INTEREST-BEARING LIABILITIES - deposits and borrowed funds on which the
Company pays interest; includes NOW accounts, money-market accounts,
certificates of deposit, reverse repurchase agreements and advances from
the Federal Home Loan Bank of Atlanta.
INTEREST-EARNING ASSETS - loans, investment securities, federal funds sold
and mortgage-backed securities.
INTEREST-RATE SPREAD - the difference between the average interest rates
received on interest-earning assets and the average interest rates paid for
interest-bearing liabilities.
LEVERAGE (TANGIBLE) CAPITAL RATIO - the total stockholders' equity less
certain intangible assets such as goodwill, divided by regulatory assets.
A key regulatory capital requirement with the minimum amount allowed of
1.5%.
MORTGAGE BANKING - the origination, packaging and sale of mortgage loans to
institutional investors who pay the mortgage banker to collect loan
payments, pay insurance premiums and property taxes, maintain accounting
records and administer the loans.
NET INTEREST INCOME - the difference between income from interest-earning
assets and interest paid on interest-bearing liabilities.
NET INTEREST MARGIN - net interest income divided by average interest-
earning assets.
NET OPERATING REVENUE OR GROSS INCOME - the total of net interest income
and noninterest income.
NONPERFORMING ASSETS - the sum of loans on which interest income is not
being accrued, restructured loans on which the interest rates or terms of
repayment have been materially revised and real estate which has been
acquired through foreclosure.
RATE-SENSITIVE ASSETS/ LIABILITIES - interest-earning assets and interest-
bearing liabilities which can be repriced or replaced at a different
interest rate within a specific period due to rate changes or maturity.
RETURN ON AVERAGE ASSETS (ROA) - net income as a percentage of average
total assets. A key profitability ratio which indicates how effectively a
bank has used its total resources.
RETURN ON AVERAGE EQUITY (ROE) - net income as a percentage of total
average stockholders' equity. Provides a measure of how productively a
bank's equity has been employed.
RISK-BASED ASSETS - a regulatory method of classifying assets based on
their potential risk of loss, used in calculating various capital ratios.
Assets are classified in one of four risk categories based primarily on
credit risk and are adjusted to reflect the relative riskiness of that
category.
RISK-BASED CAPITAL RATIO - total capital divided by risk-based assets.
Total capital consists of common stockholders' equity, the allowance for
loan losses, certain components of nonpermanent preferred stock and
subordinated debt less certain intangible assets, such as goodwill.
Current regulatory minimum requires that at least an 8% ratio be
maintained.
YIELD ON INTEREST-EARNING ASSETS - total interest income divided by the
average balance of interest-earning assets.
TideMark Bancorp, Inc.
Board of Directors
Gordon L. Gentry, Jr., Chairman of the Board
James S. G. Davenport, Chairman of the Board, Davenport Dukes Associates, Inc.
Robert L. Freeman, Jr., Partner, Law firm of Jones, Blechman, Woltz
and Kelly, P.C.
John R. Lawson, II, President, W.M. Jordan Company, Inc.
Nelson L. St. Clair, Jr., President & Chief Executive Officer,
Riverside Health System
Anthony R. Santoro, President, Christopher Newport University
Robert N. Springer, President & Chief Executive Officer
Gary A. Suttle, Chief Financial Officer, Suttle Motor Corporation
Lindsay B. Trittipoe, Institutional Sales, Craigie, Inc., Investment Bankers
Alan S. Witt, Managing Partner, CPA firm of Rauch, Witt & Co.
TideMark Bancorp, Inc.
Executive Officers
Gordon L. Gentry, Jr., Chairman of the Board
Robert N. Springer, President & Chief Executive Officer
Pamela B. Lawson, Executive Vice President & Chief Financial Officer
TideMark Bank
Executive & Senior Officers
Gordon L. Gentry, Jr., Chairman of the Board
Robert N. Springer, President & Chief Executive Officer
Pamela B. Lawson, Executive Vice President & Chief Financial Officer
John M. Lunsford, Senior Vice President, Commercial Lending Division
John D. Meade, III, Senior Vice President, Retail Division
Robert L. Midgette, Senior Vice President, Mortgage-Banking Division
Ralph R. Allen, Senior Vice President & Chief Compliance Officer
Retail Banking Offices
Hidenwood Coliseum
301 Hiden Boulevard 2034 Coliseum Drive
Oyster Point Grafton
601 Thimble Shoals Boulevard Grafton Shopping Center
Newmarket Williamsburg
4910 West Mercury Boulevard 1312 Jamestown Road
Denbigh Gloucester
Sherwood Shopping Center Route 17
Old Hampton Kilmarnock
30 South Armistead Avenue Lancaster Square
Shopping Center
Mortgage Division
Residential Mortgage Origination Offices in Newport News and Chesapeake
Corporate Information
Corporate Headquarters
301 Hiden Blvd.
P.O. Box 6040
Newport News, Virginia 23606
(804) 599-1400
Corporate Counsel
Jones, Blechman, Woltz & Kelly, P.C.
Newport News, Virginia
Special Counsel
Elias, Matz, Tiernan & Herrick, L.L.P.
Washington, D.C.
Independent Certified Public Accountants
Coopers & Lybrand, L.L.P.
Newport News, Virginia
Transfer Agent
Mellon Securities Trust Company
Stockholder Relations
Four Station Square, Third Floor
Pittsburgh, Pennsylvania 15219
(412) 236-8000
Common Stock
TideMark Bancorp, Inc. common stock is traded in the over-the-counter
(OTC) market and is quoted on the National Association of Securities
Dealers Automated Quotation (NASDAQ) National Market System under the symbol
"TDMK". Most newspaper stock tables identify the stock as "TDE BNC".
As of June 30, 1994, there were approximately 1,407 stockholders of record,
not including the number of persons or entities whose stock is held
in nominee or "street" name through various brokerage firms or banks.
The following table sets forth the high and low closing sales prices of
TideMark Bancorp, Inc. common stock for the periods shown. The information
set forth below for the quarters ended prior to January 1, 1993 reflect
the closing sale prices of the common stock of TideMark Bank. At June 30,
1994 the last sale price of TideMark's common stock as reported on the NASDAQ
National Market System was $2.875.
High Low
Fiscal 1994 First Quarter $2.000 $1.500
Second Quarter 2.500 1.750
Third Quarter 2.250 1.750
Fourth Quarter 3.500 1.875
High Low
Fiscal 1993 First Quarter $2.250 $1.750
Second Quarter 2.094 1.250
Third Quarter 2.000 1.500
Fourth Quarter 2.250 1.500
Investor Information
Copies of the Company's Forms 10-K and 10-Q, as filed with the Securities
and Exchange Commission, are available without charge to stockholders
upon request. Requests for this or other financial information about
TideMark should be directed to Pamela B. Lawson, Executive Vice President and
Chief Financial Officer, P.O. Box 6040, Newport News, Virginia 23606 or
requested by calling (804) 599-1400.
ANNEX VII
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0 - 21058
TideMark Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1642520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Hiden Boulevard, Newport News, VA 23606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 599-1400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), (2) and has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $0.01 par value 6,934,484 Shares
(Title of class) Number of shares outstanding
as of October 31, 1994
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
September 30, 1994 (Unaudited) and June 30, 1994 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1994 and 1993 (Unaudited) 4
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended September 30, 1994
(Unaudited) 5
Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1994 and 1993 (Unaudited) 6
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
OTHER INFORMATION
PART II
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
21
Signatures
TideMark Bancorp, Inc.
Consolidated Statements of Financial Condition
September 30, June 30,
1994 1994
(Dollars in thousands, except per share amounts) (unaudited)
Assets
Cash $ 5,304 $ 5,843
Interest-bearing deposits in other banks --- 6,479
Trading account assets (cost $2,141) --- 1,997
Assets available for sale
Securities (cost $20,244 and $20,080) 19,822 19,722
Mortgage-backed securities (cost $67,343 and $57,056) 66,549 56,705
Loans held for sale (fair value $1,602 and $3,406) 1,591 3,331
Mortgage-backed securities (fair value $96,111 and
$99,471) 100,317 102,952
Loans receivable 173,841 170,591
Accrued interest receivable 2,432 2,304
Real estate 1,179 1,217
Premises and equipment 3,898 3,954
Federal Home Loan Bank stock, at cost 4,606 4,606
Other assets 7,872 6,875
Total assets $387,411 $386,576
Liabilities
Deposits $228,490 $232,725
Advances from Federal Home Loan Bank 73,000 73,000
Securities sold under agreements to repurchase
and other borrowings 60,507 58,111
Advance payments by borrowers for taxes and insurance 843 493
Other liabilities 5,205 3,610
Total liabilities 368,045 367,939
Stockholders' Equity
Common stock, $0.01 par value; authorized
20,000,000 shares; issued and outstanding
(6,934,484 shares at September 30, 1994
and 6,931,321 shares at June 30, 1994) 69 69
Preferred stock, $0.01 par value; authorized
5,000,000 shares; no shares issued or outstanding --- ---
Additional paid-in capital 18,216 18,191
Retained earnings 2,105 1,129
Net unrealized holding loss on assets available for
sale (1,024) (752)
Total stockholders' equity 19,366 18,637
Commitments and contingencies
Total liabilities and stockholders' equity $387,411 $386,576
See accompanying notes to unaudited consolidated financial statements.
TideMark Bancorp, Inc.
Consolidated Statements Of Operations
(unaudited)
Three Months Ended September 30,
1994 1993
(Dollars in thousands, except per share amounts)
Interest Income
Loans $3,636 $4,063
Mortgage-backed securities 2,447 1,447
Investment securities 338 281
Other 7 8
Total interest income 6,428 5,799
Interest Expense
Deposits 2,341 2,386
Advances from Federal Home Loan Bank 974 1,006
Reverse repurchase agreements and other borrowings 709 549
Total interest expense 4,024 3,941
Net interest income 2,404 1,858
Provision for Losses on Loans 11 ---
Net interest income after provision
for losses on loans 2,393 1,858
Other Income
Mortgage-banking gains 163 753
Loan fees and service charges 67 90
Loan servicing fees 157 47
Gains on sales of securities 21 28
Other 1,028 320
Total other income 1,436 1,238
Other Expense
Compensation and employee benefits 1,310 1,236
Occupancy and equipment 491 432
Federal deposit insurance premiums 173 159
Professional services 114 128
Provision for losses on real estate owned,
net of sales 61 41
(Income) losses from real estate operations (38) 69
Other 391 550
Total other expense 2,502 2,615
Income before provision for income taxes 1,327 481
Provision for Income Taxes 351 99
Net Income $ 976 $ 382
Net Earnings Per Share $ 0.14 $ .06
See accompanying notes to unaudited consolidated financial statements.
TideMark Bancorp, Inc.
Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
<TABLE>
Net Unrealized
Holding Loss Total
Common Paid-In Retained on Assets Stockholders'
Stock Capital Earnings Available for Sale Equity
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance as of June 30, 1994 $ 69 $18,191 $1,129 $(752) $18,637
Net income for the three months ended September 30,
1994 --- --- 976 --- 976
Change in net unrealized holding loss on assets
available for sale for the three months ended
September 30, 1994 --- --- --- (272) (272)
Common Stock awarded pursuant to the Key Employee
Restricted Stock Plan --- 25 --- --- 25
Balance as of September 30, 1994 $ 69 $18,216 $2,105 $(1,024) $19,366
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
TideMark Bancorp, Inc.
Consolidated Statements of Cash Flows
Three Months Ended
September 30,
1994 1993
(Dollars in thousands)
Operating Activities
Net income $ 976 $ 382
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for losses on loans 11 ---
Provision for losses on real estate owned 61 50
Depreciation 132 115
Amortization of premiums on investments 274 491
Amortization of intangible assets 120 205
Amortization of deferred loan fees (69) 83
Market value adjustment on trading account assets
and loans held for sale (75) ---
Mortgage-banking activities
Proceeds from sales of loans held for sale 5,581 9,382
Realized gains from sales of loans held for sale (30) (407)
Loan originations (6,609) (26,970)
Proceeds from sales of mortgage-backed securities
arising from securitization of mortgage loans 2,202 29,337
Principal payments on loans held for sale 5 181
Gains on sales of trading account assets (9) ---
Purchase of trading account assets (1,943) ---
Proceeds from sales of trading account assets 3,873 ---
Principal payments on trading account assets 3 ---
Gains on sales of mortgage-backed securities
available for sale (12) ---
(Gains) losses on disposal of premises and
equipment (3) (57)
Gains on sales of mortgage servicing rights (133) (298)
Gains on sales of investment securities available
for sale --- (28)
(Decrease) increase in interest receivable (128) 19
(Decrease) increase in income tax receivable (14) 65
(Decrease) increase in other assets (377) 192
Increase in other liabilities 1,823 2,245
Increase (decrease) in deferred income (39) 66
Federal Home Loan Bank stock dividend --- (66)
Net cash provided by operating activities 5,620 14,987
Investing Activities
Loan principal originations net of repayments (2,486) (3,138)
Purchase of investment securities available
for sale --- (1,629)
Purchases of mortgage-backed securities available
for sale (15,936) (2,050)
Proceeds from sales of mortgage-backed securities
available for sale 1,455 ---
Proceeds from sales of investment securities
available for sale --- 4,028
Principal repayments on mortgage-backed securities
available for sale 4,072 6,043
Purchases of investment securities (242) ---
Principal repayments on investment securities 41 69
Purchases of mortgage-backed securities held to
maturity (28) (9,898)
Principal repayments on mortgage-backed securities
held to maturity 2,630 3,896
Balances carried forward $(10,494) $(2,679)
TideMark Bancorp, Inc.
Consolidated Statements of Cash Flows (Continued)
Three Months Ended
September 30,
1994 1993
(Dollars in thousands)
Balances brought forward $(10,494) $(2,679)
Loan recoveries net of charge offs 50 50
Purchase of mortgage servicing rights (1,849) (810)
Proceeds from sales of mortgage servicing rights 472 70
Additions to real estate owned --- (474)
Proceeds from sales of real estate --- 50
Purchases of premises and equipment (77) (131)
Proceeds from sales of equipment 3 ---
Proceeds from sale of branch offices and equipment --- 70
Net capital withdrawals from real estate joint
ventures 784 ---
Net cash used in investing activities (11,111) (3,854)
Financing Activities
Net increase in non-time deposits (1,696) 9,260
Net increase (decrease) in time deposits (2,539) 829
Repayments of Federal Home Loan Bank advances (35,000) (24,800)
Proceeds from Federal Home Loan Bank advances 35,000 25,000
Net increase (decrease) in securities sold under
agreements to repurchase and other borrowings 2,333 (11,849)
Increase in advance payments by borrowers
for taxes and insurance 350 217
Issuance of stock grants 25 ---
Net cash used in financing activities (1,527) (1,343)
Increase (decrease) in cash and cash equivalents (7,018) 9,790
Cash and cash equivalents at beginning of period 12,322 5,850
Cash and cash equivalents at end of period $ 5,304 $15,640
Supplemental Schedules and Cash Flow Information
Cash and cash equivalents include
Cash $ 5,304 $ 7,611
Interest-bearing deposits in other banks --- 8,029
$ 5,304 $15,640
Supplemental disclosures of cash flow information
Cash paid for interest $ 4,057 $ 4,070
Cash paid for income taxes 378 ---
Schedule of noncash operating activities
Real estate acquired in settlement of loans,
net of allowances $ --- $ ---
Securitization of mortgage loans 2,236 29,229
See accompanying notes to unaudited consolidated financial statements.
TideMark Bancorp, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 1994
Note 1 - Basis of presentation
The consolidated financial statements included herein have been prepared by
TideMark Bancorp, Inc. (the "Company" or "TideMark") without audit, in
accordance with instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
TideMark Bancorp, Inc. is the holding company of TideMark Bank (the
"Bank"), a federally chartered savings bank. The Bank reorganized into the
holding company form of organization concurrently with the conversion of
the Bank from a Virginia chartered savings and loan association to a
federally chartered savings bank on December 31, 1992. The accompanying
statements do not include all of the information and notes required by
generally accepted accounting principles; however, in the opinion of
management, all adjustments (consisting solely of normal recurring
accruals) considered necessary for a fair presentation have been included.
The results of operations for the three months ended September 30, 1994 are
not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 1995. The consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in TideMark Bancorp, Inc.'s
Annual Report to Stockholders and Annual Report on Form 10-K for the year
ended June 30, 1994.
Note 2 - Earnings per share
Earnings per share of common stock for the three months ended September 30,
1994 and 1993 were based upon 6,937,088 and 6,931,321 shares, respectively,
representing the weighted-average number of shares outstanding during the
periods. Earnings per share would not be materially diluted by the
outstanding stock options granted pursuant to the Employee Compensatory
Stock Option Plan.
Note 3 - Sale of branch office
In October 1993, the Company announced the sale, subject to regulatory
approval and execution of a definitive agreement, of its retail branch
office in Kilmarnock, Virginia, to the Bank of Lancaster. The sale will
include the building, furniture and equipment and deposit account loans
originated in that branch location. In addition, the deposits in the
branch as of the closing date will be transferred. The application was
submitted to the Federal Reserve Bank of Richmond on January 28, 1994 and
approval was granted on August 20, 1994. The sale was completed on
November 10, 1994.
Note 4 - Acquisition of TideMark by Crestar Financial Corporation
("Crestar") On October 31, 1994, TideMark announced the execution of a
definitive agreement under which Crestar will acquire TideMark. Under
terms of the definitive agreement, TideMark shareholders will receive $5.50
per share in cash or a tax-free exchange of Crestar common stock for each
share of TideMark common stock held. The number of shares submitted for
cash may not exceed 40 percent of TideMark's total shares outstanding at
the effective date of the merger. Following approval by TideMark
shareholders and regulatory authorities, the acquisition is expected to
close early in 1995. Prior to the closing, TideMark expects to complete
two transactions that are currently pending -the purchase of eight branches
of Bay Savings, a local division of FirstFed Michigan Corporation, which is
expected to close prior to December 31, 1994, and the sale of TideMark's
Kilmarnock branch office, which was completed on November 10, 1994.
Note 5 - Reclassifications
Certain reclassifications have been made to prior period financial
statements to conform them to the current period's presentation.
Management's Discussion and Analysis
of Financial Condition and Results of Operations
GENERAL
TideMark is a savings and loan holding company which was incorporated under
the laws of the Commonwealth of Virginia in September 1992 and is the sole
shareholder of the Bank. As of September 30, 1994, the major asset of the
Company was the stock of the Bank. The Bank's primary business consists of
attracting deposits from the general public and investing such deposits,
together with other available funds, primarily in loans secured by first
mortgages on one-to-four family residential and commercial real estate
properties, mortgage-backed securities, consumer loans, United States
government and agency securities and other permissible investments.
TideMark conducts business from its corporate headquarters and home office
in the City of Newport News, Virginia, and nine additional retail offices
located in the cities of Newport News, Hampton, and Williamsburg and in the
counties of Gloucester, Lancaster, and York. In addition, the Bank
operates mortgage-origination offices in the cities of Newport News and
Chesapeake, Virginia.
FINANCIAL CONDITION
General At September 30, 1994, TideMark had assets of $387.4 million, an
increase of $835,000 over the June 30, 1994 level of $386.6 million.
Specific changes in major asset and liability categories are discussed
below.
Cash and interest-bearing deposits in other banks Cash and interest-
bearing deposits in other banks decreased by $7.0 million from $12.3
million at June 30, 1994 to $5.3 million at September 30, 1994. The
decrease was primarily attributable to the transfer of trustee accounts for
loans serviced for certain agency investors from a commercial bank to
TideMark Bank, together with the investment of a $6.0 million overnight
investment account balance as of June 30, 1994 into mortgage-backed
securities.
Mortgage-backed securities available for sale Mortgage-backed securities
available for sale increased by $9.8 million from June 30, 1994 to $66.5
million at September 30, 1994. The increase resulted from purchases of
$15.9 million, partially offset by sales totaling $1.5 million and
principal repayments of $4.1 million.
Mortgage-backed securities Mortgage-backed securities being held to
maturity totaled $100.3 million as of September 30, 1994, a decrease of
$2.6 million from the June 30, 1994 level as the result of net principal
repayments.
Loans held for sale Loans held for sale, which consist of residential one-
to-four family loans originated by the mortgage division, decreased by $1.7
million from June 30, 1994 to a level of $1.6 million at September 30,
1994, as the result of reduced financing and refinancing activity occuring
due to rising interest rates.
Loans receivable The Bank's lending activities continue to be focused
primarily on the origination of single-family residential, small
commercial, commercial real estate, consumer and residential construction
loans secured by properties located in its local community. The net loan
portfolio totaled $173.8 million at September 30, 1994, an increase of $3.3
million since June 30, 1994. The increase was primarily the result of the
receipt of a note having a carrying value of $1.3 million in partial
settlement of a joint venture which was liquidated during the quarter, and
commercial, consumer and residential originations totaling $5.0 million,
partially offset by principal repayments totaling $2.5 million.
The following table sets forth information concerning the composition of
the Company's loan portfolio by type of loan at the dates indicated.
September 30, 1994 June 30, 1994
Amount % Amount %
(Dollars in thousands)
Loans receivable
Real estate loans:
Residential
Existing property
One-to-four family $ 86,359 49.68% $ 85,898 50.35%
Multi-family 2,430 1.40 2,560 1.50
Construction, one-to-four family 16,262 9.35 17,481 10.25
Commercial
Existing property 54,772 31.51 55,416 32.48
Construction 1,100 0.63 1,425 0.84
Loans to facilitate the sale of
real estate owned 6,252 3.60 6,263 3.67
167,175 96.17 169,043 99.09
Less:
Loans in process 10,937 6.29 11,522 6.75
Deferred fees and discounts 1,646 0.95 818 0.48
Allowance for losses 4,429 2.55 4,395 2.58
Net real estate loans 150,163 86.38 152,308 89.28
Commercial business loans 7,998 4.60 7,318 4.29
Consumer and other loans 20,470 11.77 19,166 11.24
Less:
Loans in process and unused
lines of credit 4,531 2.61 7,957 4.67
Unearned income 9 --- 21 0.01
Allowance for losses 250 0.14 223 0.13
Net consumer loans 23,678 13.62 18,283 10.72
Net loans receivable $173,841 100.00% $170,591 100.00%
Deposits Deposits totaled $228.5 million as of September 30, 1994, a
decrease of $4.2 million or 1.8% from the June 30, 1994 levels of $232.7
million. Deposit outflows largely reflect the preference of consumers to
move funds from shorter-term investments (money market accounts and short-
term certificates) into higher yielding, intermediate-term products in
reaction to rising market interest rates.
The following table shows the distribution of and weighted-average rates
paid on the Company's deposits by type of deposit as of the dates
indicated:
September 30, June 30,
(Dollars in thousands) 1994 1994
% of Average % of Average
Type of Account Balance Deposits Rate Balance Deposits Rate
Demand deposits $ 12,599 5.52% ---% $ 10,365 4.45% ---%
NOW accounts 12,735 5.57 2.35 12,114 5.21 2.34
Money market deposit
accounts 37,799 16.54 3.25 41,022 17.63 3.17
Savings deposits 21,362 9.35 2.75 22,690 9.75 2.92
Time deposits 143,995 63.02 4.96 146,534 62.96 4.72
Total deposits and
weighted average
rates $228,490 100.00% 4.05% $232,725 100.00% 3.94%
Other borrowed money Deposit outflows have resulted in the Company
increasing its short-term borrowings since June 30, 1994 by $2.4 million,
or 4.1%, to $60.5 million as of September 30, 1994.
Stockholders' equity Net earnings of $976,000 for the first quarter of
fiscal 1995, partially offset by net unrealized holding losses on available
for sale securities of $272,000 combined to increase TideMark's
stockholders' equity to $19.4 million as of September 30, 1994 from $18.6
million at June 30, 1994. The Bank meets all of its current regulatory
capital requirements, as discussed more fully in the "Regulatory Capital
Requirements" section.
RESULTS OF OPERATIONS
Overview The Company reported net income of $976,000 or $0.14 per share
for the three months ended September 30, 1994, an increase of 155.5% over
earnings of $382,000 or $0.06 per share for the same period of the prior
year.
Net interest income Net interest income for the first fiscal quarter
totaled $2.4 million, an increase of $546,000 or 29.4% over the same
quarter of the prior fiscal year. The Company's net interest margin (net
interest income divided by average interest-earning assets) was 2.65% for
the first quarter of fiscal 1995, compared with 2.13% for same period of
the prior year. TideMark's net interest income has been positively
affected by improving yields on the loan portfolio resulting from decreased
nonperforming asset levels and adjustable-rate loans repricing upward as
market interest rates rise, and improved performance in the mortgage-backed
securities portfolio, where rapid prepayment activity in the prior year
caused a reduction in yields. As a result, TideMark's yield on earning
assets increased to 7.08% for the three months ended September 30, 1994
from 6.64% for the same period of the prior year. Net interest income has
also benefitted from increasing levels of demand accounts, as well a shift
by customers, during much of fiscal 1994, into shorter-term, lower-costing
funds, resulting in a 30 basis point decline in the average cost of the
Company's deposits for the first quarter of fiscal 1995 to 4.01% as
compared to the same period last year. Offsetting such benefits has been
an increase in the Company's cost of short-term borrowings of 44 basis
points from prior year levels to 5.33% for the first quarter of fiscal
1995, reflecting rising market interest rates.
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company
from interest-earning assets and resultant average yields, (ii) the total
dollar amount of interest expense on interest-bearing liabilities and the
resultant average cost, (iii) net interest income, (iv) interest rate
spread and (v) net yield on interest-earning assets. Average balances are
determined on a monthly basis.
<TABLE>
Three Months ended September 30,
1994 1993
(Dollars in thousands) Average Average
Average Yield/ Average Yield/
Balance Interest Rate1 Balance Interest Rate1
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $178,800 $3,636 8.14% $204,666 $4,063 7.94%
Mortgage-backed securities 164,166 2,447 5.96 126,195 1,447 4.59
Investment securities 20,086 338 6.72 17,435 281 6.45
Other interest-earning assets 589 7 4.95 1,170 8 2.65
Total interest-earning assets 363,641 6,428 7.08 349,466 5,799 6.64
Interest-bearing liabilities:
Deposits 231,486 2,341 4.01 219,594 2,386 4.31
FHLB advances and other borrowings 126,111 1,683 5.33 126,496 1,555 4.89
Total interest-bearing liabilities 357,597 4,024 4.48 346,090 3,941 4.52
Net interest-earning assets and
interest rate spread $ 6,044 2.60% $ 3,376 2.12%
Net interest income $2,404 $1,858
Net yield on average interest-earning
assets 2.65% 2.13%
</TABLE>
1 Annualized, based on interest methods appropriate for each type of
asset or liability
Provisions for losses on loans and real estate owned TideMark reviews the
adequacy of the allowance for losses on loans and real estate owned on a
quarterly basis with appraisals performed and fair value evaluations made
as deemed appropriate. While the establishment of provisions for losses
requires management to make many assumptions and estimates relating to the
economy, interest rates, the industries in which the Company has loan
concentrations, and the ability of the borrowers to perform as agreed,
management believes the loss allowances currently established are adequate
at this time to cover potential losses from known and inherent credit risk.
See also "Asset Quality" for a discussion of the Company's nonperforming
assets and classified assets at September 30, 1994.
The following table sets forth information regarding the Company's
allowances for losses on loans, real estate owned ("REO") and equity
investments for the three months ended September 30, 1994:
Allowances for Losses on
Equity
Loans Receivable REO Investments
General Specific Total Specific Specific Total
(Dollars in thousands)
Balance at July 1, 1994 $3,768 $850 $4,618 $620 $ 782 $6,020
Provision for losses 11 --- 11 61 --- 72
Charge-offs (2) --- (2) --- (782) (784)
Recoveries 52 --- 52 --- --- 52
Sales of REO --- --- --- --- --- ---
Balance at September 30,
1994 $3,829 $850 $4,679 $681 $ --- $5,360
Based on valuations of the loans in its portfolio, the Company provided an
additional $11,000 to its general allowance for loans during the three
months ended September 30, 1994. The net recoveries of $52,000 experienced
with respect to loans during the three months ended September 30, 1994,
were primarily the result of recoveries experienced in liquidating the loan
portfolio of Community Finance Company ("CFC"), a former subsidiary of the
Bank.
The provision for losses on REO properties totaled $61,000 for the three
months ended September 30, 1994 compared with $50,000 for the three months
ended September 30, 1993. The current fiscal year's provision relates to
several residential properties and was made to reduce their carrying values
to the estimated fair value of the properties.
During the quarter, an equity investment carrying a specific valuation
allowance of $782,000 was liquidated with TideMark receiving a note and
stock from the managing partner in settlement of its equity interest. As a
result, the specific allowance related to such asset was reversed and
recognized as income during the quarter. See "Asset Quality" for a
description of the equity investment resolution.
Other income Other income totaled $1.4 million for the three months ended
September 30, 1994, an increase of $198,000 or 16.0% over the same period
of the prior year. Gains on sales of loans held for sale totaled $163,000
for the three months ended September 30, 1994, down from $753,000, for the
same period in the prior year. The level of gains experienced during the
first quarter of fiscal 1995 reflect the effect of rising market interest
rates, which have significantly curtailed loan financing and refinancing
activity, as well as narrowed gains on existing pipelines of loans
originated for sale. Loan servicing fees for the first quarter of fiscal
1995 totaled $157,000, an increase of 234.0% over the same period of the
prior year. The increase in fees resulted from the purchase of the $199.7
million loan servicing portfolio of Bay Savings Bank, a division of First
Federal of Michigan ("Bay Savings"), which was completed in September 1994,
and the slower amortization of purchased mortgage servicing rights
resulting from the rise in market interest rates. Other income totaled
$1.0 million for the three months ended September 30, 1994, an increase of
$708,000 over the same period of the prior year. The increase is the
result of the equity investment recovery described above.
Other expense Other expense decreased by $113,000 or 4.3% from the quarter
ended September 30, 1993 to $2.5 million for the three months ended
September 30, 1994, primarily as the result of decreases in REO costs,
along with certain other operating expenses which have been curtailed in
anticipation of the acquisition of Tidemark by Crestar.
Provision for income taxes The Bank's provision for income taxes totaled
$351,000 or 26.5% of income before taxes for the three months ended
September 30, 1994. The primary reason for the effective tax rate being
lower than the statutory rate relates to the tax treatment of the
dissolution of the equity investment discussed above.
ASSET QUALITY
Nonperforming assets Nonperforming assets consist of nonaccrual loans,
accruing loans past due 90 days or more, real estate acquired in settlement
of loans or deemed in-substance foreclosure, real estate held for
development or resale, equity investments in troubled projects, and
formally restructured loans which are classified as troubled debt
restructurings. Generally, the accrual of income is discontinued if
management believes, after considering economic conditions, the borrower's
financial condition, and collection efforts, that the collection of
principal or interest is in doubt, or when the payment of principal and
interest has become contractually 90 days past due.
Following are balances of assets, net of specific loss allowances of
$707,000 and $1.5 million at September 30, 1994 and June 30, 1994,
respectively, considered by management to be nonperforming as of the dates
indicated:
September 30, June 30,
1994 1994
(Dollars in thousands)
Nonaccrual loans
Residential, 1-4 family homes $ 868 $ 887
Multi-family 235 578
Hospitality industry 2,346 2,464
Other commercial 195 43
Consumer 24 152
Accruing loans past due 90 days or more --- ---
3,668 4,124
Real estate acquired in settlement of loans or
in-substance foreclosure
Residential, 1-4 family homes 392 431
392 431
Real estate held for development or resale 786 786
Equity investment --- 782
Total nonperforming assets 4,846 6,123
Troubled debt restructurings 7,535 7,549
Total nonperforming assets and troubled debt
restructurings $12,381 $13,672
Ratio of nonperforming assets to total assets 1.25% 1.58%
Ratio of nonperforming assets and troubled debt
restructurings to total assets 3.20% 3.54%
Nonperforming assets and troubled debt restructurings decreased by $1.3
million from the June 30, 1994 level of $13.7 million to $12.4 million as
of September 30, 1994.
Nonaccrual loans Nonaccrual loans decreased by $456,000 from the June 30,
1994 level to $3.7 million as of September 30, 1994, largely as the result
of the prepayment and refinance of two individual loans on multi-family
properties with a single investor which were on nonaccrual status as of
June 30, 1994.
Equity Investment During the first quarter of fiscal 1995, VM Investors, a
joint venture in which Dominion Motor Inns, Inc. ("DMI"), a subsidiary of
TideMark Bank, was a partner was liquidated. DMI received a note from the
managing partner, Fairfield Communities, Inc. ("Fairfield"), with a face
amount of $2.1 million and shares of common stock in Fairfield having a
market value of $346,000 in settlement of its joint venture investment,
which had a carrying value of approximately $800,000. As a result, DMI
recovered $781,500 which was previously reserved as the result of the
Fairfield filing for reorganization under Federal Bankruptcy laws in
October 1990. The remaining recovery in excess of the previously reserved
amount (approximately $800,000) will be accreted into income in future
periods.
Asset classification. In addition to rating loans according to their
performance, the Bank has adopted a policy concerning the classification of
problem assets, pursuant to applicable OTS regulations. Under the policy,
problem loans and other assets are classified into three categories: (i)
substandard, (ii) doubtful and (iii) loss.
An asset is classified Substandard if it is determined to involve a
distinct possibility that the Bank could sustain some loss if deficiencies
associated with the loan are not corrected. An asset is classified as
Doubtful if full collection is highly questionable or improbable. An asset
is classified as Loss if it is considered uncollectible, even if a partial
recovery could be expected in the future. The Bank also evaluates assets
deserving "special mention" which, while not necessarily exposing the Bank
to loss, do possess potential credit deficiencies or potential weaknesses
deserving management's close attention. If an asset is classified pursuant
to the Bank's policies, or by regulatory examiners, specific allowances for
loan losses may be established. If an asset is classified as Loss, the
Bank establishes a specific allowance in an amount equal to 100% of the
portion of the asset classified Loss or charges off that amount. According
to procedures established by the Bank in fiscal 1990, general loan loss
allowances are provided against all loans based upon their classification.
Certain percentage general allowances are provided for all loan amounts
with increasing percentage provisions made as classification levels
indicate increased concern with asset quality. Such percentages are
subject to periodic review and adjustment to take into account current
market conditions as well as historical experience.
The following table details information concerning the Bank's classified
assets, net of allowance for losses, at September 30, 1994 and June 30,
1994.
<TABLE>
September 30, 1994 June 30, 1994
Sub- Sub-
standard Doubtful Loss Total standard Doubtful Loss Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Loans Receivable
Residential $ 799 $--- $--- $ 799 $ 826 $--- $--- $ 826
Multi-family 235 --- --- 235 578 --- --- 578
Hospitality Industry 13,329 --- --- 13,329 13,629 --- --- 13,629
Other Commercial Real Estate 179 --- --- 179 181 --- --- 181
Consumer 48 24 --- 72 172 30 --- 202
14,590 24 --- 14,614 15,386 30 --- 15,416
Real Estate Acquired in
Settlement of Loans Residential 393 --- --- 393 431 --- --- 431
393 --- --- 393 431 --- --- 431
Real Estate Held for Development 786 --- --- 786 786 --- --- 786
Equity Investment --- --- --- --- --- 782 --- 782
Total Classified Assets $15,769 $ 24 $--- $15,793 $16,603 $812 $--- $17,415
% of Total Assets 4.07% 0.01% --- 4.08% 4.29% 0.21% --- 4.50%
</TABLE>
Classified assets decreased by $1.6 million from June 30, 1994 levels to
$15.8 million as of September 30, 1994, largely as the result of the
changes discussed above under "Asset Quality - Nonperforming assets."
LIQUIDITY
Liquidity represents the TideMark's ability to maintain sufficient cash
flows to fund its operations and to meet financial obligations to its
depositors and borrowers, while pursuing business opportunities as they
arise. The OTS, as the primary regulator of the Bank, establishes minimum
liquidity requirements which are measured by the ratio of cash and eligible
investments to the sum of net withdrawable savings and borrowings due
within one year. TideMark is currently required to maintain a minimum
liquidity level of 5% with 1% being in short-term assets. At September 30,
1994 and June 30, 1994, TideMark's total qualifying liquid assets were
$20.4 million and $17.0 million, respectively, resulting in average
liquidity ratios of 5.9% and 5.1%, respectively.
In addition to funds provided by continuing operations, the principal
sources of funds for the Company for the three months ended September 30,
1994 included $1.5 million from sales of assets available for sale, $6.7
million in principal payments on mortgage-backed securities and $5.6
million in proceeds from the sale of loans held for sale. Funds were used
primarily to fund deposit outflows of $4.2 million, to fund loan
originations totaling $6.6 million, to purchase mortgage-backed securities
held to maturity and available for sale totaling in the aggregate $16.0
million, and to purchase mortgage servicing rights from Bay Savings for
$1.8 million.
Another indicator of a bank's liquidity is the ability to reprice interest-
earning assets and interest-bearing liabilities. The differences between
asset and liability repricing characteristics, or the "gap", is an
approximate measure of interest rate sensitivity. At September 30, 1994,
TideMark had a cumulative negative gap of $26.2 million, or 6.8% of assets
in the one-year time period and $40.5 million, or 10.4% of assets in the
three-year time period, respectively. The Company's negative gap has been
a primary contributor to the increased earning capacity of the Company in
periods of declining interest rates, such as much of the past two years.
The Company has a program to reduce its exposure to movements in market
interest rates, largely by using interest-rate caps and longer-term
borrowings, to minimize the effect of such interest-rate movements on
earnings. In order to further reduce exposure to rising interest rates and
improve branch profitability, the Company entered into a definitive
agreement on July 12, 1994 to purchase the deposits of the eight local
branches of Bay Savings. This transaction is expected to be consummated
prior to December 31, 1994. Under the agreement, TideMark will assume
approximately $66.0 million of customer deposits consisting largely of
fixed-rate, fixed-term time deposits and transaction accounts which are
generally considered to be less sensitive to interest rate fluctuations
than indicated by their contractual terms.
The following table displays the distribution of the Company's interest-
earning assets and interest-bearing liabilities at September 30, 1994,
maturing or repricing over various time periods, adjusted for estimated
loan prepayments, deposit decay and for the effect of its interest-rate
caps and swaps:
<TABLE>
Maturity/Rate Sensitivity at September 30, 1994
0-6 7-12 1-3 3-5 More than 5
Months Months Years Years Years Total
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning
assets $108,931 $87,486 $70,872 $53,842 $55,927 $377,058
Interest-bearing
liabilities 203,597 64,043 55,130 23,070 15,629 361,469
(Deficiency) excess of
interest-earning assets
over interest-bearing
liabilities (94,666) 23,443 15,742 30,772 40,298 15,589
Effect of interest-rate caps and
exchange agreements (1) 45,000 --- (30,000) (15,000) --- ---
Adjusted GAP $(49,666) $ 23,443 $(14,258) $15,772 $40,298 $15,589
Cumulative adjusted GAP $(49,666) $ (26,223) $(40,481) $(24,709) $ 15,589 $ ---
Cumulative adjusted GAP as
a percent of total assets (12.8%) (6.8%) (10.4%) (6.4%) 4.0% ---
(1) Interest-rate caps are included at 100% of their
notional amounts. The strike rates, or the rates which
the index (the three-month London Interbank Offering
Rate, "LIBOR") must exceed before the Company would be
entitled to interest payments range from 5.0% to 6.0%.
As of September 30, 1994, the three-month LIBOR was
5.50%.
</TABLE>
TideMark's Asset/Liability Management Committee ("ALCO") is responsible for
formulating liquidity strategies and monitoring performance based on
guidelines approved by the Board of Directors. As of September 30, 1994,
the Company's gap position was within guidelines set by the Board of
Directors. The Company's liquidity position is monitored daily, and gap
positions are actively managed on a regular basis by the ALCO to ensure
continued compliance and sound business practices.
REGULATORY CAPITAL REQUIREMENTS
Under FIRREA and implementing OTS regulations, the Bank is currently
required to maintain (i) core capital equal to 3.0% of adjusted total
assets, (ii) tangible capital equal to 1.5% of adjusted total assets, and
(iii) risk-based capital equal to 8.0% of risk-weighted assets. The
requirements and methods for calculating the same are described in detail
in the 1994 Annual Report to Stockholders and Annual Report on Form 10-K
for the year ended June 30, 1994.
At September 30, 1994, TideMark Bank was in compliance with all current
regulatory capital ratio requirements of the Office of Thrift Supervision
("OTS"), with a tangible ratio of 4.67%, a core capital ratio of 4.69% and
a risk-based capital ratio of 10.88%. These exceeded regulatory
requirements as described above. In August 1993, the OTS adopted a final
rule incorporating an interest-rate risk component into the risk-based
capital requirement, which is described in the Company's Annual Report.
The deduction from capital for any institution having greater than "normal"
interest-rate risk was scheduled to begin in September 1994; however, on
October 13, 1994 the OTS extended that date to March 31, 1995, to allow for
the completion of an appeals process by institutions who believe the OTS
calculated deduction to be inaccurate, as well as to assess how the
proposal relates to the requirements of Section 309 of the recently passed
Riegle Community Development and Regulatory Improvement Act, which
established standards for a regulatory appeals process for certain
"material supervisory determinations."
The new regulation is not expected to have a material effect on the Bank's
regulatory capital position.
Following is a reconciliation of the Bank's consolidated stockholders'
equity for financial reporting purposes to its tangible, core and risk-
based capital available to meet its regulatory requirements:
September 30, June 30,
1994 1994
(Dollars in thousands) (unaudited)
Stockholders' equity of TideMark
as reported in the accompanying
financial statements $19,366 $18,637
Less:
Capitalization of parent company 23 23
Goodwill 145 148
Other intangible assets 183 98
Phase-out of investment in non-includable subsidiary 602 513
Nonqualifying deferred tax asset 390 197
Tangible capital of the Bank 18,023 17,658
Plus qualifying intangibles 77 98
Core capital of the Bank 18,100 17,756
Plus supplementary capital:
Allowable general loss reserves 2,363 2,344
Less phase-out of equity investments 50 30
Risk-based capital $20,413 $20,070
The following information presents the Bank's capital levels and ratios
relative to its minimum capital requirements:
September 30, June 30,
1994 1994
Amount % Amount %
(Dollars in thousands) (unaudited)
Tangible capital $18,023 4.67% $17,658 4.58%
Tangible capital requirement 5,791 1.50% 5,782 1.50%
Excess $12,232 3.17% $11,876 3.08%
Core capital $18,100 4.69% 17,756 4.61%
Core capital requirement 11,584 3.00% 11,566 3.00%
Excess $6,516 1.69% $6,190 1.61%
Risk-based capital $20,413 10.88% $20,070 10.79%
Risk-based capital requirement 15,008 8.00% 14,887 8.00%
Excess $5,405 2.88% $5,183 2.79%
Due to its relatively high level of classified assets, the OTS has retained
certain provisions of the Bank's Supervisory Agreement entered into on
August 23, 1990, even though the lending restrictions were removed in
fiscal year 1992 upon achievement of capital compliance.
Under the remaining terms of the Supervisory Agreement, the Bank is
required to conduct its lending activities in a manner consistent with a
three-year business plan and adhere to the Bank's loan underwriting
policies and procedures as submitted to the OTS. Provisions of the
Supervisory Agreement require the Bank to submit quarterly status reports
of classified assets and to review quarterly the sufficiency of general and
specific valuation allowances, review and revise annually the three-year
business plan previously submitted and to discontinue the indirect lending
activities of CFC. The Bank is in compliance in all material respects
with the remaining provisions of the Supervisory Agreement.
During fiscal 1994, the Bank was subject to certain growth restrictions as
contained in Regulatory Bulletin 3a-1. Effective August 19, 1994, these
growth restrictions were removed, subject to the condition that TideMark
adhere to the projections contained in its fiscal 1995 operating budget.
CURRENT REGULATORY DEVELOPMENTS
Major current developments in accounting and regulatory requirements are
discussed in the Corporation's 1994 Annual Report and Form 10-K, which are
available without charge upon written request. Requests for these and
other financial information about the Company or the Bank should be
directed to Pamela B. Lawson, Executive Vice President and Chief Financial
Officer, 301 Hiden Boulevard, P. O. Box 6040, Newport News, Virginia,
23606.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits - none.
(B) Reports
Report on Form 8-K dated July 29, 1994 announcing the execution of a
definitive agreement whereby TideMark will acquire the branch offices,
deposits and loan servicing rights of Bay Savings, the Newport News-based
division of First Federal of Michigan.
Report on Form 8-K dated September 29, 1994 announcing the execution of a
binding Letter Agreement dated September 20, 1994 whereby TideMark would
be acquired by Crestar Financial Corporation ("Crestar").
Report on Form 8-K dated November 4, 1994 announcing the execution of a
definitive agreement on October 31, 1994 whereby Crestar would acquire
TideMark and TideMark would be merged with and into Crestar.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant:
TideMark Bancorp, Inc.
Date: November 10, 1994 \s\ Robert N. Springer
Robert N. Springer
President and Chief Executive
Officer
Date: November 10, 1994 \s\ Pamela B. Lawson
Pamela B. Lawson
Executive Vice President and
Chief Financial Officer
TIDEMARK BANCORP, INC.
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints the Board of Directors of TideMark Bancorp,
Inc. ("TideMark"), with full power of substitution, to act as proxies for the
undersigned and to vote all shares of common stock of TideMark which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be
held on February 2, 1995, at 10:00 a.m., local time, at the Holiday Inn
Hampton - Coliseum Hotel and Conference Center, 1815 West Mercury Boulevard,
Hampton, Virginia, and at any and all adjournments thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
This proxy, when properly executed, will be voted as directed on the
reverse side. If not direction is made, this proxy will be voted FOR each of
the proposals listed. If any other business is properly presented at the
Annual Meeting, this proxy will be voted by the proxies in their discretion.
The undersigned acknowledges receipt prior to the execution of this proxy
of a Notice of Annual Meeting of Shareholders and of a Proxy Statement/
Prospectus dated December 30, 1994.
Please sign exactly as your name appears on
this card. When signing as attorney, executor,
administrator, trustee or guardian, please
give your full title. If shares are held
jointly, each holder may sign, but only one
signature is required.
Dated , 199
Signature
Signature
(Continued on the reverse side)
The Board of Directors recommends that shareholders vote FOR Proposals 1, 2,
3 and 4, below.
1. The approval of and adoption of the Agreement and Plan of Reorganization and
related Plans of Merger dated October 31, 1994 (the "Merger Agreement"),
among TideMark, TideMark Bank, Crestar Financial Corporation ("Crestar") and
Crestar Bank, providing for the merger of TideMark with and into Crestar
(the "Merger") as more fully described in the accompanying Proxy Statement/
Prospectus pursuant to which each share of common stock of TideMark outstanding
as of the effective date of the Merger will be converted into and become a
right to receive the number of shares of common stock of Crestar (and
associated stock rights) or cash as determined in the manner specified in the
accompanying Proxy Statement/Prospectus and the Merger Agreement.
FOR AGAINST ABSTAIN
2. The election of Directors of TideMark:
John R. Lawson, II, Anthony R. Santoro, Gary A. Suttle
FOR all nominees except WITHHOLD AUTHORITY
as marked to the contrary. to vote for all nominees
listed above.
(INSTRUCTION: To withhold authority to vote for any nominees, write that
nominee's name on the line below.)
3. The ratification of the appointment by the Board of Directors of Coopers
& Lybrand L.L.P. as independent auditors of TideMark for the fiscal year ending
June 30, 1995.
FOR AGAINST ABSTAIN
4. The proposal to approve an adjournment of the Annual Meeting to another
date, time and/or place for the purpose of soliciting additional proxies in
favor of the Merger Agreement in the event that there are not sufficient
votes at the time of the Annual Meeting to approve the Merger Agreement.
FOR AGAINST ABSTAIN
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any adjournment
thereof.
CRESTAR FINANCIAL CORPORATION
TIDEMARK BANCORP, INC.
CASH OPTION ELECTION
AND
LETTER OF TRANSMITTAL
IMPORTANT: TO BE EFFECTIVE, THIS ELECTION FORM AND LETTER OF
TRANSMITTAL MUST BE RECEIVED BY TIDEMARK NO LATER THAN 10:00 A.M. ON
FEBRUARY 2, 1995 (THE "ELECTION DEADLINE"), TOGETHER WITH CERTIFICATE(S)
REPRESENTING SHARES OF TIDEMARK COMMON STOCK TO WHICH THIS CASH OPTION
ELECTION AND LETTER OF TRANSMITTAL RELATES.
To TideMark Bancorp, Inc.
301 Hiden Boulevard
Newport News, Virginia 23606
Gentlemen:
On February 2, 1995 at the 1994 Annual Meeting of shareholders of
TideMark Bancorp, Inc. ("TideMark"), shareholders will consider an
Agreement and Plan of Reorganization (the "Agreement") dated as of October
31, 1994 among Crestar Financial Corporation ("Crestar"), Crestar Bank,
TideMark and TideMark Bank ("TideMark Bank"). The Agreement provides for
the merger of TideMark into Crestar (the "Holding Company Merger") and the
merger of TideMark Bank into Crestar Bank (the "Bank Merger") with the
conversion of TideMark Common Stock into Crestar common stock or, at the
election of the TideMark shareholder, cash. TideMark Common Stock is being
valued at $5.50 per share in the Holding Company Merger.
The Agreement requires TideMark shareholders who elect to exchange
some or all of their shares of TideMark Common Stock in the Holding Company
Merger for cash to make such election prior to the 1994 Annual Meeting of
Stockholders of TideMark called to consider and vote upon the Agreement
(the "Annual Meeting"). Certificates for the shares being exchanged for
cash must be submitted to TideMark at or prior to such meeting. Such
certificates are enclosed with this letter. Failure to return this Cash
Option Election Form by the Election Deadline will result in the conversion
of all shares of TideMark Common Stock being converted into Crestar common
stock.
I elect to exchange the number of shares of TideMark Common Stock
designated below for $5.50 cash per share (subject to all applicable
withholding taxes). I enclose the certificates for such shares.
I understand that the total number of shares of TideMark common stock
that may be exchanged for cash is subject to proration as described in "The
Holding Company Merger -- Cash Election; Election Procedures" in the Proxy
Statement/Prospectus dated December 30, 1994. TideMark shares not eligible
to be exchanged for cash will be exchanged for Crestar common stock.
I understand that if the Holding Company Merger is approved by
TideMark shareholders at the Annual Meeting, this election to receive cash
is irrevocable. TideMark will retain the certificates for shares submitted
for cash purchase in escrow until either termination of the Agreement, upon
which TideMark promptly will return such certificates, or the Effective
Time of the Holding Company Merger, when Crestar Bank, as exchange agent
(the "Exchange Agent"), will exchange such certificates for cash.
Description of Shares of TideMark Common Stock Submitted for Cash
Name and Address of Registered Holder(s) Certificate(s) Enclosed
(Kindly note address changes) (Attach list if necessary)
Nos. of
Certificate # Shares
I (We) have, and at the Effective Time of the Holding Company Merger
will have, full power and authority to sell the shares represented by the
certificate(s) submitted. I (We) certify that the information provided on
this form is true, and that when such shares are accepted for exchange by
Crestar, Crestar will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, changes and not subject to any adverse
claim. I (we) am not subject to backup withholding due to notified payee
underreporting. It is understood that this Election is subject to the
terms, conditions and limitations set forth in the Agreement, the Proxy
Statement/Prospectus and this Cash Option Election and Letter of
Transmittal. Holders of TideMark Common Stock should consult their own
advisors as to the tax consequences of making this cash election. The
undersigned, upon request, will execute and deliver any additional
documents necessary or desirable to complete the exchange of shares under
the Agreement. The undersigned hereby constitutes and appoints the
Exchange Agent as his, her or its true and lawful agent and attorney-in-
fact to effect such surrender of the shares and, if necessary under the
Agreement, to transfer the shares on the books of TideMark. The
undersigned represents that he, she or it has read and agreed to all of the
terms and conditions set forth herein and in the Proxy State-
ment/Prospectus. Delivery of the enclosed certificate(s) shall be
effected, and the risk of loss and title to such certificate(s) shall pass,
only upon proper delivery thereof to the Exchange Agent. All authority
herein conferred shall survive the death or incapacity of the undersigned,
and each of them, and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of
the undersigned. In no event will TideMark, the Exchange Agent or Crestar
be liable to a holder of shares of TideMark Common Stock for any Crestar
common stock or dividends thereon or cash delivered in good faith to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
Sign Here: Date Here:
Please insert your Social ____________________ ______, 199__
Security or other tax
identifying number below ____________________
(Signature(s) of
Registered Owner(s))
Please sign exactly as
name appears
on stock
certificate(s).
See Instruction 2.
Special Instructions
Fill in only if MAILING is to be made other than in the name or to the
address specified above.
Special Mailing Instructions
Mail To:
Name
_____________________________________________
(Type or print)
_____________________________________________
Address ______________________________________
(Number) (Street)
__________________________________ ___________
(City) (State) (Zip)
Fill in only if PAYMENT is to be made other than in the name(s) specified
above.
Special Payment Instructions
Issue Check To:
Name
________________________________________
(Type or print)
Address
______________________________________
____________________________________________
Social Security or Taxpayer
Identification Number _______________________
_____________________________________________
IMPORTANT TAX INFORMATION
PURPOSE OF FORM
Use this form to report the Taxpayer Identification Number of the
record owner of the account to the payer.
Under Federal income tax laws, payers (i.e., Crestar) must generally
withhold 31% of taxable interest, dividend, and certain other payments if
you fail to furnish payers with the correct Taxpayer Identification Number
(this is referred to as backup withholding).
To prevent backup withholding on these payments, be sure to notify the
payer of the correct Taxpayer Identification Number. You must use this
form to certify that the Taxpayer Identification Number you are giving to
the payer is correct and that you are not subject to backup withholding.
WHAT NUMBER TO GIVE THE PAYER
Give the payer the Social Security number or employer identification
number of the record owner of the account. If the account belongs to you
as an individual, give your Social Security number. If the account is in
more than one name or is not in the name of the actual owner, give the
Social Security number as follows:
Type of Account Social Security Number of:
- - Two or more individuals The actual owner of the account,
including husband and wife or if combined funds, any one
(joint account) of the individuals
- - Custodian account of minor The minor
(Uniform Gift to Minors Act)
- - Adult and minor (joint account) The adult, or if the minor is the only
contributor, the minor
- - Account in the name of a guardian The ward, minor or incompetent person
or committee for a designated
ward, minor, or incompetent
SUBSTITUTE FORM W-9
Under penalties of perjury, I certify (i) that the number shown below
is my correct Taxpayer Identification Number and (ii) that I am not subject
to backup withholding because: (a) I am exempt from backup withholding, or
(b) I have not been notified that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the
Internal Revenue Service has notified me that I am no longer subject to
backup withholding. (Note: You must strike out item (ii) above if you have
been notified by the Internal Revenue Service that you are currently
subject to backup withholding because of underreporting interest or
dividends on your tax returns.)
Tax Identification or (X)___________________
Social Security Number:_______ Signature
Date: __________________, 199__
Instructions for Submitting Certificates of TideMark Bancorp, Inc. Common
Stock
1. General. This form must be filled in, dated and signed, and
accompanied by your certificate or certificates for shares of TideMark
Common Stock prior to the Election Deadline. Proper delivery is at risk of
the owner. If sent by mail, registered mail is suggested. Mail or deliver
to: TideMark Bancorp, Inc., 301 Hiden Boulevard, Newport News, Virginia
23606.
2. Signatures. The signature (or signatures in the case of certificates
owned by two or more joint holders) on the Letter of Transmittal should
correspond exactly with the name(s) as written on the face of the
certificates.
If the certificate(s) transmitted hereby is registered in the name of two
or more joint holders, all such holders must sign the Letter of
Transmittal.
If surrendered certificates are registered in different ways on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
such certificates.
If the Letter of Transmittal is signed by a person other than the record
holder of the certificate(s) listed, the certificate(s) must be endorsed or
accompanied by appropriate stock powers, in either case signed by the
record holder(s) in the name(s) that appears on the certificate(s) and the
signature(s) must be guaranteed by a member of a national securities
exchange or of the National Association of Securities Dealers, Inc., or a
United States commercial bank or trust company.
3. Fiduciaries and Representatives. If a Letter of Transmittal, an
endorsement or a certificate or a stock power is signed by a trustee,
executor, administrator, guardian, officer of a corporation, attorney-in-
fact, or other person in any representative or fiduciary capacity, the
person signing, unless such person is the record holder of the shares, must
give such person's full title in such capacity and appropriate evidence of
authority to act in such capacity must be forwarded with the Letter of
Transmittal.
The certificate(s) may be surrendered by a firm acting as agent for
the registered holder(s) if such firm is a member of a registered national
securities exchange or of the National Association of Securities Dealers or
is a commercial bank or trust company in the United States.
4. Time in Which to Submit Certificates. Certificate(s) for TideMark
Common Stock must be submitted prior to TideMark's annual meeting of
shareholders on February 2, 1995 at 10:00 a.m. See "The Holding Company
Merger -- Cash Election; Election Procedures" in the Proxy
Statement/Prospectus.
5. Special Payment Required. If a request is made that the check be made
payable to other than the person or entity whose name is specified above,
the person requesting the issuance of such check must first remit to the
Exchange Agent any transfer or other taxes required by reason of such
issuance, or establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not applicable.
6. Lost Certificates. If any certificate representing shares of TideMark
Common Stock has been lost, stolen or destroyed, the stockholder should
immediately contact TideMark at the telephone number set forth below. This
Cash Option Election cannot be processed until such certificates have been
replaced.
7. Determination of Questions. All questions with respect to this Cash
Option Election and Letter of Transmittal will be determined by the
Exchange Agent, whose determination shall be conclusive and binding. The
Exchange Agent shall have the exclusive right to reject any and all Cash
Option Elections and Letters of Transmittal not in proper form or to waive
any irregularities in any such Form, although it does not represent that it
will do so.
All questions concerning the validity of this form will be determined by
TideMark and/or Crestar Bank and will be final and binding.
Questions and Requests for Assistance may be Directed to TideMark at (804)
559-1400.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies thatit has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4and has duly caused this registration
statement to be signed on its behalf by the undersigned,thereunto duly
authorized, in the City of Richmond, Commonwealth of Virginia, on December
30, 1994.
CRESTAR FINANCIAL CORPORATION
(Registrant)
By:/s/ John C. Clark, III
John C. Clark, III
Corporate Senior Vice
President, General Counsel
and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statementhas been signed by the following persons in the
capacities indicated on December 30, 1994. Each of the directors and/or
officers of Crestar Financial Corporation whose signature appears below hereby
appoints John C. Clark, III, Lathan M. Ewers, Jr. and David M. Carter, and
each of them severally, as his attorney-in-fact to sign in his name and
behalf, in any and all capacities stated below and to file with the
Commission, any and all amendments, including post-effectiveamendments
to this registration statement, making such changes in the registration
statement as appropriate, and generally to do all such things in their behalf
in their capacities as officers and directors to enable Crestar Financial
Corporation to comply with the provisions of the Securities Act of 1933,
and all requirements of the Securities and Exchange Commission.
Signature Title
/s/ Richard G. Tilghman Chairman of the Board and
Richard G. Tilghman and Chief Executive Officer
and Director(Principal Executive
Officer)
/s/ James M. Wells, III President and Director
James M. Wells, III
/s/ Patrick D. Giblin Vice Chairman of the Board
Patrick D. Giblin and Chief Financial Officer and
Director (Principal Financial
and Accounting Officer)
/s/ Richard M. Bagley Director
Richard M. Bagley
/s/ J. Carter Fox Director
J. Carter Fox
/s/ Bonnie Guiton Hill Director
Bonnie Guiton Hill
/s/ Gene A. James Director
Gene A. James
/s/ Charles R. Longsworth Director
Charles R. Longsworth
/s/ Patrick J. Maher Director
Patrick J. Maher
/s/ Frank E. McCarthy Director
Frank E. McCarthy
/s/ G. Gilmer Minor Director
G. Gilmer Minor
/s/ Gordon F. Rainey Director
Gordon F. Rainey
/s/ Frank S. Royal, M.D. Director
Frank S. Royal, M.D.
/s/ L. Dudley Walker Director
L. Dudley Walker
/s/ Karen Hastie Williams Director
Karen Hastie Williams
