As filed with the Securities and Exchange Commission on August 29, 1997
Registration No. 333-_____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
CRESTAR FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 6711 54-0722175
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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 and General Counsel
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. JOHN J. GORMAN
Hunton & Williams Luse, Lehman, Gorman, Pomerenk & Schick
951 East Byrd Street 5335 Wisconsin Avenue, NW
Richmond, Virginia 23219-4074 Washington, DC 20015
(804) 788-8269 (202) 274-2001
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 the following box. [ ]
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Title of Each Class of Maximum Amount Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered To Be Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $5.00 par
value per share 2,672,000 shares(1) $19.72(2) $52,691,840(2) $15,968
Preferred Share Purchase
Rights(3) 2,672,000 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 in
accordance with Rule 457(f)(1) for American National Bancorp, Inc. Common
Stock, with the market value of American National Bancorp, Inc. Common
Stock being exchanged in the transaction for Crestar Financial Corporation
Common Stock based on the average of the high and low prices for American
National Bancorp, Inc. Common Stock on The Nasdaq National Market on
___________ ____, 1997.
(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 Financial Corporation.
-----------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CRESTAR FINANCIAL CORPORATION
CROSS-REFERENCE SHEET
<TABLE>
<S> <C>
Item of Form S-4 Location in Prospectus
- ---------------- ----------------------
1. Forepart of Registration Statement and Facing Page; Cross Reference Sheet; Outside Front
Outside Front Cover Page of Cover Page of Prospectus
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page of Prospectus; Table of
Pages of Prospectus Contents; Available Information; Incorporation of
Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Summary; Comparative Per Share Data
Fixed Charges and Other Information
4. Terms of the Transaction Summary; The Holding Company Merger;
Comparative Rights of Shareholders; Annex I;
Annex II; Annex III
5. ProForma Financial Information Pro Forma Condensed Financial Information
6. Material Contracts with the Company Not Applicable
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Legal Opinions
Counsel
9. Disclosure of Commission's Position Not Applicable
on Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Available Information; Incorporation of Certain
Registrants Information by Reference; Summary
11. Incorporation of Certain Information Incorporation of Certain Information by Reference
by Reference
12. Information with Respect to S-2 or S- Not Applicable
3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
14. Information with Respect to Not Applicable
Registrants Other than S-2 or S-3
Registrants
-1-
<PAGE>
15. Information with Respect to S-3 Available Information; Incorporation of Certain
Companies Information by Reference; Summary; Supervision
and Regulation; Business of American National;
Price Range of American National Common Stock
and Dividend Policy; Experts
16. Information with Respect to S-2 or Not Applicable
S-3 Companies
17. Information with Respect to Not Applicable
Companies other than S-2 or S-3
Companies
18. Information if Proxies, Consents or Incorporation of Certain Information By Reference;
Authorizations are to be Solicited Summary -- American National Special Meeting; The
Holding Company Merger; Summary -- No Dissenter's
Rights
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited,
or in an Exchange Offer
</TABLE>
-2-
<PAGE>
[American National Bancorp, Inc. Letterhead]
____________ __, 1997
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of American National Bancorp, Inc. ("American National")
to be held at ___________________, ______, ________, on ________ __, 1997 at
__:__ _.m. This is a very important meeting regarding your investment in
American National.
At the Special Meeting, you will be asked to consider and vote upon the
Agreement and Plan of Reorganization, dated as of June 23, 1997, by and among
American National, American National Savings Bank, F.S.B., Crestar Financial
Corporation ("Crestar"), and Crestar Bank, and a related Plan of Merger
(together, the "Agreement") pursuant to which American National will be acquired
by Crestar (the "Holding Company Merger").
In connection with the Holding Company Merger, each share of American
National Common Stock outstanding immediately prior to consummation of the
Holding Company Merger (other than shares held directly by Crestar) will be
converted into shares of Crestar Common Stock or, subject to certain
limitations, exchanged for cash, as described in the accompanying Proxy
Statement/Prospectus. Shareholders of American National who elect to receive
cash rather than shares of Crestar common stock must make such election and
submit certain material at or prior to the Special Meeting as discussed in more
detail in the accompanying Proxy Statement/Prospectus.
Consummation of the Holding Company Merger is conditional upon, among
other things, receipt of all required shareholder and regulatory approvals. Your
Board of Directors 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 American National. The Board of Directors has received the
opinion of Keefe Bruyette & Woods, Inc., American National's financial advisor,
to the effect that, as of the date of such opinion and based on the
consideration described therein, the consideration to be received by American
National's shareholders in the Holding Company Merger is fair to them from a
financial point of view.
The exchange of American National Common Stock for Crestar Common Stock
(other than cash paid in lieu of fractional shares) will be a tax-free
transaction for federal income tax purposes.
We have enclosed a Notice of the Special Meeting, a Proxy
Statement/Prospectus containing a discussion of the Agreement and the Holding
Company Merger and a proxy card to record your vote on the matter. 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 Special 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 a majority of all outstanding shares
of American National Common Stock 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.
Sincerely,
A. Bruce Tucker
President and Chief Executive Officer
<PAGE>
AMERICAN NATIONAL BANCORP, INC.
211 North Liberty Street
Baltimore, Maryland 21201
(410) 752-0400
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On ________ __, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") has been called by the Board of Directors of American
National Bancorp, Inc. ("American National") and will be held at
___________________, ______, ________, on ________ __, 1997 at __:__ _.m. local
time.
A proxy card and a Proxy Statement/Prospectus for the Special Meeting
are enclosed. The Special Meeting is for the purpose of considering and voting
upon the following matters:
1. Proposed Transaction. To consider and vote upon the Agreement and
Plan of Reorganization, dated as of June 23, 1997 among Crestar Financial
Corporation ("Crestar"), Crestar Bank, American National and American National
Savings Bank, F.S.B. and a related Plan of Merger (together, the "Agreement"),
providing for the acquisition of American National by Crestar. The Agreement is
attached to the accompanying Proxy Statement/Prospectus as Annex I.
2. Such other matters as may properly be presented for consideration at
the Special Meeting.
Only those holders of American National Common Stock of record at the
close of business on ________ __, 1997 are entitled to notice of and to vote at
the Special Meeting, and any adjournment thereof. The affirmative vote of the
holders of a majority of the issued and outstanding shares of American National
Common Stock entitled to vote at the Special Meeting is required to approve the
Agreement.
By Order of the Board of Directors,
----------------------------------
Secretary
________ __, 1997
Baltimore, Maryland
THE BOARD OF DIRECTORS OF AMERICAN NATIONAL RECOMMENDS THAT THE HOLDERS OF
AMERICAN NATIONAL COMMON STOCK VOTE TO APPROVE THE HOLDING COMPANY MERGER
PROPOSAL.
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.
<PAGE>
PROXY STATEMENT
AMERICAN NATIONAL BANCORP, INC.
Special Meeting of Shareholders
to be Held on
________ __, 1997
------------
PROSPECTUS
OF
CRESTAR FINANCIAL CORPORATION
Common Stock
------------
This Proxy Statement/Prospectus is being furnished to the holders of
common stock, par value $0.01 per share ("American National Common Stock"), of
American National Bancorp, Inc., a Delaware corporation ("American National"),
in connection with the solicitation of proxies by the American National Board of
Directors (the "American National Board") for use at the Special Meeting of
American National shareholders to be held at __:__ _.m. on ________ __, 1997, at
___________________, ______, ________ (the "Special Meeting").
At the Special Meeting, shareholders of record of American National
Common Stock as of the close of business on ________ __, 1997 (the "Record
Date"), will consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization, dated as of June 23, 1997, and a related Plan of Merger
(together, the "Agreement"), by and among Crestar Financial Corporation, a
Virginia corporation ("Crestar"), Crestar Bank, a Virginia banking corporation
wholly-owned by Crestar ("Crestar Bank"), American National and American
National Savings Bank, F.S.B., a federal savings bank wholly-owned by American
National ("Savings Bank"), pursuant to which, among other things, American
National will merge with and into Crestar (the "Holding Company Merger").
Immediately thereafter, Savings Bank will merge into Crestar Bank (the "Bank
Merger") (the Holding Company Merger, and the Bank Merger are referred to
together as the "Transaction"). Upon consummation of the Holding Company Merger,
expected to occur no earlier than November 6, 1997 and prior to December 31,
1997, each share of American National Common Stock (other than shares held
directly by Crestar) shall be converted into (upon an American National
shareholder's election) either (i) $20.25 in cash (provided that in the
aggregate the number of shares that may be exchanged for cash shall not exceed
40% of the number of outstanding shares of American National Common Stock
immediately prior to the Effective Time of the Holding Company Merger) or (ii) a
fraction of a share of common stock of Crestar, par value $5.00 per share
("Crestar Common Stock") determined in accordance with the Exchange Ratio. The
"Exchange Ratio" shall be calculated as follows: (i) if the average closing
price of Crestar Common Stock as reported on the New York Stock Exchange (the
"NYSE") for each of the 10 trading days ending on the tenth day prior to the
Effective Time of the Holding Company Merger (the "Average Closing Price") is
between $30 and $50, the Exchange Ratio shall be the quotient (rounded to the
nearest one-thousandth) of (A) $20.25 divided by (B) the Average Closing Price;
(ii) if the Average Closing Price is $50 or greater, the Exchange Ratio shall be
0.405; and (iii) if the Average Closing Price is $30 or less, the Exchange Ratio
shall be 0.675. Outstanding options to purchase American National Common Stock
will be converted into options to purchase Crestar Common Stock using the same
Exchange Ratio and such options will cover up to 233,116 additional shares of
Crestar Common Stock. Based on the closing price of Crestar Common Stock on the
NYSE on August 6, 1997, such shares and options had a market value of
approximately $10.8 million. See "The Holding Company Merger -- Determination of
Exchange Ratio and Exchange of Crestar Common Stock." For a description of the
Agreement, which is included herein in its entirety as Annex I to this Proxy
Statement/Prospectus, see "The Holding Company Merger."
<PAGE>
This Proxy Statement/Prospectus also constitutes a prospectus of
Crestar in respect of the shares of Crestar Common Stock to be issued to
shareholders of American National in connection with the Holding Company Merger.
The outstanding shares of Crestar Common Stock are, and the shares offered
hereby will be, listed on the NYSE.
All information contained in this Proxy Statement/Prospectus relating
to Crestar and its subsidiaries has been supplied by Crestar and all information
relating to American National and its subsidiaries has been supplied by American
National. This Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to shareholders of American National on or about ________ __,
1997.
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 OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is __________, 1997.
<PAGE>
<TABLE>
<S> <C>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION.................................................................................. 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................................................... 2
SUMMARY................................................................................................ 3
Parties to the Transaction.................................................................... 3
American National Special Meeting............................................................. 4
Vote Required; Record Date.................................................................... 4
The Holding Company Merger.................................................................... 4
The Exchange Ratio............................................................................ 4
Cash Election................................................................................. 5
Reasons for the Holding Company Merger; Recommendations of the American National Board........ 5
Opinion of Financial Advisor.................................................................. 6
No Dissenter's Rights......................................................................... 6
Conditions to Consummation.................................................................... 6
Business of Crestar and American National Pending the Holding Company Merger.................. 6
Waiver and Amendment; Termination............................................................. 6
Interests and Conflict of Interests of Certain Persons in the Holding Company Merger.......... 7
Resale of Crestar Common Stock................................................................ 7
Certain Federal Income Tax Consequences of the Transaction.................................... 7
Effective Time................................................................................ 7
Stock Option Agreement........................................................................ 7
Market Prices Prior to Announcement of the Transaction........................................ 8
Comparative Per Share Data.................................................................... 8
COMPARATIVE PER SHARE DATA............................................................................. 10
Selected Financial Data....................................................................... 11
AMERICAN NATIONAL SPECIAL MEETING...................................................................... 15
Vote Required................................................................................. 16
Recommendation................................................................................ 16
THE HOLDING COMPANY MERGER............................................................................. 16
Background of the Holding Company Merger...................................................... 16
Reasons for the Holding Company Merger; Recommendations of the American National Board........ 17
Opinion of Financial Advisor.................................................................. 19
Effective Time of the Holding Company Merger.................................................. 22
Determination of Exchange Ratio and Exchange of
American National Common Stock for Crestar Common Stock................................................ 22
Cash Election; Election Procedures............................................................ 23
Business of American National and Crestar Pending the Holding Company Merger.................. 23
Conditions to Consummation of the Holding Company Merger...................................... 24
Stock Option Agreement........................................................................ 25
Waiver and Amendment; Termination...................................................................... 26
Accounting Treatment.......................................................................... 27
Operations after the Holding Company Merger................................................... 27
Interests of Certain Persons in the Holding Company Merger.................................... 27
Stock Options................................................................................. 28
i
<PAGE>
Effect on American National Employee Benefits Plans.................................................... 29
Certain Federal Income Tax Consequences....................................................... 30
BUSINESS OF CRESTAR.................................................................................... 33
BUSINESS OF AMERICAN NATIONAL.......................................................................... 34
PRICE RANGE OF AMERICAN NATIONAL COMMON STOCK
AND DIVIDEND POLICY.................................................................................... 35
PRICE RANGE OF CRESTAR COMMON STOCK
AND DIVIDEND POLICY.................................................................................... 36
OWNERSHIP OF AMERICAN NATIONAL COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS.............................................................................. 37
OWNERSHIP OF CRESTAR COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS........................................................................... 39
SUPERVISION AND REGULATION OF CRESTAR.................................................................. 39
Bank Holding Companies........................................................................ 39
Capital Requirements.......................................................................... 40
Limits on Dividends and Other Payments........................................................ 40
Crestar Bank.................................................................................. 41
Other Safety and Soundness Regulations........................................................ 41
DESCRIPTION OF CRESTAR CAPITAL STOCK................................................................... 42
Common Stock.................................................................................. 42
Preferred Stock............................................................................... 42
Rights........................................................................................ 42
Virginia Stock Corporation Act................................................................ 43
COMPARATIVE RIGHTS OF SHAREHOLDERS..................................................................... 44
Capitalization................................................................................ 44
Amendment of Articles or Bylaws............................................................... 44
Required Shareholder Vote for Certain Actions................................................. 45
Director Nominations.......................................................................... 45
Directors and Classes of Directors; Vacancies and Removal of Directors........................ 45
Anti-Takeover Provisions...................................................................... 46
Preemptive Rights............................................................................. 47
Assessment.................................................................................... 47
Conversion; Redemption; Sinking Fund.......................................................... 47
Liquidation Rights............................................................................ 47
Dividends and Other Distributions............................................................. 47
Special Meetings of Shareholders.............................................................. 48
Indemnification............................................................................... 48
Shareholder Proposals......................................................................... 48
Shareholder Inspection Rights; Shareholder Lists.............................................. 49
Shareholder Rights Plan....................................................................... 49
Dissenters' Rights............................................................................ 49
RESALE OF CRESTAR COMMON STOCK......................................................................... 49
ii
<PAGE>
EXPERTS................................................................................................ 50
LEGAL OPINIONS......................................................................................... 50
OTHER MATTERS.......................................................................................... 50
ANNEX I -- Agreement and Plan of Reorganization dated as of June 23, 1997 and related Holding
Company Plan of Merger
ANNEX II -- Stock Option Agreement dated as of June 23, 1997
ANNEX III -- Fairness Opinion of Keefe Bruyette & Woods, Inc.
ANNEX IV -- American National's 1996 Annual Report to Shareholders
ANNEX V -- American National's Quarterly Report on Form 10-Q for the three months ended April 30,
1997
</TABLE>
iii
<PAGE>
AVAILABLE INFORMATION
Crestar and American National are subject to the reporting and
informational requirements of the Securities Exchange Act of 1934, as amended
(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 Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611-2511 or 7 World Trade Center, Suite 1300, (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. The SEC also maintains a web site that contains
reports, proxy statements, information statements and other information
regarding registrants that file electronically, including Crestar and American
National, with the SEC at http://www.sec.gov. 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 American National. 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, as amended
(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 or
proxy solicitation 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 American National. 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 or proxy solicitation 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 AMERICAN NATIONAL 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, P. O. BOX 26665, 919 EAST MAIN STREET, RICHMOND, VIRGINIA
23261-6665, (804) 782-7152. AMERICAN NATIONAL DOCUMENTS ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST FROM THE SECRETARY, AMERICAN NATIONAL BANCORP, INC., 211
NORTH LIBERTY STREET, BALTIMORE, MARYLAND 21201, (410) 752-0400. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY ________
__, 1997.
1
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Crestar with the SEC are incorporated
by reference in this Proxy Statement/Prospectus: (i) Crestar's Annual Report on
Form 10-K for the year ended December 31, 1996; (ii) Crestar's Quarterly Reports
on Form 10-Q for the three month periods ended March 31, 1997 and June 30, 1997;
(iii) the description of Crestar Common Stock in Crestar's registration
statement filed under the Exchange Act with respect to Crestar Common Stock on
July 1, 1993; and the description of the Rights in Crestar's registration
statement on Form 8-A filed under the Exchange Act with respect to the Rights on
June 26, 1989.
The following documents filed by American National with the SEC are
incorporated by reference in this Proxy Statement/Prospectus: (i) American
National's Annual Report on Form 10-K for the year ended July 31, 1996; (ii)
American National's Quarterly Reports on Form 10-Q for the periods ended October
31, 1996, January 31, 1997, and April 30, 1997; and (iii) American National's
Current Report on Form 8-K dated July 3, 1997.
All documents filed by Crestar and American National 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 American National Special 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 by and among Crestar, Crestar Bank, American National and Savings
Bank, dated as of June 23, 1997, which is attached to this Proxy
Statement/Prospectus as Annex I, and the Stock Option Agreement by and among
Crestar and American National dated as of June 23, 1997, which is attached to
this Proxy Statement/Prospectus as Annex II.
CERTAIN INFORMATION REGARDING AMERICAN NATIONAL
As required by regulations of the Securities and Exchange Commission,
certain American National documents are included (without exhibits) as annexes
to this Proxy Statement/Prospectus. American National's Annual Report to its
Shareholders for the fiscal year ended July 31, 1996, is included as Annex IV,
and American National's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 30, 1997 is included as Annex V. Annexes IV and V (excluding any
documents incorporated by reference therein or exhibits thereto) are part of
this Proxy Statement/Prospectus and should be carefully reviewed for information
they contain regarding American National. The documents incorporated by
reference by, or included as exhibits to, either Annex IV or Annex V are not
part of this Proxy Statement/Prospectus or the Registration Statement.
2
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding Crestar, American National and the matters to be
considered at the American National Special Meeting. In the opinion of Crestar
and American National, the information appearing elsewhere or incorporated by
reference in this Proxy Statement/Prospectus, Annexes hereto, and the documents
referred to herein, contain all such material facts.
Shareholders are urged to carefully read all such information.
Parties to the Transaction
Crestar. Crestar is the holding company for Crestar Bank. At June 30,
1997, Crestar had approximately $22.8 billion in total assets, $15.8 billion in
total deposits and $1.9 billion in total stockholders' 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, Loyola Federal Savings Bank, Baltimore, on December 31, 1995, and
Citizens Bank on December 31, 1996. On September 1, 1987, UVB was renamed
Crestar Financial Corporation. On November 14, 1996, all of Crestar's banking
subsidiaries were consolidated into Crestar Bank.
Crestar conducts its banking business through Crestar Bank, which
serves customers through a network of 481 banking locations and 514 automated
teller machines (as of June 30, 1997). Crestar Bank 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 Crestar Asset Management Company,
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, Washington, D.C., and Baltimore, Maryland.
Crestar's principal Operations Center is located in Richmond. See "Business of
Crestar."
American National. American National is the holding company for Savings
Bank. At April 30, 1997, American National had approximately $505.3 million in
total assets, $329.5 million in total deposits and $45.3 million in total
stockholders equity.
The executive offices of American National are located at 211 North
Liberty Street, Baltimore, Maryland 21201. See "Business of American National."
Savings Bank is a federal savings bank through which American National
conducts its banking business. Savings Bank is primarily engaged in the business
of attracting deposits from the general public in its market area, which
consists of Baltimore City and parts of the Maryland counties of Baltimore,
Howard, Harford, Anne Arundel, and Carroll, and investing such deposits together
with other funds in loans collateralized by one- to four-family residential real
estate, mortgage-backed securities, and, to a lesser extent, construction and
land development loans, consumer loans and investment securities.
3
<PAGE>
American National Special Meeting
The American National Special Meeting will be held on ________ __, 1997
at __:__ _.m. at ___________________, ______, ________. The purpose of the
Special Meeting is to consider and vote upon a proposal to approve the
Agreement, including the related Plan of Merger. See "American National Special
Meeting."
Vote Required; Record Date
Only American National shareholders of record at the close of business
on ________ __, 1997 (the "Record Date") will be entitled to vote at the Special
Meeting. The affirmative vote of the holders of a majority of the shares
outstanding on such date is required to approve the Agreement. As of the Record
Date, there were __________ shares of American National Common Stock entitled to
be voted.
The directors and executive officers of American National and their
affiliates beneficially owned, as of the Record Date, _________ shares or
approximately _____% of the outstanding shares of American National Common
Stock. Six of the seven American National directors have agreed to vote their
shares in favor of approval of the Agreement. The directors and executive
officers of Crestar and their affiliates beneficially owned, as of the Record
Date, a total of less than 1% of the outstanding shares of American National
Common Stock. See "American National Special Meeting."
The Holding Company Merger
Pursuant to the Agreement, at the Effective Time of the Holding Company
Merger (as defined herein), American National will merge with and into Crestar
in accordance with the Holding Company Plan of Merger whereby the separate
existence of American National will cease. At the Effective Time of the Holding
Company Merger, each outstanding share of American National Common Stock (other
than shares held directly by Crestar, which shall be canceled without payment
therefore) will be converted, based on the Exchange Ratio, into and represent
the right to receive (upon an American National shareholder's election) either
(i) a number of shares of Crestar Common Stock determined by the Exchange Ratio,
subject to adjustment as set forth in the Agreement or (ii) $20.25 in cash
(provided that the number of shares that may be exchanged for cash shall not
exceed 40% of the number of outstanding shares of American National Common
Stock). Cash will be paid in lieu of fractional shares of Crestar Common Stock.
At the Effective Time of the Holding Company Merger, each share of American
National Common Stock held by Crestar, excluding shares held in a fiduciary
capacity, shall be canceled, retired and cease to exist, and no exchange or
payment shall be made with respect thereto. Crestar does not directly hold any
shares of American National Common Stock.
Immediately following the Effective Time of the Holding Company Merger,
Savings Bank will merge into Crestar Bank in accordance with the Bank Plan of
Merger, and the separate existence of Savings 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 Ratio
For the purpose of determining the Exchange Ratio, each share of
American National Common Stock has been valued at $20.25 (the "Common Stock
Price Per Share"). In the Holding Company Merger, each share of American
National Common Stock (other than shares held directly by Crestar and shares to
be exchanged for cash) shall be converted, based on the Exchange Ratio, into a
fraction of a share of Crestar Common Stock determined in accordance with the
Exchange Ratio. The "Exchange Ratio" shall be calculated as follows: (i) if the
average closing price of Crestar Common Stock as reported on the NYSE for each
of the 10 trading days ending on the tenth day prior to the Effective Time of
the Holding Company Merger (the "Average Closing Price") is between $30 and $50,
the Exchange Ratio shall be the quotient (rounded to the nearest one-thousandth)
of (A) $20.25 divided by (B)
4
<PAGE>
the Average Closing Price; (ii) if the Average Closing Price is $50 or greater,
the Exchange Ratio shall be 0.405; and (iii) if the Average Closing Price is $30
or less, the Exchange Ratio shall be 0.675.
Outstanding options to acquire American National Common Stock that were
granted under American National's stock option plans (the "American National
Options"), other than the Option held by Crestar described below, shall be
converted 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 American National Common Stock under
the American National Option divided by the Exchange Ratio. The number of shares
of Crestar Common Stock subject to a Crestar Option shall be equal to the number
of shares of American National Common Stock subject to the American National
Option multiplied by the Exchange Ratio. Except as provided in the preceding
sentences regarding the price of, and number of shares of Crestar Common Stock
subject to, a Crestar Option, the terms of a Crestar Option shall be the same as
the terms of an American National Option.
Cash Election
Holders of American National Common Stock will be given the option of
exchanging all or any part of their shares for $20.25 cash per share of American
National Common Stock. The number of shares exchanged for cash may not exceed
40% of the number of outstanding shares of American National Common Stock
immediately prior to the Effective Time of the Holding Company Merger. Because
the number of shares exchanged for cash may not exceed 40% of the outstanding
shares of American National Common Stock, the extent to which the cash elections
will be accommodated will depend upon the number of American National
shareholders who elect to receive cash. Accordingly, an American National
shareholder who elects to receive cash may instead receive shares of Crestar
Common Stock (plus cash in lieu of fractional shares).
IF AN AMERICAN NATIONAL SHAREHOLDER ELECTS TO SURRENDER SHARES FOR
CASH, HE MUST FILE THE CASH OPTION FORM ACCOMPANYING THIS PROXY
STATEMENT/PROSPECTUS PRIOR TO OR AT THE AMERICAN NATIONAL SPECIAL MEETING. ANY
AMERICAN NATIONAL SHAREHOLDER WHO DOES NOT COMPLETE AND RETURN A CASH OPTION
FORM PRIOR TO OR AT THE AMERICAN NATIONAL SPECIAL 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 AMERICAN NATIONAL SPECIAL MEETING, THE CASH
ELECTION IS IRREVOCABLE. THE CASH OPTION FORM MUST BE ACCOMPANIED BY THE STOCK
CERTIFICATES TO BE EXCHANGED FOR CASH.
See "The Holding Company Merger -- Cash Election; Election Procedures."
Reasons for the Holding Company Merger; Recommendations of the American National
Board
The American National Board believes that the terms of the Holding
Company Merger and the Agreement are fair to, and in the best interests of,
American National and its shareholders and has adopted the Agreement. In
considering the terms and conditions of the Holding Company Merger, the American
National Board considered, among other things: the financial terms of the
Holding Company Merger; the fact that the Holding Company Merger would qualify
as a tax-free reorganization; the financial condition and history of performance
of Crestar; the advantage of risk diversification associated with ownership in
an institution operating in a broader geographic area; the opinion of its
financial advisor, Keefe Bruyette & Woods, Inc. ("Keefe Bruyette"), that the
consideration to be received in the Holding Company Merger is fair to the
holders of American National Common Stock from a financial point of view; and
the operational and competitive benefits of the Holding Company Merger. The
American National Board also considered that the historical dividends per share
and net income per share of the Crestar Common Stock to be received by the
holders of American National Common Stock, after giving effect to the Exchange
Ratio, represent a substantial increase in the historical dividends per share
and net income per share of American National Common Stock, although there can
be no assurance that pro forma amounts are indicative of future dividends or
income per share of Crestar Common Stock. See "The Holding Company Merger --
5
<PAGE>
Background to the Holding Company Merger," " -- Reasons for the Holding Company
Merger; Recommendation of the American National Board," and " -- Opinion of
Financial Advisor."
THE AMERICAN NATIONAL BOARD RECOMMENDS THAT THE HOLDERS OF AMERICAN
NATIONAL COMMON STOCK VOTE TO APPROVE THE PROPOSED HOLDING COMPANY MERGER.
Opinion of Financial Advisor
American National has received the opinion of Keefe Bruyette that the
Common Stock Price Per Share is fair to the holders of American National Common
Stock from a financial point of view. Keefe Bruyette's opinion is directed only
to the Common Stock Price Per Share and does not constitute a recommendation to
any holders of American National Common Stock as to how such holders should vote
at the American National Special Meeting or as to any other matter. American
National paid Keefe Bruyette a cash fee of $50,000 upon the delivery of the
fairness opinion and $50,000 when the Proxy Statement/Prospectus was mailed, and
will pay Keefe Bruyette $290,000 upon consummation of the Holding Company
Merger. For additional information concerning Keefe Bruyette and its opinion,
see "The Holding Company Merger -- Opinion of Financial Advisor." The opinion of
such firm, which sets forth the assumptions made, matters considered and limits
on the review undertaken, is attached as Annex III to this Proxy
Statement/Prospectus.
No Dissenter's Rights
Holders of American National Common Stock entitled to vote on the
Agreement and the related Holding Company Plan of Merger do not have dissenter's
rights in accordance with Delaware General Corporation Law.
Conditions to Consummation
Consummation of the Holding Company Merger would be accomplished by the
statutory merger of American National into Crestar and consummation of the Bank
Merger would be accomplished by the statutory merger of Savings Bank into
Crestar Bank. The Holding Company Merger and the Bank Merger are contingent upon
approvals of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), the Office of Thrift Supervision (the "OTS"), and the State
Corporation Commission of Virginia (the "SCC"), which approvals have been
applied for and are expected to be received. The Holding Company Merger is also
subject to other usual conditions, including receipt by Crestar and American
National of the legal opinion of Hunton & Williams, counsel to Crestar, 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, as
amended (the "Code"). See "The Holding Company Merger -- Conditions to
Consummation of the Holding Company Merger."
Business of Crestar and American National Pending the Holding Company Merger
American National has agreed to carry on its operations only in the
ordinary course of business and not to take certain actions relating to the
operation of its business pending consummation of the Holding Company Merger
without notice to or the approval of Crestar, including the payment of cash
dividends other than the regular quarterly cash dividends consistent with its
practice in effect in its fiscal quarter ended April 30, 1997. Crestar has
agreed that it will conduct its operations only in the ordinary course of
business consistent with past practice and not to take certain actions. See "The
Holding Company Merger -- Business of Crestar and American National Pending the
Holding Company Merger."
Waiver and Amendment; Termination
Crestar and American National may amend or modify the Agreement at any
time, except that, after the vote by the shareholders of Crestar and American
National, no such amendment or modification may be made which reduces or changes
the form and amount of consideration payable pursuant to the Agreement without
further
6
<PAGE>
shareholder approval. If at any time before the Effective Time of the Holding
Company Merger, a material term of the Agreement or Holding Company Plan of
Merger is amended, the American National Board will postpone or reschedule the
American National Special Meeting (or, if necessary, call additional shareholder
meetings), to vote on the Agreement and Holding Company Plan of Merger, as
amended, and resolicit proxies for use at such meeting.
Crestar and American National each has the right, acting unilaterally,
to terminate the Agreement should the Holding Company Merger not be consummated
by March 31, 1998 and prior to that time upon the occurrence of certain events.
See "The Holding Company Merger -- Waiver and Amendment; Termination."
Interests and Conflict of Interests of Certain Persons in the Holding Company
Merger
Certain members of American National's management and the American
National Board have interests and conflicts of interest in the Holding Company
Merger in addition to their interests as shareholders of American National
generally. These include, among other things, provisions in the Agreement
requiring Crestar to honor existing employment and severance agreements with A.
Bruce Tucker, Joseph M. Solomon, James M. Uveges and Mark S. Barker,
indemnification and directors and officers liability insurance coverage for
American National's directors and officers, and eligibility for certain Crestar
employee benefits. For additional information concerning the employment
agreements, see "The Holding Company Merger -- Interests and Conflicts of
Interest of Certain Persons in the Holding Company Merger." All American
National Options are issued pursuant to plans previously approved by the
shareholders of American National.
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" of American National 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 an American National Shareholder for any shares of American
National Common Stock or in lieu of a fractional share of Crestar Common Stock
will be a taxable transaction. In the opinion of Hunton & Williams, counsel to
Crestar, the Holding Company Merger and the Bank Merger each will qualify as a
"reorganization" as defined in Section 368(a) of the Code. A condition to
consummation of the Holding Company Merger is the receipt by Crestar and
American National of substantially the same opinion from Hunton & Williams as of
the Closing Date. See "The Holding Company Merger -- Certain Federal Income Tax
Consequences."
Effective Time
The Holding Company Merger will become effective on the date and time
specified in the Articles of Merger for the Holding Company Merger to be filed
with the Delaware Secretary of State and the SCC. The Bank Merger will become
effective on the date and time specified in the Articles of Merger for the Bank
Merger to be filed with the OTS and the SCC. The Effective Time of the Holding
Company Merger is to be not later than March 31, 1998, and is expected no
earlier than November 6, 1997 and prior to December 31, 1997.
Stock Option Agreement
Crestar and American National have entered into a Stock Option
Agreement, dated as of June 23, 1997 (the "Option Agreement"), pursuant to which
American National issued to Crestar an option (the "Option") to purchase up to
792,000 shares of American National Common Stock at a purchase price of $16.125
per share. The Option may be exercised in whole or in part, at any time or from
time to time if a Purchase Event (as defined therein) shall have occurred and be
continuing. The Option Agreement provides that to the extent that it shall have
7
<PAGE>
not been exercised, the Option shall terminate (i) on the Effective Date of the
Holding Company Merger; (ii) upon termination of the Agreement in accordance
with the provisions thereof (other than a termination resulting from a willful
breach by American National of certain specified covenants contained therein or,
following the occurrence of a Purchase Event (as defined therein), failure of
American National's shareholders to approve the Agreement by the vote required
under applicable law or under American National's certificate of incorporation);
or (iii) 12 months after termination of the Agreement due to a willful breach by
American National of certain specified covenants contained therein or, following
the occurrence of a Purchase Event (as defined therein), failure of American
National shareholders to approve the Agreement by the vote required under
applicable law or under American National's charter. The 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 table discloses the price per share of Crestar Common
Stock and American National Common Stock based on the last reported sales prices
per share of Crestar Common Stock on the NYSE Composite Transactions Tape and of
American National Common Stock on The Nasdaq National Market on June 20, 1997,
the last trading day preceding the public announcement of the proposed
Transaction. See "Price Range of American National Common Stock and Dividend
Policy" for information concerning recent market prices of the American National
Common Stock.
<TABLE>
<CAPTION>
<S> <C>
Equivalent
Historical
----------
Pro Forma
Crestar American National American National(a)
------- ----------------- --------------------
Common Stock......................... $41.25 $16.125 $20.25
</TABLE>
- ----------------
(a) The amount of the equivalent price for American National Common Stock is
the product of multiplying an assumed Exchange Ratio of .491 shares of
Crestar Common Stock (the result of dividing $20.25 by the last sale price
of Crestar Common Stock on June 20, 1997 of $41.25) by $41.25 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 American
National. The pro forma combined per Crestar common share amounts give effect to
the Exchange Ratio of .437 shares of Crestar Common Stock for each share of
American National Common Stock (based on the last sale price of Crestar Common
Stock on August 6, 1997 of $46.3125). The equivalent pro forma per American
National common share amounts allow comparison of historical information
regarding one share of American National Common Stock to the corresponding data
regarding what one share of American National Common Stock will equate to in the
combined corporation; such amounts are computed by multiplying the pro forma
combined per Crestar common share amounts by an assumed Exchange Ratio of
._____. As discussed in "The Merger -- Determination of Exchange Ratio and
Exchange for Crestar Common Stock," the final Exchange Ratio will be determined
based on the average closing price for 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
following table is based on the assumption that all issued and outstanding
shares of American National Common Stock are converted into shares of Crestar
Common Stock.
8
<PAGE>
Crestar's fiscal year ends December 31 and American National's fiscal
year ends July 31. In the following table, American National financial data are
presented consistent with the fiscal year of Crestar. Under the heading "Years
Ended December 31, 1996 and 1995," American National book value per share is as
of December 31, 1996 and 1995. Under the heading "Six Months Ended June 30, 1997
and 1996", American National book value per share is as of June 30, 1997 and
1996, and net income and dividend data reflect results for the six months then
ended.
The per share data included in the following table should be read in
conjunction with the consolidated financial statements of Crestar and the
consolidated financial statements of American National incorporated by reference
herein and the notes accompanying all such financial statements. Data in the
table has been restated to reflect the two-for-one stock split distributed by
Crestar on January 24, 1997. 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.
9
<PAGE>
<TABLE>
COMPARATIVE PER SHARE DATA
(Unaudited)
<CAPTION>
<S> <C>
Six Months Ended Years Ended
June 30, December 31,
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
Book Value Per Share at Period End(1,4):
Crestar historical $ 17.17 $ 16.04 $ 16.20 $ 16.12 $ 14.57
American National historical 13.36 13.00 12.91 12.78 N/A
Pro forma combined per Crestar common share 17.35 16.23 16.34 16.31 N/A
Equivalent pro forma per American National common share 7.58 7.10 7.16 7.13 N/A
Cash Dividends Declared Per Common Share(1,4):
Crestar historical(2) $ .29 $ .485 $ 1.275 $ .875 $ .765
American National historical .06 -- .03 .40 .398
Pro forma combined per Crestar common share(2) .29 .485 1.275 N/A N/A
Equivalent pro forma per American National common share .127 .212 .557 N/A N/A
Net Income Per Share(4):
Crestar historical $ 1.32 $ 1.18 $ 1.94 $ 1.92 $ 1.93
American National historical .59 .30 .25 .21 .12
Pro forma combined per Crestar common share(3) 1.30 1.17 1.92 N/A N/A
Equivalent pro forma per American National common share: .57 .51 .84 N/A N/A
- -----------------------
(1) Pro forma combined book value per share and cash dividends declared per
share for Crestar and American National do not reflect exercise of options
to acquire shares of American National Common Stock. Options to acquire
345,357 American National common shares at an average price per share of
$8.97 were outstanding at June 30, 1997. Assumed exercise of these options
does not have a significant impact upon the combined stockholders' equity
of Crestar and American National or the pro forma combined cash dividends
declared per share.
(2) Pro forma combined dividends declared per Crestar common share represent
historical dividends per share declared by Crestar. During the fourth
quarter of 1996, Crestar declared two cash dividends. Of the two cash
dividends declared, one for $.26 per share was paid during the fourth
quarter of 1996, and one for $.27 per share was paid during the first
quarter of 1997.
(3) Pro forma combined net income per Crestar common share represents combined
net income available to common shareholders, divided by pro forma combined
average primary common shares outstanding.
(4) American National Bancorp, Inc. ("American National"), the holding company
for American National Savings Bank, F.S.B. ("Savings Bank"), acquired 100%
of the stock of the Savings Bank on October 31, 1995. Prior to October 31,
1995, American National Bankshares, M.H.C. (MHC) served as a mutual
holding company for the Savings Bank. Pro forma and equivalent pro forma
per share information for American National for the twelve months ended
December 31, 1995 and 1994, and as of December 31, 1994, is not presented
due to the October 31, 1995 initial issuance of common stock by American
National.
</TABLE>
10
<PAGE>
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>
<CAPTION>
<S> <C>
Six Months
Ended June 30, Years ended December 31,
--------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ---------
(Dollars in millions, except per share data)
Earnings (1):
Net interest income $ 438.0 $ 430.3 $ 866.3 $ 814.9 $ 777.9 $ 707.3 $ 660.1
Provision for loan losses 65.7 46.7 95.9 66.3 36.5 63.3 120.8
Net interest income after
provision for loan losses 372.3 383.6 770.4 748.6 741.3 644.0 539.2
Noninterest income 214.5 179.1 336.4 323.0 288.7 273.6 255.4
Noninterest expense 359.0 355.8 783.5 721.1 700.6 652.8 641.9
Income before income taxes 227.7 206.9 323.3 350.5 329.4 264.8 152.6
Income tax expense 80.2 74.9 105.0 134.6 114.3 85.2 35.4
Net income 147.6 132.0 218.3 215.9 215.2 179.6 117.2
Net income applicable to
common shares 147.6 132.0 218.3 215.9 215.2 177.4 114.7
Per Common Share Data:
Net income per share (primary) 1.32 1.18 1.95 1.92 1.93 1.60 1.13
Net income per share (fully diluted) 1.32 1.18 1.94 1.92 1.93 1.60 1.12
Dividends paid 0.56 0.49 1.01 0.88 0.77 0.57 0.40
Book value 17.17 16.04 16.20 16.12 14.57 13.72 12.48
Average primary shares
(thousands) 111,573 112,160 112,037 112,432 111,643 110,836 101,885
Average fully diluted shares
(thousands) 111,695 112,160 112,408 112,623 111,665 111,007 102,096
Selected Period-End Balances:
Total assets $ 22,808.8 $ 22,663.0 $ 22,861.9 $ 22,332.6 $ 20,171.0 $ 18,924.1 $ 17,702.9
Loans (net of unearned income) 14,285.7 13,705.3 14,049.7 14,032.8 20,167.7 10,666.5 9,580.1
Allowance for loan losses 279.2 272.9 268.9 274.4 265.2 254.7 244.3
Nonperforming assets (2) 92.1 122.9 109.0 129.0 152.7 177.8 317.9
Total deposits 15,846.5 15,854.0 15,671.2 16,297.0 15,199.0 14,432.2 13,886.2
Long-term debt 819.1 696.7 659.3 671.3 715.1 604.0 334.4
Common shareholders' equity 1,900.1 1,777.1 1,779.5 1,785.6 1,601.5 1,510.1 1,339.3
Total shareholders' equity 1,900.1 1,777.1 1,779.5 1,785.6 1,601.5 1,510.1 1,384.3
Average Balances:
Total assets $ 21,470.5 $ 21,497.4 $ 21,588.0 $ 20,435.8 $ 19,380.1 $ 17,824.2 $ 16,910.2
Loans (net of unearned income) 13,712.9 13,492.7 13,355.1 13,404.1 11,540.0 9,693.3 9,688.4
Total deposits 15,611.7 15,854.4 16,048.2 15,431.5 15,145.8 13,983.9 13,824.8
Long-term debt 843.9 707.6 689.0 695.5 588.3 463.7 308.5
Common shareholders' equity 1,814.3 1,767.8 1,776.7 1,716.7 1,561.3 1,431.1 1,211.8
Total shareholders' equity 1,814.3 1,767.8 1,776.7 1,716.7 1,561.3 1,475.0 1,256.8
11
<PAGE>
Six Months
Ended June 30, Years ended December 31,
---------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in millions, except per share data)
Ratios:
Return on average assets $ 1.37 $ 1.23 $ 1.01 $ 1.06 $ 1.11 $ 1.01 $ 0.69
Return on average
shareholders' equity 16.27 14.93 12.28 12.58 13.78 12.18 9.33
Return on average common
shareholders' equity 16.27 14.93 12.28 12.58 13.78 12.39 9.47
Net interest margin (3) 4.54 4.44 4.44 4.44 4.47 4.47 4.44
Nonperforming assets to
loans and foreclosed
properties at period end 0.64 0.89 0.77 0.92 1.15 1.66 3.27
Net charge-offs to average loans 0.79 0.69 0.74 0.48 0.35 0.75 1.30
Allowance for loan losses to
loans at period end 1.96 1.99 1.91 1.96 2.01 2.39 2.55
Allowance for loan losses to
nonperforming loans at period end 483 310 330 305 254 222 133
Allowance for loan losses to
nonperforming assets at period end 303 222 247 213 174 143 77
Total shareholders' equity to
total assets at period end 8.33 7.84 7.78 8.00 7.94 7.98 7.82
Capital Ratios at Period End:
Tier 1 risk-adjusted capital 10.7 9.2 10.5 9.3 9.9 10.9 10.7
Total risk-adjusted capital 13.5 12.1 13.4 12.3 13.1 13.3 13.5
Tier 1 leverage 9.3 7.5 8.4 7.6 7.8 7.8 7.8
- -----------------------------------
</TABLE>
(1) Amounts may not add due to rounding.
(2) Nonperforming assets include nonaccrual loans, restructured loans and
foreclosed properties.
(3) Net interest margin is calculated on a taxable equivalent basis, using a tax
rate of 34% for 1992, and a tax rate of 35% for all other periods presented.
12
<PAGE>
AMERICAN NATIONAL BANCORP, INC.
The following American National Bancorp, Inc. 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 American National Bancorp, Inc., 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 "Incorporation of Certain Information by Reference."
<TABLE>
<CAPTION>
<S> <C>
Nine Months
Ended April 30, Years ended July 31,
---------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ---------
(Dollars in thousands, except per share data)
Earnings:
Net interest income........................$ 11,335 $ 9,339 $ 12,865 $ 11,746 $ 11,084 $ 11,176 $ 9,806
Provision for loan losses.................. 460 562 772 3,386 1,989 3,611 2,679
Net interest income after
provision for loan losses................. 10,875 8,777 12,093 8,360 9,095 7,565 7,127
Noninterest income......................... 644 615 293 940 2,117 1,690 2,390
Noninterest expense........................ 9,914 7,491 10,039 9,340 9,228 8,821 9,456
Income (loss) before income taxes.......... 1,605 1,901 2,347 (40) 1,984 434 61
Income tax expense (benefit)............... 539 614 801 (50) 695 322 (135)
Income before cumulative effect of
accounting change......................... 1,066 1,287 1,546 10 1,289 112 196
Cumulative effect of change in
accounting for income taxes............... - - - - - $ 583 -
Net income ................................$ 1,066 $ 1,287 $ 1,546 $ 10 $ 1,289 $ 695 $ 196
======== ======== ======== ======== ======== ======== ========
Net income applicable to
common shares............................. .30 .29 .36 - .41 N/A N/A
Per Common Share Data:
Net income (per common share)..............$ .30 $ .29 $ .36 $ - $ .41$ N/A $ N/A
Dividends declared......................... .09 N/A N/A .40 .30 N/A N/A
Book value................................. 13.01 12.85 13.06 14.11 14.21 N/A N/A
Average Common Share and
Common Share Equivalents
Outstanding (thousands)(7)................ 3,482 3,809 3,766 2,052 2,052 N/A N/A
Selected Period-End Balances:
Total assets............................... $505,318 $449,019 $461,271 $426,174 $400,046 $303,259 $398,869
Loans (net of unearned income)............. 322,805 268,075 278,402 232,089 208,542 221,595 254,665
Allowance for loan losses.................. 3,827 4,394 4,412 6,361 3,669 2,326 1,468
Nonperforming assets(5).................... 2,942 4,645 4,675 9,497 4,281 8,932 12,158
Total deposits............................. 329,516 316,502 313,083 314,613 308,989 317,711 344,586
Long-term debt............................. 44,818 18,975 27,875 11,862 21,997 16,382 23,400
Common shareholders' equity................ 45,315 49,011 47,270 28,959 29,160 21,193 20,508
Total shareholders' equity................. 45,315 49,011 47,270 28,959 29,160 21,193 20,508
Average Balances:
Total assets............................... $485,990 $439,454 $445,512 $417,004 $390,746 $384,216 $407,436
Loans (net of unearned income)............. 301,509 246,396 254,090 225,633 217,662 241,437 277,049
Total deposits............................. 319,298 319,526 315,853 309,596 315,168 331,211 347,987
Long-term debt............................. 32,410 16,288 11,764 19,178 11,047 17,262 24,256
Common shareholders' equity................ 45,276 40,999 42,558 28,973 27,555 21,275 20,595
Total shareholders' equity................. 45,276 40,999 42,558 28,973 27,555 21,275 20,595
13
<PAGE>
Nine Months
Ended April 30, Years ended July 31,
---------------------- ------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
Ratios:
Return on average assets (1)............... .29% .39% .35% -% .33% .18% .05%
Return on average
shareholders' equity (1)................. 3.14 4.18 3.63 .03 4.68 3.27 .95
Return on average common
shareholders' equity (1)................. 3.14 4.18 3.63 .03 4.68 3.27 .95
Net interest margin(6)..................... 3.16 2.87 2.93 2.86 2.89 2.97 2.44
Nonperforming assets to
loans and foreclosed
properties at period end................. .91 1.73 1.68 4.08 2.05 4.01 4.73
Net charge-offs to average loans (1)....... .46 1.32 1.07 .31 .30 1.14 1.06
Allowance for loan losses to
loans at period end...................... 1.190 1.64 1.59 2.74 1.76 1.05 .58
Allowance for loan losses to
nonperforming loans at period end........ 136.630 103.41 112.87 73.90 101.41 30.42 15.06
Allowance for loan losses to
nonperforming assets at period end....... 130.080 94.60 94.37 66.98 85.70 26.04 12.07
Total shareholders' equity
to total assets at period end............ 8.970 10.92 10.25 6.80 7.29 5.53 5.14
Capital Ratios at Period End:
Tier 1 risk-adjusted capital............... 8.26% 8.86% 8.64% 6.96% 7.16% 5.43% 4.67%
Total risk-adjusted capital................ 17.37 18.64 18.20 15.29 16.01 10.18 8.39
Tier 1 leverage............................ 8.26 8.86 8.64 6.96 7.16 5.43 4.67
</TABLE>
- --------------
(1) Annualized where appropriate
(2) On October 31, 1995, American National acquired 100% of the capital stock of
the Savings Bank, sold 2,182,125 shares of common stock in a subscription
offering for a purchase price of $10.00 per share (the "Offering"), resulting in
net proceeds of approximately $19.3 million, net of expenses. Of the net
proceeds, $8.9 million was contributed to the Savings Bank. American National
issued 1,798,380 shares of common stock in exchange for 927,000 shares of the
Savings Bank's common stock held by public shareholders at an exchange ratio of
1.94 shares for each share of the Savings Bank's common stock. Prior to the
Conversion, the Savings Bank had completed a mutual holding company
reorganization in October, 1992. On November 3, 1993, the Savings Bank issued
927,000 shares to the public resulting in net proceeds of approximately $8.3
million, net of expenses and 1,165,000 shares to the Savings Bank's mutual
holding company parent, American National Bankshares, M.H.C.
14
<PAGE>
AMERICAN NATIONAL SPECIAL MEETING
Each copy of this Proxy Statement/Prospectus mailed to holders of
American National Common Stock is accompanied by a proxy card furnished in
connection with the American National Board's solicitation of proxies for use at
the American National Special Meeting. The Special Meeting is scheduled to be
held on ________ __, 1997, at ___________________, ______, ________. Only
holders of record of American National Common Stock at the close of business on
________ __, 1997 are entitled to receive notice of and to vote at the American
National Special Meeting. At the Special Meeting, shareholders will consider and
vote upon the proposal to approve the Agreement.
HOLDERS OF AMERICAN NATIONAL COMMON STOCK ARE REQUESTED TO COMPLETE,
DATE AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO AMERICAN
NATIONAL IN THE ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY
EXECUTED PROXY CARD OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE AGREEMENT.
Any holder of American National Common Stock who has delivered a proxy
appointment may revoke it any time before it is voted by attending and voting in
person at the meeting or by giving notice of revocation in writing or submitting
a signed proxy bearing a later date to American National Bancorp, Inc., 211
North Liberty Street, Baltimore, Maryland 21201, Attention: Secretary, provided
such notice or proxy is actually received by American National before the vote
of shareholders. A proxy will not be revoked by death or supervening incapacity
of the shareholder executing the proxy unless, before the shares are voted,
notice of such death or incapacity is filed with the Secretary or other person
responsible for tabulating votes on behalf of American National. The shares of
American National Common Stock represented by properly executed proxies received
at or prior to the Special Meeting and not subsequently revoked will be voted as
directed by the shareholders submitting such proxies. If instructions are not
given, proxies received will be voted FOR approval of the Agreement and the Plan
of Merger. If any other matters are properly presented for consideration at the
Special Meeting or any adjournment, the persons named in the American National
proxy card enclosed herewith will have discretionary authority to vote on such
matters in accordance with their best judgment. American National is unaware of
any matter to be presented at the American National Special Meeting other than
those indicated above.
The cost of soliciting proxies from holders of American National Common
Stock will be borne by American National. Such solicitation will be made by mail
but also may be made by telephone or in person by the directors, officers and
employees of American National and Savings Bank (who will receive no additional
compensation for doing so). In addition to such solicitations, Regan &
Associates, Inc., a proxy solicitation firm, will assist American National in
soliciting proxies for the American National Special Meeting and will be paid a
fee of $3,500, plus out-of-pocket expenses. American National will make
arrangements with brokerage firms and other custodians, nominees and fiduciaries
to send proxy materials to their principals.
AMERICAN NATIONAL SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS. AMERICAN NATIONAL SHAREHOLDERS ELECTING TO
RECEIVE CASH FOR THEIR SHARES SHOULD FOLLOW THE INSTRUCTIONS IN THE ENCLOSED
CASH OPTION FORM.
15
<PAGE>
Vote Required
The affirmative vote of the holders of a majority of the outstanding
shares of American National Common Stock entitled to vote at the Special Meeting
is required in order to approve the Agreement. A failure to return a properly
executed proxy or to vote in person at the Special Meeting will have the same
effect as a vote against the Agreement. As of the Record Date, there were
_____________ shares of American National Common Stock outstanding and entitled
to vote at the American National Special Meeting, with each share being entitled
to one vote.
As of the Record Date, the directors and executive officers of American
National and their affiliates beneficially owned a total of 505,055 shares
(representing approximately 12.8% of the outstanding shares of American National
Common Stock), and the directors and executive officers of Crestar and their
affiliates owned less than 1% of the outstanding shares of American National
Common Stock. Six of the seven American National directors have agreed to vote
their shares in favor of approval of the Agreement.
Recommendation
For the reasons described below, the American National Board has
adopted the Agreement, believes the Holding Company Merger is in the best
interests of American National and its shareholders and recommends that the
shareholders of American National vote FOR approval of the Agreement and the
Plan of Merger. In making its recommendation, the American National Board
considered, among other things, the opinion of Keefe Bruyette that the Common
Stock Price Per Share was fair to American National shareholders from a
financial point of view.
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 material features
of the proposed Holding Company Merger and the terms of the Agreement. This
description is qualified by reference to the Agreement which is incorporated by
reference herein.
Background of the Holding Company Merger
Since its entry into the Greater Washington Region ("GWR") in 1985 by
the acquisition of NS&T Bankshares in the District of Columbia and the
acquisition of Bethesda Bancorporation in Maryland the following year, Crestar
has sought to increase its presence in GWR and, more recently, Baltimore, by a
series of strategic thrift and bank acquisitions. Since 1985, Crestar has
acquired 25 banks and thrift institutions in GWR and Maryland. In 1995, Crestar
acquired branches of Chase Manhattan Bank of Maryland and Loyola Federal Savings
Bank in Baltimore. In 1996, Crestar acquired branches of Mellon Bank MD and
Citizens Bank of Maryland.
Crestar is an active acquiror of bank holding companies, commercial
banks, and thrifts, and a number of its officers have as one of their principal
duties contacting potential acquisition candidates. Since January 1, 1997,
Crestar has made no firm offer to acquire a financial institution other than
American National.
In September 1996, a representative of Crestar met with the Chief
Executive Officer of American National and indicated that Crestar had an
interest in pursuing a business combination with American National. A follow-up
meeting was held in October 1996 between representatives of Crestar and the
Chief Executive Officer of American National. The Board of Directors of American
National was apprised of these meetings, and the Board authorized the Executive
Committee to serve as a merger and acquisitions committee, to meet with Crestar
representatives and to retain a financial consultant to prepare a strategic
options analysis. Although no determination was made that the Company should
seek an acquisition transaction, the Board observed that the changing
competitive situation in
16
<PAGE>
banking and financial services, on both a nationwide basis and in particular
with respect to the mid-Atlantic region, had been evidenced by considerable
consolidation activity in recent years. The Executive Committee thereafter met
with American National's legal counsel to discuss the Board's fiduciary
obligations in general and in particular in connection with a possible merger or
acquisition transaction.
In early January 1997, the Executive Committee of the Board met with
Crestar representatives, who again reiterated Crestar's interest in an
acquisition of American National. On January 16, 1997, the Board held a meeting
at which the financial consultant retained by American National presented a
strategic options analysis. Among other things, the analysis reviewed potential
valuations on a going-forward basis assuming that American National remained
independent and continued to implement its current business plan. Given this
analysis and the preliminary pricing levels discussed by Crestar, the Board
voted to continue discussions with Crestar.
In March 1997, a confidentiality agreement was entered into by American
National and Crestar, pursuant to which American National began to provide due
diligence information to Crestar. In April 1997, the Board of Directors of
American National approved the engagement of Keefe Bruyette for the purpose of
advising the Company with respect to the acquisition proposal from Crestar and
related matters.
In May 1997, several meetings were held between representatives of
Crestar and American National culminating in a meeting on May 13, 1997 at which
Crestar representatives presented an outline of the merger proposal to the
Executive Committee, including pricing terms (a per share consideration of
approximately $18 per share was presented). The Executive Committee concluded
that the per share consideration offered was insufficient. On May 15, 1997, a
special meeting of the Board of Directors was convened for the purpose of
reviewing the Crestar proposal, at which meeting Keefe Bruyette was present. The
Executive Committee advised the Board of its view that the price per share
offered was insufficient. Following discussion, including a review of the
proposal by Keefe Bruyette, the Board of Directors authorized the Executive
Committee, in consultation with legal counsel and Keefe Bruyette, to inform
Crestar that the price was insufficient, and, if Crestar was still interested in
pursuing a merger, to continue negotiations with Crestar for the purpose of
obtaining a higher price and arriving at the terms of a possible definitive
merger agreement for submission to the Board of Directors.
During late May and early June, American National, primarily through
Keefe Bruyette, and Crestar and their respective counsel, negotiated the terms
of a definitive merger agreement. On June 10 and 13, counsel to American
National reviewed the terms of the proposed and revised definitive merger
agreements with the Executive Committee. At the June 13 meeting, Keefe Bruyette
also presented its analysis to the Executive Committee of the merger from a
financial point of view. A meeting of the Board of Directors of American
National was held on June 19, at which time counsel reviewed the terms of the
proposed definitive merger agreement, and Keefe Bruyette provided its analysis
as to the merger consideration from a financial point of view. The definitive
agreement included the $20.25 merger consideration. Keefe Bruyette informed the
American National Board of its opinion that the proposed merger consideration
was fair from a financial point of view to the holders of American National
Common Stock. Counsel to American National reviewed the history of negotiations
of the transaction, and again discussed the fiduciary duties of a board of
directors in general and in connection with merger and acquisition transactions.
Following these presentations, and after Board discussion, by a vote of six to
one the Board determined to enter into the Agreement, subject to the prompt
satisfactory completion of due diligence by Crestar. From June 20 to 22, Crestar
conducted its on-site due diligence review at American National's headquarters.
On June 23, 1997, the Agreement was executed on behalf of American National and
Crestar, and a joint press release was issued announcing the Merger.
Reasons for the Holding Company Merger; Recommendations of the American National
Board
The Board of Directors of American National believes that the Holding
Company Merger is fair to, and in the best interests of, American National and
its shareholders. Accordingly, the Board has approved and adopted the Agreement
and the Plan of Merger. The Board of Directors of American National therefore
recommends that shareholders vote FOR the approval and adoption of the Agreement
and the Plan of Merger.
17
<PAGE>
In reaching its determination that the Holding Company Merger is fair
to, and in the best interests of, American National and its stockholders, the
Board considered a number of factors, including, without limitation, the
following:
(i) the Board's familiarity with and review of American National's
business, operations, financial condition, earnings and
prospects, including the ability to implement its business plan;
(ii) the current and prospective economic environment and competitive
and regulatory constraints facing financial institutions and
particularly the Savings Bank;
(iii) the opinion of Keefe Bruyette that the Common Stock Price Per
Share to be received by holders of American National Common
Stock was fair to American National shareholders from a
financial point of view. See "--Opinion of Financial Advisor to
American National";
(iv) the expectation that the Holding Company Merger would be tax
free to the shareholders of American National who elect to
receive Crestar Common Stock in exchange for their shares of
American National Common Stock;
(v) the presentations to the Board of Directors by Keefe Bruyette
with respect to the relationship of the Common Stock Price Per
Share to the recent and then current market value, book value,
and earnings per share of American National Common Stock and the
prices and premiums paid in certain other similar transactions
involving financial institutions;
(vi) the Board's review of the alternative of continuing to remain
independent and the analyses provided to the Board as to the
range of possible values to shareholders that could potentially
be obtained as an independent entity given possible levels of
future earnings. In this connection, the Board was aware of
certain risks of remaining independent, including, among other
things, the limited potential to engage in acquisitions which
could further enhance shareholder value;
(vii) the history of the negotiations of the Agreement (see
"--Background of the Merger");
(viii) the financial resources of Crestar and the likelihood of
receiving the requisite regulatory approvals in a timely manner;
(ix) the financial position and operating results of Crestar, and the
prospects for future growth of the combined company;
(x) the effect of the proposed Merger on the employees and customers
of American National and the Savings Bank and the communities in
which the Savings Bank operates; and
(xi) the non-solicitation clauses and the financial impact of the
option agreement and the fact that Crestar required such
provisions as a condition to entering into the Agreement.
The American National Board believes that the Holding Company Merger
and the Agreement are in the best interests of, American National and its
shareholders. The American National Board recommends that American National
shareholders vote FOR the Agreement and the Plan of Merger.
For information regarding interests of directors and executive officers
of American National in the Holding Company Merger, see "--Interests of Certain
Persons in the Holding Company Merger" and "Ownership of American National
Common Stock by Certain Beneficial Owners."
18
<PAGE>
Opinion of Financial Advisor
Keefe Bruyette was retained by American National to act as its
financial advisor in connection with its ongoing consideration and/or
implementation of a proposal of acquisition by Crestar. Keefe Bruyette, as part
of its investment banking business, is continuously engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwriting, and distributions of listed and unlisted securities.
Keefe Bruyette is familiar with the market for common stocks of publicly traded
banks, savings institutions and bank and savings institution holding companies.
The Board of Directors of American National selected Keefe Bruyette on the basis
of the firm's reputation and its experience and expertise in transactions
similar to the Merger and its prior work for and relationship with American
National in connection with the October, 1995, reorganization of American
National from the mutual holding company to the stock holding company structure
and the concurrent offering of American National's Common Stock to the public.
Except as described herein, Keefe Bruyette is not affiliated with American
National, Crestar or their respective affiliates.
Pursuant to its engagement, Keefe Bruyette was asked to render an
opinion as to the fairness from a financial point of view of the Common Stock
Price Per Share to the stockholders of American National. Keefe Bruyette
delivered a fairness opinion dated as of June 23, 1997 to the Board of Directors
of American National that the Common Stock Price Per Share is fair to the
stockholders of American National from a financial point of view. No limitations
were imposed by American National upon Keefe Bruyette with respect to the
investigations made or procedures followed by Keefe Bruyette in rendering its
opinion. Keefe Bruyette has consented to the inclusion herein of the summary of
its opinion to the Board of American National and to the entire opinion being
attached hereto as Annex III.
The full text of the opinion of Keefe Bruyette, updated as of the date
of this Proxy Statement/Prospectus which sets forth certain assumptions made,
matters considered and limitations on the review undertaken, is attached as
Annex III to the Proxy Statement/Prospectus and should be read in its entirety.
The summary of the opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the opinion. Such opinion does not
constitute a recommendation by Keefe Bruyette to any American National
stockholder as to how such stockholder should vote with respect to the Agreement
and Plan of Merger.
In rendering its opinion Keefe Bruyette (i) reviewed the financial and
business data supplied to it by American National including American National's
prospectus dated September 11, 1995 and September 14, 1993, American National's
Annual Reports, Proxy Statements and Form 10-K's for the years ended July 31,
1994, 1995 and 1996, and American National's quarterly reports on Form 10-Q for
the quarters ended October 31, 1996, January 31, 1997 and April 30, 1997; (ii)
reviewed Crestar's Annual Report and Form 10-K for the years ended December 31,
1995 and 1996 and Form 10-Q for the quarter ended March 31, 1997, (iii)
discussed with senior management and the Board of American National and Savings
Bank the possibility of obtaining other acquisition proposals, and the board's
reasons for seeking affiliation and merger; (iv) discussed with senior
management of Crestar the current and prospective outlook for Crestar and the
reasons for seeking affiliation and merger; (v) considered historical quotations
and the prices of recorded transactions in American National's Common Stock
since the 1995 reorganization of American National from the mutual holding
company to the stock holding company structure; and (vi) reviewed the financial
and stock market data of other savings institutions, particularly in the Mid-
Atlantic region of the United States, the financial and structural terms of
several other recent transactions involving mergers or acquisitions of saving
institutions or proposed changes of control of comparably situated companies.
In rendering its opinion, Keefe Bruyette assumed and relied upon the
accuracy and completeness of the information provided to it by Crestar and
American National and obtained by it from public sources. In its review, with
the consent of the American National Board, Keefe Bruyette did not undertake any
independent verification of the information provided to it nor did it make any
independent appraisal or evaluation of the assets or liabilities of American
National or Crestar, or of potential or contingent liabilities of Crestar or
American National. With respect to the financial information including forecasts
and asset valuations received from American National, Keefe Bruyette assumed
(with American National's consent) that such information had been reasonably
prepared reflecting
19
<PAGE>
the best currently available estimates and judgments of American National's
management. Keefe Bruyette also assumed that no restrictions or conditions would
be imposed by regulatory authorities that would have a material adverse effect
on the contemplated benefits of the Merger to American National or the ability
to consummate the Merger.
Keefe Bruyette's review of comparable transactions included the
compilation of pending or recently completed acquisitions of savings
institutions sorted into five groups. The groups were identified with
characteristics similar to American National's and compiled as follows: (i) all
acquisitions of savings institutions since June 30, 1996; (ii) acquisitions of
savings institutions with a total transaction value between $50 million and $100
million; (iii) acquisitions of savings institutions where the target had
tangible equity to assets between 8% and 12%; (iv) acquisitions where the target
had assets between $300 million and $700 million; and (v) acquisitions of
savings institutions where the target is located in the Mid-Atlantic region of
the United States. The results of the analysis are summarized below. The
proposal by Crestar to acquire American National was evaluated from a financial
perspective along five industry-accepted ratios.
The information in the attached table summarized the material
information analyzed by Keefe Bruyette with respect to the Merger. The summary
does not purport to be a complete description of the analysis performed by Keefe
Bruyette and should not be construed independently of the other information
considered by Keefe Bruyette in rendering its opinion. Selecting portions of
Keefe Bruyette's analysis or isolating certain aspects of the comparable
transactions without considering all analyses and factors could create an
incomplete or potentially misleading view of the evaluation process.
In its analysis of comparable transactions, Keefe Bruyette evaluated
each pricing ratio against the proposed pricing analysis of the Crestar
acquisition of American National. Slightly more weight was given to the price to
tangible book value ratio, the price to last twelve month earnings per share and
the price to core deposit premium ratio.
In preparing its analyses, Keefe Bruyette made numerous assumptions
with respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Keefe Bruyette and American
National. The analyses performed by Keefe Bruyette are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses and do not purport to be
appraisals or reflect the prices at which a business may be sold.
On May 15, 1997, American National engaged Keefe Bruyette to, among
other things, assist American National in evaluating and advising American
National relative to the merger offer from Crestar, to prepare a summary of
recent merger and acquisition trends in the financial service industry, advise
American National as to the structure of the proposed merger, and render an
opinion as to the fairness of the consideration to be paid in any proposed
merger. American National agreed to pay Keefe Bruyette for such services a fee
of $50,000 upon the delivery of the fairness opinion, $50,000 upon mailing of
the proxy solicitation materials and $290,000 upon consummation of the Holding
Company merger. American National has also agreed to reimburse Keefe Bruyette
for its reasonable out-of-pocket expenses up to $10,000. Keefe Bruyette's
compensation, including the Success Fee which is contingent upon completion of
the Merger, was determined by arm's-length negotiations between American
National and Keefe Bruyette. American National has further agreed to indemnify
Keefe Bruyette and its affiliates, and their respective directors, officers and
employees and each such other person controlling Keefe Bruyette or any of its
affiliates from and against any and all losses, claims, damage and liabilities,
joint and several, to which such indemnified parties may become subject under
any applicable federal or state law, or otherwise, and related to or arising out
of the Merger or the engagement of Keefe Bruyette pursuant to, and the
performance by Keefe Bruyette of the services contemplated by, American
National's agreement with Keefe Bruyette.
20
<PAGE>
<TABLE>
Summary of Selected M&A Transactions
Where the Target is a Thrift Institution
-----------------------------------
<CAPTION>
Transaction
Price to
Core
Tangible LTM Deposit
Book EPS(a) Assets Deposits Premium
---- ------ ------ -------- -------
<S> <C>
M&A Group 1 - All transactions pending and transactions complete since 6/30/96
Pending (n=48) 167.0% 24.6x 16.1% 23.4% 10.8%
Completed(b) (n=88) 149.5% 19.4x 13.3% 16.5% 6.6%
Crestar/ANBK Merger 161.4% 53.3x 15.5% 23.7% 11.0%
M&A Group 2 - Transaction value between $50 million and $100 million
Pending (n=5) 181.7% 16.8x 14.0% 18.9% 10.8%
Completed(b) (n=11) 171.6% 17.4x 14.1% 21.2% 8.5%
Crestar/ANBK Merger 161.4% 53.3x 15.5% 23.7% 11.0%
M&A Group 3 - Target tangible equity to assets is between 8% and 12%
Pending (n=16) 167.2% 21.3x 15.5% 22.7% 9.4%
Completed(b) (n=28) 149.5% 22.4x 14.6% 17.0% 6.0%
Crestar/ANBK Merger 161.4% 53.3x 15.5% 23.7% 11.0%
M&A Group 4 - Target thrift asset size between $300 million and $700 million
Pending (n=6) 194.0% 25.3x 14.6% 19.1% 10.8%
Completed(b) (n=14) 178.6% 22.6x 13.5% 16.5% 8.7%
Crestar/ANBK Merger 161.4% 53.3x 15.5% 23.7% 11.0%
M&A Group 5 - Target located in the Mid-Atlantic Region
Pending (n=6) 187.4% 17.7x 15.5% 21.2% 11.0%
Completed(b) (n=11) 165.8% 22.6x 19.3% 24.1% 9.7%
Crestar/ANBK Merger 161.4% 53.3x 15.5% 23.7% 11.0%
</TABLE>
(a) Last twelve months earnings per share.
(b) Transactions completed since June 30, 1996.
21
<PAGE>
Effective Time of the Holding Company Merger
The Holding Company Merger is expected to be consummated no earlier
than November 6, 1997 and prior to December 31, 1997. The Holding Company Merger
will be effective on the date (the "Effective Date") and the time (the
"Effective Time") specified in the Articles of Merger that are to be filed with
the Secretary of State of Delaware and the SCC as soon as practicable following
satisfaction of all the conditions to the consummation of the Holding Company
Merger set forth in the Agreement. Either American National or Crestar, acting
unilaterally, may terminate the Agreement if the Holding Company Merger has not
been consummated by March 31, 1998.
Until the Effective Time of the Holding Company Merger occurs, American
National shareholders will retain their rights as shareholders to vote on
matters submitted to them by the American National Board.
Determination of Exchange Ratio and Exchange of
American National Common Stock for Crestar Common Stock
For the purpose of determining the Exchange Ratio, each share of
American National Common Stock has been valued at $20.25 (the "Common Stock
Price Per Share"). In the Holding Company Merger, each share of American
National Common Stock (other than shares held directly by Crestar and shares to
be exchanged for cash) is to be converted into a fraction of a share of Crestar
Common Stock determined in accordance with the Exchange Ratio. The "Exchange
Ratio" is to be calculated as follows: (i) if the average closing price of
Crestar Common Stock as reported on the NYSE for each of the 10 trading days
ending on the tenth day prior to the Effective Time of the Holding Company
Merger (the "Average Closing Price") is between $30 and $50, the Exchange Ratio
shall be the quotient (rounded to the nearest one-thousandth) of (A) $20.25
divided by (B) the Average Closing Price; (ii) if the Average Closing Price is
$50 or greater, the Exchange Ratio shall be 0.405; and (iii) if the Average
Closing Price is $30 or less, the Exchange Ratio shall be 0.675.
At June 30, 1997, there were 3,613,011 shares of American National
Common Stock outstanding. In addition, options to purchase an additional 345,357
shares of American National Common Stock were outstanding at June 30, 1997.
Based on the number of shares of American National Common Stock outstanding and
the number of options to purchase American National Common Stock outstanding as
of May 31, 1997, and an Exchange Ratio of .437, Crestar would issue 1,578,886
shares of Crestar Common Stock in exchange for American National Common Stock,
and convert the outstanding options to purchase American National Common Stock
into 150,921 outstanding options to purchase Crestar Common Stock. The aggregate
number of shares of Crestar Common Stock to be issued in connection with the
Holding Company Merger, and the number of options to purchase American National
Common Stock that will be converted into options to purchase Crestar Common
Stock, will vary to the extent that any outstanding options to purchase American
National Common Stock are exercised or expire prior to the Effective Time of the
Holding Company Merger. See " -- Effect on American National Employee Benefits
Plans" below.
Following the Effective Time of the Holding Company Merger, former
holders of shares of American National Common Stock will be mailed a Letter of
Transmittal which will set forth the procedures that should be followed for
exchange of American National Common Stock for Crestar Common Stock.
Shareholders of American National who receive Crestar Common Stock 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
Ratio.
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 American National
Common Stock covered thereby.
AMERICAN NATIONAL SHAREHOLDERS WHO INTEND TO RECEIVE SHARES OF CRESTAR
COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS.
22
<PAGE>
Cash Election; Election Procedures
Holders of shares of American National Common Stock will be given the
option of exchanging some or all of their shares for the Common Stock Price Per
Shares ($20.25) in cash (subject to all applicable withholding taxes), provided
that the number of shares that may be exchanged for cash may not exceed 40% of
the outstanding shares of American National Common Stock immediately prior to
the Effective Time of the Holding Company Merger. The cash election must be made
at the time American National 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 exceeds 40% of the
outstanding shares of American National 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 American
National 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 Exchange Ratio.
An election to receive cash will be properly made only if American
National 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 American National Common Stock covered thereby. American National
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, American National will return the
certificates.
AMERICAN NATIONAL SHAREHOLDERS WHO INTEND TO SURRENDER SHARES FOR CASH
MUST FILE THE CASH OPTION FORM ACCOMPANYING THIS PROXY STATEMENT/PROSPECTUS
PRIOR TO OR AT THE SPECIAL MEETING. ANY AMERICAN NATIONAL SHAREHOLDER WHO DOES
NOT COMPLETE AND RETURN A CASH OPTION FORM PRIOR TO OR AT THE SPECIAL MEETING
CAN ONLY RECEIVE CRESTAR COMMON STOCK IN THE MERGER. ONCE THE VOTE ON THE MERGER
HAS BEEN TAKEN AT THE SPECIAL MEETING, THE CASH ELECTION IS IRREVOCABLE.
Business of American National and Crestar Pending the Holding Company Merger
Crestar. Crestar has agreed that prior to the Effective Time of the
Holding Company Merger: (i) Crestar will and will cause each of its subsidiaries
to conduct their respective operations only in the ordinary course of business
consistent with past practice and will use its best efforts to preserve intact
their respective business organizations, keep available the services of their
officers and employees and maintain satisfactory relationships with licensors,
suppliers, distributors, customers, clients and others having business
relationships with them; (ii) Crestar shall not, and shall not permit any of its
subsidiaries to, take any action, engage in any transactions or enter into any
agreement which would adversely affect or delay in any material respect the
ability of Crestar or American National to obtain any necessary approvals,
consents or waivers of any governmental entity required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely basis
under the Agreement; and (iii) Crestar will not issue any Crestar Common Stock
except (A) under existing stock option or employee or director benefit plans in
accordance with past practice and (B) in acquisitions accounted for as purchases
where the stock to be issued is acquired from a third party in a manner
consistent with purchase accounting treatment for the Holding Company Merger.
American National. American National and Savings Bank have agreed that
prior to the Effective Time of the Holding Company Merger, they will operate
their respective businesses substantially as presently operated and 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 their present business organizations and relationships with
persons having business dealings with them. Without limiting the generality of
the foregoing, American National and Savings Bank agree that they will not,
without prior notice to Crestar, and with respect to clauses (vi), (vii), (xvii)
and (xviii), without Crestar's prior written consent, (i) make any change in the
salaries, bonuses or title of any officer, (ii) make any change in title,
salaries or bonus of any other employee, other than those permitted by current
employment policies in the ordinary course of business, 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,
23
<PAGE>
severance or consulting agreement or increase benefits under existing plans and
agreements; (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 Certificate of Incorporation or
By-laws; (vi) issue or contract to issue any shares of American National capital
stock or securities exchangeable for or convertible into capital stock, except
(y) up to 345,357 shares of American National Common Stock issuable pursuant to
the American National Options outstanding as of May 31, 1997, and (z) up to
792,000 shares of American National Common Stock pursuant to the Option
Agreement; (vii) purchase any shares of American National capital stock; (viii)
enter into or assume any material contract or obligation, except as permitted by
the Agreement; (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 American
National 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.
American National and Savings Bank have further agreed that they will
consult and cooperate with Crestar regarding all actions described in the
immediately preceding paragraph, and (a) with 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) with
securities portfolio and funds management, including management of interest rate
risk.
American National and Savings Bank have further agreed that neither
American National, Savings 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 any merger, sale of substantial assets, tender offer, sale of shares
of stock or similar transaction involving American National or Savings Bank or
disclose, directly or indirectly, any information not customarily disclosed to
the public concerning American National or Savings Bank, afford to any person
other than Crestar access to the properties, books or records of American
National or Savings Bank or otherwise assist any person who may be 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 a significant amount of assets, except in a situation in which a
majority of the full American National Board 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 American National or Savings 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. American
National and Savings Bank will promptly communicate to Crestar the terms of any
proposal which it may receive in respect to any of the foregoing transactions.
Conditions to Consummation of the Holding Company Merger
Consummation of the Holding Company Merger is conditioned upon the
approval of the holders of a majority of the outstanding American National
Common Stock entitled to vote at the American National Special Meeting. The
Holding Company Merger must be approved by the Federal Reserve Board, the SCC,
and the OTS, applications for which have been filed and approvals for which are
expected to be received. The obligations of American National and Crestar to
consummate the Holding Company Merger are further conditioned upon (i) the
accuracy of the representations and warranties of American National 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 American National since March 31, 1997
and April 30, 1997, respectively, (other than changes resulting from or
attributable to: (a) 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, (b) changes since such
date in the general level of interest rates, and (c) any other
24
<PAGE>
matters agreed to by Crestar and American National); (ii) the performance of all
covenants and agreements contained in the Agreement; (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 approval for listing on the
NYSE of the shares of Crestar Common Stock at the Effective Time of the Holding
Company Merger; (v) 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 American National who is an affiliate of American
National 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 intent to sell shares of Crestar Common Stock and (C) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions; and (vii) 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.
Crestar and American National may waive any condition to their
obligations to consummate the Holding Company Merger except requisite approvals
of Crestar and American National shareholders and regulatory authorities.
Stock Option Agreement
Crestar and American National have entered into a Stock Option
Agreement, dated as of June 23, 1997 (the "Option Agreement"), pursuant to which
American National issued to Crestar an option (the "Option") to purchase up to
792,000 shares of American National Common Stock at a purchase price of $16.125
per share.
Crestar may exercise the Option upon the occurrence of certain events
(each a "Purchase Event"). The Option Agreement provides that a Purchase Event
shall mean the occurrence of any of the following events after the date of
execution of the Option Agreement: (i) American National or any banking
subsidiary of American National (a "Bank"), without having received Crestar's
prior written consent, shall have entered into an agreement with any person to:
(x) merge, consolidate or enter into any similar transaction, except as
contemplated in the Agreement; (y) purchase, lease or otherwise acquire all or
substantially all of the assets of American National or a Bank; or (z) purchase
or otherwise acquire (including by way of merger, consolidation, share exchange
or any similar transaction) securities representing 10% or more of the voting
power of American National or a Bank; (ii) any person (other than American
National or Savings Bank in a fiduciary capacity, or Crestar or Crestar Bank in
a fiduciary capacity) shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 15% or more of the outstanding shares of
American National Common Stock after the date of the Option Agreement; (iii) any
person shall have made a bona fide proposal to American National by public
announcement or written communication that is or becomes the subject of public
disclosure to acquire American National or a Bank by merger, consolidation,
purchase of all or substantially all of its assets or any other similar
transaction, and following such bona fide proposal the shareholders of American
National vote not to adopt the Agreement; or (iv) American National shall have
willfully breached certain specified covenants contained in the Agreement
following a bona fide proposal to American National or a Bank to acquire
American National or a Bank by merger, consolidation, purchase of all or
substantially all of its assets or any other similar transaction, which breach
would entitle Crestar to terminate the Agreement (without regard to the cure
periods provided for therein) and such breach shall not have been cured prior to
the date on which Crestar shall notify American National of its intent to
exercise the Option.
The Option may be exercised in whole or in part, at any time or from
time to time if a Purchase Event shall have occurred and be continuing and
before the Option Agreement is terminated, unless Crestar shall have breached in
any material respect any material covenant or representation contained in the
Agreement and such breach has not been cured. The Option Agreement provides that
to the extent that it shall have not been exercised, the Option shall terminate
(i) on the Effective Date of the Holding Company Merger; (ii) upon the
termination of the Agreement in accordance with the provisions thereof (other
than a termination resulting from a willful breach by American National of
certain specified covenants contained therein or, following the occurrence of a
Purchase Event, failure of American National shareholders to approve the Holding
Company Merger by the vote required under applicable law or under American
National's Charter); or (iii) 12
25
<PAGE>
months after termination of the Agreement due to a willful breach by American
National of certain specified covenants contained therein or, following the
occurrence of a Purchase Event, failure of American National shareholders to
approve the Holding Company Merger by the vote required under applicable law or
under American National's Charter.
Because the Option permits Crestar to purchase a significant number of
shares of American National Common Stock at a purchase price below the value of
American National Common Stock agreed to in calculating the Exchange Ratio
($20.25 per share), any potential acquiror triggering a Purchase Event would be
required to absorb the difference between the price Crestar would pay for shares
of American National Common Stock upon exercise of the Option ($16.125 per
share), and the price the potential acquiror would be required to offer to
better the value ($20.25 per share) of American National Common Stock agreed to
by Crestar and American National.
Waiver and Amendment; Termination
Waiver and Amendment. Prior to the Effective Time of the Holding
Company Merger, any term or provision of the Agreement may be waived in writing
at any time by the party which is, or whose shareholders are, entitled to the
benefits thereof and the Agreement may be amended or supplemented by written
instructions duly executed by all parties hereto at any time, whether before or
after the American National Special Meeting, excepting statutory requirements
and requisite approvals of shareholders and regulatory authorities, provided
that any such amendment or waiver executed after shareholders of American
National have approved the Agreement and the Holding Company Plan of Merger
shall not modify either the amount or form of the consideration to be received
by such American National shareholders for their shares of American National
Common Stock or otherwise materially adversely affect such shareholders without
their approval.
Termination. The Agreement shall be terminated, and the Transaction
abandoned, if the shareholders of American National shall not have given the
approval of the Holding Company Merger. Notwithstanding such approval by such
shareholders, the Agreement may be terminated at any time prior to the Effective
Time of the Holding Company Merger, by: (i) the mutual consent of Crestar and
American National, as expressed by their respective Boards of Directors; (ii)
either Crestar on the one hand or American National on the other hand, as
expressed by their respective Boards of Directors, if the Holding Company Merger
has not occurred by March 31, 1998, 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 the Agreement; (iii) Crestar in writing authorized by its Board of
Directors if American National or Savings Bank has, or by American National in
writing authorized by its Board of Directors, if Crestar or Crestar Bank has, in
any material respect, breached (A) any covenant or agreement contained therein,
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 (as defined in the Agreement); 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 on the one hand or American National 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
Holding Company Merger 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 the 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; (v)
American National, if the American National Board shall have determined in its
sole discretion, exercised in good faith, that the Holding Company Merger has
become inadvisable or impracticable by reason of (A) the issuance of any order,
decree or advisory letter of any regulatory authority containing conditions or
requirements reasonably deemed objectionable by American National (B) 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 American National Common Stock which is
significantly better than Crestar's offer, and which Crestar has certified to
American National, in writing, it is unwilling to meet; (vi) Crestar, if the
Crestar Board shall have determined in its sole discretion, exercised in good
faith, that the Holding Company Merger, has become inadvisable or impracticable
by reason of (A) the issuance of any order, decree or advisory letter of any
regulatory authority containing conditions or requirements reasonably deemed
objectionable by Crestar, (B) the institution of any litigation, proceeding or
investigation (including under
26
<PAGE>
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 American National Common Stock
which is significantly better than Crestar's offer, and which Crestar certifies
to American National, in writing, it is unwilling to meet; (vii) Crestar or
American National, if the Federal Reserve Board, the OTS, or the SCC deny
approval of the Holding Company Merger and the time period for all appeals or
requests for reconsideration has run; and (viii) Crestar, if there has been a
material adverse change in the business operations or consolidated financial
condition or consolidated results of operations of American National from that
shown by American National's financial statements as of April 30, 1997,
excluding any material or adverse changes resulting from movements in general
market interest rates, changes in laws, rules and regulations of accounting
principals and any other matters mutually agreed to by the parties; and (ix)
American National, if there has been a material adverse change in the business
operation or consolidated financial condition of Crestar from that shown by
Crestar's financial statements as of March 31, 1997, excluding changes resulting
from movements in general market interest rates, changes in laws, rules and
regulations of accounting and any other matters mutually agreed to by the
parties.
In the event of the termination and abandonment of the Agreement and
the Holding Company Merger pursuant to the above, the Agreement, other than the
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 have no effect, without any liability on the part of any party
or its directors, officers or shareholders, provided that nothing contained in
the Agreement shall relieve any party from liability for any willful breach of
the Agreement.
Accounting Treatment
The Merger will be accounted for as a purchase business combination.
Operations after the Holding Company Merger
After the consummation of the Holding Company Merger, Crestar will
continue generally to conduct the business presently conducted by American
National.
Interests of Certain Persons in the Holding Company Merger
Certain members of American National's management may be deemed to have
interests in the Holding Company Merger in addition to their interests as
shareholders of American National generally. In each case, the American National
Board was aware of their potential interests, and considered them, among other
matters, in approving the Agreement and the transactions contemplated thereby.
Indemnification; Liability Insurance. The Agreement provides that for a
period of six years following the Merger, Crestar will indemnify the directors,
employees and officers of American National and Savings Bank and subsidiaries
thereof for events occurring prior to or subsequent to the Effective Time of the
Merger, to the extent permitted under the VSCA and the Articles of Incorporation
and Bylaws of Crestar. Any right to indemnification in respect of any claim
asserted or made within such six-year period will continue until final
disposition of such claim. Crestar will provide officers and directors liability
insurance coverage to all officers and directors of American National, Savings
Bank and subsidiaries thereof, whether or not any such officers or directors
become part of the Crestar organization after the Holding Company Merger, to the
same extent that such coverage is provided to Crestar officers and directors.
Employment Agreements with Executive Officers. Savings Bank has entered
into employment agreements with Messrs. Tucker and Solomon, each dated November
24, 1993, and with Messrs. Uveges, and Barker, each dated December 1, 1995
(collectively or singularly, the "Employment Agreement(s)"). The Employment
Agreement with Mr. Tucker provides for a three year term and the Employment
Agreements with the other three executive officers each provide for a two year
term. Pursuant to the Agreement, Crestar Bank agrees to honor the Employment
Agreements in accordance with their terms.
27
<PAGE>
In the event of certain voluntary or involuntary terminations of
employment of an executive officer covered by an Employment Agreement including
termination during the term of the Employment Agreement and following a change
in control, the Savings Bank shall pay a severance benefit to the executive
officer pursuant to the terms of the Employment Agreement. The Employment
Agreements entered into with Messrs. Tucker and Solomon provide that in the
event of termination of employment following a change in control, the executive
shall be entitled to continued life, medical, dental and disability insurance
coverage for up to three years and two years, respectively. The Employment
Agreements with Messrs. Uveges and Barker provide that in the event of their
termination of employment following a change in control, the Savings Bank shall,
for a 24-month period, either (i) contribute the same amount as it contributed
prior to such termination of employment towards the purchase for the covered
executive, or (ii) cause to be continued under the Savings Bank's existing
plans, life, medical, dental and disability coverage substantially identical to
the coverage maintained for the executive prior to his termination. In addition,
all Employment Agreements provide that the covered executives will be entitled
to any benefits granted to them pursuant to any stock option plan or recognition
and retention plan maintained by American National or Savings Bank. Each of the
Employment Agreements provide that if payments under the Employment Agreement
would cause the covered executive to have an "excess parachute payment" under
Section 280G of the Code, the benefits would be reduced to an amount that would
not be considered an excess parachute payment.
American National has also entered into a supplemental executive
agreement ("Supplemental Agreement") with each of Messrs. Tucker, Solomon,
Uveges and Barker which supplements their benefits under the Employment
Agreements in the event that the named executives have an excess parachute
payment. The Supplemental Agreement provides that American National will pay to
or on behalf of the covered executive: (i) any amounts that he would not receive
under the Employment Agreement due to the reduction in benefits required by the
Employment Agreement as a result of having an excess parachute payment and (ii)
any excise and additional state and federal income tax that would be assessed as
the result of the excess parachute payment.
If their employment is terminated following the Merger and during the
term of the Employment Agreements, Messrs. Tucker, Solomon, Uveges, and Barker
would be entitled to a cash payments equal to approximately $498,000, $233,000,
$190,000, and $155,000, respectively, under their Employment Agreements and
Supplemental Agreements (estimated prior to any gross-up for excise and income
taxes).
Employees - Generally. Crestar has agreed on a best efforts basis to
offer all qualified employees of American National or Savings Bank comparable
positions within the Crestar organization, but the Agreement does not require
Crestar to employ any particular officer or employee of American National or
Savings Bank following the Holding Company Merger. Crestar and American National
have designed a severance pay program for employees of American National and
Savings Bank (other than the four executives covered by Employment Agreements,
who will receive the benefits provided in such agreements) not employed by
Crestar following the Holding Company Merger. An agreed upon severance will be
paid to each employee if he/she remains on the job through an established date
and is not offered a comparable position by Crestar.
Stock Options
Employees, officers and directors of American National and Savings Bank
have been granted stock options to purchase an aggregate of 345,357 shares of
American National Common Stock under the 1993 Stock Option Plan for Outside
Directors, the 1993 Incentive Stock Option Plan and the 1996 Stock Option Plan.
Holders of outstanding American National Options shall (a) exercise the American
National Options for American National Common Stock prior to the Closing Date
(if such options are by their terms then exercisable) and convert such Common
Stock held as of the Effective Time of the Holding Company Merger into Crestar
Common Stock or (b) have the American National Options converted, in accordance
with the Exchange Ratio, into options to purchase Crestar Common Stock.
The exercise price per share of Crestar Common Stock under a Crestar
Option shall be equal to the exercise price per share of American National Stock
under an American National Option divided by the 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 American National
Common Stock subject to the American National Option multiplied by the Exchange
Ratio (rounded down to the nearest whole share). Except as set forth above, the
terms of the Crestar Options shall be the same as the terms of the American
National Options.
28
<PAGE>
Recognition and Retention Plans
Employees, officers and directors of American National and Savings Bank
have been granted awards of restricted stock under the 1993 Recognition and
Retention Plan for Outside Directors, the 1993 Employees Recognition and
Retention Plan and the 1996 Recognition and Retention Plan ("Recognition
Plans"). In accordance with the Agreement, at the Effective Time, outstanding
shares of restricted stock shall be converted, based on the Exchange Ratio, into
restricted awards of Crestar Common Stock (rounded down to the nearest whole
share). Under the terms of the Recognition Plans, an employee whose employment
is terminated or a director whose service is terminated following a change in
control shall become immediately vested in all unvested shares of restricted
stock awarded to such employee or director. In the event of the termination of
Messrs. Tucker, Solomon, Uveges or Barker following the Holding Company Merger,
each would vest in 20,000, 11,700, 10,850, or 10,200 shares, respectively, as a
result of such termination.
Deferred Compensation Plans
The Savings Bank sponsors a supplemental deferred compensation plan for
certain highly compensated employees (at the level of Vice President or higher)
("Deferral Plan") that permits such persons to defer a portion of their salaries
or board fees in accordance with the provisions of the Deferral Plan for the
plan year. The Deferral Plan provides that in the event of the termination of
employment or service, a participant will receive his vested account as soon as
practicable after such termination. None of Messrs. Tucker, Solomon, Uveges or
Barker participate in the Deferral Plan.
The Savings Bank also sponsors a deferred compensation plan ("Deferred
Compensation Plan") for the benefit of Mr. Tucker that provides him with the
opportunity to defer a portion of his compensation. In accordance with the
Merger, Crestar intends to terminate the Deferred Compensation Plan. Under the
terms of the Deferred Compensation Plan, Mr. Tucker's account balance, which is
primarily invested in American National Common Stock, will be distributed over a
5 year period following termination of the Deferred Compensation Plan. The
Deferred Compensation Plan will be amended to permit Mr. Tucker's account
balance to be distributed in cash or in-kind. Based on the present value of the
his account, Mr. Tucker will receive approximately $410,000 under the Deferred
Compensation Plan.
Effect on American National Employee Benefits Plans
The Agreement provides that all employees of American National or
Savings Bank (including subsidiaries) 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 based on their length of service,
compensation, location, job classification, and position, including, where
applicable, any incentive compensation plan. Notwithstanding the foregoing,
Crestar may determine to continue any of the American National or Savings 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 American National or Savings
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 American National or
Savings Bank which is recognized by the applicable benefit plan of American
National or Savings 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.
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 American National or Savings 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 to assume the Pension Plan of Savings Bank (the "Savings
Bank Pension Plan") as of the Effective Time of the Holding Company Merger.
Crestar, at its option, may continue the Savings Bank Pension Plan as a frozen
plan or may terminate the Savings Bank Pension Plan and pay out or annuitize
benefits, or may merge the Savings Bank Pension
29
<PAGE>
Plan into the Retirement Plan for Employees of Crestar Financial Corporation and
Affiliated Corporations ("Crestar's Retirement Plan"). If the Savings Bank
Pension Plan is terminated or if benefit accruals are suspended, or if the
Savings Bank Pension Plan is merged into Crestar's Retirement Plan, each
Transferred Employee who becomes a participant in Crestar's Retirement Plan will
begin to accrue benefits under Crestar's Retirement Plan on and after the date
of such termination, suspension or merger in accordance with the terms of
Crestar's Retirement Plan and Crestar's 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 Savings Bank Pension Plan as of the date
of such termination, suspension or merger of the Savings Bank Pension Plan.
American National sponsors an employee stock ownership plan ("ESOP").
The ESOP has an outstanding loan to purchase American National common stock,
with an outstanding principal balance of $________ as of September 30, 1997. If
the Effective Time of the Merger occurs before December 31, 1997, Crestar agrees
to permit American National to prepay any regularly scheduled 1997 loan
payments. Additionally, Crestar conditionally agrees that American National can
make additional prepayments on the loan of up to $415,430 in order to release
from the ESOP loan suspense account up to an additional 41,543 shares of
American National common stock for allocation among participants' accounts,
subject to the contribution and deduction limits under the tax laws. Crestar's
consent to such prepayment is conditioned on an opinion of American National's
benefits consultants and ERISA counsel that such prepayment will not adversely
affect the qualified status of American National's ESOP, pension plan or 401(k)
plan. Participants in the ESOP will become 100% vested in their account balances
in connection with the change in control. In addition, Crestar has agreed to
allow the ESOP to be amended in order to ensure that employees terminated in
connection with the Merger will be entitled to receive their 1997 contribution
allocation under the ESOP.
American National and Savings Bank have agreed to cooperate with
Crestar in implementing any decision made by Crestar under the Agreement with
respect to employee benefit plans and to provide to Crestar on or before the
Effective Time of the Holding Company Merger a schedule of service credit for
prospective Transferred Employees.
Certain Federal Income Tax Consequences
Crestar and American National have received an opinion of Hunton &
Williams, counsel to Crestar, to the effect that for federal income tax purposes
(i) the Holding Company Merger and the Bank Merger each will be a reorganization
under Section 368(a) of the Code, (ii) none of Crestar, American National,
Crestar Bank or Savings 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 Savings Bank for federal income tax purposes and (b) other
possible changes in tax accounting methods), and (iii) the Holding Company
Merger will result in the tax consequences summarized below for American
National shareholders who receive solely Crestar Common Stock or cash and
Crestar Common Stock in exchange for American National Common Stock in 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 American National and Crestar, the existing and future ownership of
American National stock and Crestar stock, and the future business plans for
Crestar.
As described below, the federal income tax consequences to an American
National shareholder will depend on whether the shareholder exchanges shares of
American National Common Stock for Crestar Common Stock, cash, or a combination
of Crestar Common Stock and cash and, if the shareholder exchanges any shares of
American National 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 American National Common Stock through the exercise of director or
employee stock options or otherwise as compensation.
30
<PAGE>
Exchange of American National Common Stock for Crestar Common Stock
A holder of shares of American National Common Stock who receives
solely Crestar Common Stock in exchange for all his shares of American National
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 American National Common Stock for Crestar Common Stock will have an
aggregate tax basis in the shares of Crestar Common Stock (including any
fractional share interest) equal to his tax basis in the shares of American
National 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 American National Common Stock exchanged therefor if they are held as
a capital asset at the Effective Time of the Holding Company Merger.
Exchange of American National Common Stock for Cash and Crestar Common
Stock
A holder of shares of American National Common Stock who receives cash
for some shares of American National Common Stock and exchanges other shares of
American National 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
American National 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. However, it is possible that such gain will be treated as dividend
income, depending on a shareholder's individual circumstances. Dividend
treatment would arise if, had a shareholder received shares of Crestar Common
Stock instead of the cash actually received and Crestar then redeemed those
shares for cash, such a redemption would be taxable as a dividend (rather than a
sale) under Section 302 of the Code. A shareholder should consult his own tax
advisor to determine whether gain recognized on the exchange of American
National Common Stock for shares of Crestar Common Stock and cash is to be
treated as capital gain, as typically will be the case, or a dividend.
A shareholder's aggregate tax basis in the shares of Crestar Common
Stock (including any fractional share interest) received will equal his tax
basis in his shares of American National 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 American National Common Stock exchanged therefor if they are
held as a capital asset at the Effective 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 American National Common Stock for Cash
Generally, a shareholder receiving solely cash in the Holding Company
Merger will recognize gain or loss equal to the difference between the amount of
cash received and his tax basis in his shares of American National Common Stock
surrendered in the Holding Company Merger. Such gain or loss generally will be
capital gain or loss if the shares of American National Common Stock are held as
a capital asset at the Effective Time of the Holding Company Merger. However, it
is possible that a shareholder's receipt of cash in exchange for American
National Common Stock could be treated as dividend income if the shareholder
actually owns or constructively owns (under the rules of Section 318 of the
Code) shares of Crestar Common Stock or constructively owns shares of American
National Common Stock actually owned by another person. Such a shareholder's
receipt of cash could be taxable as a dividend if the shareholder would be
treated as receiving a dividend under Section 302 of the Code in either of two
situations: (1) before the Holding Company Merger, American National redeemed
the shareholder's shares of American National Common Stock for cash, or (2) the
shareholder received shares of Crestar Common Stock in exchange for his American
National Common Stock (instead of the cash actually received) and Crestar then
redeemed those shares of Crestar Common Stock for cash. A shareholder should
consult his own
31
<PAGE>
tax advisor to determine whether the exchange of American National Common Stock
for cash in the Holding Company Merger is to be treated as a sale, as typically
will be the case, or as a dividend.
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 preceding discussion summarizes for general information the
material federal income tax consequences of the Holding Company Merger to
American National shareholders. The tax consequences to any particular
shareholder may depend on the shareholder's circumstances. American National
shareholders are urged to consult their own tax advisors with regard to federal,
state and local tax consequences.
32
<PAGE>
BUSINESS OF CRESTAR
Crestar is the holding company for Crestar Bank, Crestar's only banking
subsidiary. At June 30, 1997, Crestar had approximately $22.8 billion in total
assets, $15.8 billion in total deposits, and $1.9 billion in total stockholders'
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.
Crestar serves customers through a network of 481 banking locations and
514 automated teller machines (as of June 30, 1997). Crestar Bank 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, including mutual funds and annuities, 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 Crestar Asset Management Company,
both of which are subsidiaries of Crestar Bank. These 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,
Washington, D.C., and Baltimore, Maryland.
33
<PAGE>
BUSINESS OF AMERICAN NATIONAL
American National is a Delaware corporation that was organized in July
1995 to become the holding company for the Savings Bank. On October 31, 1995,
American National acquired 100% of the capital stock of the Savings Bank, sold
2,182,125 shares of common stock in a subscription offering for a purchase price
of $10.00 per share (the "Offering"), and issued 1,798,380 shares of common
stock in exchange for 927,000 shares of the Savings Bank's common stock held by
shareholders other than the parent holding company (together with the Offering,
the "Conversion"). Prior to the Conversion, the Savings Bank had completed a
mutual holding company reorganization in October 1992. On November 3, 1993, upon
the consummation of the mutual holding company reorganization, the Savings Bank
issued 927,000 shares to the public and 1,165,000 shares to the Savings Bank's
mutual holding company parent. American National is currently registered as a
savings and loan holding company with the OTS. At April 30, 1997, American
National had total assets of $505.3 million, total deposits of $329.5 million,
and consolidated stockholders' equity of $45.3 million. American National's
executive office is located at 211 North Liberty Street, Baltimore, Maryland
21201 and its telephone number is (410) 752-0400.
The Savings Bank is a federally chartered stock savings bank
headquartered in Baltimore, Maryland. The Savings Bank conducts operations
through 10 full-service offices in its market area consisting of Baltimore City
and parts of the Maryland counties of Baltimore, Howard, Harford, Anne Arundel
and Carroll. The Savings Bank is primarily engaged in the business of attracting
deposits from the general public in the Saving's Bank's market area, and
investing such deposits together with other funds, in loans collateralized by
one- to four-family residential real estate, mortgage-backed securities, and, to
a lesser extent, construction and land development loans, consumer loans and
investment securities. In the past, the Savings Bank also actively originated
multifamily residential real estate loans and commercial real estate loans;
however, originations of such loans have decreased significantly in recent years
as the Savings Bank has sought to reduce the credit risk and losses in its loan
portfolio. The Savings Bank also has reduced its involvement in real estate
joint ventures due to economic conditions and changes in regulatory capital
requirements.
For additional information concerning the business of American
National, see Annexes IV and V.
34
<PAGE>
PRICE RANGE OF AMERICAN NATIONAL COMMON STOCK
AND DIVIDEND POLICY
American National Common Stock is traded on The Nasdaq National Market
under the symbol "ANBK." The following table sets for the periods indicated high
and low trading prices of American National Common Stock as reported on The
Nasdaq National Market. Price information for periods through October 31, 1995
reflects trading in the common stock of the Savings Bank.
<TABLE>
<CAPTION>
<S> <C>
Dividends Declared
High Low Per Share
---- --- ---------
1998
Three Months Ended October 31, 1997
(through ____________, 1997)
1997
Three Months Ended July 31, 1997 $ 21.00 $14.00 $ .03
Three Months Ended April 30, 1997 14.75 12.625 .03
Three Months Ended January 31, 1997 13.375 11.375 .03
Three Months Ended October 31, 1996 12.625 9.75 .03
1996
Three Months Ended July 31, 1996 10.625 9.50 .03
Three Months Ended April 30, 1996 10.25 9.50 N/A
Three Months Ended January 21, 1996 10.25 9.375 N/A
Three Months Ended October 30, 1995 19.50 16.50 .10
1995
Three Months Ended July 31, 1995 16.50 16.25 .10
Three Months Ended April 30, 1995 12.25 9.00 .10
Three Months Ended January 31, 1995 12.00 9.00 .10
Three Months Ended October 31, 1994 12.75 11.75 .10
</TABLE>
On _____________, 1997, the Record Date, the outstanding shares of
American National Common Stock were held by approximately _____ record holders.
The closing price per share of American National Common Stock on _________ __,
1997 on The Nasdaq National Market was $_____.
American National has agreed that it will declare cash dividends
consistent (in terms of amount and timing of record and payment dates) with its
practice in effect in its fiscal quarter ended April 30, 1997 until the
Effective Time of the Holding Company Merger.
See "Comparative Rights of Shareholders -- Dividends and Other
Distributions."
35
<PAGE>
PRICE RANGE OF CRESTAR COMMON STOCK
AND DIVIDEND POLICY
Crestar Common Stock is traded on the New York Stock Exchange under the
symbol "CF." The following table sets forth the calendar periods indicated, the
high and low closing prices of Crestar Common Stock as reported by the NYSE
Composite Tape for the following calendar quarters and the cash dividends paid
per share:
<TABLE>
<CAPTION>
<S> <C>
Dividends Declared
High Low Per Share
---- --- ---------
1997
Third Quarter (through August 6, 1997) $ 47 7/8 $ 39 1/4 $ --
Second Quarter 42 5/8 33 5/8 .29
First Quarter 38 3/4 34 3/8 .29
1996
Fourth Quarter 37 3/4 29 .53
Third Quarter 30 11/16 26 3/16 .26
Second Quarter 29 3/16 26 5/8 .26
First Quarter 29 13/16 26 1/2 .225
1995
Fourth Quarter 30 1/2 27 1/2 .225
Third Quarter 29 3/16 23 7/8 .225
Second Quarter 24 5/8 21 9/16 .225
First Quarter 22 1/8 18 1/2 .20
</TABLE>
The payment of future dividends will be determined by Crestar's Board
of Directors in light of earnings, capital levels, cash requirements, Crestar's
financial condition and that of its subsidiaries, applicable government
regulations and policies and other factors deemed relevant by the Crestar Board,
including the amount of dividends payable to Crestar Bank. Various federal and
state laws, regulations and policies limit the ability of the Bank Subsidiaries
to pay dividends to Crestar, which affects Crestar's ability to pay dividends to
shareholders. See "Supervision and Regulation."
Data in above table has been restated to reflect the two-for-one stock
split distributed by Crestar on January 24, 1997. During the fourth quarter of
1996, two cash dividends were declared. Of the two dividends declared, one for
$.26 per share was paid during the fourth quarter of 1996, and one for $.27 per
share was paid during the first quarter of 1997.
36
<PAGE>
OWNERSHIP OF AMERICAN NATIONAL COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of American National Common Stock as of July 31, 1997 by
each of American National directors and by all directors and executive officers
of American National as a group.
<TABLE>
Amount and Nature of Beneficial Ownership(1)
<CAPTION>
<S> <C>
Direct
Ownership
of Common Stock Percent of
Stock Options Total Class
----- ------- ----- -----
Directors:
Lenwood M. Ivey 8,864 17,393 26,257 * %
Jimmie T. Noble 5,637 8,768 14,405 *
David L. Pippenger 13,457 23,249 36,706 *
Joseph M. Solomon 29,321 48,006 77,327 2.0
Betty J. Stull 9,851 18,417 28,268 *
Howard K. Thompson 24,321 39,298 63,619 1.6
A. Bruce Tucker 59,696 75,655 135,351 3.4
All Directors and Executive
Officers as a group
(10 persons) 195,623 309,432 505,055 12.8%
- -----------------
</TABLE>
* Less than 1%
(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 American National Common Stock over which 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 also is deemed to have
beneficial ownership of any shares of American National Common Stock which
may be acquired within 60 days pursuant to the exercise of stock options.
Unless otherwise indicated, the individuals listed in the table have sole
voting power and sole investment power with respect to the indicated
shares. Shares of American National Common Stock which may be acquired
within 60 days of the Record Date are deemed to be outstanding shares of
American National Common Stock beneficially owned by such person(s) but
are not deemed to be outstanding for the purposes of computing the
percentage of American National Common Stock owned by any other person.
37
<PAGE>
American National knows of no person who beneficially owns 5% or more of
the outstanding American National Common Stock as of July 31, 1997 except as
disclosed:
<TABLE>
<CAPTION>
<S> <C>
Amount and Nature Percent
Name and Address of Beneficial Owners of Beneficial Ownership of Class
- ------------------------------------- ----------------------- --------
John Hancock Advisers, Inc. 336,070 9.3%
101 Huntington Avenue
Boston, MA 02199
Jeffrey L. Gendell 326,500 9.0
Tontine Financial Partners, L.P.
200 Park Avenue, Suite 3900
New York, NY 10166
Brandes Investment Partners, L.P. 246,770 6.8
12750 High Bluff Drive, 2nd Floor
San Diego, CA 92130
Franklin Resources, Inc. 180,500 5.0
777 Mariners Island Boulevard
San Mateo, CA 94404
</TABLE>
38
<PAGE>
OWNERSHIP OF CRESTAR COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS
Based on Crestar's records and filings with the Securities and Exchange
Commission, Crestar is not aware of any persons who are beneficial owners of 5%
or more of Crestar's Common Stock, except as listed below:
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of Class
------------------- ----------------------- ----------------
<S> <C>
Crestar Bank as Trustee for
Crestar Employees' Thrift
and Profit Sharing Plan 6,629,404 shares(1) 6.03%
919 East Main Street
Richmond, VA 23219
Delaware Management Holdings, Inc. 7,958,576 shares (2) 7.25%
One Commerce Square
Philadelphia, PA 19103
</TABLE>
- --------------------
(1) Shares are held on behalf of Plan participants. Crestar Bank has no voting
rights or any investment or dispositive power with respect to the shares.
Plan information is as of December 31, 1996.
(2) Shares attributed to Delaware Management Holdings, Inc. include shares
held by Delaware Management Company, Inc., a mutual fund manager. Delaware
Management Holdings, Inc. reports that it has sole voting power with
respect to 6,130,540 shares; shared voting power with respect to no
shares; sole dispositive power for 7,642,776 shares; and shared
dispositive power for 315,800 shares. Delaware Management Holdings, Inc.
information is as of December 31, 1996 and was obtained from a Schedule
13G filed by Delaware Management Holdings, Inc.
SUPERVISION AND REGULATION OF CRESTAR
Bank holding companies and banks operate in a highly regulated
environment and are regularly examined by federal and state regulators. The
following description briefly discusses certain provisions of federal and state
laws and certain regulations and the potential impact of such provisions on
Crestar and Crestar Bank. 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 Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
amended Section 3(d) of the BHCA by authorizing the FRB to approve on or after
September 29,1995 the acquisition by a bank holding company of more than 5% of
any class of the voting shares of, or substantially all the assets of, any bank
(or its holding company) located outside the state in which the operations of
such acquiring bank holding company's banking subsidiaries are principally
conducted on the date such company became a bank holding company, regardless of
whether the acquisition would be prohibited by state law. Effective June 1,
1997, the law allows interstate bank mergers. The law also allows interstate
branch acquisitions and
39
<PAGE>
de novo branching if permitted by the host state. These laws also permits
interstate branch acquisitions and de novo branching in Virginia, Maryland and
the District of Columbia by out-of-state banks if reciprocal treatment is
accorded Virginia, Maryland or District of Columbia banks (as the case may be)
in the state of the acquiror or entrant.
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 otherwise. 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 reimbursement is
superior to claims of shareholders 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 institution.
Crestar is registered under the bank holding company laws of Virginia.
Accordingly, Crestar is subject to further regulation and supervision by the
State Corporation Commission of Virginia.
Capital Requirements
The Federal Reserve Board has issued risk-based and leverage capital
guidelines applicable to banking organizations it supervises. In addition, the
Federal Reserve Board 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, Crestar
is 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
stockholders' 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 as of June 30, 1997 were 10.7% and
13.5% respectively.
In addition, a minimum leverage capital ratio (Tier 1 capital to
average tangible assets) must be maintained. The 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 Tier 1 capital leverage ratio of Crestar as
of June 30, 1997, was 9.3%. 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.
Limits on Dividends and Other Payments
Crestar is a legal entity separate and distinct from Crestar Bank. Most
of the revenue of Crestar comes from dividends paid by Crestar Bank. There are
various limitations applicable to the payment of dividends to Crestar as well as
the payment of dividends by Crestar to its shareholders. Under federal law,
prior approval from the bank regulatory agencies is required if cash dividends
declared by banks in any given year exceed net income for that year plus
retained earnings of the two preceding years. Under these supervisory practices,
at June 30, 1997, without obtaining prior regulatory approval, Crestar Bank
could have paid additional dividends of approximately $295 million to Crestar.
The payment of dividends by Crestar Bank, 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 or
holding company from engaging in an unsafe or unsound practice in conducting
their business. The payment of dividends, depending upon the financial condition
of the
40
<PAGE>
bank or holding company in question, 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.
Crestar Bank
Crestar Bank is supervised and regularly examined by the SCC and the
Federal Reserve Bank of Richmond. Crestar Bank is also subject to various
requirements and restrictions under federal and state law such as limitations on
the types of services that it may offer, the nature of investments that it may
make, and the amounts of loans that may be granted. Various consumer and
compliance laws and regulations also affect the operations of Crestar Bank. In
addition to the impact of regulation, Crestar Bank is affected significantly by
actions of the Federal Reserve Board in attempting to control the money supply
and the availability of credit.
Crestar Bank is subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to help 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 helping to meet 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 branches. Crestar Bank has attained either an "outstanding" or
"satisfactory" rating on its most recent CRA performance evaluations.
As an institution with deposits insured by BIF and SAIF, Crestar Bank
is subject to insurance assessments imposed by the FDIC. Legislation that became
effective on September 30, 1996 assessed a one-time charge on deposits insured
by the Savings Association Insurance Fund (SAIF). As a result of acquisition of
thrift institutions in recent years, approximately 45% of Crestar Bank's deposit
base is SAIF-insured and the one-time charge assessed against Crestar Bank on an
after-tax basis was approximately $22 million. This charge was recognized in
Crestar's publicly announced third quarter 1996 earnings and will have the
effect of significantly reducing future premiums payable by Crestar Bank into
the SAIF.
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.
41
<PAGE>
DESCRIPTION OF CRESTAR CAPITAL STOCK
The capital stock of Crestar consists of 200,000,000 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 the Crestar Board. 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 (the "Crestar
Articles") and Bylaws, and the Rights Agreement dated June 23, 1989 (described
below) (the "Rights Agreement").
Common Stock
Crestar had 110,638,161 shares of Common Stock outstanding at June 30,
1997. 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 the Crestar Board 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. Chase Mellon
Shareholder Services acts as the transfer agent and registrar for the Common
Stock.
Preferred Stock
The Crestar Board 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 the Crestar
Board 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 Articles, the Crestar Board 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, adjusted to
one-half Right for each share of Common Stock to reflect a two-for-one stock
split in the form of a stock dividend distribution in January, 1996. Each
one-half Right entitles the holder to buy one one-thousandth of a share of
Junior Preferred Stock at an exercise price of $57.50, subject to adjustment.
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
42
<PAGE>
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 Crestar Board.
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 Crestar Board 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
Crestar Common Stock 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 the Crestar Board. Thus, the
Rights could have the effect of discouraging acquisition transactions not
approved by the Crestar Board. The Rights do not interfere with any merger or
other business combination approved by the Crestar Board 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 or any person added thereafter to the Board with the approval of the
Continuing Directors.
Virginia Stock Corporation Act
The Virginia Stock Corporation Act ("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 Stockholder") 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
Stockholder, 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
Stockholder by more than 5%.
For three years following the time that an Interested Stockholder
becomes an owner of 10% of the outstanding voting shares, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Stockholder
without approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Stockholder, and majority approval of the
"Disinterested Directors." A Disinterested Director means, with respect to a
particular Interested Stockholder, a member of the Crestar Board who was (1) a
member on the date on which an Interested Stockholder became an Interested
Stockholder 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 Stockholder.
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
43
<PAGE>
a two-step acquisition transaction, the Interested Stockholder 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 Stockholder whose acquisition of
shares making such person an Interested Stockholder 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
Stockholder, 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, American National
shareholders (except any American National shareholder properly electing the
cash option) automatically will become shareholders of Crestar, and their rights
as shareholders will be determined by Crestar's Articles of Incorporation and
Bylaws. The following is a summary of the material differences in the rights of
shareholders of Crestar and American National.
Capitalization
American National. American National's Certificate of Incorporation
authorizes the issuance of up to 8,000,000 shares of American National Common
Stock, par value $0.01 per share, of which 3,613,011 shares were issued and
outstanding as of the Record Date, and up to 1,000,000 shares of serial
preferred stock. American National preferred stock is issuable in series, each
having such rights and preferences as American National's Board of Directors
may, by adoption of an amendment of American National's Certificate of
Incorporation, fix and determine. As of the Record Date, no shares of American
National preferred stock were issued and outstanding.
Crestar. Crestar's authorized capital is set forth under "Description
of Crestar Capital Stock."
Amendment of Articles or Bylaws
American National. Pursuant to the DGCL and American National's
Certificate of Incorporation, American National's Certificate 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, unless a greater vote is required by law
or by the Certificate. The Certificate provides that an affirmative vote of at
least 80% of the outstanding voting stock entitled to vote is required to amend
or repeal certain provisions of the Certificate of Incorporation, including the
provision limiting voting rights, the provisions relating to approval of certain
business combinations, calling special meetings, the number and classification
of directors, director and officer indemnification and amendment of American
National's Bylaws and Certificate of Incorporation.
American National's Certificate of Incorporation and Bylaws generally
provide that the American National Bylaws may be amended by a majority vote of
the Board or by the vote of the holders of 80% of the outstanding voting stock
of American National.
44
<PAGE>
Crestar. As permitted by the VSCA, the Crestar Articles provide that,
unless a greater vote is required by law, by the Crestar Articles or by a
resolution of the Crestar Board, the Crestar Articles may be amended if the
amendment is adopted by the Crestar 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. To be amended, the Article providing for a
classified Board 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 Crestar Board may, by a
majority vote, amend its Bylaws.
Required Shareholder Vote for Certain Actions
American National. Each share of American National Common Stock has the
same relative rights and is identical in all respects with every other share of
American National Common Stock. The holders of American National Common Stock
possess exclusive voting rights in American National, except to the extent that
shares of American National preferred stock may have voting rights (no such
shares currently are outstanding). Each holder of American National Common Stock
is entitled to one vote for each share held of record on all matters submitted
to a vote of holders of American National Common Stock, except as described
below, and does not have cumulative voting rights in the election of Directors.
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 "Description of
Crestar Capital Stock -- Virginia Stock Corporation Act."
None of the additional voting requirements contained in the American
National Certificate of Incorporation or the VSCA are applicable to the Holding
Company Merger.
Director Nominations
American National. The Bylaws of American National require that
shareholder nominations of persons for election as a director of American
National be received in writing by the Secretary no less than 90 days prior to
any meeting of the shareholders called for the election of directors; provided,
however, that in the event less than 100 days' notice of the meeting is given to
shareholders, nominations made by shareholders must be received by the Secretary
no later than the tenth day following the day on which such notice of the date
of the meeting was mailed. Such nominations shall set forth, among other things,
(i) the name, age and business and residence address of the nominee and the
shareholder making the nomination; (ii) the occupation of the nominee; (iii) the
number of Voting Shares owned of record by the shareholder making the nomination
and by the nominee; and (iv) the consent of the nominee to serve if elected.
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
American National. The American National Board of Directors is divided
into three classes, each as nearly equal in number as possible, with one class
being elected annually.
45
<PAGE>
The Bylaws of American National provide that the number of directors
shall be such number as the Board of Directors shall designate, except that in
the absence of any such designation such number shall be seven.
Any vacancy occurring on the Board of Directors may be filled by the
Board of Directors, acting by vote of a majority of the directors then in
office, although less than a quorum. Any director so elected to fill a vacancy
shall be elected to serve until annual meeting of shareholders at which the term
of office of the class to which the director has been elected expires and until
such director's successor shall have been elected and qualified.
Subject to the rights of the holders of preferred stock then
outstanding, a director may be removed for cause upon a vote of the holders of
80% or more of the outstanding shares then entitled to vote.
Crestar. The Crestar 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
Crestar Board currently has fixed the number of directors at 17. The Crestar
Board is divided into three classes, each as nearly equal in number as possible,
with one class being elected annually.
The Crestar Articles provide that any vacancy occurring on the Crestar
Board, 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 Crestar Board. 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 Crestar Board 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
American National. Certain provisions of Delaware law may be deemed to
have an anti-takeover effect. Among other things, Delaware law provides that a
"Person" (as defined therein) who owns 15% or more of the outstanding voting
stock of a Delaware corporation (an "Interested Stockholder") may not consummate
a merger or other business combination transaction with such corporation at any
time during the three-year period following the date such "Person" became an
Interested Stockholder. The term "business combination" is defined broadly to
cover a wide range of corporate transactions including mergers, sales of assets,
issuances of stock, transactions with subsidiaries and the receipt of
disproportionate financial benefits. The statute exempts certain specified
transactions from the foregoing requirements.
In addition, certain provisions in American National's Certificate of
Incorporation and the Savings Bank's Charter and their respective Bylaws provide
for limitations on stockholder voting rights. These provisions provide for,
among other things, supermajority voting, staggered boards of directors,
noncumulative voting for directors, limits on the calling of special meetings,
and certain uniform price provisions for certain business combinations. In
particular, American National's Certificate of Incorporation provides that
beneficial owners of more than 10% of American National's outstanding Common
Stock may not vote the shares owned in excess of the 10% limit. The Savings
Bank's amended Federal Stock Charter also prohibits, for a period of five years
from the closing of the conversion, the acquisition of, or offer to, acquire,
directly or indirectly, the beneficial ownership of more than 10% of the Savings
Bank's voting securities.
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."
46
<PAGE>
Preemptive Rights
Neither the shareholders of Crestar nor the shareholders of American
National have preemptive rights. Thus, if additional shares of Crestar Common
Stock, Crestar Preferred Stock or American National Common Stock or American
National 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 outstanding shares of American National Common Stock are deemed to
be fully paid and nonassessable.
All shares of Crestar Common Stock presently issued are, and those to
be issued pursuant to the Agreement will be, fully paid and nonassessable.
Conversion; Redemption; Sinking Fund
Neither Crestar Common Stock nor American National Common Stock is
convertible, redeemable or entitled to any sinking fund.
Liquidation Rights
American National. In the event of the complete liquidation or
dissolution of American National, the holders of American National Common Stock
are entitled to receive all assets of American National available for
distribution in cash or in kind, after payment or provision for payment of (i)
all debts and liabilities of American National (including all savings accounts
and accrued interest thereon); (ii) any accrued dividend claims; and (iii)
liquidation preferences upon serial preferred stock which may be issued in the
future. In the event of any liquidation, dissolution or winding up of the
Savings Bank, American National, as holder of the Savings Bank's capital stock
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Savings Bank (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to eligible account holders and supplemental eligible
account holders, all assets of the Savings Bank available for distribution.
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 Crestar Articles which would modify the statutory
requirements for dissolution under the VSCA.
Dividends and Other Distributions
American National. The DGCL provides that, subject to any restrictions
in American National's Certificate of Incorporation, dividends may be declared
from American National's surplus, or if there is no surplus, from its net
profits for the fiscal year in which the dividend is declared and the preceding
fiscal year. However, if American National's capital (generally defined in the
DGCL as the sum of the aggregate par value of all shares of American National's
capital stock, where all such shares have a par value and the board of directors
has not established a higher level of capital) has been diminished to an amount
less than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets, dividends may not be declared and paid out of such net profits until the
deficiency in such capital has been repaired.
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 the Crestar Articles 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
47
<PAGE>
preferential rights are superior to those receiving the distribution. These
requirements are applicable to Crestar as a Virginia corporation.
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 American National. For a description of the
regulatory limitations on distributions, see "Supervision and Regulation Limits
on Dividends and Other Payments."
Special Meetings of Shareholders
American National. The Certificate of Incorporation of American
National provides that special meetings of shareholders may be called only by
the Board of Directors of American National or as otherwise provided in the
Bylaws.
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 Crestar Board, by the President of Crestar, or by a majority of
the Crestar Board.
Indemnification
American National. The Certificate of Incorporation of American
National provides that to the full extent permitted by the DGCL, American
National shall indemnify a director or officer of American National 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 American National as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise.
Crestar. The Crestar Articles 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 Crestar Board is empowered, by majority vote of a quorum
of disinterested directors, to contract in advance to indemnify any director or
officer.
Shareholder Proposals
American National. American National's Bylaws provide that any new
business to be considered at the annual meeting must be submitted in writing and
filed with the Secretary of American National at least 90 days before the date
of the meeting; provided, however, that in the event that less than 100 days'
notice of the meeting is given to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed. A shareholder's notice to the secretary shall set forth as to each
matter such shareholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (ii) the name
and address, as they appear on American National's books, of the shareholder
proposing such business; (iii) the class and number of shares of American
National's capital stock that are beneficially owned by such shareholder; and
(iv) any material interest of such shareholder in such business.
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 Crestar Board 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 Common
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.
48
<PAGE>
Shareholder Inspection Rights; Shareholder Lists
American National. Under the DGCL, the shareholders of a Delaware
corporation have substantially similar rights as those described below for
shareholders of Virginia corporations.
Crestar. The Certificate of Incorporation and Bylaws of American
National and the Articles of Incorporation and Bylaws of Crestar do not contain
any provisions which govern shareholder inspection rights of shareholder lists.
Under the VSCA, the shareholder of a Virginia corporation is entitled to inspect
and copy certain other books and records, including a list of shareholders,
minutes of any meeting of the board of directors and accounting records of the
corporation, 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, and if he gives the corporation written
notice of his demand at least five business days before the date on which he
wishes to inspect and copy. 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.
Shareholder Rights Plan
American National. American National does not have a shareholders'
rights plan.
Crestar. For a description of a shareholder rights plan which has been
adopted by Crestar, see "Description of Crestar Capital Stock -- Rights." Each
American National shareholder who elects to receive shares of Crestar Common
Stock in exchange for American National Common Stock will receive one Right for
each share of Crestar Common Stock received.
Dissenters' Rights
American National. Section 262 of the DGCL provides shareholders of a
Delaware corporation the right to dissent from, and obtain payment of the fair
value of their shares in the event of mergers or consolidations. However,
Section 262 provides that holders of shares of a Delaware corporation which are
designated as a national market system security (as are shares of American
National) are not entitled to dissenter's rights unless certain requirements are
met.
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 their shares in the event of, mergers,
consolidations and certain other corporate transactions are applicable to
Crestar as a Virginia corporation. However, because Crestar has more than 2,000
record shareholders, shareholders of Crestar generally do not 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.
RESALE OF CRESTAR COMMON STOCK
Crestar Common Stock has been registered under the 1933 Act, thereby
allowing such shares to be traded freely and without restriction by those
holders of American National 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 1933 Act, but generally including directors,
certain executive officers and 10% or more shareholders) of American National or
Crestar. Each holder of American National Common Stock who is deemed by American
National to be an affiliate of it has entered into an agreement with Crestar
prior to the Effective Date of the Holding Company Merger providing, among other
things, that (A) such affiliate acknowledges and agrees to support and vote such
shares of American National Common Stock beneficially owned by him to ratify and
confirm the Agreement and the Holding Company Merger, (B) such affiliate
acknowledges and agrees beginning 30 days prior to the Effective Date, that he
will not sell, pledge, transfer or otherwise dispose of shares of American
National Common Stock or Crestar Common Stock except in compliance with the
applicable
49
<PAGE>
provisions of the 1933 Act and rules and regulations thereunder and until such
time as financial results covering at least 30 days of combined operations of
Crestar and American National have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies, and (C) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions. This Proxy Statement/Prospectus does not cover any
resales of Crestar Common Stock received by affiliates of American National.
EXPERTS
The consolidated financial statements of Crestar Financial Corporation
and Subsidiaries appearing in Crestar's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, incorporated by reference herein, have been
incorporated in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein and in the
registration statement, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick refers to their
reliance on another auditors' report with respect to amounts related to Citizens
Bancorp included in the aforementioned consolidated financial statements.
The consolidated financial statements of Citizens Bancorp, which have
been consolidated with those of Crestar in Crestar's Annual Report on Form 10-K
for the year ended December 31, 1996, have been audited by Deloitte & Touche LLP
as stated in their report. The incorporation by reference herein of Crestar's
Annual Report on Form 10-K for the year ended December 31, 1996, has been so
incorporated in reliance upon the report of Deloitte & Touche LLP, independent
auditors, given upon their authority as experts in accounting and auditing.
The consolidated financial statements of American National Bancorp,
Inc. and Subsidiaries appearing in American National's Annual Report on Form
10-K for the fiscal year ended July 31, 1996, incorporated by reference herein,
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated herein by reference, and upon the authority of said
firm as experts in accounting and auditing.
LEGAL OPINIONS
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.
Certain legal matters will be passed on for American National by Luse,
Lehman, Gorman, Pomerenk & Schick, Washington, D.C.
A condition to consummation of the Holding Company Merger is the
delivery by Hunton & Williams of an opinion concerning certain federal income
tax consequences of the Holding Company Merger. See "The Holding Company Merger
- -- Certain Federal Income Tax Consequences."
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the American
National Board does not know of any other matters to be presented for action at
the American National Special Meeting other than procedural matters incident to
the conduct of the meeting. In addition, shareholders may make proposals for
consideration at the American National Special Meeting in accordance with the
procedures specified in American National's Bylaws. If such shareholder
proposals are made or any other matters not now known are properly brought
before the American National Special Meeting, the persons named in the
accompanying proxy will vote such proxy in accordance with the determination of
a majority of the American National Board.
50
<PAGE>
ANNEX I
Execution Copy 6/23/97
AGREEMENT AND PLAN OF REORGANIZATION
among
CRESTAR FINANCIAL CORPORATION,
CRESTAR BANK,
AMERICAN NATIONAL BANCORP, INC.
and
AMERICAN NATIONAL SAVINGS BANK, F.S.B.
June 23, 1997
<PAGE>
<TABLE>
<S> <C>
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, American National and Savings Bank
2.1. Conversion of Stock; Exchange Ratio; Cash Election....................................... 3
2.2. Manner of Exchange....................................................................... 4
2.3. No Fractional Shares..................................................................... 6
2.4. Dissenting Shares........................................................................ 6
2.5. Assets................................................................................... 6
2.6. Liabilities.............................................................................. 7
ARTICLE III
Representations and Warranties
3.1. Representations and Warranties of American National...................................... 7
(a) Organization, Standing and Power................................................ 7
(b) Capital Structure............................................................... 8
(c) Authority....................................................................... 8
(d) Investments..................................................................... 10
(e) Financial Statements............................................................ 10
(f) Absence of Undisclosed Liabilities.............................................. 11
(g) Tax Matters..................................................................... 11
(h) Options, Warrants and Related Matters........................................... 12
(i) Property........................................................................ 12
(j) Additional Schedules Furnished to Crestar....................................... 13
(k) Agreements in Force and Effect.................................................. 14
(l) Legal Proceedings; Compliance with Laws......................................... 14
(m) Employee Benefit Plans.......................................................... 15
(n) Insurance....................................................................... 17
(i)
<PAGE>
(o) Loan Portfolio.................................................................. 18
(p) Absence of Changes.............................................................. 19
(q) Brokers and Finders............................................................. 19
(r) Subsidiaries.................................................................... 19
(s) Reports......................................................................... 20
(t) Environmental Matters........................................................... 20
(u) Disclosure...................................................................... 21
(v) Accounting; Tax; Regulatory Matters............................................. 22
(w) Regulatory Approvals............................................................ 22
3.2. Representations and Warranties of Crestar and Crestar Bank............................... 22
(a) Organization, Standing and Power................................................ 22
(b) Capital Structure............................................................... 22
(c) Authority....................................................................... 23
(d) Financial Statements............................................................ 24
(e) Absence of Undisclosed Liabilities.............................................. 24
(f) Absence of Changes.............................................................. 24
(g) Brokers and Finders............................................................. 25
(h) Subsidiaries.................................................................... 25
(i) Reports......................................................................... 25
(j) Tax Matters..................................................................... 25
(k) Property........................................................................ 26
(l) Agreements in Force and Effect.................................................. 26
(m) Legal Proceedings; Compliance with Laws......................................... 27
(n) Employee Benefit Plans.......................................................... 27
(o) Regulatory Approvals............................................................ 28
(p) Environmental Matters........................................................... 28
(q) Disclosure...................................................................... 29
ARTICLE IV
Conduct and Transactions Prior to
Effective Time of the Merger
4.1. Access to Records and Properties of Crestar, Crestar Bank,
American National and Savings Bank; Confidentiality...................................... 29
4.2. Registration Statement, Proxy Statement, Shareholder Approval............................ 30
4.3. Operation of the Business of American National........................................... 31
4.4. No Solicitation.......................................................................... 32
4.5. Dividends................................................................................ 32
4.6. Regulatory Filings; Best Efforts......................................................... 33
4.7. Public Announcements..................................................................... 33
4.8. Operating Synergies; Conformance to Reserve Policies, Etc................................ 33
4.9. Crestar Rights Agreement................................................................. 34
4.10. Agreement as to Efforts to Consummate.................................................... 34
(ii)
<PAGE>
4.11. Adverse Changes in Condition............................................................. 34
4.12. NYSE Listing............................................................................. 34
4.13. Updating of Schedules.................................................................... 34
4.14. Transactions in Crestar Common Stock..................................................... 35
4.15. Branch Closing Law....................................................................... 35
ARTICLE V
Conditions of Merger
5.1. Conditions of Obligations of Crestar and Crestar Bank.................................... 35
(a) Representations and Warranties; Performance of Obligations...................... 35
(b) Authorization of Transaction.................................................... 36
(c) Opinion of Counsel.............................................................. 36
(d) The Registration Statement...................................................... 36
(e) Tax Opinion..................................................................... 36
(f) Regulatory Approvals............................................................ 37
(g) Affiliate Letters............................................................... 37
(h) NYSE Listing.................................................................... 37
(i) Acceptance by Crestar and Crestar Bank Counsel.................................. 37
5.2. Conditions of Obligations of American National and Savings Bank.......................... 37
(a) Representations and Warranties; Performance of Obligations...................... 38
(b) Authorization of Transaction.................................................... 38
(c) Opinion of Counsel.............................................................. 38
(d) The Registration Statement...................................................... 38
(e) Regulatory Approvals............................................................ 39
(f) Tax Opinion..................................................................... 39
(g) NYSE Listing.................................................................... 40
(h) Fairness Opinion................................................................ 40
(i) Acceptance by American National's Counsel....................................... 40
ARTICLE VI
Closing Date; Effective Time
6.1. Closing Date............................................................................. 40
6.2. Filings at Closing....................................................................... 40
6.3. Effective Time........................................................................... 41
(iii)
<PAGE>
ARTICLE VII
Termination; Survival of Representations,
Warranties and Covenants; Waiver and Amendment
7.1. Termination.............................................................................. 41
7.2. Effect of Termination.................................................................... 43
7.3. Survival of Representations, Warranties and Covenants.................................... 43
7.4. Waiver and Amendment..................................................................... 43
ARTICLE VIII
Additional Covenants
8.1. Indemnification of American National Officers and Directors;
Liability Insurance...................................................................... 44
8.2. Employment and Severance Agreements...................................................... 44
8.3. Employee Benefit Matters................................................................. 44
8.4. Stock Options............................................................................ 46
ARTICLE IX
Miscellaneous
9.1. Expenses................................................................................. 46
9.2. Entire Agreement......................................................................... 46
9.3. Descriptive Headings..................................................................... 46
9.4. Notices.................................................................................. 46
9.5. Counterparts............................................................................. 47
9.6. Governing Law............................................................................ 47
Exhibit A - Stock Option Agreement
Exhibit B - Holding Company Plan of Merger of American National into
Crestar
Exhibit C - Bank Plan of Merger of Savings Bank into Crestar Bank
Exhibit D - Opinion of Luse, Lehman, Gorman, Pomerenk & Schick, counsel
to American National and Savings Bank
Exhibit E - Opinion of Hunton & Williams, counsel to Crestar and Crestar
Bank
Exhibit F - Form of Affiliate's Undertaking
(iv)
</TABLE>
<PAGE>
INDEX TO SCHEDULES
Schedule Description
-------- -----------
A-1 Securities Owned by American National and Savings
Bank
A-2 American National and Savings Bank Financial
Statements
B American National Taxes Being Contested, etc.
C Salary Rates, American National Common Stock Held
by Certain Employees and Directors of American
National and Savings Bank, Options and Restricted
Stock Awards
D Notes, Bonds, Mortgages, Indentures, Licenses, Lease
Agreements and Other Contracts of American
National and Savings Bank
E Employment Contracts and Related Matters of
American National and Savings Bank
F Real Estate Owned or Leased by American National
and Savings Bank
G Affiliates of American National
H Legal Proceedings of American National
I Insurance of American National
J American National Loans
K Certain Changes
L Environmental Matters
M Crestar Taxes Being Contested, etc.
N American National Subsidiaries and Joint Ventures
O Authority
X Permitted Contracts
(v)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement")
dated as of June 23, 1997 among CRESTAR FINANCIAL CORPORATION, a Virginia
corporation ("Crestar"), CRESTAR BANK, a Virginia banking corporation
wholly-owned by Crestar ("Crestar Bank"), AMERICAN NATIONAL BANCORP, INC. a
Delaware corporation (together with its subsidiaries, "American National") and
AMERICAN NATIONAL SAVINGS BANK, F.S.B., a federal savings bank (together with
its subsidiaries, "Savings Bank"), recites and provides:
A. American National and Crestar have agreed that Crestar will
acquire American National in a statutory merger in exchange for Crestar Common
Stock and cash, and pursuant to a Stock Option Agreement (the "Option
Agreement") attached as Exhibit A, American National has granted an option to
Crestar to purchase shares of American National Common Stock in certain events.
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 American National
deem it advisable to merge American National into Crestar (the "Holding Company
Merger") pursuant to this Agreement and the Holding Company Plan of Merger
attached as Exhibit B (the "Holding Company Plan of Merger") whereby the holders
of shares of Common Stock ("American National Common Stock") of American
National will receive Common Stock of Crestar ("Crestar Common Stock") and/or
cash in exchange therefor.
C. The boards of directors of Crestar, American National,
Crestar Bank and Savings Bank deem it advisable that after the Holding Company
Merger, Crestar shall cause Savings 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 Savings Bank into Crestar Bank pursuant to this
Agreement and the Plan of Merger attached as Exhibit C (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, American National and
Savings Bank hereby adopt this Agreement whereby at the "Effective Time of the
Holding Company Merger" (as defined in Article VI hereof) American National
shall be merged into Crestar in accordance with the
-1-
<PAGE>
Holding Company Plan of Merger. At the Effective Time of the Bank Merger (as
defined in Article VI hereof), Savings 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
American National 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 Savings 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 American National shall cease
and American National shall be merged with and into Crestar ("Crestar" or 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 Savings Bank to merge into Crestar
Bank ("Crestar Bank" or 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 Savings 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 Holding Company 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 American National and/or Savings Bank,
the officers and directors of the Surviving Company and/or Surviving Bank shall
take all such necessary action.
-2-
<PAGE>
ARTICLE II
Effect of Transaction on Common Stock, Assets,
Liabilities and Capitalization of Crestar,
Crestar Bank, American National and Savings 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 American
National Common Stock issued and outstanding at the Effective
Time of the Holding Company Merger (other than shares held
directly by Crestar, which shall be canceled without payment
therefore and shares to be exchanged for cash) shall, 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 Ratio. Each share of American National
Common Stock (other than shares held directly by Crestar and
shares to be exchanged for cash) shall be converted into a
fraction of a share of Crestar Common Stock, determined in
accordance with the Exchange Ratio. The "Exchange Ratio" shall
be calculated as follows:
(i) if the Average Closing Price (as defined
below) is between $30 and $50, the Exchange
Ratio shall be the quotient (rounded to the
nearest one-thousandth) of (A) $20.25 (the
"Common Stock Price Per Share") divided by
(B) the Average Closing Price;
(ii) if the Average Closing Price is $50 or
greater, the Exchange Ratio shall be 0.405;
and
(iii) if the Average Closing Price is $30 or
less, the Exchange Ratio shall be 0.675.
As used herein, "Average Closing Price" shall mean
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 tenth day prior to the Effective Time of the
Holding Company Merger.
The Exchange Ratio 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.
-3-
<PAGE>
(c) Cash Election. Holders of shares of American
National 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
in the aggregate the number of shares that may be exchanged
for cash shall not exceed 40% of the number of outstanding
shares of American National 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 American
National shareholders vote on the Holding Company 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 exceeds 40% of the outstanding shares of
American National 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 American National 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 Exchange Ratio.
2.2. Manner of Exchange.
(a) Shareholders who elect to exchange some or all
of their shares of American National Common Stock for cash
must submit to American National certificates for the shares
being exchanged for cash at or prior to the meeting of
American National's shareholders referred to in Section 4.2.
If the Holding Company Merger is approved by American
National's shareholders at this meeting, a shareholder's
election to receive cash is irrevocable and American National
will retain certificates for shares submitted for cash
purchase until either (i) termination of this Agreement, upon
which American National will return such certificates, or (ii)
the Effective Time of the Holding Company Merger, when Chase
Mellon Shareholder Services (the "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 American National Common Stock, upon
surrender of such certificate to the Exchange Agent (unless
previously surrendered to American National in connection with
exercise of the cash option), accompanied by a Letter of
Transmittal, shall be entitled to receive in exchange therefor
the number of full shares of Crestar Common Stock for which
shares of American National Common Stock shall have been
exchanged or cash if the cash option is properly elected, or a
combination of Crestar Common Stock and cash if the cash
option is elected for part of a holder's American National
shares. In the event of proration, a combination of cash and
Crestar
-4-
<PAGE>
Common Stock shall be issued in exchange for American National
Common Stock. Until so surrendered, each outstanding
certificate which, prior to the Effective Time of the Holding
Company Merger, represented American National Common Stock
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 American National Common Stock represented thereby
may be converted in accordance with the Exchange Ratio or (ii)
the Common Stock Price Per Share multiplied by the number of
shares of American National 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 American National 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
American National Common Stock represented thereby were
converted.
(c) Until outstanding certificates formerly
representing American National Common Stock are surrendered in
exchange for Crestar Common Stock, 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 American National of shares of
American National Common Stock. 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 American National Common Stock 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 American National Common Stock held by
Crestar shall be canceled, retired and cease to exist.
(e) At the Effective Time of the Holding Company
Merger and as provided in the Holding Company Plan of Merger,
outstanding options to acquire
-5-
<PAGE>
American National Common Stock that were granted under the
1993 Stock Option Plan for Outside Directors, the 1993 Stock
Incentive Plan, and the 1996 Stock Option Plan ("American
National Options," as defined in Section 3.1(j)(1) hereof),
and which are identified on Schedule C, shall be converted,
based on the 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 American National Common
Stock under the American National Option divided by the
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 American National
Common Stock subject to the American National Option
multiplied by the 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 a Crestar Option, the terms of the Crestar
Option shall be the same as the terms of the American National
Option.
(f) At the Effective Time of the Holding Company
Merger and as provided in the Holding Company Plan of Merger,
outstanding awards of restricted stock (including accumulated
dividends payable in stock, if any) that were granted under
the 1993 Recognition and Retention Plan for Outside Directors,
the 1993 Employees Recognition and Retention Plan, the 1996
Recognition and Retention Plan and any other restricted stock
award granted to an employee or director of American National
or Savings Bank ("American National Restricted Stock Awards"
as defined in Section 3.1(j)(1) hereof), and which are
identified on Schedule C, shall be converted, based on the
Exchange Ratio, into restricted awards of Crestar Common Stock
equal to the number of shares of American National Common
Stock subject to the American National Restricted Awards
multiplied by the Exchange Ratio (rounded down to the nearest
whole share). Except as provided in the preceding sentence,
the terms of the American National Restricted Stock Awards
shall not be changed.
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. Holders of American National Common
Stock do not have the right to demand and receive payment of the fair value of
his shares of American National Common Stock in accordance with the provisions
of Section 262(b)(1) of the Delaware General Corporation Law.
2.5. Assets. At the Effective Time of the Holding Company
Merger, the corporate existence of American National shall be merged into and
continued in Crestar as the Surviving Company. At the Effective Time of the Bank
Merger, the corporate existence of
-6-
<PAGE>
Savings Bank shall be merged into and continued in Crestar Bank as the Surviving
Bank. All rights, franchises and interests of American National and of Savings
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 American National or Savings
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 Virginia
Stock Corporation Act ("VSCA") and Section 259 of the Delaware General
Corporation Law with respect to the Holding Company Merger and Section 6.1-44 of
the Virginia Banking Act ("VBA") with respect to the Bank Merger.
2.6. Liabilities. At the Effective Time of the Holding Company
Merger, the Surviving Company shall be liable for all liabilities of American
National, 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
Savings 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 American National
and Savings Bank, accrued, absolute, contingent or otherwise, and whether or not
reflected or reserved against on balance sheets, books of accounts, or records
of American National or Savings 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 American National or of Savings Bank shall
be preserved unimpaired.
ARTICLE III
Representations and Warranties
3.1. Representations and Warranties of American National and
Savings Bank. American National and Savings Bank represent and warrant to
Crestar and Crestar Bank as follows:
(a) Organization, Standing and Power. American
National is a corporation duly organized, validly existing and
in good standing under the laws of Delaware 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 Holding
Company Plan of Merger and to effect the transactions
contemplated hereby and thereby. American National has
-7-
<PAGE>
delivered to Crestar complete and correct copies of (i) its
Certificate of Incorporation and (ii) its By-laws.
Savings 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.
Savings Bank's deposits are insured by the Savings Association
Insurance Fund of the FDIC to the maximum extent permitted by
law. Savings 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 American National consists of 8,000,000 shares of American
National Common Stock, par value $0.01, and 1,000,000 shares
of serial preferred stock. On the date hereof, 3,613,011
shares of American National Common Stock and no shares of
preferred stock were outstanding. All of the outstanding
shares of American National Common Stock were validly issued
and are fully paid and nonassessable.
The authorized capital stock of Savings Bank
consists of 20,000,000 shares of Common Stock and 10,000,000
shares of Serial Preferred Stock. On the date hereof, 100
shares of Savings Bank Common Stock were outstanding and all
of such outstanding shares were validly issued, fully paid and
nonassessable. No shares of Serial Preferred Stock are
outstanding. American National owns all of the issued and
outstanding Common Stock of Savings Bank free and clear of any
liens, claims, encumbrances, charges or rights of third
parties of any kind whatsoever.
Except as disclosed on Schedule C, American
National knows of no person who beneficially owns 5% or more
of the outstanding American National Common Stock as of the
date hereof.
(c) Authority. Subject to the approval of this
Agreement and the Holding Company Plan of Merger by the
shareholders of American National 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 American
National, and this Agreement is a valid and binding obligation
of American National, enforceable in accordance with its
terms, except as enforceability may be limited by laws
affecting the enforcement of creditors' rights generally and
subject to any equitable principles limiting the
-8-
<PAGE>
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 American National with any of
the provisions hereof or thereof will not (i) except as
disclosed on Schedule O, conflict with or result in a breach
of any provision of its Certificate 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 American National
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 American
National 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 and the
Office of Thrift Supervision ("OTS"), is required in
connection with the execution and delivery by American
National of this Agreement or the consummation by American
National 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
Savings Bank, and this Agreement is a valid and binding
obligation of Savings 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 Savings Bank with any of the
provisions hereof will not (i) except as disclosed on Schedule
O, 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 Savings 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 Savings 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 and the OTS, is required in connection
with the execution and delivery by Savings Bank of this
Agreement
-9-
<PAGE>
or the consummation by Savings Bank of the transactions
contemplated hereby or by the Bank Plan of Merger.
(d) Investments. All securities owned by American
National and Savings 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 American National or
Savings Bank freely to dispose of any such security at any
time, except as noted on Schedule A- 1. Any securities owned
of record by American National and Savings 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 American National or Savings Bank is
a party with respect to the voting of such securities. With
respect to all repurchase agreements to which American
National or Savings Bank is a party, American National or
Savings 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 American
National (the "American National Financial Statements"):
(i) Consolidated Statements of Financial
Condition as of July 31, 1996 and 1995 (audited)
and as of April 30, 1997 (unaudited);
(ii) Consolidated Statements of Operations
for each of the three years ended July 31, 1996,
1995 and 1994 (audited) and the three months and
nine months ended April 30, 1997 and 1996
(unaudited);
(iii) Consolidated Statements of Changes in
Stockholders' Equity for each of the three years
ended July 31, 1996, 1995 and 1994 (audited) and
nine months ended April 30, 1997 (unaudited); and
(iv) Consolidated Statements of Cash Flows
for each of the three years ended July 31, 1996,
1995 and 1994 (audited) and the nine months ended
April 30, 1997 and 1996 (unaudited).
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 American
National Consolidated Financial Statements. Each of such
consolidated statements of
-10-
<PAGE>
financial condition, together with the notes thereto, presents
fairly as of its date (subject in the case of unaudited
interim financial statements to normal year end adjustments)
the consolidated financial condition and assets and
liabilities of American National. 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 American National or
Savings Bank for the periods indicated in accordance with
generally accepted accounting principles ("GAAP").
Except as disclosed in the American National
Financial Statements, and in the case of Savings Bank,
compliance with and subject to the requirements of 12 C.F.R.
ss. 563.134, there are no restrictions precluding American
National or Savings Bank from paying dividends when, as and if
declared by their respective Boards of Directors.
(f) Absence of Undisclosed Liabilities. At July 31,
1996 and April 30, 1997, American National had no material
obligations or liabilities (contingent or otherwise) of any
nature which were not reflected in the American National
Financial Statements or in the American National 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. Savings Bank and all other
subsidiaries of American National are members of the same
"affiliated group," as defined in Section 1504(a)(1) of the
Code, as American National (collectively, the "American
National Group"). Each member of the American National 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
American National 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 American National 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 American National Group except for
-11-
<PAGE>
taxes and any such related liability being contested in good
faith and disclosed in Schedule B. Each member of the American
National 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 American National 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 American National Financial Statements fully
and properly reflect, as of the dates thereof, the aggregate
liabilities of the members of the American National Group for
all accrued taxes, additions to tax, penalties and interest in
accordance with GAAP. For periods ending after July 31, 1996,
the books and records of each member of the American National
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 American National 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 American National Group
by any taxing authority. No member of the American National
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 American National
Group. To the best knowledge of American National, no American
National 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 American
National or Savings Bank is a party or by which it is bound,
calling for the issuance of securities of American National or
Savings 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.
(i) Property. American National and Savings Bank
own (or enjoy use of under capital or operating leases) all
property reflected on the American National Financial
Statements as of July 31, 1996 (except property sold or
-12-
<PAGE>
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 American
National 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 American National's consolidated
business operations. The leases relating to leased property
are fairly reflected in such American National Financial
Statements.
Except for Other Real Estate Owned ("OREO"), all
property and assets material to the business or operations of
American National and Savings Bank are in substantially good
operating condition and repair and such property and assets
are adequate for the business and operations of American
National and Savings 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, American National 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 American
National and Savings Bank who received,
respectively, $80,000 or more in aggregate
compensation, whether in salary or otherwise as
reported or would be reported on Form W-2, during
the year ended July 31, 1996, or are presently
scheduled to receive salary in excess of $60,000
during the year ending July 31, 1997; (B) the
number of shares of American National Common Stock
owned beneficially by each director and five
highest compensated officers of American National
or Savings Bank as of the date hereof, (C) the
names of and the number of shares of American
National Common Stock owned by each person known to
American National who beneficially owns 5% or more
of the outstanding American National Common Stock
as of the date hereof, (D) each agreement to make
stock awards granted to each person under the 1996
Stock Option Plan or any option granted to a
director of American National or Savings Bank
(collectively, "American National Options") naming
the grantee, the number of outstanding options he
owns, and the exercise price of each such American
National Option and (E) the names of the
recipients, the number of outstanding shares of
restricted stock (and accumulated dividends payable
in stock, if any), and the vesting date or dates
for each American National Restricted Stock Award.
-13-
<PAGE>
(2) Certain Contracts. Schedule D lists all
notes, bonds, mortgages, indentures, licenses,
lease agreements and other contracts and
obligations to which American National or Savings
Bank is an indebted party or a lessee, licensee or
obligee as of the date hereof except (i) for those
entered into by American National or Savings Bank
in the ordinary course of its business consistent
with its prior practice and (ii) 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 American National nor Savings
Bank is a party to any employment contract not
terminable at the option of American National or
Savings Bank without liability. Except in all cases
as set forth on Schedule E, neither American
National nor Savings 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 American National or Savings 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 American
National and Savings Bank, including OREO.
(5) Affiliates. Schedule G sets forth the
names and number of shares of American National
Common Stock owned as of the date hereof
beneficially or of record by any persons American
National considers to be affiliates of American
National ("American National 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 American National or Savings Bank referred
to herein are valid and in full force and effect, and neither
American National nor Savings 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 American National 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
American National or Savings Bank pending or, to the
-14-
<PAGE>
knowledge of American National's and Savings Bank's
management, threatened or probable of assertion against
American National or Savings 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
American National on a consolidated basis. Except as set forth
in Schedule H, American National and Savings 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 American National on a consolidated
basis. American National and Savings 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 American National 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
American National or Savings Bank received written notice of
any violations; and no proceeding is pending or, to the
knowledge of American National and Savings Bank, threatened to
revoke or limit any Permit. Except as set forth in Schedule H,
neither American National nor Savings Bank has entered into
any agreements or written understandings with the Federal
Reserve Board, the OTS, the FDIC or any other regulatory
agency having authority over it. Neither American National nor
Savings 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 American National 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 American National
or Savings Bank or the dependents or beneficiaries
of any employee or former employee of American
National or Savings Bank, whether or not subject to
ERISA (the "Employee Plans"), (B) the most recent
actuarial and
-15-
<PAGE>
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
Employee Plan that is intended to be qualified
under Section 401(c) of the Code. 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 American National, Savings 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 American National or Savings 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 American National nor Savings 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 American National nor Savings 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 American National or
Savings Bank or previously maintained by American
National or Savings Bank comply and have been
administered in compliance in all material respects
with ERISA and all other applicable
-16-
<PAGE>
legal requirements, including the terms of such
plans, collective bargaining agreements and
securities laws. Neither American National nor
Savings Bank has any material liability under any
such plan that is not reflected in the American
National 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 American National or Savings Bank or
previously maintained by American National or
Savings 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 its funding
status, whether through insurance, a trust, or from
an employee's general assets. The funding under
each such plan does not exceed the limitations
under Section 419A(b) or 419A(c) of the Code.
Neither American National nor Savings Bank is
subject to taxation on the income of any such plan
or any such plan previously maintained by American
National or Savings 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 American National and
Savings 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 American National or
Savings 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 American
National or Savings 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 American
National or Savings Bank are described on Schedule I and are
valid and enforceable in accordance with their terms, are in
full force and effect, and are deemed appropriate and
sufficient by American National and Savings
-17-
<PAGE>
Bank. Neither American National nor Savings Bank is in default
in any material respect 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 American National
nor Savings Bank has received notice of cancellation or
non-renewal of any such policy or binder. Neither American
National nor Savings Bank has knowledge of any material
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 American National nor Savings 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 American National nor
Savings 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 American National and Savings 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 Savings
Bank's books as non-accrual) in accordance with the terms of
the loan, and with respect to loans originated by Savings Bank
was made in accordance with Savings Bank's standard loan
policies as in effect at the time in all material respects the
loan was negotiated except for loans to facilitate the sale of
OREO or loans with renegotiated terms and conditions. The
records of Savings Bank regarding all loans outstanding and
OREO by Savings 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
American National and Savings Bank, appropriate. The reserves
for possible loan losses on the outstanding loans of Savings
Bank, as reflected in the American National 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 American National and Savings Bank, 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
Savings 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
Savings 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
-18-
<PAGE>
Uniform Standards of Professional Appraisal Practice. Except
as identified on Schedule J, to the best knowledge of the
management of American National and Savings Bank, each loan
reflected as an asset on the American National 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
American National on a consolidated basis.
(p) Absence of Changes. Except as identified on
Schedule K, since April 30, 1997, there has not been any
material adverse change in the aggregate assets or
liabilities, earnings or business of American National, 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 including brokers' and
finders' fees disclosed in subsection 3.1(q) since such date
incurred or to be incurred in connection with the transactions
contemplated by this Agreement (estimated at $850,000), (iv)
accruals and reserves incurred or to be incurred by American
National or Savings Bank since such date pursuant to the terms
of Section 4.8 hereof, or (v) any other accruals, reserves or
expenses incurred or to be incurred by American National or
Savings Bank since such date with Crestar's prior written
consent. Since July 31, 1996, the business of American
National has been conducted only in the ordinary course.
(q) Brokers and Finders. Neither American National,
Savings 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 Keefe, Bruyette & Woods, Inc., whose fee
for its engagement shall not exceed approximately $390,000,
excluding out-of-pocket expenses.
(r) Subsidiaries; Partnerships and Joint Ventures.
American National's only subsidiaries, direct or indirect,
other than Savings Bank, are set forth in Schedule N. 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.
American National 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
-19-
<PAGE>
a party to any joint venture agreement or partnership except
as set forth in Schedule N.
(s) Reports. Since January 1, 1992, American
National and Savings 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 Federal Reserve Board, (ii) the FDIC, (iii) the OTS, (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 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. American National
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.
-20-
<PAGE>
"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 American
National or Savings Bank or any of their subsidiaries,
including those properties serving as collateral for any loans
made and retained by American National or Savings Bank or for
which American National or Savings Bank serves in a trust
relationship for the loans retained in portfolio.
Except as disclosed in Schedule L, to the best
knowledge of American National and Savings Bank,
(i) Neither American National nor Savings
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 American National 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
American National to Crestar is or will be a true and complete
copy of such document, unmodified except by another document
delivered by American National.
-21-
<PAGE>
(v) Accounting; Tax; Regulatory Matters. Subject to
action taken by the Board of Directors of American National
pursuant to or as a result of the exception clause to the
first sentence of Section 4.4 hereof, American National 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 American National
nor Savings 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 American National and
Savings 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 American National 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. Crestar Bank is a banking
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.
(b) Capital Structure. The authorized capital stock
of Crestar consists of 200,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock, of which 110,299,785
shares of Common Stock and no shares of Preferred Stock were
issued and outstanding as of March 31, 1997. 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 2,500,000 shares of common stock, $100 par value,
of which 1,725,721 shares were issued and outstanding as of
March 31, 1997. All of such 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.
-22-
<PAGE>
(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,
the Maryland Bank Commissioner, and the Bureau of Financial
Institutions of the State Corporation Commission of Virginia
("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.
-23-
<PAGE>
(d) Financial Statements. Crestar has on or prior
to the date hereof delivered to American National copies of
the following consolidated financial statements of Crestar
(the "Crestar Financial Statements"):
(i) Consolidated Balance Sheets as of
December 31, 1996 and 1995 (audited) and as of
March 31, 1997 and 1996 (unaudited);
(ii) Consolidated Income Statements for each of
the three years ended December 31, 1996, 1995, and
1994 (audited) and the three months ended March 31,
1997 and 1996 (unaudited);
(iii) Consolidated Statements of Changes in
Shareholders' Equity for each of the three years
ended December 31, 1996, 1995 and 1994 (audited)
and the three months ended March 31, 1997
(unaudited); and
(iv) Consolidated Statements of Cash Flows for
each of the three years ended December 31, 1996,
1995 and 1994 (audited) and the three months ended
March 31, 1997 and 1996 (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 (subject in the case of unaudited interim financial
statements to normal year end adjustments) 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.
Except as disclosed in the Crestar Financial
Statements, there are no restrictions precluding Crestar or
Crestar Bank from paying dividends when, as and if declared by
their respective Board of Directors.
(e) Absence of Undisclosed Liabilities. At March
31, 1997 and December 31, 1996, 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 March 31, 1997, there
has not been any material adverse change in the condition
(financial or otherwise), aggregate
-24-
<PAGE>
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 March 31, 1997 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 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 and Crestar Bank (other than in a fiduciary
capacity) do not own directly or indirectly, or have any
rights to acquire, any shares of American National Common
Stock, other than pursuant to the Option Agreement.
(i) Reports. Since January 1, 1992, 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
-25-
<PAGE>
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 December 31, 1996, 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 or operating leases) all property
reflected on the Crestar Financial Statements as of March 31,
1997 and December 31, 1996 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.
-26-
<PAGE>
(m) Legal Proceedings; Compliance with Laws. Other
than as disclosed in the Notes to the Crestar Financial
Statements, 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 has entered into any
agreements or written understandings with the Federal Reserve
Board, the SCC, the FDIC, or any other regulatory agency
having authority over it. 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
-27-
<PAGE>
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) Environmental Matters. To the knowledge of the
Manager, Environmental Compliance, of Crestar Bank, there are
no actions, suits, demands, notices, claims, investigations or
proceedings pending relating to the liability of properties
owned or operated by Crestar Bank or any of its
-28-
<PAGE>
subsidiaries excluding properties serving as collateral for
loans under any Environmental Law (as defined in subsection
3.1(t)), 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.
(q) 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 American
National, 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 American National 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, American National and Savings 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 American National and
Savings 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 American National 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. Crestar and American
National 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 and the Confidentiality Agreements dated March 3, 1997 and June 16,
1997 between Crestar and American National shall survive any such termination of
this Agreement and shall remain in effect, except to the extent that (a) one
party shall have
-29-
<PAGE>
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. American National 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 Certificate of Incorporation and By-laws of American
National 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 American National will recommend to and actively encourage
shareholders that they vote in favor of the Holding Company Merger. Crestar and
American National 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 American
National shareholders until the Registration Statement shall have become
effective under the 1933 Act. American National covenants that none of the
information supplied by American National 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 American National
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 American National 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.
-30-
<PAGE>
American National, as the sole shareholder of Savings 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 American National and
Savings Bank. American National and Savings Bank agree that from April 30, 1997
to the Effective Time of the Merger, they have operated, and they will operate,
their respective businesses substantially as presently operated and 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, American National and Savings Bank, from the date of this Agreement,
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; (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, 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 Certificate of Incorporation or By-laws; (vi) issue or contract to issue any
shares of American National capital stock or securities exchangeable for or
convertible into capital stock except (y) up to 345,357 shares of American
National Common Stock issuable pursuant to American National Options outstanding
as of May 31, 1997, or (z) up to 792,000 shares of American National Common
Stock pursuant to the Option Agreement; (vii) purchase any shares of American
National capital stock; (viii) except as set forth in Schedule X, enter into,
renew, extend or assume any material contract or obligation, including, but not
limited to, any outsourcing agreements or licenses, leases or purchases of data
processing products or services; (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 American
National 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. American National and
Savings Bank further agree that, between the date of this Agreement and the
Effective Time of the Holding Company Merger,
-31-
<PAGE>
they will consult 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 American National, Savings
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 American National or Savings Bank or disclose,
directly or indirectly, any information not customarily disclosed to the public
concerning American National or Savings Bank, afford to any other person access
to the properties, books or records of American National or Savings 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 American National 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
American National or Savings 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. American National and Savings
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. American National agrees that subsequent to
April 30, 1997, and until the Effective Time of the Holding Company Merger, it
will declare cash dividends consistent (in terms of amount and timing of record
and payment dates) with its practice in effect in its fiscal quarter ending
April 30, 1997. American National agrees not to pay any cash dividends in the
fiscal quarter in which the closing occurs unless the Closing Date occurs after
the record date for payment of the Crestar cash dividend in the Crestar quarter
most closely corresponding to such American National fiscal quarter, since it is
the intention of American National and Crestar that American National
shareholders not be paid cash dividends both on American National Common Stock
and cash dividends on Crestar Common Stock received in exchange therefor in
corresponding quarters. If the Closing Date occurs after the record date for
payment of Crestar's cash dividend in the Crestar quarter most closely
corresponding to the American National fiscal quarter in which the closing
occurs, American National may declare a cash dividend complying with the
conditions of this Section 4.5 for such fiscal quarter payable to American
National shareholders of record at the Effective Time of the Holding Company
Merger.
-32-
<PAGE>
4.6. Regulatory Filings; Best Efforts. Crestar and American
National 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, the SCC
and the Maryland Banking Commissioner as soon as practicable after the date
hereof. Crestar and American National 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, American National's and Savings Bank's management will work with Crestar
Bank to achieve appropriate operating efficiencies following the Closing Date.
Subject to Savings Bank's approval, which will not be unreasonably withheld,
Crestar notification to Savings 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 American National and Savings 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 will not be fulfilled so as to permit them to consummate the
Holding Company Merger and the other transactions contemplated hereby, not more
than three days before the Effective Time of the Holding Company Merger American
National 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 American National'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 American National and Savings Bank following the Transaction, as
well as the costs and expenses relating to the consummation by American National
and Savings 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 American National and Savings 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, American National and Savings
Bank will convey any OREO properties that are titled in its name to an American
National 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.
-33-
<PAGE>
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 American National 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 American
National 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 American National 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 American
National 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 American National 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. American National shall notify
Crestar, and Crestar shall notify American National, 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 American National 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 American
National, 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
American National or Savings Bank on the one hand, or Crestar or Crestar Bank on
the other hand of any condition set forth in this Agreement.
-34-
<PAGE>
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, American National or Savings 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.
4.15. Branch Closing Law. Crestar expects to close and
relocate the business of certain Savings Bank branches in connection with the
Bank Merger. If any of these closing/relocations do not constitute "relocations"
as that term is defined in the Joint Policy Statement of September 2, 1993,
Concerning Branch Closings issued by the Federal Reserve Board, the Office of
the Comptroller of the Currency and the FDIC, and instead is considered a branch
closing for purposes of Section 42 of the Federal Deposit Insurance Act,
American National will, following receipt of all required regulatory approvals
of the Holding Company Merger, take all necessary action under Section 42 and
any regulations promulgated thereunder by notifying customers and otherwise
complying with the branch closing law and regulations.
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 American
National and Savings 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); American National and Savings 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
American National and Savings Bank, without personal
liability, which may be to their best knowledge after due
inquiry, to such effects. The foregoing notwithstanding,
Crestar and Crestar Bank agree not to exercise their rights
under this subsection 5.1(a) because of a breach of a
representation and warranty by
-35-
<PAGE>
American National or Savings Bank unless the Crestar Board of
Directors, acting reasonably, concludes that any such breach
could have a material adverse effect on the consolidated
financial condition or consolidated results of operations of
American National.
(b) Authorization of Transaction. All action
necessary to authorize the execution, delivery and performance
of this Agreement by American National and Savings 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 American National and Savings Bank and by the
shareholders of American National and Savings Bank, and
American National and Savings 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 Luse, Lehman, Gorman,
Pomerenk & Schick, counsel to American National and Savings
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 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) 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, American National or
Savings Bank (i) in the Holding Company Merger (a) upon the
transfer of American National's assets to Crestar in exchange
for Crestar Common Stock, cash and the assumption of American
National's liabilities or (b) upon the distribution of such
Crestar Common Stock and cash to American National
shareholders or (ii) in the Bank Merger, (a) upon the transfer
of Savings Bank's assets to Crestar Bank in exchange for the
assumption of Savings Bank's liabilities and in constructive
exchange for Crestar Bank common stock (but Savings Bank or
Crestar Bank may be required to include certain amounts in
income as a result of the termination of any bad-debt reserve
-36-
<PAGE>
maintained by Savings 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 American
National 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. Notwithstanding the
foregoing, no condition or requirement which does no more than
subject Crestar or Crestar Bank or American National or
Savings Bank to legal requirements generally applicable to
entities and transactions of the same type as a matter of law
or regulatory policy shall be deemed to be materially
disadvantageous.
(g) Affiliate Letters. Within 60 days of the date
hereof, each shareholder of American National who is a
American National Affiliate shall have executed and delivered
a commitment and undertaking in the form of Exhibit F 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) 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.
(i) 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 American National and
Savings Bank. The obligations of American National and Savings 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 American National and
Savings Bank:
-37-
<PAGE>
(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 American National and Savings Bank shall have
received a certificate signed by the Chief Executive Officer
and by the Chief Financial Officer of Crestar and Crestar
Bank, without personal liability, which may be to their best
knowledge after due inquiry, to such effects. The foregoing
notwithstanding, American National and Savings Bank agree not
to exercise their rights under this subsection 5.2(a) because
of a breach of a representation and warranty by Crestar or
Crestar Bank unless the American National Board of Directors,
acting reasonably, concludes that any such breach could have a
material adverse effect on the consolidated financial
condition or consolidated results of operations of Crestar.
(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 American
National and the sole shareholder of Savings Bank, and Crestar
and Crestar Bank shall have full power and right to merge with
American National and Savings Bank, respectively, on the terms
provided herein.
(c) Opinion of Counsel. American National and
Savings 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 American National and Savings Bank, in the form attached
hereto as Exhibit E.
(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.
-38-
<PAGE>
(e) Regulatory Approvals. All required approvals
from federal and state regulatory authorities having
jurisdiction to permit American National and Savings Bank to
consummate the Transaction and to permit Crestar to issue
Crestar Common Stock to American National 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. American National and Savings 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, American
National or Savings Bank (i) in the Holding Company Merger (a)
upon the transfer of American National's assets to Crestar in
exchange for Crestar Common Stock, cash and the assumption of
American National's liabilities or (b) upon the distribution
of such Crestar Common Stock and cash to American National
shareholders or (ii) in the Bank Merger, (a) upon the transfer
of Savings Bank's assets to Crestar Bank in exchange for the
assumption of Savings Bank's liabilities and in constructive
exchange for Crestar Bank stock (but Savings 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 Savings 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 an American
National shareholder on the exchange by such shareholder of
shares of American National Common Stock solely for shares of
Crestar Common Stock (including any fractional share interest)
in the Holding Company Merger; an American National
shareholder who receives cash and shares of Crestar Common
Stock (including any fractional share interest) for shares of
American National 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; an
American National 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 American National 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 an American
National shareholder will include the holding period of the
American National Common Stock surrendered in exchange
therefor, if such American National Common Stock is held as a
-39-
<PAGE>
capital asset by the shareholder at the Effective Time of the
Holding Company Merger; and an American National 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 Keefe,
Bruyette & Woods, Inc., dated the date hereof, to the effect
that the consideration to be received by the shareholders of
American National as a result of the Holding Company Merger is
fair to the shareholders of American National 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 American National referred to in Section 4.2 hereof.
(i) Acceptance by American National's Counsel. The
form and substance of all legal matters contemplated hereby
and of all papers delivered hereunder shall be acceptable to
counsel for American National.
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 American National at least 10 days prior to the designated
Closing Date and as reasonably acceptable to American National; provided, that
the date so designated shall not be earlier than 15 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 March 31, 1998 (the "Closing Date"). The parties
agree to use their best efforts to make the Merger effective on or before
December 31, 1997, and not earlier than November 6, 1997.
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 Delaware Corporation Law, the rules and regulations of the
OTS and the SCC, and each of Crestar and American National shall take any
-40-
<PAGE>
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 American National 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,
American National and Savings Bank, as expressed by their
respective Boards of Directors;
(b) Either Crestar or Crestar Bank on the one hand
or American National or Savings Bank on the other hand, as
expressed by their respective Boards of Directors, if the
Holding Company Merger has not occurred by March 31, 1998,
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 in writing authorized by its Board
of Directors if American National or Savings Bank has, or by
American National in writing authorized by its Board 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, 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. The foregoing
notwithstanding, each of Crestar on the one hand and American
National on the other hand agree not to exercise its
respective rights under this subsection 7.1(c) because of a
breach of a representation and warranty
-41-
<PAGE>
by the other (including by its subsidiary which is a party to
this Agreement) unless its Board of Directors, acting
reasonably, concludes that any such breach could have a
material adverse effect on the consolidated financial
condition or consolidated results of operations of the other;
(d) Either Crestar or Crestar Bank on the one hand
or American National or Savings 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 by any governmental authority 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 an injunction has been
obtained by any person restraining or prohibiting consummation
of the Holding Company Merger or (C) commencement of a
competing offer for American National Common Stock which is
significantly better than Crestar's offer, and which Crestar
certifies to American National, in writing, it is unwilling to
meet;
(f) American National and Savings Bank, if the
Boards of Directors of American National and Savings 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
American National, (B) the threat or the institution by any
governmental authority 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 an
injunction has been obtained by any person restraining or
prohibiting consummation of the Holding Company Merger, or (C)
commencement of a competing offer for American National Common
Stock which is significantly
-42-
<PAGE>
better than Crestar's offer, and which Crestar has certified
to American National, in writing, it is unwilling to meet;
(g) Crestar, Crestar Bank, American National or
Savings Bank, if the Federal Reserve Board, the OTS, the FDIC,
the Maryland Bank Commissioner, or the SCC deny approval of
the Transaction and the time period for all appeals or
requests for reconsideration has run;
(h) Crestar if there has been a material adverse
change in the results of operations or consolidated financial
condition or consolidated results of operations of American
National from that shown by the American National Financial
Statements as of April 30, 1997. For purposes of this
paragraph (h), 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 to by the parties to this Agreement;
(i) American National 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 March 31, 1997. 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 to by the parties to
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, and 9.1, which shall
survive the effectiveness of the Holding Company Merger) of Crestar, Crestar
Bank, American National and Savings Bank contained herein shall expire with, and
be terminated and extinguished by, the effectiveness 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 American
-43-
<PAGE>
National 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
American National 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 American National Common Stock
or otherwise materially adversely affect such shareholders without their
approval.
ARTICLE VIII
Additional Covenants
8.1. Indemnification of American National Officers and
Directors; Liability Insurance. After the Effective Time of the Holding Company
Merger, Crestar agrees to provide indemnification to the directors, employees
and officers of American National and Savings 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 American National and Savings 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 American National and Savings Bank and the subsidiaries thereof and
as such may be personally enforced by them at law or in equity.
8.2. Employment and Severance Agreements. Crestar will honor
the terms of American National's and/or Savings Bank's employment agreements
with A. Bruce Tucker, Joseph M. Solomon, James M. Uveges and Mark S. Barker
described on Schedule E.
8.3. Employee Benefit Matters. (a) Transferred Employees. All
employees of American National or Savings Bank (including subsidiaries)
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 based on their length of service, compensation, job classification,
and position, including, where applicable, any incentive compensation plan.
Notwithstanding the foregoing,
-44-
<PAGE>
Crestar may determine to continue any of the American National or Savings 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 or 401(k) or pension benefits), to terminate any of the
American National or Savings 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, with respect to Crestar benefit
plans for which Transferred Employees are otherwise eligible, Transferred
Employees' service with American National or Savings Bank which is recognized by
the applicable benefit plan of American National or Savings 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 American National or
Savings 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) Pension Plans. Crestar agrees to assume the Pension Plan
of Savings Bank (the "Savings Bank Pension Plan") as of the Effective Time of
the Holding Company Merger. Crestar, at its option, may continue the Savings
Bank Pension Plan as a frozen plan or may terminate the Savings Bank Pension
Plan and pay out or annuitize benefits, or may merge the Savings Bank Pension
Plan into the Retirement Plan for Employees of Crestar Financial Corporation and
Affiliated Corporations ("Crestar's Retirement Plan"). If the Savings Bank
Pension Plan is terminated or if benefit accruals are suspended, or if the
Savings Bank Pension Plan is merged into Crestar's Retirement Plan, each
Transferred Employee who becomes a participant in Crestar's Retirement Plan will
begin to accrue benefits under Crestar's Retirement Plan on and after the date
of such termination, suspension or merger in accordance with the terms of
Crestar's Retirement Plan and Crestar's 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 Savings Bank Pension Plan as of the date
of such termination, suspension or merger of the Savings Bank Pension Plan.
(d) 401(k) Plan. Transferred Employees' service with American
National or Savings Bank for purposes of eligibility to participate in the
Crestar Employees' Thrift and Profit Sharing Plan shall not be recognized until,
if applicable, the later of January 1, 1998 (assuming the Holding Company Merger
occurs in 1997) or the date the American National 401(k) Plan is frozen as to
eligibility to participate and future contributions, merged or terminated.
-45-
<PAGE>
(e) Cooperation. American National and Savings Bank agree to
cooperate with Crestar in implementing any decision made by Crestar with respect
to employee benefit plans and to provide to Crestar on or before the Effective
Time of the Holding Company Merger a schedule of service credit for prospective
Transferred Employees.
8.4. Stock Options. Holders of outstanding American National
Options shall (a) exercise the American National Options for American National
Common Stock prior to the Closing Date (if such options are by their terms then
exercisable) and convert such Common Stock held as of the Effective Time of the
Holding Company Merger into Crestar Common Stock or (b) have the American
National Options converted into options to purchase Crestar Common Stock as set
forth in subsection 2.2(e) hereof. American National agrees not to amend any
outstanding option agreement to extend the period following termination of
employment during which American National Options may be exercised, or, except
with the consent of Crestar, to otherwise amend the terms of any outstanding
option agreement.
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, American National and Savings Bank with
respect to the Transaction and the related transactions and supersedes all prior
agreements, arrangements or understandings with respect thereto (other than as
specifically agreed).
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: Linda F. Rigsby
Senior Vice President,
and Corporate Secretary
-46-
<PAGE>
Copy to:
Lathan M. Ewers, Jr.
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
If to American National or Savings Bank:
American National Bancorp Inc.
211 North Liberty Street
Baltimore, Maryland 21201
Attention: A. Bruce Tucker,
President and Chief Executive
Officer
Copy to:
John J. Gorman
Eric Luse
Luse, Lehman, Gorman, Pomerenk & Schick
5335 Wisconsin Avenue,NW
Washington, DC 20015
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.
-47-
<PAGE>
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
------------------------------------
Name: C. Garland Hagen
Title: Corporate Executive
Vice President
CRESTAR BANK
By
------------------------------------
Name: C. Garland Hagen
Title: Corporate Executive
Vice President
AMERICAN NATIONAL BANCORP, INC.
By
------------------------------------
Name: A. Bruce Tucker
Title: President and Chief
Executive Officer
AMERICAN NATIONAL SAVINGS BANK, F.S.B.
By
------------------------------------
Name: A. Bruce Tucker
Title: President and Chief
Executive Officer
-48-
<PAGE>
- --------------------------- ------------------------------
Howard K. Thompson Jimmie T. Noble
- --------------------------- ------------------------------
Lenwood M. Ivey A. Bruce Tucker
- --------------------------- ------------------------------
Betty J. Stull Joseph M. Solomon
- ---------------------------
David L. Pippenger
All of the Directors of American National have signed solely above to agree to
vote all their shares of American National Common Stock beneficially owned by
them and with respect to which they have power to vote in favor of the Holding
Company Merger and, subject to their fiduciary duties described in Section 4.4
of the Agreement, to cause the Holding Company Merger to be recommended by the
Board of Directors of American National to the shareholders of American National
in the proxy statement sent to shareholders in connection with such
shareholders' meeting.
-49-
<PAGE>
Exhibit A
6/20/97
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Option Agreement") dated as of
June 23, 1997, between AMERICAN NATIONAL BANCORP, INC. ("American National"), a
Delaware corporation, and CRESTAR FINANCIAL CORPORATION ("Crestar"), a Virginia
corporation, recites and provides:
A. The Boards of Directors of American National and Crestar
have approved an Agreement and Plan of Reorganization dated as of June 23, 1997
(the "Merger Agreement") providing for the merger (the "Merger") of American
National with and into Crestar.
B. As a condition to and as consideration for Crestar's entry
into the Merger Agreement and to induce such entry, American National has agreed
to grant to Crestar the option set forth herein to purchase authorized but
unissued shares of American National Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
Capitalized terms defined in the Merger Agreement and used
herein shall have the same meanings as in the Merger Agreement.
2. Grant of Option.
Subject to the terms and conditions set forth herein, American
National hereby grants to Crestar an option (the "Option") to purchase up to
792,000 shares of American National Common Stock at an exercise price of $16.125
per share payable in cash as provided in Section 4; provided, however, that in
the event American National issues or agrees to issue any shares of American
National Common Stock (other than as permitted under the Merger Agreement) at a
price less than $16.125 per share (as adjusted pursuant to Section 6), the
exercise price shall be such lesser price.
3. Exercise of Option.
(A) Unless Crestar shall have breached in any material respect
any material covenant or representation contained in the Merger Agreement and
such breach has not been cured, Crestar may exercise the Option, in whole or
part, at any time or from time to time if a Purchase Event (as defined below)
shall have occurred and be continuing; provided that to the
A-1
<PAGE>
extent the Option shall not have been exercised, it shall terminate and be of no
further force and effect (i) on the Effective Date of the Merger, or (ii) upon
termination of the Merger Agreement in accordance with the provisions thereof
(other than a termination resulting from a willful breach by American National
of any Specified Covenant or, following the occurrence of a Purchase Event,
failure of American National's stockholders to approve the Merger Agreement by
the vote required under applicable law or under American National's Charter), or
(iii) 12 months after termination of the Merger Agreement due to a willful
breach by American National of any Specified Covenant or, following the
occurrence of a Purchase Event, failure of American National's stockholders to
approve the Merger Agreement by the vote required under applicable law or under
American National's Charter. Any exercise of the Option shall be subject to
compliance with applicable provisions of law.
(B) As used herein, a "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) American National or any banking subsidiary of
American National (a "Bank"), without having received Crestar's prior written
consent, shall have entered into an agreement with any person (x) to merge or
consolidate, or enter into any similar transaction, except as contemplated in
the Merger Agreement, (y) to purchase, lease or otherwise acquire all or
substantially all of the assets of American National or a Bank, or (z) to
purchase or otherwise acquire (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing 10% or more of the
voting power of American National or a Bank;
(ii) any person (other than American National or a
Bank in a fiduciary capacity, or Crestar or Crestar Bank in a fiduciary
capacity) shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 15% or more of the outstanding shares of American
National Common Stock after the date hereof (the term "beneficial ownership" for
purposes of this Option Agreement having the meaning assigned thereto in Section
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations promulgated thereunder);
(iii) any person shall have made a bona fide
proposal to American National by public announcement or written communication
that is or becomes the subject of public disclosure to acquire American National
or a Bank by merger, consolidation, purchase of all or substantially all of its
assets or any other similar transaction, and following such bona fide proposal
the stockholders of American National vote not to adopt the Merger Agreement; or
(iv) American National shall have willfully
breached any Specified Covenant following a bona fide proposal to American
National or a Bank to acquire American National or a Bank by merger,
consolidation, purchase of all or substantially all of its assets or any other
similar transaction, which breach would entitle Crestar to terminate the Merger
A-2
<PAGE>
Agreement (without regard to the cure periods provided for therein) and such
breach shall not have been cured prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to
a Purchase Event under this Section 3(b) is undertaken or effected, then all
such transactions shall give rise only to one Purchase Event, which Purchase
Event shall be deemed continuing for all purposes hereunder until all such
transactions are abandoned. As used in this Option Agreement, "person" shall
have the meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange
Act.
(C) In the event Crestar wishes to exercise the Option, it
shall send to American National a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise, and (ii) a place and date not earlier
than three business days nor later than 60 business days after the Notice Date
for the closing of such purchase ("Closing Date"); provided that if prior
notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, Crestar shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification period has
expired or been terminated or such approval has been obtained and any requisite
waiting period shall have passed.
(D) As used herein, "Specified Covenant" means any covenant
contained in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.8, 4.10, 4.11, 4.13, or
6.1 of the Merger Agreement.
4. Payment and Delivery of Certificates.
(A) At the closing referred to in Section 3, Crestar shall pay
to American National the aggregate purchase price for the shares of American
National Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a bank account designated by
American National.
(B) At such closing, simultaneously with the delivery of funds
as provided in subsection (a), American National shall deliver to Crestar a
certificate or certificates representing the number of shares of American
National Common Stock purchased by Crestar, and Crestar shall deliver to
American National a letter agreeing that Crestar will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Option Agreement.
(C) Certificates for American National Common Stock delivered
at a closing hereunder may be endorsed with a restrictive legend which shall
read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of a Stock Option Agreement between the registered
holder hereof and American National Bancorp and to resale restrictions arising
under the Securities Act of 1933, as amended,
A-3
<PAGE>
a copy of which agreement is on file at the principal office of American
National Bancorp. A copy of such agreement will be provided to the holder hereof
without charge upon receipt by American National Bancorp of a written request."
It is understood and agreed that the above legend shall be
removed by delivery of substitute certificate(s) without such legend if Crestar
shall have delivered to American National a copy of a letter from the staff of
the Commission, or an opinion of counsel, in form and substance satisfactory to
American National, to the effect that such legend is not required for purposes
of the Securities Act of 1933, as amended.
5. Representations.
American National represents, warrants and covenants to
Crestar as follows:
(A) American National shall at all times maintain sufficient
authorized but unissued shares of American National Common Stock so that the
Option may be exercised without authorization of additional shares of American
National Common Stock.
(B) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and nonassessable.
6. Adjustment Upon Changes in Capitalization.
In the event of any change in American National Common Stock
by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, exchanges of shares or the like, the type and number of shares
subject to the Option, and the purchase price per share, as the case may be,
shall be adjusted appropriately. In the event that any additional shares of
American National Common Stock are issued or otherwise become outstanding after
the date of this Option Agreement (other than pursuant to this Option
Agreement), the number of shares of American National Common Stock subject to
the Option shall be adjusted so that, after such issuance, it equals 19.9% of
the number of shares of American National Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant to
the Option. Nothing contained in this Section 6 shall be deemed to authorize
American National to breach any provision of the Merger Agreement.
7. Registration Rights.
If requested by Crestar, American National shall as
expeditiously as possible file a registration statement on a form of general use
under the Securities Act if necessary in order to permit the sale or other
disposition of the shares of American National Common Stock that have been
acquired upon exercise of the Option in accordance with the intended method of
sale or other disposition requested by Crestar. Crestar shall provide all
information reasonably requested by American National for inclusion in any
registration statement to be filed hereunder.
A-4
<PAGE>
American National will use its best efforts to cause such registration statement
first to become effective and then to remain effective for such period not in
excess of 270 days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sales or other
dispositions. The first registration effected under this Section 7 shall be at
American National's expense except for underwriting commissions and the fees and
disbursements of Crestar's counsel attributable to the registration of such
American National Common Stock. A second registration may be requested hereunder
at Crestar's expense. In no event shall American National be required to effect
more than two registrations hereunder. The filing of any registration statement
hereunder may be delayed for such period of time as may reasonably be required
to facilitate any public distribution by American National of American National
Common Stock. If requested by Crestar, in connection with any such registration,
American National will become a party to any underwriting agreement relating to
the sale of such shares, but only to the extent of obligating itself in respect
of representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements. Upon receiving any request from
Crestar or assignee thereof under this Section 7, American National agrees to
send a copy thereof to Crestar and to any assignee thereof known to American
National, in each case by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
8. Severability.
If any term, provision, covenant or restriction contained in
this Option Agreement is held by a court or a federal or state regulatory agency
of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
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 will not permit the holder to acquire the full
number of shares of American National Common Stock provided in Section 2 (as
adjusted pursuant to Section 6), it is the express intention of American
National to allow the holder to acquire such lesser number of shares as may be
permissible, without any amendment or modification hereof.
9. Miscellaneous.
(A) Expenses. Except as otherwise provided herein, 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) Entire Agreement. Except as otherwise expressly provided
herein, this Option Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon
A-5
<PAGE>
any party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Option Agreement, except as expressly provided herein.
(C) Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Purchase Event shall have occurred and be
continuing Crestar may assign in whole or in part its rights and obligations
hereunder; provided, however, that to the extent required by applicable
regulatory authorities, Crestar may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of American National, (iii) an assignment to a single party (e.g.,
a broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Crestar's behalf, or (iv) any other manner approved by
applicable regulatory authorities.
(D) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
in the manner and to the addresses provided for in or pursuant to Section 9.4 of
the Merger Agreement.
(E) Counterparts. This Option Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
(F) Specific Performance. The parties agree that damages would
be an inadequate remedy for a breach of the provisions of this Option Agreement
by either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(G) Governing Law. This Option Agreement shall be governed by
and construed in accordance with the laws of Virginia applicable to agreements
made and entirely to be performed within such state and such federal laws as may
be applicable.
A-6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed
this Option Agreement as of the day and year first written above.
AMERICAN NATIONAL BANCORP, INC.
By:
A. Bruce Tucker
President and Chief
Executive Officer
CRESTAR FINANCIAL CORPORATION
By:
C. Garland Hagen
Corporate Executive
Vice President
A-7
<PAGE>
Exhibit B
PLAN OF MERGER
OF
AMERICAN NATIONAL BANCORP, INC.
INTO
CRESTAR FINANCIAL CORPORATION
Section 1. Merger. American National BanCorp, Inc. ("American
National") 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 American National
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 and shares to
B-1
<PAGE>
be exchanged for cash) and which, under the terms of Section 3, is to
be converted into Crestar Common Stock, shall be converted into a
fraction of a share of Crestar Common Stock, determined in accordance
with the Exchange Ratio. The "Exchange Ratio" shall be calculated as
follows:
(A) if the Average Closing Price (as defined
below) is between $30 and $50, the Exchange
Ratio shall be the quotient (rounded to the
nearest one-thousandth) of (A) $20.25
divided by (B) the Average Closing Price;
(B) if the Average Closing Price is $50 or
greater, the Exchange Ratio shall be 0.405;
and
(C) if the Average Closing Price is $30 or less,
the Exchange Ratio shall be 0.675.
As used herein, "Average Closing Price" shall mean 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 tenth day prior
to the Effective Time of the Holding Company Merger.
B-2
<PAGE>
The Exchange Ratio 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.
(iii) Subject to Section 4, each share of American National
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) At the Effective Time of the Holding Company Merger,
American National's transfer books shall be closed and no further
transfer of American National Common Stock or Series A shall be
permitted.
(vi) Outstanding American National Options shall be converted
into options to purchase Crestar Common Stock as set forth in
subsection 2.2(e) of the Agreement and Plan of Reorganization dated
June 23, 1997 among Crestar, Crestar Bank, American National and
American National Savings Bank, F.S.B. (the "Agreement"). American
National agrees not to amend any outstanding option agreement to extend
the period following termination of employment during which
B-3
<PAGE>
American National Options may be exercised, or, except with the consent
of Crestar, to otherwise amend the terms of any outstanding option
agreement.
Section 3. Manner of Conversion. The manner in which each outstanding
share of American National 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 American National subject to the terms of the Agreement at
or prior to the meeting of American National 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 American National's shareholders, a shareholder's
election to receive the Price Per Share in cash shall be irrevocable.
American National shall retain certificates for shares submitted for
cash purchase until either (i) termination of the Agreement upon which
American National shall return such certificates, or (ii) the Effective
Time of the Holding Company Merger, when Chase Mellon Shareholder
Services (the "Exchange Agent") shall exchange such certificates for
cash, at the Price Per Share, subject to Section 4. Certificates for
shares of American National Common Stock shall be submitted in exchange
for cash accompanied by a Letter of Transmittal (to be promptly
furnished by the Exchange
B-4
<PAGE>
Agent, to American National 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 American National 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 American National 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 American National Common Stock
shall be submitted in exchange for Crestar Common Stock and/or cash
accompanied by a Letter of Transmittal (to be promptly furnished by the
Exchange Agent to American National'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 American National
B-5
<PAGE>
Common Stock, shall be deemed to evidence only the right to receive (a)
shares of Crestar Common Stock as determined by the Exchange Ratio, 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 American National Common Stock 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.
Section 4. Proration of Shares Purchased with Cash. The number of
shares of American National Common Stock to be exchanged for cash cannot exceed
40% of the outstanding shares of American National Common Stock immediately
prior to the Effective Time of the Holding Company Merger. If the number of
shares that shareholders of American National elect to exchange for cash exceed
this percentage of such American National 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 American
National Common Stock. A shareholder submitting shares for cash purchase, all of
whose
B-6
<PAGE>
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 American National Common Stock not exchanged for cash.
Section 5. Dissenting Shares. Holders of American National Common Stock
do not have the right to demand and receive payment of the fair value of his
shares of American National Common Stock in accordance with the provisions of
Section 262(b)(1) of the Delaware General Corporation Law.
Section 6. Articles of Incorporation, Bylaws and Directors of the
Surviving Corporation. 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 a majority of the
outstanding shares of American National Common Stock entitled to vote.
B-7
<PAGE>
(ii) The approval of the Merger by the Board of Governors of
the Federal Reserve System, the Office of Thrift Supervision, the
Maryland Banking Commissioner 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 and Section 261 of the
Delaware General Corporation Law.
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 American National'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 American National 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 American National 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 American National Common Stock; or (iii) alter or
change any term of the certificate of incorporation of American National (except
as provided herein).
B-8
<PAGE>
Exhibit C
PLAN OF MERGER
OF
AMERICAN NATIONAL SAVINGS BANK, F.S.B.
INTO
CRESTAR BANK
Section 1. American National Savings Bank, F.S.B. ("Savings Bank")
shall, upon the issuance of certificates of merger by the State Corporation
Commission of Virginia and the Office of Thrift Supervision (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 Savings Bank Common Stock outstanding
immediately prior to the Effective Time of the Bank Merger shall be
canceled, the transfer books of Savings Bank shall be closed, and no
further transfer of Savings 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.
C-1
<PAGE>
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 Savings Bank Common Stock entitled to vote.
(ii) The approval of the Bank Merger by the State Corporation
Commission of Virginia, the Maryland Banking Commissioner, 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 dated June 23, 1997 among
Crestar Financial Corporation, Crestar Bank, American National Bancorp
Inc. and Savings 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.
C-2
<PAGE>
Exhibit D
Crestar and Crestar Bank shall have received an opinion of
Luse, Lehman, Gorman, Pomerenk & Schick, counsel to American National
and Savings Bank, dated the Closing Date and satisfactory in form and
substance to counsel to Crestar and Crestar Bank, to the effect that:
(1) American National has been duly incorporated
and is validly existing in good standing on the laws of the
State of Delaware, with the corporate power and authority to
own its properties and to conduct its business as described in
the Registration Statement and Proxy Statement-Prospectus.
(2) Savings Bank is a federally chartered, stock
savings bank organized and existing under the laws of the
United States, with the corporate power and authority to own
its properties and to conduct its business as described in the
Registration Statement and Proxy Statement-Prospectus.
(3) The Agreement and the accompanying Plans of
Merger have been duly authorized by all necessary corporate
actions and have been duly executed and delivered by American
National and Savings Bank; and the Plans of Merger have been
approved by the Boards of Directors and the shareholders of
American National and Savings Bank;
(4) The Agreement constitutes the valid and
binding obligation of American National and Savings Bank
enforceable in accordance with its terms except as the same
(i) may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of
creditors generally or the rights of creditors of FDIC-insured
institutions, (ii) laws relating to the safety and soundness
of insured depository institutions, and (iii) is subject to
general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or law).
(5) All outstanding shares of American National
Common Stock to be exchanged for shares of Crestar Common
Stock at the Effective Time of the Holding Company Merger have
been duly authorized and are validly issued, fully paid and
nonassessable.
(6) The execution and delivery by American
National and Savings Bank of the Agreement do not, and the
consummation of the transactions therein contemplated, will
not (a) conflict with or result in a breach of any provision
of the Certificate of Incorporation or By-laws of American
National or the Charter or Bylaws of Savings Bank, or (b) to
our knowledge, violate any judgment, decree or order binding
on American National or Savings Bank or their respective
properties or constitute a default under, any mortgage,
D-1
<PAGE>
indenture, contract or other instrument listed in Schedule D
to the Agreement or (c) result in the creation or imposition
of any lien, charge, encumbrance on, or security interest in,
any assets of American National or Savings Bank pursuant to
the terms of any material indenture, mortgage, contract or
other instrument listed in Schedule D to the Agreement.
(7) To such counsel's knowledge, except as
described in the Agreement, there is no action, suit or
proceeding of or before any court or administrative body
pending or threatened against American National or Savings
Bank (a) asserting the invalidity of the Agreement, (b)
seeking to prevent the consummation of the transactions
contemplated by the Agreement, or (c) that would be likely to
impair materially the ability of American National or Savings
Bank to perform its obligations under the Agreement.
(8) Except as listed in Schedule G to the
Agreement, to our knowledge there are no persons who may be
deemed to be American National Affiliates (as defined in Rule
144 under the 1933 Act).
(9) Except as described in Section 3.1(h) of the
Agreement, to our knowledge neither American National nor
Savings Bank is a party to or bound by any outstanding option
or agreement to sell, issue, buy or otherwise dispose of or
acquire any shares of American National Common Stock or other
security of American National.
(10) To our knowledge, there is no default under,
nor the occurrence of any event which with the lapse of time,
action or inaction by American National or Savings Bank or a
third party would result in a default under any outstanding
indenture, contract or agreement listed in Schedule D to the
Agreement (such counsel having no knowledge of any item called
for by such Schedule which is not disclosed therein) or under
any governmental license or permit or a breach of any
provision of the Certificate of Incorporation, Charter or
By-laws of American National or Savings Bank.
(11) On the basis of facts within such counsel's
knowledge, such counsel have no reason to believe that (except
as to financial statements and other financial data, or as to
material relating to, and supplied by, Crestar Bank for
inclusion in the Proxy Statement-Prospectus, as to which no
belief need be expressed) the Proxy Statement-Prospectus (as
amended or supplemented, if so amended or supplemented)
contained any untrue statement of a material fact or omitted
any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading as of
(i) the time the Registration Statement became effective and
(ii) the time of the special meeting of shareholders of
American National mentioned in Section 4.2 of the Agreement.
D-2
<PAGE>
Exhibit E
Opinion of Counsel. American National and Savings 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 American National and Savings Bank, to the
effect that:
(1) Crestar has been duly incorporated and is
validly existing and in good standing under the laws of the
Commonwealth of Virginia, with the corporate power and
authority to own its properties and to conduct its business as
described in the Registration Statement and Proxy
Statement-Prospectus;
(2) Crestar Bank has been duly incorporated and is
validly existing and in good standing under the laws of the
Commonwealth of Virginia, with the corporate power and
authority to own its properties and to conduct its business as
described in the Registration Statement and Proxy Statement-
Prospectus;
(3) The Agreement and the Holding Company Plan of
Merger and the Bank Plan of Merger have been duly authorized
by all necessary corporate actions and have been duly executed
and delivered by Crestar and Crestar Bank;
(4) The Agreement constitutes the valid and
binding obligation of Crestar and Crestar Bank enforceable in
accordance with its terms except as the same (i) may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the rights of creditors
generally or the rights of creditors of FDIC-insured
institutions and (ii) laws relating to the safety and
soundness of insured depository institutions, and (iii) is
subject to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or
law); and the Agreement and the Holding Company Plan of Merger
and the Bank Plan of Merger have been adopted by the Board of
Directors of Crestar and Crestar Bank, and by Crestar as the
sole shareholder of Crestar Bank;
(5) All of the outstanding shares of Common Stock
of Crestar and Crestar Bank have been duly authorized and are
validly issued, fully paid and nonassessable, and the shares
of Crestar Common Stock to be issued in the Holding Company
Merger in exchange for all of the outstanding shares of
American National Common Stock have been duly authorized and
when so issued will be validly issued, fully paid and
non-assessable;
E-1
<PAGE>
(6) The execution and delivery by Crestar and
Crestar Bank of the Agreement do not, and the consummation of
the transactions therein contemplated, will not (a) conflict
with or result in a breach of any provision of the Articles of
Incorporation or By-laws of either Crestar or Crestar Bank, or
(b) to our knowledge, violate any judgment, decree or order
binding on Crestar or Crestar Bank or either of their
properties, or constitute a default under any material
mortgage, indenture, contract or other instrument to which
either of them is a party or by which either of them is bound
or (c) to our knowledge, result in the creation or imposition
of any lien, charge, encumbrance on, or security interest in,
any assets of either Crestar or Crestar Bank pursuant to the
terms of any material indenture, mortgage, contract or other
instrument to which Crestar Bank is a party or by which it is
bound;
(7) Shares of Crestar Common Stock to be issued
pursuant to the Agreement have been duly registered under the
1933 Act and Crestar has received all state securities laws or
"blue sky" permits and other authorizations or is utilizing
exemptions from the state registration requirements necessary
to offer and issue the Crestar Common Stock in connection with
the Merger;
(8) To such counsel's knowledge, there is no
action, suit or proceeding of or before any court or
administrative body pending or threatened against Crestar or
Crestar Bank (a) asserting the invalidity of the Agreement,
(b) seeking to prevent the consummation of the transactions
contemplated by the Agreement, or (c) that would be likely to
impair materially the ability of Crestar or Crestar Bank to
perform their respective obligations under the Agreement;
(9) No consent, approval, authorization or order
of any court or governmental agency or body or official is
required to be made in connection with the execution and
delivery of the Agreement and the Holding Company Plan of
Merger and the Bank Plan of Merger other than the approval of
each of (a) the Board of Governors of the Federal Reserve
System, (b) the OTS, (c) the Maryland Banking Commissioner,
and (d) the Bureau of Financial Institutions of the State
Corporation Commission of Virginia, which approvals have been
obtained, subject to the satisfaction of certain post-closing
conditions which have not yet been performed (and upon which
we do not opine), and the filing of the Articles of Merger;
(10) Such counsel has no knowledge of any default
under, or the occurrence of any event which with the lapse of
time, action or inaction by Crestar or Crestar Bank or a third
party would result in a default under any material indenture,
contract or agreement or under any governmental license or
permit or a breach of any provision of the Articles of
Incorporation or Bylaws of Crestar or Crestar Bank.
E-2
<PAGE>
(11) On the basis of facts within such counsel's
knowledge, such counsel have no reason to believe that (except
as to financial statements and other financial data, or as to
material relating to, and supplied by, American National for
inclusion in the Proxy Statement-Prospectus, as to which no
belief need be expressed) the Proxy Statement-Prospectus (as
amended or supplemented, if so amended or supplemented)
contained any untrue statement of a material fact or omitted
any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading as of
(i) the time the Registration Statement became effective and
(ii) the time of the special meeting of shareholders of
American National mentioned in Section 4.2 of the Agreement.
E-3
<PAGE>
Exhibit F
Crestar Financial Corporation
P.O. Box 26665
Richmond, Virginia 23261-6665
Dear Sirs:
In accordance with Section 5.1(g) of the Agreement and Plan of
Reorganization dated June [ ], 1997 among Crestar Financial Corporation, Crestar
Bank, American National Bancorp Inc. and American National Savings Bank, F.S.B.,
I represent and agree as follows:
1. I will comply with paragraph (d) of Rule 145 under the Securities
Act of 1933 and will not offer to sell, sell or otherwise dispose of any shares
of Crestar Common Stock except upon compliance with Rule 145 or an opinion of
counsel, at Crestar's expense that the proposed disposition will not violate
paragraph (d) of Rule 145.
2. I agree that the certificates for shares of Crestar Common Stock I
will receive may bear the following legend:
"Shares represented by this certificate are subject to restrictions as
to transfer by virtue of provisions of the Securities Act of 1933 and
the General Rules and Regulations of the Securities and Exchange
Commission thereunder. Such shares may not be transferred except upon
compliance with 17 C.F.R. 230.145(d) or the favorable opinion of
counsel for Crestar Financial Corporation that such transfer will not
constitute or result in a violation of 17 C.F.R. 230.145(d)."
Dated: __________ __, 1997
Very truly yours,
SIGN HERE:_________________________
PRINT NAME:________________________
<PAGE>
ANNEX II
Execution Copy 6/23/97
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Option Agreement") dated as of June 23,
1997, between AMERICAN NATIONAL BANCORP, INC. ("American National"), a Delaware
corporation, and CRESTAR FINANCIAL CORPORATION ("Crestar"), a Virginia
corporation, recites and provides:
A. The Boards of Directors of American National and Crestar have
approved an Agreement and Plan of Reorganization dated as of June 23, 1997 (the
"Merger Agreement") providing for the merger (the "Merger") of American National
with and into Crestar.
B. As a condition to and as consideration for Crestar's entry into the
Merger Agreement and to induce such entry, American National has agreed to grant
to Crestar the option set forth herein to purchase authorized but unissued
shares of American National Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions.
Capitalized terms defined in the Merger Agreement and used herein shall
have the same meanings as in the Merger Agreement.
2. Grant of Option.
Subject to the terms and conditions set forth herein, American National
hereby grants to Crestar an option (the "Option") to purchase up to 792,000
shares of American National Common Stock at an exercise price of $16.125 per
share payable in cash as provided in Section 4; provided, however, that in the
event American National issues or agrees to issue any shares of American
National Common Stock (other than as permitted under the Merger Agreement) at a
price less than $16.125 per share (as adjusted pursuant to Section 6), the
exercise price shall be such lesser price.
3. Exercise of Option.
(a) Unless Crestar shall have breached in any material respect any
material covenant or representation contained in the Merger Agreement and such
breach has not been cured, Crestar may exercise the Option, in whole or part, at
any time or from time to time if a Purchase Event (as defined below) shall have
occurred and be continuing; provided that to the extent the Option shall not
have been exercised, it shall terminate and be of no further force and effect
(i) on the Effective Date of the Merger, or (ii) upon termination of the Merger
Agreement
<PAGE>
in accordance with the provisions thereof (other than a termination resulting
from a willful breach by American National of any Specified Covenant or,
following the occurrence of a Purchase Event, failure of American National's
stockholders to approve the Merger Agreement by the vote required under
applicable law or under American National's Charter), or (iii) 12 months after
termination of the Merger Agreement due to a willful breach by American National
of any Specified Covenant or, following the occurrence of a Purchase Event,
failure of American National's stockholders to approve the Merger Agreement by
the vote required under applicable law or under American National's Charter. Any
exercise of the Option shall be subject to compliance with applicable provisions
of law.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) American National or any banking subsidiary of American
National (a "Bank"), without having received Crestar's prior written consent,
shall have entered into an agreement with any person (x) to merge or
consolidate, or enter into any similar transaction, except as contemplated in
the Merger Agreement, (y) to purchase, lease or otherwise acquire all or
substantially all of the assets of American National or a Bank, or (z) to
purchase or otherwise acquire (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing 10% or more of the
voting power of American National or a Bank;
(ii) any person (other than American National or a Bank in a
fiduciary capacity, or Crestar or Crestar Bank in a fiduciary capacity) shall
have acquired beneficial ownership or the right to acquire beneficial ownership
of 15% or more of the outstanding shares of American National Common Stock after
the date hereof (the term "beneficial ownership" for purposes of this Option
Agreement having the meaning assigned thereto in Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the regulations promulgated
thereunder);
(iii) any person shall have made a bona fide proposal to
American National by public announcement or written communication that is or
becomes the subject of public disclosure to acquire American National or a Bank
by merger, consolidation, purchase of all or substantially all of its assets or
any other similar transaction, and following such bona fide proposal the
stockholders of American National vote not to adopt the Merger Agreement; or
(iv) American National shall have willfully breached any
Specified Covenant following a bona fide proposal to American National or a Bank
to acquire American National or a Bank by merger, consolidation, purchase of all
or substantially all of its assets or any other similar transaction, which
breach would entitle Crestar to terminate the Merger Agreement (without regard
to the cure periods provided for therein) and such breach shall not have been
cured prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase
Event under this Section 3(b) is undertaken or effected, then all such
transactions shall give rise only
2
<PAGE>
to one Purchase Event, which Purchase Event shall be deemed continuing for all
purposes hereunder until all such transactions are abandoned. As used in this
Option Agreement, "person" shall have the meanings specified in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act.
(c) In the event Crestar wishes to exercise the Option, it shall send
to American National a written notice (the date of which being herein referred
to as the "Notice Date") specifying (i) the total number of shares it will
purchase pursuant to such exercise, and (ii) a place and date not earlier than
three business days nor later than 60 business days after the Notice Date for
the closing of such purchase ("Closing Date"); provided that if prior
notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, Crestar shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification period has
expired or been terminated or such approval has been obtained and any requisite
waiting period shall have passed.
(d) As used herein, "Specified Covenant" means any covenant contained
in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.8, 4.10, 4.11, 4.13, or 6.1 of the
Merger Agreement.
4. Payment and Delivery of Certificates.
(A) At the closing referred to in Section 3, Crestar shall pay to
American National the aggregate purchase price for the shares of American
National Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a bank account designated by
American National.
(B) At such closing, simultaneously with the delivery of funds as
provided in subsection (a), American National shall deliver to Crestar a
certificate or certificates representing the number of shares of American
National Common Stock purchased by Crestar, and Crestar shall deliver to
American National a letter agreeing that Crestar will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Option Agreement.
(C) Certificates for American National Common Stock delivered at a
closing hereunder may be endorsed with a restrictive legend which shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of a Stock Option Agreement between the registered holder
hereof and American National Bancorp and to resale restrictions arising under
the Securities Act of 1933, as amended, a copy of which agreement is on file at
the principal office of American National Bancorp. A copy of such agreement will
be provided to the holder hereof without charge upon receipt by American
National Bancorp of a written request."
3
<PAGE>
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Crestar shall have
delivered to American National a copy of a letter from the staff of the
Commission, or an opinion of counsel, in form and substance satisfactory to
American National, to the effect that such legend is not required for purposes
of the Securities Act of 1933, as amended.
5. Representations.
American National represents, warrants and covenants to Crestar as
follows:
(A) American National shall at all times maintain sufficient authorized
but unissued shares of American National Common Stock so that the Option may be
exercised without authorization of additional shares of American National Common
Stock.
(B) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. Adjustment Upon Changes in Capitalization.
In the event of any change in American National Common Stock by reason
of stock dividends, split-ups, mergers, recapitalizations, combinations,
exchanges of shares or the like, the type and number of shares subject to the
Option, and the purchase price per share, as the case may be, shall be adjusted
appropriately. In the event that any additional shares of American National
Common Stock are issued or otherwise become outstanding after the date of this
Option Agreement (other than pursuant to this Option Agreement), the number of
shares of American National Common Stock subject to the Option shall be adjusted
so that, after such issuance, it equals 19.9% of the number of shares of
American National Common Stock then issued and outstanding without giving effect
to any shares subject or issued pursuant to the Option. Nothing contained in
this Section 6 shall be deemed to authorize American National to breach any
provision of the Merger Agreement.
1. Registration Rights.
If requested by Crestar, American National shall as expeditiously as
possible file a registration statement on a form of general use under the
Securities Act if necessary in order to permit the sale or other disposition of
the shares of American National Common Stock that have been acquired upon
exercise of the Option in accordance with the intended method of sale or other
disposition requested by Crestar. Crestar shall provide all information
reasonably requested by American National for inclusion in any registration
statement to be filed hereunder. American National will use its best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 270 days from the day such
registration statement first becomes effective as may be reasonably necessary to
effect such sales or other dispositions. The first registration effected under
this Section 7 shall be at
4
<PAGE>
American National's expense except for underwriting commissions and the fees and
disbursements of Crestar's counsel attributable to the registration of such
American National Common Stock. A second registration may be requested hereunder
at Crestar's expense. In no event shall American National be required to effect
more than two registrations hereunder. The filing of any registration statement
hereunder may be delayed for such period of time as may reasonably be required
to facilitate any public distribution by American National of American National
Common Stock. If requested by Crestar, in connection with any such registration,
American National will become a party to any underwriting agreement relating to
the sale of such shares, but only to the extent of obligating itself in respect
of representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements. Upon receiving any request from
Crestar or assignee thereof under this Section 7, American National agrees to
send a copy thereof to Crestar and to any assignee thereof known to American
National, in each case by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
2. Severability.
If any term, provision, covenant or restriction contained in this
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
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 will not permit the holder to acquire the full
number of shares of American National Common Stock provided in Section 2 (as
adjusted pursuant to Section 6), it is the express intention of American
National to allow the holder to acquire such lesser number of shares as may be
permissible, without any amendment or modification hereof.
3. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, 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) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
5
<PAGE>
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Purchase Event shall have occurred and be
continuing Crestar may assign in whole or in part its rights and obligations
hereunder; provided, however, that to the extent required by applicable
regulatory authorities, Crestar may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of American National, (iii) an assignment to a single party (e.g.,
a broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Crestar's behalf, or (iv) any other manner approved by
applicable regulatory authorities.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered in the
manner and to the addresses provided for in or pursuant to Section 9.4 of the
Merger Agreement.
(e) Counterparts. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of Virginia applicable to agreements made
and entirely to be performed within such state and such federal laws as may be
applicable.
6
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
AMERICAN NATIONAL BANCORP, INC.
By:
-------------------------------
A. Bruce Tucker
President and Chief
Executive Officer
CRESTAR FINANCIAL CORPORATION
By:
-------------------------------
C. Garland Hagen
Corporate Executive
Vice President
7
<PAGE>
ANNEX III
June 23, 1997
Board of Directors
American National Bancorp, Inc.
211 N. Liberty Street
Baltimore, Ohio 21201-3909
Dear Board of Directors:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
American National Bancorp, Inc. ("ANBK" or the "Company"), of the consideration
to be received by such stockholders in the merger (the "Merger") between the
Company and Crestar Financial Corporation., a Virginia Corporation ("CF"). We
have not been requested to opine as to, and our opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Merger.
Pursuant to the Agreement and Plan of Reorganization, dated June 23, 1997, by
and among the Company and CF (the "Agreement"), at the effective time of the
Merger, CF will acquire all of the Company's issued and outstanding shares of
common stock.. The holders of Company common stock will receive in exchange for
each share of Company common stock shares of common stock of CF based on an
Exchange Ratio which equates to a $20.25 per share price, within a certain
range, for each share of Company common stock. For calculation purposes the
Exchange Ratio will be calculated by dividing $20.25 per share of ANBK Common
Stock by the average closing price of CF common stock as reported on the New
York Stock Exchange for the ten days ending on the 10th day prior to the
Effective Date ("Average Closing Price"). If CF's stock price averages between
$30.00 and $50.00, the Exchange Ratio will range from .6750 to .4050,
respectively. The Agreement details the provisions in the event the Average
Closing Price is outside of the range. Further, holders of shares of ANBK common
stock will be given the option to exchange their shares for $20.25 in cash,
provided that in the aggregate, the number of shares that may be exchanged for
cash shall not exceed 40% of the number of outstanding shares of ANBK common
stock..
In addition, the holders of unexercised and outstanding options awarded pursuant
to the Company's 1993 Stock Option Plan for Outside Directors, the 1993 Stock
Incentive Plan, and the 1996 Stock Option Plan shall be converted, based on the
Exchange Ratio, into options to acquire Crestar common stock. The complete terms
of the proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Keefe Bruyette & Woods, as part of its investment banking business, is regularly
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of listed
and unlisted securities. We are familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by the Company including (i) Annual Reports, Proxy
Statements and Form 10-Ks for the years ended July 31, 1994, 1995 and 1996, (ii)
Form 10-Qs for the quarters ended October 31, 1996, January 31, 1997, and April
30, 1997, and (iii) certain other information we deemed relevant. We discussed
with senior management and the boards of directors of the Company and its wholly
owned subsidiary, American National Savings Bank, F.S.B., the current position
and prospective outlook for the Company. We considered historical quotations and
the prices of recorded transactions in the Company's common stock since the
Company's completion of its second step offering.. We reviewed financial and
stock market data of other savings institutions, particularly in the
mid-Atlantic region of the United States, and the financial and structural terms
of several other recent transactions involving mergers and acquisitions of
savings institutions or proposed changes of control of comparably situated
companies.
For CF, we reviewed the audited financial statements for the fiscal years ended
December 31, 1996 and 1995, quarterly financial statements (unaudited) for the
quarters ending March 31, 1996, June 30, 1996 and September 30, 1996, and
certain other information deemed relevant. We discussed with senior management
of CF the current position and prospective outlook for CF.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Company
and CF and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including forecasts and
asset valuations we received from the Company, we assumed (with your consent)
that they had been reasonably prepared reflecting the best currently available
estimates and judgment of the Company's management. In addition, we have not
made or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of the Company or CF.
We have further relied on the assurances of management of the Company and CF
that they are not aware of any facts that would make such information inaccurate
or misleading. We express no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger, as set forth in the Agreement,
to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
<PAGE>
ANNEX IV
1996 ANNUAL REPORT TO STOCKHOLDERS
AMERICAN NATIONAL BANCORP, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
Message of President and Chief Executive Officer...........................1
Selected Consolidated Financial and Other Data.............................3
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................5
American National Bancorp, Inc. Common Stock and Related Matters..........16
Consolidated Financial Statements.........................................17
Notes to Financial Statements.............................................22
Independent Auditors' Report and Selected Quarterly Financial Data........51
<PAGE>
[American National Bancorp, Inc. Letterhead]
To our Stockholders:
I am pleased to report that American National Bancorp, Inc. has made
significant progress in the nine months following the close of its successful
mutual to stock conversion on October 31, 1995. The Company sold 2,182,125
shares of common stock at $10.00 per share and minority stockholders of American
National Savings Bank, F.S.B. (the "Bank") were issued 1.94 shares of Company
common stock in exchange for each outstanding share of common stock of the Bank.
Due to the offering and profits, stockholders' equity increased by $18.3 million
to $47.3 million at July 31, 1996.
Net income increased to $1.5 million from $10,000 in 1995. Net interest
income for 1996 increased $1.2 million to $12.9 million compared to $11.7
million for 1995. This 9.5% increase primarily reflects growth in assets,
relatively stable net interest margins and a decrease in the provision for loan
losses.
In 1996, assets were up $35.1 million or 8.2% to $461.3 million, and
loans were up $45.9 million or 19.8% to $278.0 million. We are beginning to see
the results of the Bank's efforts to expand its lending operations. Although our
primary focus continues to be single-family residential loans, the Company
continues to promote its auto, home equity and construction lending in order to
change the mix of assets and improve earnings. Nonperforming assets decreased to
$4.7 million or 1% of total assets at July 31, 1996, compared to $9.5 million or
2.2% of total assets at July 31, 1995. Our capital continues to significantly
exceed all regulatory requirements and supports our firm commitment to remain a
financially sound institution.
Consistent with the Company's capital management program and its goal
to improve Return on Equity, in June 1996, we repurchased 199,025 shares and in
August 1996 we repurchased 189,074 shares of American National Bancorp's Common
Stock in the open market at a cost of approximately $2.0 million and $2.3
million, respectively. Stockholders will continue to benefit from this
repurchase plan as future profits are spread over fewer shares. Also, on
September 19, 1996, the Board of Directors authorized the first quarterly cash
dividend of three cents ($.03) per share to be paid on or about November 15,
1996 to stockholders of record as of October 31, 1996.
Although the Company's returns on assets and equity are below industry
norms, the Company's core earnings continue to improve with management focused
on its Strategic Business Plan which targets return on equity of approximately
12% in three years. While the future course of interest rates cannot always be
accurately predicted, we believe that through continued hard work, this goal is
achievable.
Letter to Stockholders, Continued
<PAGE>
Our goal to increase profitability has fostered our commitment to
improve our delivery and our mix of services. The relocation of our largest
branch at the Fallstaff Shopping Center in Pikesville, to a free standing
building complete with drive-up and ATM capabilities, should open in late
October, 1996. We are also building a highly visible office on a pad site of the
Constant Friendship Shopping Center in Harford County, one of the Company's
primary lending markets. This office should be operational by the spring of
1997. However, in late November, 1996, we will open a temporary office in the
shopping center until our larger facility is completed. We anticipate that this
increased exposure in Harford County will not only enhance our lending
capabilities but will also be a strong source of low cost core deposits.
The Company continues to grow its market share. Marketing studies
confirm that customers who use the Bank's services continue to be very
satisfied. The Company increased the awareness of American National Savings Bank
over the past year through a very successful media campaign. This campaign
contributed, in a large part, to the $45.9 million increase in loans. The
Company intends to build on this success and has increased its advertising and
marketing budgets for 1997.
We also intend to improve customer service by investing in technology
in the future. While retaining our strong customer base in the over-age 55
category, we are working to increase our market share of younger customers.
Since these customers demand technology-based delivery systems, the Bank is
currently reviewing potential new products including telephone banking, Internet
services, and debit cards for implementation in 1997. We will also continue to
focus on building competitive checking accounts and other core deposits.
Recent federal legislation has been enacted to recapitalize the FDIC
insurance fund. Although the one-time special assessment that the Bank is
required to make will have a short term impact on its 1997 earnings, the long
term effect will be to significantly reduce the Bank's future insurance
expenses.
With our strong capital position, improved asset quality and higher
core earnings, we believe exciting opportunities lie ahead. And, with the
continued support of our stockholders, customers and employees, I am confident
that we will continue to provide quality service and enhance our performance.
A. Bruce Tucker
President and Chief Executive Officer
2
<PAGE>
Selected Consolidated Financial and Other Data
Prior to October 31, 1995, the Company had no assets or operations. The
following tables set forth certain consolidated financial and other data of the
Company at and for the year ended July 31, 1996, and of the Bank at and for the
years ended July 31, 1995, 1994, 1993 and 1992. This information is derived in
part from and should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto presented elsewhere herein. For
additional information about the Company and the Bank, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
<S> <C>
At July 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Selected Consolidated Financial Condition Data: (In Thousands)
Total assets........................... $461,271 $426,174 $400,046 $383,259 $ 398,863
Loans receivable, net (1)............. 278,042 232,089 208,542 221,595 254,665
Mortgage-backed securities ............ 100,195 156,775 117,597 102,478 97,179
Investment securities ................. 24,109 13,918 6,825 8,583 4,800
Securities available for sale.......... 40,266 3,030 43,600 27,141 --
Cash and cash equivalents.............. 4,902 5,360 7,109 5,112 19,134
Investments in real estate, net........ 5,670 5,828 5,623 6,282 7,476
Investments in and advances to
real estate joint ventures......... 1,270 2,215 3,676 4,576 6,883
Deposits............................... 313,083 314,613 308,989 317,711 344,586
Borrowed funds......................... 97,269 78,475 58,197 40,968 29,400
Stockholders' equity................... 47,270 28,959 29,160 21,193 20,508
- ------------------------------------
(1) Includes loans held for sale.
3
<PAGE>
At or for the Years Ended July 31,
----------------------------------------------------------------------
1996 1 95 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Key Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (1)(2)........ .35% --% .33% .18% .05%
Return on average equity (1)(3)........ 3.63 .03 4.68 3.27 .95
Net interest rate spread (4)........... 2.44 2.48 2.56 2.73 2.06
Net interest margin (5)................ 2.93 2.87 2.89 2.97 2.44
Net interest income to noninterest expense 128.15 125.76 120.11 127.70 103.91
Net interest income after provision for
loan losses to total noninterest expense 120.46 89.51 98.56 86.44 75.52
Noninterest expense to average assets.. 2.25 2.24 2.36 2.28 2.32
Quality Ratios:
Nonperforming loans to total loans (6). 1.31 3.52 1.67 3.34 3.74
Nonperforming assets to total assets (7) 1.01 2.23 1.07 2.33 3.05
Allowance for loan losses to
nonperforming loans.................. 112.87 73.90 101.41 30.42 15.06
Allowance for loan losses to
nonperforming assets (7)............. 94.37 66.98 85.70 26.04 12.07
Equity Ratios:
Stockholders' equity to assets at period end 10.25 6.80 7.29 5.53 5.14
Average stockholders' equity to average assets 9.55 6.95 7.05 5.54 5.05
Average interest-earning assets to
average interest-bearing liabilities 110.54 108.04 107.84 105.16 106.34
Other Data:
Number of full-service offices......... 9 9 9 9 9
Per Share Data:
Book value per share................. $13.06 $14.11 $14.21 N/A N/A
Earnings per share (8)............... .36 -- .41 N/A N/A
Pro forma net income per share (8)... .47 N/A .67 N/A N/A
Dividends declared per share......... N/A .40 .30 N/A N/A
Dividend payout ratio................ N/A N/A .73 N/A N/A
</TABLE>
- ------------------------------------
(1) Net income for the fiscal year ended July 31, 1993, includes $583,000
representing the cumulative effect of change in accounting for income taxes.
(2) Return on average assets represents net income divided by average total
assets.
(3) Return on average equity represents net income divided by average equity.
(4) Net interest rate spread represents the difference between average yield on
interest-earning assets and average cost of interest-bearing liabilities. (5)
Net interest margin represents net interest income as a percentage of average
interest-earning assets.
(6) Nonperforming loans include nonaccrual loans and accruing loans 90 days or
more delinquent. (7) Nonperforming assets consist of nonperforming loans and
foreclosed assets.
(8) See Note 13 of Notes to Consolidated Financial Statements.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
American National Bancorp, Inc.
American National Bancorp, Inc. (the "Company") is a Delaware
corporation that was organized in July 1995. On October 31, 1995, the Company
acquired 100% of the capital stock of American National Savings Bank, F.S.B.
(the "Bank"), sold 2,182,125 shares of common stock in a subscription offering
for a purchase price of $10.00 per share (the "Offering"), and issued 1,798,402
shares of common stock in exchange for 927,000 shares of the Bank's common stock
held by shareholders other than American National Bankshares, M.H.C. (together
with the Offering, the "Conversion"). Immediately following the Conversion, the
only significant assets of the Company were the common stock of the Bank and
$19.3 million of the proceeds from the Offering. The Company is registered as a
savings and loan holding company with the Office of Thrift Supervision (the
"OTS"). At July 31, 1996, the Company had total consolidated assets of $461.3
million, total consolidated deposits of $313.1 million, and consolidated
stockholders' equity of $47.3 million. The Company's executive office is located
at 211 North Liberty Street, Baltimore, Maryland 21201 and its telephone number
is (410) 752-0400.
American National Savings Bank, F.S.B.
American National Savings Bank, F.S.B. (the "Bank") is a federally
chartered stock savings bank headquartered in Baltimore, Maryland. The Bank
conducts operations through nine full-service offices in its market area
consisting of Baltimore City and parts of the Maryland counties of Baltimore,
Howard, Harford, Anne Arundel, and Carroll. The Bank is primarily engaged in the
business of attracting deposits from the general public in the Bank's market
area, and investing such deposits together with other funds, in loans
collateralized by one- to four-family residential real estate, mortgage-backed
securities, and, to a lesser extent, construction and land development loans,
consumer loans and investment securities. In the past, the Bank also actively
originated multifamily residential real estate loans and commercial real estate
loans; however, originations of such loans have decreased significantly in
recent years as the Bank has sought to reduce the credit risk and losses in its
loan portfolio. The Bank also has reduced its involvement in real estate joint
ventures due to economic conditions and changes in regulatory capital
requirements.
General
The Company's results of operations are primarily dependent on its net
interest income, which is the difference between interest income earned on its
loans, mortgage-backed securities, and investment portfolios, and its cost of
funds consisting of interest paid on deposits and borrowed funds. The Company's
net income also is affected by its provisions for losses on loans and
investments in real estate, as well as the amount of noninterest income,
including fees and service charges, gains or losses on sales of loans,
mortgage-backed securities, investment securities, and other noninterest income,
and noninterest expense, including salary and employee benefits, net occupancy,
federal deposit insurance premiums, operations of investment in real estate,
other noninterest expense, and income taxes. During the fiscal years ended July
31, 1996, 1995, and 1994, net interest income constituted 97.8%, 92.6%, and
84.0% of gross earnings (i.e., net interest income and noninterest income), and
noninterest income constituted 2.2%, 7.4%, and 16.0% of gross earning,
respectively. Net income of the Company is also affected significantly by
general economic and competitive conditions, particularly changes in market
interest rates, government policies, and actions of regulatory authorities.
Financial Condition
Total assets increased by $35.1 million, or 8.2%, to $461.3 million at
July 31, 1996 from $426.2 million at July 31, 1995 due to the second step stock
offering which closed October 31, 1995. Loans receivable increased by $45.9
million, or 19.8%, to $278.0 million at July 31, 1996 from $232.1 million at
July 31, 1995 largely due to increased originations and purchases of loans.
Securities available for sale increased $37.3 million, to $40.3 million at July
31, 1996 from $3.0 million at July 31, 1995. Mortgage-backed securities
decreased $56.6 million, or 36.1%, to $100.2 million at July 31, 1996 from
$156.8 million at July 31, 1995. The increase in securities available for sale
and the
5
<PAGE>
decrease in mortgage-backed securities was due primarily to the reclassification
of securities to the available for sale portfolio in December 1995. In November
1995, the Financial Accounting Standards Board announced its intention to allow
a one-time change in the classification of securities, providing such change was
effected by December 31, 1995. Management utilized this opportunity and
designated part of its mortgage-backed and investment securities portfolio as
available for sale. Investment securities increased $10.2 million, or 73.2%, to
$24.1 million at July 31, 1996 due to the purchase of higher yielding callable
securities, offset by the transfer of securities into the available for sale
portfolio in December 1995.
Advances from the Federal Home Loan Bank of Atlanta increased $18.7
million, or 42.3%, to $62.8 million at July 31, 1996 from $44.1 million at July
31, 1995 in order to fund loan settlements and purchases.
Total stockholders' equity increased by $18.3 million to $47.3 million
at July 31, 1996 compared to $29.0 million at July 31, 1995. This increase was
the result of $20.0 million of proceeds from the stock offering, net of
expenses, and net income for the year of $1.5 million, partially offset by the
Company's establishment of an Employee Stock Ownership Plan (the "ESOP") which
borrowed $1.7 million from the proceeds, the repurchase of 5% of its outstanding
shares, or 199,025 shares, in open market transactions, and an increase in the
net unrealized holding loss on securities of $424,000.
Results of Operations
General. The Company reported net income of $1.5 million, $10,000, and
$1.3 million for the fiscal years ended July 31, 1996, 1995, and 1994. The $1.5
million increase for the fiscal year ended July 31, 1996 resulted from the
decrease in the provision for loan losses of $2.6 million and an increase in net
interest income of $1.1 million, partially offset by a decrease in noninterest
income of $647,000, an increase in noninterest expense of $699,000 and an
increase in income tax expense of $647,000. Net income for the fiscal year ended
July 31, 1994 included substantial gains on sales of loans, mortgage-backed
securities, and investment securities, which income is not considered to be core
earnings and there is no assurance that these gains will occur in future
periods, or that there will not be losses on sales of loans, mortgage-backed
securities, and investment securities in future periods. Net income represented
a return on average assets of .35%, .00% and .33%, and a return on average
equity of 3.63%, .03%, and 4.68% for the fiscal years ended July 31, 1996, 1995,
and 1994, respectively.
Interest Income. Interest income totalled $33.4 million for the fiscal
year ended July 31, 1996, compared to $31.0 million for the fiscal year ended
July 31, 1995. The $2.4 million, or 7.9%, increase in interest income for the
fiscal year ended July 31, 1996 compared to the fiscal year ended July 31, 1995
was due to an increase of $27.4 million in average interest earning assets to
$438.5 million from $411.1 million and a 9 basis point increase in the yield on
average interest earning assets to 7.62% from 7.53%. The increase in average
interest earning assets resulted primarily from a $27.0 million, or 12.6%,
increase in average mortgage loans to $240.7 million from $213.7 million and a
$5.6 million, or 42.7%, increase in investment securities to $18.7 million from
$13.1 million, partially offset by a $7.2 million, or 4.5%, decrease in
mortgage-backed securities.
Interest income totalled $31.0 million for the fiscal year ended July
31, 1995, compared to $27.3 million for the fiscal year ended July 31, 1994. The
$3.7 million, or 13.6%, increase in interest income for the fiscal year ended
July 31, 1995 compared to the fiscal year ended July 31, 1994 was due to a 41
basis point increase in the yield on average interest earning assets to 7.53%
from 7.12%, and an increase of $27.3 million in average interest earning assets
to $411.1 million from $383.8 million. The principal reason for the increase in
the yield on interest-earning assets was a 98 basis point increase in the yield
on average mortgage-backed securities. Such increase resulted from the upward
repricing of the Bank's adjustable rate securities portfolio which, at July 31,
1995, comprised 44.0% of the Bank's portfolio of mortgage-backed securities. The
yield on the Bank's average mortgage loans decreased by 10 basis points to 8.48%
from 8.58%. The increase in average interest-earnings assets resulted primarily
from a $7.9 million, or 3.8%, increase in average mortgage loans to $213.7
million from $205.8 million, a $20.2 million, or 14.2% increase in
mortgage-backed securities to $162.2 million from $142.0 million, and a $4.9
million increase in investment securities, partially offset by a $5.7 million
decrease in other interest-earnings assets. The increase in interest-earnings
assets reflected management's decision to leverage the Bank's capital in order
to increase net interest income.
6
<PAGE>
Interest Expense. Interest expense totalled $20.6 million for the
fiscal year ended July 31, 1996, compared to $19.2 million for the fiscal year
ended July 31, 1995. The $1.4 million increase was due to a $16.2 million, or
4.3%, increase in average interest-bearing liabilities to $396.7 million from
$380.5 million, and a 13 basis point increase in the average cost of
interest-bearing liabilities to 5.18% form 5.05%. Total average deposits
increased $6.3 million, or 2.0% and total borrowed funds increased $9.9 million,
or 14.0%.
Interest expense totalled $19.2 million for the fiscal year ended July
31, 1995, compared to $16.2 million for the fiscal year ended July 31, 1994. The
$3.0 million increase for the fiscal year ended July 31, 1995 compared to the
fiscal year ended July 31, 1994 was due to a $24.6 million, or 6.9%, increase in
average interest-bearing liabilities to $380.5 million from $355.9 million, and
a 49 basis point increase in the average cost of interest-bearing liabilities to
5.05% from 4.56%. The increase in average interest bearing liabilities resulted
from the Bank's strategy of leveraging its capital in order to increase net
interest income. In order to leverage its capital, the Bank increased its
average borrowings to $70.9 million from $40.7 million. The Bank's borrowings
included Federal Home Loan Bank ("FHLB") advances and securities sold under
agreements to repurchase.
Net Interest Income. Net interest income increased by $1.2 million, or
9.5%, to $12.9 million for the fiscal year ended July 31, 1996 from $11.7
million for the fiscal year ended July 31, 1995. The increase in net interest
income was primarily due to the results of operations discussed above, which
resulted in an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities to 110.54% from 108.04%, partially offset
by a 4 basis point decrease in the Bank's interest rate spread to 2.44% from
2.48%.
Net interest income increased by $662,000, or 6.0%, to $11.7 million
for the fiscal year ended July 31, 1995 from $11.1 million for the fiscal year
ended July 31, 1994. The increase in net interest income was primarily due to
the results of operations discussed above, which resulted in an increase in the
ratio of average interest-earning assets to average interest-bearing liabilities
to 108.04% from 107.84%, partially offset by an 8 basis point decrease in the
Bank's interest rate spread to 2.48% from 2.56%.
Provision for Loan Losses. The Company maintains an allowance for loan
losses based upon management's periodic evaluation of known and inherent risks
in the loan portfolio, the Company's past loan loss experience, the volume and
type of lending presently being conducted by the Company, adverse situations
that may affect borrowers' ability to repay loans, estimated value of underlying
loan collateral, current economic conditions in the Company's market area, and
other relevant factors. Management calculates the general allowance for loan
losses in part based on past experience, and in part based on specified
percentages of loan balances. The allowance is reviewed by management and the
Board of Directors, both of which believe that the Company's allowance for loan
losses is reasonable and adequate to cover losses reasonably expected in its
loan portfolio. Although management uses the best information available and its
best judgment in providing for possible losses, no assurance can be given as to
whether future adjustments may be necessary. The Company's allowance for loan
losses was $4.4 million. or 1.5% of total loans receivable at July 31, 1996,
compared to $6.4 million, or 2.6%, of total loans receivable at July 31, 1995.
During the fiscal year ended July 31, 1996, the Company's provision for loan
losses was $772,000, compared to $3.4 million for the fiscal year ended July 31,
1995. The decrease in the provision for loan losses for the fiscal year ended
July 31, 1996, compared to the fiscal year ended July 31, 1995, reflected a
reduction in nonperforming assets to $4.7 million, or 1.0% of total assets, at
July 31, 1996 from $9.5 million, or 2.2% of total assets, at July 31, 1995.
The Bank's provision for loan losses was $3.4 million for the fiscal
year ended July 31, 1995, compared to $2.0 million for the fiscal year ended
July 31, 1994. The increase in the provision for loan losses for the fiscal year
ended July 31, 1995 was attributable to a provision of $1.6 million recorded for
the quarter ended October 31, 1994, that related to developments affecting
several loans that were part of the Bank's largest lending relationship at July
31, 1995. During the fiscal year ended July 31, 1995, the borrower became
delinquent on these loans, and the loans were placed on nonaccrual status. The
Bank has foreclosed on several of the loans comprising this lending relationship
and is continuing its efforts to resolve these loans. These loans were the
primary reason for the increase in the Bank's nonperforming assets to $9.5
million or 2.2% of total assets at July 31, 1995 from $4.3 million, or 1.1%, of
total assets at July 31, 1994. As of July 31, 1995, the Bank's allowance for
loan losses was $6.4 million, or 2.6%, of total loans receivable and 73.9% of
nonperforming loans, compared to the Bank's July 31, 1994 allowance for loan
losses of $3.7 million, or 1.7% of total loans receivable and 101.4% of
nonperforming loans.
7
<PAGE>
Noninterest Income. Noninterest income, consisting primarily of deposit
fees, loan servicing fees and gains and losses on sales of loans,
mortgage-backed securities and investments, totalled $293,000 for the fiscal
year ended July 31, 1996 compared to $940,000 for the fiscal year ended July 31,
1995. The $647,000 decrease for the fiscal year ended July 31, 1996 compared to
the fiscal year ended July 31, 1995 was due primarily to the sale of low
yielding mortgage-backed and investment securities at a loss, and to a decrease
in revenue from the Bank's subsidiary, American National Insurance Agency, Inc.
Noninterest income totalled $652,000 for the fiscal year ended July 31,
1995, compared to $2.0 million for the fiscal year ended July 31, 1994. The $1.3
million decrease for the fiscal year ended July 31, 1995 compared to the fiscal
year ended July 31, 1994 was due primarily to nominal sales of securities during
the fiscal year ended July 31, 1995 as compared to gains of $1.1 million on the
sale of mortgage-backed securities during the fiscal year ended July 31, 1994, a
decrease in the gain on sales of loans of $159,000 and an increase in the loss
on investments in joint ventures of $174,000. The Bank sold few securities or
loans during the fiscal year ended July 31, 1995, because it held relatively few
securities in its available for sale portfolio, and because of its strategy to
increase its interest-earning assets.
Noninterest Expense. Noninterest expense, consisting primarily of
salaries and employee benefits, occupancy and equipment, federal deposit
insurance premiums and losses on investments in real estate ("REO") totalled
$10.0 million for the fiscal year ended July 31, 1996 compared to $9.3 million
for the fiscal year ended July 31, 1995. The $700,000 increase for the fiscal
year ended July 31, 1996 compared to the fiscal year ended July 31, 1995 was the
result of increased advertising expense for mortgage and consumer loans and
deposits, salary increases, as well as costs associated with the formation of
the ESOP.
Noninterest expense remained relatively stable at $9.1 million for the
fiscal years ended July 31, 1995 and 1994. Decreases of $296,000 in other
noninterest expense and $41,000 in loss on investments in real estate were
partially offset by increases of $207,000 in salaries and employee benefits, and
$67,000 in advertising expense.
Income Taxes. The Company's income tax provisions (benefit) were
$801,000, $(50,000), and $695,000 in the fiscal years ended July 31, 1996, 1995,
and 1994, respectively.
Deposit Insurance Premiums. The deposits of federal savings banks such
as the Bank are presently insured by the Savings Association Insurance Fund (the
"SAIF"), which along with the Bank Insurance Fund (the "BIF"), is one of the two
insurance funds administered by the Federal Deposit Insurance Corporation.
Financial institutions which are members of the BIF have been experiencing
substantially lower deposit insurance premiums because the BIF has achieved its
required level of reserves while the SAIF has not yet achieved its required
level of reserves.
On September 30, 1996, legislation was enacted and signed into law
which provides a resolution to the disparity in BIF/SAIF premiums. In
particular, SAIF-insured institutions will pay a one-time assessment of 65.7
cents on every $100 of deposits held at March 31, 1995. Such payment is due no
later than November 29, 1996. As a result of the new law the Company will be
required to pay approximately $2,033,000. Assuming the special assessment is tax
deductible, the cost, net of income tax benefits, will be approximately $1.34
million. The Company will make a one-time charge to earnings of this amount for
the fiscal quarter ending October 31, 1996. Also, beginnning January 1, 1997,
the current annual minimum premium of 23 basis points will be reduced to
approximately 6.5 basis points. Average Balance Sheet
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the years indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
years presented. Average balances are derived from daily average balances.
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Years Ended July 31,
---------------------------------------------------------------------------------------
1996 1995 1994
------------------------ --------------------------- ----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
Mortgage loans (1).............. $240,713 $20,652 8.58% $213,701 $18,120 8.48% $20 ,770 $17,650 8.58%
Consumer and other loans........ 13,377 1,102 8.24 11,932 916 7.68 11,892 809 6.80
Mortgage-backed securities (2).. 154,945 9,630 6.22 162,178 10,355 6.38 141,978 7,665 5.40
Investment securities (3)...... 18,749 1,255 6.70 13,139 831 6.32 8,242 432 5.24
Other (4)....................... 10,742 779 7.25 10,158 747 7.35 15,881 769 4.85
------- ------- ----- ------- ------- ----- -------- ------- ------
Total interest-earning assets 438,526 33,418 7.62 411,108 30,969 7.53 383,763 27,325 7.12
------- ------- -------
Noninterest-earning assets.......... 6,986 5,896 6,983
------- ------- --------
Total assets................ $445,512 $417,004 $390,746
======== ======== ========
Interest-bearing liabilities:
Deposits:
Passbook accounts............... $41,468 1,230 2.97 $43,347 1,332 3.07 $ 46,709 1,422 3.04
NOW accounts.................... 15,356 237 1.54 14,675 240 1.64 15,609 264 1.69
Money accounts.................. 45,601 1,511 3.31 51,652 2,008 3.89 59,566 1,842 3.09
Certificates of deposit......... 213,428 12,847 6.02 199,922 11,343 5.67 193,284 10,399 5.38
------- ------- ----- ------- ------- ----- -------- ------- ------
Total deposits.............. 315,853 15,825 5.01 309,596 14,923 4.82 315,168 13,927 4.42
------- ------- ----- ------- ------- ----- -------- ------- ------
Borrowings:
Advances from Federal Home
Loan Bank..................... 46,851 2,770 5.91 50,182 3,084 6.15 31,403 1,993 6.35
Securities sold under agreements to
repurchase.................... 34,005 1,958 5.76 20,741 1,216 5.86 9,307 321 3.45
------- ------- ----- ------- ------- ----- -------- ------- ------
Total borrowed funds........ 80,856 4,728 5.85 70,923 4,300 6.06 40,710 2,314 5.68
------- ------- ----- ------- ------- ----- -------- ------- ------
Total interest-bearing
liabilities 396,709 20,553 5.18 380,519 19,223 5.05 355,878 16,241 4.56
Noninterest-bearing liabilities..... 6,245 7,512 7,313
------- ------- --------
Total liabilities....... 402,954 388,031 363,191
Stockholders' equity................ 42,558 28,973 27,555
------- ------- --------
Total liabilities and
stockholders' equity $445,512 $417,004 $390,746
======== ======== ========
Net interest income................. $12,865 $11,746 $11,084
======= ======= =======
Net interest rate spread (5)........ 2.44% 2.48% 2.56%
==== ===== ======
Net interest margin (6)............. 2.93% 2.86% 2.89%
==== ===== ======
Ratio of average interest-earning
assets to average interest-bearing
liabilities..................... 110.54% 108.04% 107.84%
====== ====== ======
</TABLE>
- -----------------------------------------
(1) Includes nonperforming loans.
(2) Includes mortgage-backed securities available for sale. Separate yields for
available-for-sale portfolio are not available as the income from the
available- for-sale securities has not historically been segregated from
the income from the held-to-maturity securities.
(3) Includes investment securities available for sale. Separate yields for
available-for-sale portfolio are not available as the income from the
available-for-sale securities has not historically been segregated from the
income from the held-to-maturity securities.
(4) Includes interest-bearing deposits in other financial institutions, federal
funds sold, securities purchased under agreements to resell, Federal Home
Loan Bank stock, and ground rents.
(5) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
9
<PAGE>
Rate/Volume Analysis
The table below sets forth 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 on changes attributable to (i) changes in average volume
(changes in average volume multiplied by old rate); (ii) changes in rates
(changes in rate multiplied by old average volume); and (iii) changes in
rate-volume (changes in rate multiplied by the change in average volume); and
(iv) the net change.
<TABLE>
<CAPTION>
<S> <C>
Years Ended July 31,
----------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------------- ---------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Due to
--------------------------- --------------------------
Total Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease
------ ---- ------ ---------- ------ ---- ------ ---------
(In Thousands)
Interest income:
Mortgage loans.............. $2,291 $ 214 $ 27 $2,532 $ 681 $ (203) $ (8) $ 470
Consumer and other loans.... 111 67 8 186 3 103 1 107
Mortgage-backed securities.. (462) (276) 13 (725) 1,091 1,400 199 2,690
Investment securities....... 354 49 21 424 257 89 53 399
Other interest-earning assets 43 (10) (1) 32 (276) 397 (143) (22)
------ -------- ----- ------ ------ ------- ---- ------
Total interest-earning assets $2,337 $ 44 $ 68 $2,449 $1,756 $ 1,786 $102 $3,644
====== ======= ==== ====== ====== ======= ==== ======
Interest expense:
Passbook.................... $ (58) $ (46) $ 2 $ (102) $ (102) $ 13 $ (1) $ (90)
NOW......................... 11 (13) (1) (3) (16) (9) 1 (24)
Money fund.................. (235) (297) 35 (497) (244) 473 (63) 166
Certificate................. 766 691 47 1,504 357 568 19 944
Advances from FHLB.......... (205) (117) 8 (314) 1,192 (63) (38) 1,091
Reverse repurchase agreements 777 (21) (14) 742 394 225 276 895
------ -------- ----- ------ ------ ------- ---- ------
Total interest-bearing
liabilities......... $1,056 $ 197 $ 77 $1,330 $1,581 $ 1,207 $194 $2,982
====== ======= ==== ====== ====== ======= ==== ======
Change in net interest income... $1,281 $ (153) $ (9) $1,119 $ 175 $ 579 $(92) $ 662
====== ======== ===== ====== ====== ======= ==== ======
</TABLE>
Asset and Liability Management-Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively affect net interest income. Similarly,
during a period of falling interest rates, a negative gap would tend to
positively affect net interest income while a positive gap would tend to
adversely affect net interest income.
The Company's deposit accounts typically react more quickly to changes
in market interest rates than interest-earning assets such as fixed rate
mortgage loans, because of the relatively shorter maturities of deposits. When
interest rates are rising, interest expense will increase more rapidly than
interest income if a higher volume of interest-bearing liabilities than
interest-earning assets reprice to higher interest rates. In a falling interest
rate environment, interest income will decrease less rapidly than interest
expense if a higher volume of interest-bearing liabilities than interest-earning
assets reprice to lower interest rates.
10
<PAGE>
Management seeks to manage the Company's interest rate risk exposure by
monitoring the levels of interest rate sensitive assets and liabilities while
maintaining an acceptable interest rate spread. To reduce the potential
volatility of the Company's earnings in a changing interest rate environment,
the Company invests in mortgage-backed securities that have adjustable rates
and/or relatively short expected terms. At July 31, 1996, $97.4 million, or
73.0%, of the Company's $133.5 million of mortgage-backed securities had
adjustable interest rates. The Company also originates adjustable-rate loans,
and from time to time may purchase ARM loans. During the fiscal year ended July
31, 1996, the Company purchased $11.0 million of adjustable-rate one- to
four-family mortgage loans. At July 31, 1996, $114.1 million, or 38.2%, of the
Company's total loans receivable had adjustable interest rates. The Company also
seeks to reduce the term of its interest-earning assets by offering fixed-rate
one- to four-family mortgage loans with terms of 15 years or less.
In addition, the Company manages its interest-bearing liabilities by
offering competitive interest rates on deposit accounts and pricing certificates
of deposit to provide customers with incentives to choose certificates of
deposit with longer terms. At July 31, 1996, time deposits maturing beyond 12
months totalled $97.3 million, or 31.1%, of the Company's total deposits.
At July 31, 1996, the Company's total interest-bearing liabilities
maturing or repricing within one year exceeded its total interest-earning assets
maturing or repricing within one year by $19.4 million, representing a
cumulative one-year gap ratio of negative 4.2%. The Company's gap measures
indicate that net interest income is moderately exposed to increases in interest
rates. In a rising interest rate environment, the Company's net interest income
may be adversely affected as liabilities would reprice to higher market rates
more quickly than assets. This effect would be compounded because the prepayment
speeds of the Company's long-term fixed-rate assets would decrease in a rising
interest rate environment. Although the Company could reduce its exposure to
interest rate risk by investing more of its assets in short-term securities and
adjustable-rate mortgage-backed securities, management believes that the
benefits of such a strategy would be outweighed by the loss of earnings from an
increased concentration on short-term and adjustable-rate investments, which may
offer lower yields.
The Company's analysis of the gap between its interest-earning assets
and interest-bearing liabilities within specified periods may include the
effects of certain hedging techniques that may be used by the Company to manage
interest rate risk, including primarily interest-rate cap agreements that the
Company has from time to time entered into with national brokerage firms. An
interest-rate cap agreement is an agreement pursuant to which the seller of the
cap agrees to pay the buyer the difference between the actual interest rate and
the strike rate set forth in the contract if the actual rate is higher than the
strike rate. Pursuant to the cap agreements that the Company has used in the
past and may continue to use from time to time, the Company receives variable
interest payments based on the spread between the variable three month London
Interbank Offered Rate ("LIBOR") and the strike rate of the caps if the variable
three month LIBOR is higher than the strike rate. The premiums paid for such
agreements are amortized over the life of the agreements. The interest
differential received, if any, on interest rate cap agreements is recorded as an
adjustment to interest expense. During the fiscal years ended July 31, 1996 and
1995, the Company did not use interest rate cap agreements. During the fiscal
year ended July 31, 1994, the net effect of the Company's interest rate caps was
to increase the Company's interest expense by $200,000. Although the interest
rate caps have reduced the Company's net interest income in prior years, they
also reduced the Company's exposure to increases in interest rates.
The Company has an Asset-Liability Management Committee, which is
responsible for reviewing the Company's asset and liability policies. Management
presently monitors and evaluates the potential impact of interest rate movements
upon the market value of portfolio equity and the level of net interest income
on a quarterly basis. This evaluation is performed in compliance with OTS
regulations and is compared to Board-established limits to ensure that interest
rate risk is maintained within these guidelines. The Committee meets quarterly
and reports quarterly to the Board of Directors on interest rate risks and
trends, as well as liquidity and capital ratios and regulatory requirements.
11
<PAGE>
Gap Table. The following table sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at July 31,
1996, that are expected to reprice or mature, based upon certain assumptions, in
each of the future time periods shown. Except as stated below, the amounts of
assets and liabilities shown that reprice or mature during a particular period
were determined in accordance with the earlier of term or repricing or the
contractual terms of the asset or liability.
<TABLE>
<CAPTION>
<S> <C>
At July 31, 1996
--------------------------------------------------------------------
Within 1-3 3-5 5-10 10-20 Over 20
1 Year Years Years Years Years Years Total
------ ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Interest-earning assets:
Real Estate Mortgages:
Adjustable R.ate.......................... $ 85,489 $ 20,655 $ 7,935 $ -- $ -- $ -- $114,079
Fixed (1)................................. 31,310 30,017 18,905 32,772 25,083 7,209 145,296
Consumer.................................. 12,375 2,877 2,955 385 75 -- 18,667
Mortgage-backed securities................ 89,754 4,052 2,747 2,884 631 127 100,195
Investment securities..................... 5,198 -- -- 9,947 8,964 -- 24,109
Securities available for sale............. 12,976 4,756 13,976 6,085 2,453 20 40,266
Other interest-earning assets (2)......... 5,372 -- -- -- -- 4,904 10,276
-------- -------- ------- ------- ------- ------- -------
Total interest-earning assets........... 242,474 62,357 46,518 52,073 37,206 12,260 452,888
Rate sensitive liabilities:
Passbook accounts......................... 32,217 4,487 2,136 1,638 296 7 40,781
NOW accounts.............................. 9,024 2,042 1,348 1,693 814 117 15,038
Money accounts............................ 32,504 4,527 2,155 1,652 299 8 41,145
Certificates of deposit................... 118,772 59,823 19,711 17,813 -- -- 216,119
Borrowings................................ 69,394 25,625 -- 1,500 750 -- 97,269
-------- -------- ------- ------- ------- ------- --------
Total interest-bearing liabilities..... 261,911 96,504 25,350 24,296 2,159 132 410,352
-------- -------- ------- ------- ------- ------- --------
Interest sensitivity gap.................... (19,437) (34,147) 21,168 27,777 35,047 12,128 42,536
======== ======== ====== ====== ====== ====== ======
Cumulative interest-sensitivity gap......... (19,437) (53,584) (32,416) (4,639) 30,408 42,536 42,536
======== ======== ======== ======== ====== ====== ======
Cumulative interest-sensitivity gap
to total assets........................... (4.2)% (11.6)% (7.0)% (1.0)% 6.6% 9.2%
Ratio of interest-earning assets to
interest-bearing liabilities.............. 92.6% 64.6% 183.5% 214.3% 1723.3% 9287.9%
Cumulative ratio of interest sensitive
assets to interest sensitive liabilities.. 92.6% 85.0% 91.6% 98.9% 107.4% 110.4%
</TABLE>
- ------------------------------------
(1) Includes loans held for sale.
(2) Includes federal funds sold, interest-bearing deposits in other banks,
Federal Home Loan Bank stock, and ground rents.
The above table was prepared based on the Company's historical
experience and OTS decay rate assumptions. Management believes that the
assumptions used to prepare the table approximate the standards used in the
savings industry, and considers the assumptions appropriate and reasonable.
However, certain shortcomings are inherent in the analysis presented by the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, interest rates on certain types of
assets and liabilities may fluctuate in advance of or lag behind changes in
market interest rates. Additionally, certain assets, such as ARM loans, have
features that restrict changes in interest rates on a short-term basis and over
the life of the asset. Moreover, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table.
Net Portfolio Value. The OTS has adopted a rule that incorporates an
interest rate risk ("IRR") component into the risk-based capital rules. The IRR
component is a dollar amount that will be deducted from total capital for the
purpose of calculating an institution's risk-based capital requirement and is
measured in terms of the sensitivity of its net portfolio value ("NPV") to
changes in interest rates. NPV is the difference between discounted incoming and
outgoing cash flows from assets, liabilities, and off-balance sheet contracts.
An institution's IRR is measured as the change to its NPV as a result of a
hypothetical 200 basis point change in market interest rates. A resulting change
in NPV of more than 2% of the estimated market value of its assets will require
the institution to deduct from its capital 50% of that excess change. The rule
provides that the OTS will calculate the IRR component quarterly for each
institution from the
12
<PAGE>
institution's Thrift Financial Reports. The OTS has deferred for the present
time the date on which the IRR component is to be deducted from total capital.
The following table presents the Bank's NPV as of June 30, 1996, as calculated
by the OTS, based on information provided to the OTS by the Bank.
<TABLE>
<CAPTION>
<S> <C>
Change in Change in NPV
Interest Rates Net Portfolio Value as a % of
in Basis Points ------------------------------------------- Estimated Market
(Rate Shock) Amount $ Change % Change Value of Assets
--------------- -------- -------- -------- -----------------
(Dollars in Thousands)
400 $ 20,400 $ (28,430) (58)% 5.89%
300 27,372 (21,459) (44) 4.45
200 35,111 (13,719) (28) 2.84
100 42,399 (6,432) (13) 1.33
Static 48,830 -- -- --
(100) 53,987 5,156 11 1.07
(200) 55,582 6,752 14 1.40
(300) 57,289 8,459 17 1.75
(400) 59,656 10,825 22 2.24
</TABLE>
As shown by the table above, increases in interest rates will result in
net decreases in the Bank's NPV, while decreases in interest rates will result
in smaller net increases in the Bank's NPV. Because the table reflects the
Bank's NPV decreasing by 2.84% if interest rates increase by 200 basis points,
the Bank would be required to make a deduction from total capital for purposes
of calculating the Bank's risk-based capital requirement if such decrease
exceeded 2% of the estimated market value of its assets for three consecutive
quarters. No capital deduction was required at July 31, 1996. As is the case
with the gap table, certain shortcomings are inherent in the methodology used in
the above table. Modeling changes in NPV requires the making of certain
assumptions that may tend to oversimplify the manner in which actual yields and
costs respond to changes in market interest rates. First, the models assume that
the composition of the Bank's interest sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured.
Second, the models assume that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the NPV measurements do provide an indication of the Bank's interest rate risk
exposure at a particular point in time, such measurements are not intended to
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required ratio currently is 5%. The
Bank's liquidity ratio averaged 7.7% during the month of July 1996. In addition
the Bank is required to maintain short term liquid assets of at least 1% of the
Bank's average daily balance of net withdrawable deposit accounts and current
borrowings. The Bank adjusts liquidity as appropriate to meet its asset and
liability management objectives. Certain mortgage-backed securities, time
deposits, federal funds sold and other assets outstanding at July 31, 1996,
1995, and 1994, that qualify for liquidity amounted to $11.9 million, $26.4
million, and $19.3 million, respectively. At July 31, 1996, the Bank was in
compliance with such liquidity requirements.
The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, FHLB advances and other borrowings,
and earnings and funds provided from operations. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively predictable
source of funds, deposit flows and loan prepayments are greatly influenced by
general interest rates, economic conditions, and competition. The Bank manages
the pricing of its deposits to maintain
13
<PAGE>
a desired deposit balance. In addition, the Bank invests excess funds in federal
funds, and other short-term interest-earning and other assets, which provide
liquidity to meet lending requirements.
The Company's borrowings increased to $97.3 million at July 31, 1996
and an average of $80.9 million for the fiscal year ended July 31, 1996. The
$18.7 million increase was primarily in advances from the Federal Home Loan Bank
of Atlanta in order to fund loan settlements and purchases. The Company's
borrowings increased to an average of $70.9 million for the fiscal year ended
July 31, 1995, from an average of $40.7 million for the fiscal year ended July
31, 1994. The increase in borrowings related primarily to the Company's efforts
to manage its level of interest rate risk by utilizing longer-term FHLB
borrowings, and leverage proceeds of the Minority Stock Offering. Although the
average rate paid by the Company has exceeded the average rate paid on deposits,
the Company did not use deposits to fund the growth in assets that occurred
after the Minority Stock Offering because of management's belief that
shorter-term deposits would adversely affect the Company's exposure to increases
in interest rates, that longer-term deposits would be more expensive, and that
any attempt to quickly increase deposits would be more costly than a strategic
effort to grow deposits in a controlled manner over a period of time. The
Company's deposits increased to $313.1 million at July 31, 1996, from an average
of $309.6 million over the fiscal year ended July 31, 1995, and the Company
intends to continue its strategic effort to grow its deposit base in the future
as it leverages proceeds of the October 31, 1995 Offering.
The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities, investing activities and
financing activities. Cash flows provided by operating activities were $5.2
million, $1.8 million, and $7.0 million for the fiscal years ended July 31,
1996, 1995, and 1994, respectively.
Net cash used in investing activities consisted primarily of
disbursements for purchases of mortgage-backed securities, loan originations and
purchases, and purchases of investment securities, offset by proceeds from the
sales and repayments of mortgage-backed securities, loan principal repayments,
and sales and maturities of investment securities totalled $39.6 million, $29.4
million, $21.8 million, for the fiscal years ended July 31, 1996, 1995, and
1994, respectively. Disbursements for purchases of mortgage-backed securities
totalled $42.7 million, $17.4 million, and $131.3 million for the years ended
July 31, 1996, 1995, and 1994, respectively. Disbursements for loans originated
and purchased were $94.4 million, $58.3 million and $43.5 million for the years
ended July 31, 1996, 1995, and 1994, respectively. Disbursements for purchases
of investment securities totalled $29.2 million, $7.8 million and $6.6 million
for the years ended July 31, 1996, 1995 and 1994, respectively. Proceeds from
the sales and repayments of mortgage-backed securities totalled $67.9 million,
$18.1 million, and $89.4 million for the years ended July 31, 1996, 1995, and
1994, respectively. Proceeds from loan principal repayments totalled $40.7
million, $27.8 million, and $45.8 million for the years ended July 31, 1996,
1995 and 1994, respectively. Proceeds from the sales and maturities of
investment securities totalled $12.0 million, $1.9 million and $17.0 million for
the years ended July 31, 1996, 1995 and 1994, respectively.
Net cash provided by financing activities consisting primarily of net
activity in deposit accounts, proceeds from funding and repayments of FHLB
advances, and net activity in securities sold under agreements to repurchase
totalled $33.9 million, $25.8 million, and $16.7 million for the fiscal years
ended July 31, 1996, 1995 and 1994, respectively. Additionally, on October 31,
1995, the Company completed its conversion to a stock holding company and
received net proceeds of $19.3 million. Also, in November 1993, the Bank
completed its minority stock offering and received net proceeds of $8.3 million.
The net increase (decrease) in deposits was ($1.5) million, $5.6 million and
$(8.7) million for the years ended July 31, 1996, 1995 and 1994, respectively.
The activity in net proceeds (repayments) from FHLB advances was $18.7 million,
$(6.6) million and $24.4 million for the years ended July 31, 1996, 1995 and
1994, respectively. The net increase (decrease) in securities sold under
agreements to repurchase was $107,000, $26.9 million, and $(7.1) million for the
years ended July 31, 1996, 1995 and 1994, respectively.
Federal regulations require thrift institutions to maintain certain
minimum levels of regulatory capital. The regulatory capital regulations require
minimum levels of tangible and core capital of 1.5% and 3%, respectively, of
adjusted total assets and risk-based capital of 8% of risk-weighted assets. The
Bank was in compliance with the regulatory capital requirements with tangible,
core and risk-based capital ratios of approximately 8.64%, 8.64% and 18.2%,
respectively, at July 31, 1996.
The Bank has other sources of liquidity, including a $95 million line
of credit with the FHLB. At July 31, 1996, the Bank's FHLB advances totalled
$62.8 million.
14
<PAGE>
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with generally
accepted accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
Accounting for Impairment of Long-Lived Assets. In March 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS 121 is effective for fiscal years beginning after December 15, 1995.
Earlier application is permitted. SFAS 121 will require, among other things,
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management adopted the provisions of SFAS 121 as of August 1, 1996,
and the adoption of SFAS 121 will not have a material impact on the Company's
financial statements.
Mortgage Servicing Rights. In May 1995, the FASB issued Statement of
Financial Accounting Standards No. 122 Accounting for Mortgage Servicing Rights
(SFAS 122). SFAS 122 is effective for years beginning after December 15, 1995.
The Statement requires among other provisions, that the Company capitalize the
estimated fair value of servicing rights on loans originated for sale, and
amortize such amount over the estimated servicing life of the loan. The Company
adopted the provisions of SFAS 122 as of August 1, 1996. Adoption of SFAS 122
will not have a material impact on the Company's financial statements.
Stock-Based Compensation. In November 1995, the FASB issued Statement
of Financial Accounting Standards No. 123 Accounting for Awards of Stock-Based
Compensation to Employees (SFAS 123). SFAS 123 is effective for years beginning
after December 15, 1995. The Statement defines a fair value-based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for an employee stock
option or similar equity instrument, and for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees (Opinion 25). Under the fair value-based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value-based method, compensation cost is the excess, if any, of the
quoted market price of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. Most fixed stock
option plans, the most common type of stock compensation plan, have no intrinsic
value at grant date, and under Opinion 25 no compensation cost is recognized for
them. Compensation cost is recognized for other types of stock based
compensation plans under Opinion 25, including plans with variable, usually
performance-based, features. SFAS 123 requires that an employer's financial
statements include certain disclosures about stock-based employee compensation
arrangements regardless of the method used to account for them. Management
adopted the provisions of SFAS 123 as of August 1, 1996 using the intrinsic
value-based method and believes that the adoption will not have a material
impact on the Company's financial statements. The Company will provide
disclosure about its stock based employee compensation plans in its 1997
financial statements, as required by SFAS 123.
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. In June 1996, the FASB issued Statement of Financial Accounting
Standards 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SFAS 125). SFAS 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996 and is to be applied prospectively. This Statement will
require, among other things, that the Company record at fair value, assets and
liabilities resulting from a transfer of financial assets. The Company will
adopt the provisions of SFAS 125 as of January 1, 1997, and management believes
15
<PAGE>
that the adoption of SFAS 125 will not have a material effect on the Company's
financial condition or results of operations.
AMERICAN NATIONAL BANCORP, INC.
COMMON STOCK AND RELATED MATTERS
On October 31, 1995, the Company acquired all of the outstanding common
stock of the Bank, sold 2,182,125 shares of Company common stock for a purchase
price of $10.00 per share and issued 1,798,402 shares of Company common stock in
exchange for the Bank's outstanding common stock held by shareholders other than
American National Bankshares, M.H.C. On that date, the Company's common stock
began to trade on the Nasdaq National Market using the Bank's previous symbol,
"ANBK." As of September 27, 1996, the Company had 846 stockholders of record and
3,603,646 outstanding shares of common stock. This does not reflect the number
of persons whose stock is in nominee or "street" name accounts through brokers.
The following table sets forth the high and low trading prices of the
Company's common stock subsequent to the completion of the Offering. No
dividends have been declared on the Common Stock since the Offering. In
September 1996, the Company's Board of Directors authorized a quarterly cash
dividend of $.03 per share which will be paid on or about November 15, 1996, to
stockholders of record as of October 31, 1996.
Three Months Ended High Low
------------------ ---- ---
January 31, 1996....................... $10.25 $9.375
April 30, 1996......................... 10.25 9.50
July 31, 1996.......................... 10.625 9.50
Payment of dividends on the Common Stock is subject to determination
and declaration by the Board of Directors and depends upon a number of factors,
including capital requirements, regulatory limitations on the payment of
dividends, the Company's results of operations and financial condition, tax
considerations and general economic conditions.
16
<PAGE>
<TABLE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
July 31, 1996 and 1995
<CAPTION>
<S> <C>
Assets 1996 1995
------ ---- ----
(In Thousands)
Cash:
On hand and due from banks $ 2,671 2,170
Interest-bearing deposits 1,837 2,240
Federal funds sold 394 950
Securities available for sale, amortized cost of $41,370,
and $2,922, respectively (note 2) 40,266 3,030
Investment securities, fair value of $23,651 and
$13,652, respectively (note 3) 24,109 13,918
Mortgage-backed securities, fair value of $97,627
and $152,621, respectively (notes 4 and 11) 100,195 156,775
Loans receivable, net (notes 5 and 11) 278,042 232,089
Federal Home Loan Bank stock, at cost (note 17) 3,141 2,914
Investments in real estate, net (note 6) 5,670 5,828
Investments in and advances to real estate joint ventures (note 7) 1,270 2,215
Property and equipment, net (note 8) 1,198 965
Prepaid expenses and other assets 612 624
Income taxes receivable -- 380
Deferred income taxes (note 12) 1,866 2,076
---------- ----------
$ 461,271 426,174
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 9) $ 313,083 314,613
Securities sold under agreements to repurchase (note 10) 34,445 34,338
Advances from the Federal Home Loan Bank of Atlanta (note 11) 62,824 44,137
Drafts payable 859 1,288
Advance payments by borrowers for taxes and insurance 1,760 1,852
Accrued expenses and other liabilities 1,030 987
---------- ----------
Total liabilities 414,001 397,215
---------- ----------
Stockholders' equity (notes 13 and 17):
Serial preferred stock, 10,000,000 shares authorized, none issued. -- --
Common stock, $1 par value, 20,000,000 shares authorized, 2,052,000
shares issued and outstanding at July 31, 1995 -- 2,052
Common stock, $.01 par value, 8,000,000 shares authorized, 3,980,500
shares issued and 3,781,475 shares outstanding at July 31, 1996 40 --
Additional paid-in capital 30,705 7,652
Unearned common stock acquired by management recognition
and retention plans (77) (132)
Unearned employee stock ownership plan (ESOP) shares (1,629) --
Treasury stock at cost, 199,025 shares (2,040) --
Retained income-- substantially restricted 21,970 20,662
Net unrealized holding loss on securities, net of income taxes (1,699) (1,275)
---------- ----------
Total stockholders' equity 47,270 28,959
Commitments (notes 5, 8, 13 and 14)
$ 461,271 426,174
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
(In Thousands)
Interest income:
Loans receivable $ 21,754 19,036 18,459
Mortgage-backed securities 9,630 10,355 7,665
Investment securities 1,255 831 432
Other 779 747 769
--- ------- -------
Total interest income 33,418 30,969 27,325
-------- ------- -------
Interest expense:
Deposits (note 9) 15,825 14,923 13,927
Borrowed funds 4,728 4,300 2,314
-------- ------- -------
Total interest expense 20,553 19,223 16,241
-------- ------- -------
Net interest income 12,865 11,746 11,084
Provision for loan losses 772 3,386 1,989
-------- ------- -------
Net interest income after provision for loan losses 12,093 8,360 9,095
-------- ------- -------
Noninterest income:
Fees and service charges 640 592 630
Gain (loss) on sales of:
Loans receivable, net 41 20 179
Mortgage-backed securities, net (558) (5) 1,100
Investment securities, net (14) 15 (46)
Other 184 318 254
--- ------- -------
Total noninterest income 293 940 2,117
-------- ------- -------
Noninterest expenses:
Salaries and employee benefits 4,276 4,066 3,859
Net occupancy 1,341 1,300 1,313
Professional services 380 399 367
Advertising 684 442 375
Federal deposit insurance premiums 772 809 831
Furniture, fixtures and equipment 324 286 282
Equity in net loss of real estate joint ventures (note 7) 193 288 114
Loss on investments in real estate (note 6) 390 330 371
Other 1,679 1,420 1,716
----- ------- -------
Total noninterest expenses 10,039 9,340 9,228
-------- ------- -------
Income (loss) before income taxes 2,347 (40) 1,984
Income tax provision (benefit) (note 12) 801 (50) 695
-------- ------- -------
Net income $ 1,546 10 1,289
======== ======= =======
Net income per share of common stock (note 13):
From date of conversion .36 -- .41
======= ======= =======
Proforma .47 N/A .67
=== ======= ===
See accompanying notes to consolidated financial statements.
<PAGE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended July 31, 1996, 1995 and 1994
Net
Unearned unrealized
common holding
stock gains
Additional acquired Unearned (losses) on
Common paid-in by ESOP Treasury Retained securities,
stock capital MRRP shares stock income net Total
----- ------- ---- ------ ----- ------ --- -----
(In Thousands)
Balance at July 31, 1993 $ -- -- -- -- -- 21,193 -- 21,193
Unrealized holding gain on
securities available for sale,
net of income taxes, recognized
upon adoption of Statement 115
(note 1) -- -- -- -- -- -- 924 924
Change in net unrealized holding
losses on securities, net of
income taxes (note 2) -- -- -- -- -- -- (2,372) (2,372)
Proceeds from common stock
offering, net of conversion
costs (note 13) 2,025 7,409 -- -- -- (1,125) -- 8,309
Common stock acquired by
management recognition and
retention plan (MRRP)
(note 13) 27 243 (270) -- -- -- -- --
Cash dividends declared (note 13) -- -- -- -- -- (276) -- (276)
MRRP -- -- 93 -- -- -- -- 93
Net income-- 1994 -- -- -- -- -- 1,289 -- 1,289
----- ----- ---- ----- ------ ------ ------ ------
Balance at July 31, 1994 2,052 7,652 (177) -- -- 21,081 (1,448) 29,160
Change in net unrealized gains
on securities, net of
income taxes (note 2) -- -- -- -- -- -- 115 115
Amortization of net unrealized
holding loss (note 4) -- -- -- -- -- (58) 58 --
Cash dividends declared (note 13) -- -- -- -- -- (371) -- (371)
MRRP -- -- 45 -- -- -- -- 45
Net income-- 1995 -- -- -- -- -- 10 -- 10
----- ----- ---- ----- ------ ------ ------ ------
Balance at July 31, 1995 2,052 7,652 (132) -- -- 20,662 (1,275) 28,959
Changes in net unrealized
losses on securities,
net of income taxes
(note 2) -- -- -- -- -- -- (570) (570)
Amortization of net unrealized
holding loss (note 4) -- -- -- -- -- (146) 146 --
Proceeds from common stock
offering, net of expenses
(note 13) (2,012) 23,052 -- -- -- -- -- 21,040
Cash dividends declared (note 13) -- -- -- -- -- (92) -- (92)
MRRP -- -- 55 -- -- -- -- 55
Borrowings for employee
stock ownership plan
(ESOP) (note 15) -- -- -- (1,746) -- -- -- (1,746)
Compensation expense-- ESOP -- 1 -- 117 -- -- -- 118
Purchase of common stock -- -- -- -- (2,040) -- -- (2,040)
Net income-- 1996 -- -- -- -- -- 1,546 -- 1,546
----- ----- ---- ----- ------ ------ ------ ------
Balance at July 31, 1996 $ 40 30,705 (77) (1,629) (2,040) 21,970 (1,699) 47,270
===== ====== === ====== ====== ====== ====== ======
<PAGE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS Years
ended July 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
---- ---- ----
(In Thousands)
Cash flows from operating activities:
Net income $ 1,546 10 1,289
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 532 483 475
Noncash compensation under stock-based
benefit plans 173 45 93
Amortization of loan fees (398) (437) (727)
Amortization of premiums and discounts, net 177 (38) 505
Provision for losses on loans and
investments in real estate 930 3,430 2,180
(Gain) loss on sales of assets, net 531 (30) (1,232)
Loans originated for sale (2,754) (3,990) (5,489)
Sales of loans originated for sale 4,194 2,159 8,710
Deferred income taxes 409 (138) (7)
Decrease in prepaid expenses and other assets 12 202 356
Increase in accrued expenses and other liabilities 43 163 200
Decrease (increase) in income taxes receivable 380 (112) 830
Federal Home Loan Bank stock purchases, net (227) -- --
Federal Home Loan Bank stock dividends -- -- (72)
Other, net (338) 66 (77)
-------- ------- -------
Net cash provided by operating activities 5,210 1,813 7,034
-------- ------- -----
Cash flows from investing activities:
Sales of investment securities available for sale 969 1,015 14,016
Maturities of investment securities available for sale -- 842 1,000
Purchases of investment securities available for sale (2,000) (842) (1,409)
Sales of mortgage-backed securities available for sale 56,036 3,100 49,601
Repayments of mortgage-backed securities available
for sale 4,082 432 14,990
Purchases of mortgage-backed securities available
for sale (10,989) (3,894) (45,156)
Maturities of investment securities 11,000 -- 2,000
Purchases of investment securities (27,176) (6,983) (5,208)
Repayments of mortgage-backed securities 7,741 14,569 24,800
Purchases of mortgage-backed securities (31,714) (13,470) (86,100)
Loan principal repayments 40,659 27,763 45,753
Loan originations (73,671) (43,092) (37,993)
Loan purchases (17,972) (11,216) --
Increase in deferred loan fees, net 515 533 388
(Continued)
<PAGE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
1996 1995 1994
---- ---- ----
(In Thousands)
Cash flows from investing activities,
continued:
Decrease in investments in real estate $ 2,960 1,151 979
Decrease in investments in and advances to
real estate joint ventures 752 1,173 786
Purchases of property and equipment (764) (438) (230)
-------- ------- -------
Net cash used in investing activities (39,572) (29,357) (21,783)
-------- ------- -------
Cash flows from financing activities:
Net (decrease) increase in deposits (1,530) 5,624 (8,722)
Net increase (decrease) in securities sold under
agreements to repurchase 107 26,871 (7,139)
Proceeds from Federal Home Loan Bank advances 215,147 123,698 88,600
Repayment of Federal Home Loan Bank
advances (196,460) (130,291) (64,232)
(Decrease) increase in drafts payable (429) 111 65
(Decrease) increase in advance payments
by borrowers for taxes and insurance (92) 153 47
Proceeds from common stock offering 21,040 -- 8,309
Common stock acquired by ESOP (1,746) -- --
Dividends paid on common stock (93) (371) (182)
Purchase of treasury stock (2,040) -- --
-------- ------- -------
Net cash provided by financing activities 33,904 25,795 16,746
-------- ------- -------
Net (decrease) increase in cash and cash equivalents (458) (1,749) 1,997
Cash and cash equivalents at beginning of year 5,360 7,109 5,112
-------- ------- -------
Cash and cash equivalents at end of year $ 4,902 5,360 7,109
======= ===== =====
Supplemental information:
Interest paid on deposits and borrowed funds $ 20,457 19,152 16,192
Income taxes (received) paid, net $ (104) 165 (128)
======= ===== =====
Noncash activities:
Loans transferred to real estate acquired
through foreclosure $ 2,960 1,400 489
======= ===== =====
</TABLE>
<PAGE>
American National Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1996, 1995, and 1994
(1) Description of Business, Summary of Significant Accounting Policies and
Other Matters
Description of Business
American National Bancorp, Inc. (the Company) is the holding company of
American National Savings Bank, F.S.B. (the Bank). The Bank provides a
full range of banking services to individual and corporate customers
through its subsidiaries and branch offices in Maryland. The Bank is
subject to competition from other financial and mortgage institutions. The
Bank is subject to the regulations of certain agencies of the federal
government and undergoes periodic examination by those agencies.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, the Bank and the Bank's subsidiaries,
American National Insurance Agency, Inc. (ANIA), ANSB Corporation and
National Development Corporation (NDC). ANIA acts as agent in offering
annuity and mortgage life insurance products to customers of the Company.
ANSB Corporation was incorporated in June 1994 for the purpose of holding
investment securities for the Company. NDC is a partner in various real
estate joint ventures formed for the purpose of acquiring and developing
real estate for sale. All significant intercompany accounts and
transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statements of financial
condition and income and expenses for the period. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses and the valuation of
investments in real estate. In connection with these determinations,
management obtains independent appraisals for significant properties and
prepares fair value analyses as appropriate.
Management believes that the allowances for losses on loans and
investments in real estate are adequate. While management uses available
information to recognize losses on loans and investments in real estate,
future additions to the allowances may be necessary based on changes in
economic conditions, particularly in the State of Maryland. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for losses on loans and
investments in real estate. Such agencies may require the Bank to
recognize additions to the allowances based on their judgments about
information available to them at the time of their examination.
<PAGE>
1
(1) Description of Business, Summary of Significant Accounting Policies and
Other Matters, Continued
Investment and Mortgage-Backed Securities
Debt securities that the Company has the positive intent and ability to
hold to maturity are reported at amortized cost. Debt and equity
securities that are purchased and held principally for the purpose of
selling in the near term are reported at fair value, with unrealized gains
and losses included in earnings. All other debt and equity securities are
considered available for sale and are reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity (net of tax effects).
If a decline in value of an individual security classified as held to
maturity or available for sale is judged to be other than temporary, the
cost basis of that security is reduced to its fair value and the amount of
the write-down is included in earnings. Fair value is determined based on
bid prices published in financial newspapers or bid quotations received
from securities dealers. For purposes of computing realized gains or
losses on the sales of investments, cost is determined using the specific
identification method. Premiums and discounts on investment and
mortgage-backed securities are amortized over the term of the security
using methods that approximate the interest method.
On August 8, 1994 the Company transferred approximately $36.3 million of
its collateralized mortgage obligations (CMOs), net of unrealized loss of
approximately $1.8 million, from the available for sale portfolio to held
to maturity. On that date certain accounting issues were resolved
permitting the Company to transfer substantially all of these securities
from the available for sale portfolio to the held to maturity portfolio as
originally intended. The unrealized loss at the time of the transfer is
being amortized over the remaining lives of the securities as an
adjustment of yield. The unrealized loss, net of taxes, was $1.1 million
at the date of transfer. The unrealized loss has been recorded as a
component of stockholders' equity and is being reduced in subsequent
periods through the amortization.
In November 1995, the Financial Accounting Standards Board announced its
intention to allow a one-time change in the classification of securities,
providing such change was effected by December 31, 1995. Management
utilized this opportunity and designated as available-for-sale
approximately $87.1 million of investment and mortgage-backed securities
previously classified as held to maturity with an unrealized loss of
approximately $348,000.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market on an
aggregate basis.
Investments in and Advances to Real Estate Joint Ventures
Investments in and advances to real estate joint ventures are accounted
for using the equity method. The carrying values are subject to subsequent
adjustment to the extent they exceed net realizable value. Interest income
and fees on loans to real estate joint ventures are deferred. Such
interest and fees, in excess of related capitalized interest cost, are
recognized as the loans are repaid.
<PAGE>
(1) Description of Business, Summary of Significant Accounting Policies and
Other Matters, Continued
Investments in and Advances to Real Estate Joint Ventures, continued
Interest costs are capitalized based on the Company's average cost of
funds and its average investment in and advances to real estate joint
ventures with development in progress. Interest capitalized was
approximately $56,000, $95,000, and $160,000 for the years ended July 31,
1996, 1995, and 1994, respectively.
Investments in Real Estate
Ground rents are carried at cost.
Real estate acquired through foreclosure is recorded at the lower of cost
or estimated fair value less estimated costs to sell. Management estimates
fair value based on appraisals and/or cash flow analyses. Costs relating
to improving such properties are capitalized and costs relating to holding
such properties are charged to expense.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation and amortization of property and equipment
are recorded on a straight-line basis over the estimated useful lives of
the assets or leases as appropriate. Additions and improvements are
capitalized and charges for repairs and maintenance are expensed when
incurred. Gains or losses on sales of property and equipment are
recognized upon sale.
Loans Receivable
Origination and commitment fees and direct origination costs are deferred
and amortized to income over the contractual lives of the related loans
using the interest method. Under certain circumstances, commitment fees
are recognized over the commitment period or upon expiration of the
commitment. Unamortized loan fees are recognized in income when the
related loans are sold or prepaid.
Interest on potential problem loans is not accrued when, in the opinion of
management, the full collection of principal or interest is in doubt. Any
amounts ultimately collected on such loans is recorded as a reduction of
principal, as interest income or combination thereof depending on
management's evaluation of the recoverability of the loan principal.
Provisions for loan losses are charged to operations based on management's
review of the loan portfolio and analyses of the borrowers' ability to
repay, past loan loss and collection experience, risk characteristics of
individual loans or groups of similar loans and underlying collateral,
current and prospective economic conditions and status of nonperforming
loans. Loans or portions thereof are charged-off when considered, in the
opinion of management, uncollectible.
<PAGE>
(1) Description of Business, Summary of Significant Accounting Policies and
Other Matters, Continued
Provision for Loan Losses, continued
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan" and
by Statement 118 "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures" (collectively referred to as "Statement 114")
as of August 1, 1995. Statement 114 addresses the accounting by creditors
for impairment of certain loans. It is generally applicable for all loans
except large groups of smaller-balance homogenous loans, including
residential mortgage loans and consumer installment loans that are
collectively evaluated for impairment. It also applies to all loans that
are restructured in a troubled debt restructuring involving a modification
of terms. However, if a loan that was restructured in a troubled debt
restructuring involving a modification of terms before the effective date
of Statement 114 is not impaired based on the terms specified by the
restructuring agreement, a creditor may continue to account for the loan
in accordance with the provisions of Statement 15, "Accounting for
Troubled Debt Restructurings" prior to its amendment by Statement 114.
Statement 114 requires that impaired loans be measured on the present
value of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. A loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
Impaired loans are generally placed in nonaccrual status on the earlier of
the date that management determines that the collection of principal
and/or interest is in doubt or the date that principal or interest is 90
days or more past-due.
An allocated valuation allowance, if any, is included in the Bank's
allowance for credit losses. An impaired loan is charged-off when the
loan, or a portion thereof, is considered uncollectible or transferred to
real estate owned.
The Bank recognized interest income for impaired loans consistent with its
method for nonaccrual loans. Specifically, interest payments received are
recognized as interest income or, if the ultimate collectibility of
principal is in doubt, are applied to principal.
Changes resulting from the implementation of SFAS Nos. 114 and 118 did not
materially impact the financial condition or results of operations of the
Company as of and for the year ended July 31, 1996.
Income Taxes
Deferred income taxes are recognized, with certain exceptions, for
temporary differences between the financial reporting basis and income tax
basis of assets and liabilities based on enacted tax rates expected to be
in effect when such amounts are realized or settled. Deferred tax assets
(including tax loss carryforwards) are recognized only to the extent that
it is more likely than not that such amounts will be realized based on
consideration of available evidence, including tax planning strategies and
other factors.
<PAGE>
(1) Summary of Significant Accounting Policies and Other Matters, Continued
Income Taxes, continued
A continuing exception allows qualified thrift lenders not to provide a
deferred tax liability on certain bad debt reserves for tax purposes that
arose in fiscal years beginning before July 31, 1988. Such bad debt
reserves for the Company, which are included in retained income, amounted
to approximately $11.5 million at July 31, 1996 with an income tax effect
of approximately $4.4 million. As specified in legislation enacted by
Congress and signed by the President on August 20, 1996, this bad debt
reserve would become taxable if the Bank fails to meet certain conditions.
Changes in tax laws or rates on deferred tax assets and liabilities are
recognized in the period that includes the enactment date.
Statement of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with maturities at date of
purchase of three months or less to be cash equivalents. Cash equivalents
consist of federal funds sold and certain securities purchased under
agreements to resell.
Interest Rate Cap Agreements
The Company may use interest rate cap agreements to hedge interest rate
risk associated with its money market and short-term certificate of
deposit accounts. The premiums paid for such agreements are amortized over
the life of the agreements using the straight-line method. The interest
differential received, if any, on interest rate cap agreements is recorded
as an adjustment to interest expense.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
<PAGE>
(2) Securities Available for Sale
The amortized cost and fair value of securities available for sale are
summarized as follows at July 31:
<TABLE>
<CAPTION>
<S> <C>
1996
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(In Thousands)
U.S. government and agency obligations $ 7,069 -- (262) 6,807
Federal National Mortgage Association
(FNMA) mortgage-backed securities 17,552 -- (654) 16,898
Federal Home Loan Mortgage
Corporation (FHLMC) mortgage-
backed securities 4,527 -- (166) 4,361
Government National Mortgage
Association (GNMA) mortgage-
backed securities 3,698 37 -- 3,735
FNMA collateralized mortgage
obligations 6,510 33 (88) 6,455
FHLMC collateralized mortgage
obligations 1,676 -- (4) 1,672
-------- ---- ------- -------
41,032 70 (1,174) 39,928
Accrued interest receivable 338 -- -- 338
-------- ---- ------- -------
$ 41,370 70 (1,174) 40,266
======== ==== ===== =======
1995
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
FHLMC Collateralized Mortgage
Obligations $ 2,909 108 -- 3,017
Accrued interest receivable 13 -- -- 13
-------- ---- ---- -------
$ 2,922 108 -- 3,030
======== ==== ===== =======
The proceeds from the sales of securities available for sale and the gross
realized gains and losses were $4.75 million, $228,000 and $800,000,
respectively, for the year ended July 31, 1996, $4.1 million, $25,000 and
$15,000, respectively, for the year ended July 31, 1995 and $63.6 million,
$1.3 million and $221,000, respectively, for the year ended July 31, 1994.
<PAGE>
(2) Securities Available for Sale, Continued
A summary of maturities of securities available for sale as of July 31,
1996:
Amortized
cost Fair value
---- ----------
Due within 12 months $2,9893,002
Due beyond 12 months but within 5 years 19,236 18,530
Due beyond 5 years but within 10 years 5,839 5,601
Beyond 10 years 13,306 13,133
--------- --------
$ 41,370 40,266
========= ========
(3) Investment Securities
The amortized cost and fair value of investment securities are summarized
as follows at July 31:
1996
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(In Thousands)
U. S. government and agency obligations due:
1 through 5 years $ 1,500 -- (82) 1,418
5 through 10 years 9,947 -- (28) 9,919
Greater than 10 years 12,235 -- (348) 11,887
-------- ---- --- -------
23,682 -- (458) 23,224
Accrued interest receivable 427 -- -- 427
-------- ---- ----- -------
$ 24,109 -- (458) 23,651
======== ====== ===== =======
1995
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(In Thousands)
U. S. government and agency obligations due:
1 through 5 years $ 4,486 -- (133) 4,353
5 through 10 years 5,129 -- (149) 4,980
Greater than 10 years 4,000 16 -- 4,016
-------- ---- ----- -------
13,615 16 (282) 13,349
Accrued interest receivable 303 -- -- 303
-------- ---- ----- -------
$ 13,918 16 (282) 13,652
======== ====== ===== =======
There were no sales of investment securities held to maturity during the
years ended July 31, 1996, 1995 and 1994.
<PAGE>
(4) Mortgage-Backed Securities
The amortized cost and fair value of mortgage-backed securities are
summarized as follows at July 31:
1996
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
---- ----- ------ -----
(In Thousands)
FNMA $ 27,623 -- (450) 27,173
FHLMC 8,222 -- (92) 8,130
FNMA Collateralized Mortgage Obligations 28,091 -- (919) 27,172
FHLMC Collateralized Mortgage
Obligations 35,731 -- (1,107) 34,624
Other Collateralized Mortgage Obligations 52 -- -- 52
---------- ----- ------- --------
99,719 -- (2,568) 97,151
Accrued interest receivable 476 -- -- 476
---------- ----- ------- --------
$ 100,195 -- (2,568) 97,627
======== ====== ======= ========
1995
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
FNMA $ 65,372 59 (1,992) 63,439
GNMA 13,710 258 (5) 13,963
FHLMC 21,359 121 (214) 21,266
FNMA Collateralized Mortgage Obligations 21,635 29 (1,152) 20,512
FHLMC Collateralized Mortgage
Obligations 33,803 222 (1,481) 32,544
Other Collateralized Mortgage Obligations 142 1 -- 143
---------- ----- -------- ----------
156,021 690 (4,844) 151,867
Accrued interest receivable 754 -- -- 754
---------- ----- -------- ----------
$ 156,775 690 (4,844) 152,621
======== ====== ======= ========
There were no sales of mortgage-backed securities held to maturity during
the years ended July 31, 1996, 1995 and 1994.
<PAGE>
(4) Mortgage-Backed Securities, Continued
A summary of maturities of mortgage-backed securities as of July 31, 1996:
Amortized
cost Fair value
---- ----------
Due within 12 months $ 533 533
Due beyond 12 months but within 5 years 5,378 5,217
Due beyond 5 years but within 10 years 6,939 6,651
Beyond 10 years 87,345 85,226
-------- --------
$ 100,195 97,627
======== ========
The amortized cost of mortgage-backed securities at July 31, 1996 includes
unrealized holding losses totaling approximately $1.6 million for
securities transferred from the available for sale portfolio.
The Company had pledged as collateral for advances under its short-term
line of credit from the Federal Home Loan Bank of Atlanta, FNMA
mortgage-backed securities and FHLMC and FNMA CMOs with amortized cost and
fair values of $29.7 million and $28.8 million, respectively, at July 31,
1996 and FHLMC and FNMA mortgage-backed securities and FHLMC and FNMA CMOs
with amortized cost and fair values of $36.5 million and $35.1 million,
respectively, at July 31, 1995. In addition, FNMA and FHLMC CMOs and
mortgage-backed securities were pledged as collateral for reverse
repurchase agreements with amortized cost and fair values of $47.2 million
and $45.6 million, respectively, at July 31, 1996; and $38.5 million and
$36.8 million, respectively, at July 31, 1995.
(5) Loans Receivable
Substantially all of the Company's loans receivable are mortgage loans
secured by residential and commercial real estate properties located in
the state of Maryland. Loans are extended only after evaluation by
management of customers' creditworthiness and other relevant factors on a
case-by-case basis. The Company generally does not lend more than 90% of
the appraised value of a property and requires private mortgage insurance
on residential mortgages with loan-to-value ratios in excess of 80%. In
addition, the Company generally obtains personal guarantees of repayment
from borrowers and/or others for construction, commercial and multi-family
residential loans and disburses the proceeds of construction and similar
loans only as work progresses on the related projects.
<PAGE>
(5) Loans Receivable, Continued
Residential lending is generally considered to involve less risk than
other forms of lending, although payment experience on these loans is
dependent to some extent on economic and market conditions in the
Company's primary lending area. Commercial and construction loan
repayments are generally dependent on the operations of the related
properties or the financial condition of its borrower or guarantor.
Accordingly, repayment of such loans can be more susceptible to adverse
conditions in the real estate market and the regional economy.
Loans receivable are summarized as follows at July 31:
1996 1995
---- ----
(In Thousands)
First mortgage loans:
One-to-four family residential $ 156,374 123,413
Multi-family residential 35,930 39,361
Commercial 37,695 38,894
Construction 23,320 5,617
Land development 14,183 10,854
FHA insured and VA guaranteed 11,974 10,372
Loans held for sale 350 1,831
---------- ----------
Total first mortgage loans 279,826 230,342
Consumer and other loans 13,026 10,644
Second mortgage loans 3,434 1,961
Loans secured by deposit accounts 508 222
Participation in loans fully guaranteed by
Agency for International Development 152 179
Accrued interest receivable 1,547 1,323
---------- ----------
298,493 244,671
---------- ----------
Less:
Unearned loan fees, net 1,202 1,083
Undisbursed portion of loans in process 14,837 5,138
Allowance for loan losses 4,412 6,361
---------- ----------
20,451 12,582
---------- ----------
Loans receivable, net $ 278,042 232,089
========== ==========
Nonperforming and restructured loans are summarized as follows at July 31:
1996 1995
---- ----
(In Thousands)
Nonaccruing loans $ 3,773 8,437
Accruing loans 90 days or more delinquent 136 170
Restructured loans 1,636 1,870
-------- --------
$ 5,545 10,477
======== ========
<PAGE>
(5) Loans Receivable, Continued
Interest income that would have been recorded under the original terms of
nonaccruing and restructured loans and the interest income actually
recognized are summarized below for the years ended July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Interest income that would have
been recorded $ 567 898 1,072
Interest income recognized 151 274 650
------ ------ -------
Interest income foregone $ 416 624 422
====== ====== =======
The Company is not committed to lend additional funds to debtors whose
loans have been restructured.
In addition to the loans included above as nonperforming and restructured,
the Company, through its normal asset review process, has identified
certain loans which management believes involve a degree of risk
warranting additional attention. Included in loans at July 31, 1996 are
approximately $5.5 million of such loans which, while current in required
payments, have exhibited some potential weaknesses that, if not corrected,
could increase the level of risk in the future. In addition, at July 31,
1996 management has identified approximately $807,000 of loans which have
exhibited weaknesses in the paying capacity of the borrower or the
collateral pledged which may result in a loss if such deficiencies are not
corrected.
Included in the Company's nonperforming loans above are certain impaired
loans as defined by Statement 114. Impaired loans and the allocated
valuation allowances at July 31, 1996 were:
Loan Valuation
balance allowance
------- ---------
(In thousands)
Impaired with valuation allowance $ 2,953 1,368
Impaired without valuation allowance -- --
Total impaired loans $ 2,953 1,368
===== =====
The allocated valuation allowance for impaired loans at July 31, 1996, and
activity related thereto for the year ended July 31, 1996 is included in
the allowance for loan losses summary.
The average recorded investment in impaired loans and the amount of
interest income recognized for the year ended July 31, 1996 were (in
thousands):
Average recorded investment in impaired loans $ 3,988
Interest income recognized during impairment --
<PAGE>
(5) Loans Receivable, Continued
Activity in the allowance for loan losses is summarized as follows for the
years ended July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Balance at beginning of year $ 6,361 3,669 2,326
Provision charged to expense 772 3,386 1,989
Charge-offs (3,043) (1,033) (688)
Recoveries 322 339 42
------ ------ -----
Balance at end of year $ 4,412 6,361 3,669
====== ====== =====
Loans serviced for others, which are not included in the Company's assets,
were approximately $50.0 million, $50.3 million and $55.8 million at July
31, 1996, 1995 and 1994, respectively. A fee is charged for such servicing
based on the unpaid principal balances.
Commitments to extend credit are agreements to lend to customers, provided
that terms and conditions established in the related contracts are met.
The Company had the following contractual commitments to extend credit,
exclusive of undisbursed loans in process at July 31:
1996 1995
------------------ -------------------
Fixed Floating Fixed Floating
Rate Rate Rate Rate
---- ---- ---- ----
(In Thousands)
Mortgage loans $ 3,480 5,440 4,896 345
Lines of credit -- 9,219 -- 7,629
Irrevocable letters of credit -- 2,097 -- 1,895
======= ====== ====== ========
The interest rate ranges on fixed rate mortgage loan commitments were
7.125% to 9.25% at July 31, 1996 and 6.75% to 8.875% at July 31, 1995.
Commitments for mortgage loans generally expire in 60 days. Commitments
under lines of credit are generally longer than one year and are subject
to periodic re-evaluation and cancellation. Irrevocable letters of credit
expire within two years. Since certain of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The commitments may be funded from
principal repayments on loans and mortgage-backed securities, excess
liquidity, savings deposits and, if necessary, borrowed funds.
Substantially all of the Company's commitments at July 31, 1996 and 1995
are for loans which would be secured by real estate with appraised values
in excess of the commitment amounts. The Company's exposure to credit loss
under these contracts in the event of nonperformance by the other parties,
assuming that the collateral proves to be of no value, is represented by
the contractual amount of those instruments.
<PAGE>
(6) Investments in Real Estate
Investments in real estate are summarized as follows at July 31:
1996 1995
---- ----
(In Thousands)
Ground rents $ 4,904 4,938
Acquired through foreclosure 766 890
Investments in real estate, net $ 5,670 5,828
===== =====
Changes in the allowance for losses on investments in real estate are
summarized as follows at July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Balance at beginning of year $ -- 8 --
Provision charged to expense 158 44 191
Charge-offs (158) (52) (183)
-- -- --
Balance at end of year $ -- -- 8
===== ==== ====
Loss on investments in real estate consists of the following for the years
ended July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Operation of investments in real estate $ 232 286 180
Provision for losses on investments in real estate 158 44 191
--- ---- -----
$ 390 330 371
=== ==== =====
<PAGE>
(7) Investments in and Advances to Real Estate Joint Ventures
National Development Corporation is a partner in various real estate joint
ventures formed for the purpose of acquiring and developing real estate
for sale. Combined condensed financial information for the joint ventures
is presented below as of and for the years ended July 31:
1996 1995
---- ----
(In Thousands)
Assets:
Real estate under development $ 1,378 2,688
Other 204 431
------- -----
$ 1,582 3,119
======= =====
Liabilities:
Due to American National Savings
Bank, F.S.B. $701 1,618
Due to others 382 763
Partners' equity:
National Development Corporation 499 738
Other -- --
------- -----
$ 1,582 3,119
======= =====
1996 1995 1994
---- ---- ----
(In Thousands)
Operations
Sales $ 3,085 3,234 5,270
Costs of sales 2,918 3,067 4,686
------ ------ -------
167 167 584
Other income 9 8 12
Other expense (415) (837) (811)
------ ------ -------
Net loss $ (239) (662) (215)
<PAGE>
(8) Property and Equipment
Property and equipment are summarized as follows at July 31:
Estimated
1996 1995 useful lives
---- ---- ------------
(In Thousands)
Leasehold improvements $ 3,133 2,920 5 - 15 years
Furniture and equipment 3,233 2,701 3 - 10 years
Automobiles 78 57 3 years
------- -------
6,444 5,678
Less accumulated depreciation
and amortization 5,246 4,713
------- -------
Property and equipment, net $ 1,198 965
======= =======
At July 31, 1996 the Company was obligated under noncancellable long-term
operating leases for the main office, operations center and eight of its
branch offices. The leases, five of which have renewal options, expire on
various dates extending to 2007 and have aggregate minimum lease payments
for succeeding fiscal years approximately as follows (in thousands):
1997 $ 1,051
1998 1,034
1999 998
2000 893
2001 800
Subsequent to 2001 1,600
-----
Total minimum lease payments $ 6,376
=====
Rent expense for the years ended July 31, 1996, 1995 and 1994 was
approximately $980,000, $949,000, and $982,000, respectively.
<PAGE>
(9) Deposits
Deposits are summarized as follows at July 31:
Weighted average rate
1996 1995
Type of -------------------- ----------------------
service 1996 1995 Amount % Amount %
------- ---- ---- ------- ----- ------ -----
(Dollars in Thousands)
Certificate 6.00% 6.16% $ 216,119 69.0% $ 210,906 67.0%
Noncertificate:
Passbook 3.04 3.13 40,781 13.0 41,138 13.1
NOW 1.56 1.65 15,038 4.8 13,991 4.5
Money Fund 3.03 4.27 41,145 13.2 48,578 15.4
---------- ------ ---------- -------
$ 313,083 100.0% $ 314,613 100.0%
========== ===== ========= =======
Certificate accounts maturing:
Under 12 months $ 118,772 55.0% $ 108,226 51.3%
13 months to 24 months 41,271 19.1 38,388 18.2
25 months to 36 months 18,552 8.6 24,820 11.8
37 months to 48 months 10,172 4.7 13,668 6.5
49 months to 60 months 9,539 4.4 9,296 4.4
Beyond 60 months 17,813 8.2 16,508 7.8
---------- ------ ---------- -------
$ 216,119 100.0% $ 210,906 100.0%
========== ====== ========== =======
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $22.4 million and $21.0 million
at July 31, 1996 and 1995, respectively.
Interest expense on deposits is summarized as follows for the years ended
July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Certificate $ 12,847 11,343 10,399
Passbook 1,230 1,332 1,422
NOW 237 240 264
Money Fund 1,511 2,008 1,842
----- ----- -----
$ 15,825 14,923 13,927
====== ====== ======
<PAGE>
(9) Deposits, Continued
The Company may use interest rate caps in the management of its interest
rate risk. Interest rate caps purchased by the Company enable it to limit
its interest rate risk by transferring a portion of the risk of increasing
interest rates on money fund and short-term certificate accounts to the
issuer of the interest rate caps. The Company's interest rate caps provide
for the Company to receive variable interest rate payments based on the
spread between the variable three-month London InterBank Offered Rate
(LIBOR) and the strike price of the caps if the variable three-month LIBOR
is higher than the strike rate. The Company held no interest rate caps at
July 31, 1996 and 1995 and held interest rate caps with a notional
principal amount of $30 million at July 31, 1994. The range of the strike
rates on the Company's interest rate caps was 5.5% at July 31, 1994. In
the opinion of management, at July 31, 1994, the likelihood of the
variable three-month LIBOR rate exceeding the strike rates during the
remaining term of the interest rate caps was remote. Accordingly, the
remaining premiums were charged to expense in 1994. Amortization expense
was $200,000 in 1994.
(10) Securities Sold Under Agreements to Repurchase
The Company sells securities under agreements to repurchase (reverse
repurchase agreements). These fixed-coupon reverse repurchase agreements
are treated as financings and the obligations to repurchase securities
sold are reflected as liabilities in the statements of financial
condition. The dollar amount of securities underlying the agreements
remains in the asset accounts. The securities underlying the agreements
were delivered to the dealers which arranged the transactions. The dealers
may have loaned such securities to other parties in the normal course of
their operations and have agreed to resell to the Company either
substantially identical securities or the same securities at the
maturities of the agreements. The amortized cost and market values of such
securities were $47.2 million and $45.6 million, respectively, as of July
31, 1996, and $38.5 million and $36.8 million, respectively, as of July
31, 1995. At July 31, 1996 and 1995 the securities sold under agreements
to repurchase involved the purchase of the same securities. The weighted
average interest rate of the agreements was 5.60% at July 31, 1996 and the
agreements mature within one month.
Certain additional information regarding securities sold under agreements
to repurchase is as follows at July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Maximum amount outstanding at month-end $ 39,011 34,338 14,808
Approximate average balance 34,005 20,741 9,307
======== ====== =======
<PAGE>
(11) Advances from the Federal Home Loan Bank of Atlanta
Advances from the Federal Home Loan Bank of Atlanta (FHLBA) are
summarized as follows at July 31:
1996 1995
---- ----
(In Thousands)
5.97%-- 6.83%, due in 1995 $ -- 14,000
7.49%-- 7.55%, due in 1995 -- 5,600
4.57%-- 5.19%, due in 1996 -- 4,000
5.53%-- 6.50%, due in 1996 7,373 4,675
6.93%-- 7.46%, due in 1996 -- 4,000
4.89%-- 5.58%, due in 1997 17,550 4,000
5.84%-- 6.21%, due in 1997 10,500 1,000
6.27%-- 7.09%, due in 1997 4,476 5,112
5.45%-- 6.14%, due in 1998 9,000 --
7.32%, due in 1998 1,000 1,000
4.64%-- 5.42%, due in 1999 10,675 --
6.43%, due in 2006 1,500 --
5.00%, due in 2014 750 750
--------- --------
$ 62,824 44,137
========= ========
The Company has a $95 million credit availability agreement with the
FHLBA which is secured under a blanket floating line security agreement
or by mortgage-backed and investment securities specifically pledged as
draws are made. Under the blanket floating lien security agreement with
the FHLBA, the Company is required to maintain, as collateral for its
advances, qualifying first mortgage loans or mortgage-backed securities
in an amount equal to 133% of the advances. In addition, its stock in
FHLBA is pledged as collateral for its advances. Interest on advances is
at the FHLBA's established rate for advances with the same maturity or at
the FHLBA's variable rate.
(12) Income Taxes
The income tax provision (benefit) is composed of the following for the
years ended July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Current:
Federal $ 370 126 575
State (28) (30) 127
----- ---- ----
342 96 702
----- ---- ---
Deferred:
Federal 376 (119) (6)
State 83 (27) (1)
----- ---- ----
459 (146) (7)
----- --- ----
Income tax provision (benefit) $ 801 (50) 695
===== ==== ====
<PAGE>
(12) Income Taxes, Continued
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities relate to the
following at July 31:
1996 1995
---- ----
(In Thousands)
Net unrealized holding losses on securities $ 1,056 807
Allowances for losses on loans and
investments in real estate 773 948
Interest and fees on loans 279 545
Equity in net income of joint ventures, net -- 137
Other assets 336 299
------- ------
Total deferred tax assets 2,444 2,736
Federal Home Loan Bank stock dividends 353 477
Other liabilities 225 183
------- ------
Total deferred tax liabilities 578 660
------- ------
$ 1,866 2,076
======= ======
A reconciliation between the income tax (benefit) provision and the amount
computed by multiplying income before income taxes by the statutory
federal income tax rate of 34% is as follows for the years ended July 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Federal income tax provision (benefit)
at statutory rate $ 798 (14) 675
Adjustments:
Bad debt deduction -- -- (66)
State income taxes, net of federal
income tax benefit 36 (38) 83
Other (33) 2 3
----- ---- ----
Provision (benefit) for income taxes $ 801 (50) 695
===== ===== ====
(13) Stockholders' Equity
Conversion and Reorganization
In June 1995, the Board of Directors of American National Bankshares,
M.H.C. (MHC), a mutual holding company, and the Bank approved a plan of
conversion and reorganization which resulted in the merger of the MHC into
the Bank and the formation of a new Delaware stock chartered holding
company, American National Bancorp, Inc. The conversion was completed on
October 31, 1995.
<PAGE>
(13) Stockholders' Equity, Continued
Conversion and Reorganization, continued
In the offering, 2,182,125 shares of common stock were sold at a
subscription price of $10.00 per share resulting in net proceeds of
approximately $19.3 million after taking into consideration the $1.7
million for the establishment of an ESOP and $782,000 in expenses. Of the
net proceeds, $8.9 million was contributed to the Bank in exchange for all
of its outstanding common stock. In addition to the shares sold in the
offering, 927,000 shares of the Company's stock were issued in exchange
for shares of the Bank's stock previously held by public shareholders at
an exchange ratio of 1.94 shares for each share of the Bank's common stock
resulting in 3,980,500 total shares of the Company's stock outstanding as
of October 31, 1995.
Federal regulations require that upon conversion from mutual to stock form
of ownership, a "liquidation account" be established by restricting a
portion of net worth for the benefit of eligible savings account holders
who maintain their savings accounts with the Bank after conversion. In the
event of complete liquidation (and only in such event), each savings
account holder who continues to maintain his savings account shall be
entitled to receive a distribution from the liquidation account after
payment to all creditors, but before any liquidation distribution with
respect to capital stock. This account will be proportionately reduced for
any subsequent reduction in the eligible holders' savings accounts. At
conversion the liquidation account totaled approximately $28.8 million.
In July 1992, the American National Savings Association's members approved
a plan of reorganization from a mutual savings association to a mutual
holding company. Pursuant to the plan of reorganization the Association
transferred substantially all of its assets and all of its liabilities to
a new federally-chartered stock savings association which became a
wholly-owned subsidiary of American National Bankshares, M.H.C. (MHC), a
federal mutual holding company. The reorganization was consummated on
October 29, 1992 and the Bank capitalized MHC with $10,000.
On November 3, 1993, the Bank's initial public offering of commons stock
was completed. On such date, 927,000 shares of common stock were issued
and sold at $10.00 per share, and 1,125,000 shares of common stock were
issued to the MHC. The initial public offering resulted in proceeds after
expenses of the offering of approximately $8.3 million. As a part of the
offering, the Bank created a management recognition and retention plan
trust for employees and outside directors equal to 3% of the shares issued
in the public offering or 27,000 shares of common stock at a price of
$10.00 per share. The trust was designed to provide directors and officers
a proprietary interest in the Bank to encourage such persons to remain
with the Bank. The shares are awarded at a rate of 25 percent per year
commencing one year from the date of grant. Compensation expense in the
amount of the grant is being recognized pro rata over the four years
during which the shares are vested and payable.
<PAGE>
(13) Stockholders' Equity, Continued
Stock Option Plans
The Board of Directors and stockholders adopted the 1993 Incentive Stock
Option Plan for officers and employees of the Company (the Stock Plan)
which authorized the grant of stock options to officers and certain
employees for an aggregate of 122,866 shares of authorized but unissued
common stock. Options are exercisable at the market price at the time of
the grant on a cumulative basis in installments at a rate of 25, 50 and 25
percent per year commencing one year from the date of grant and expire 10
years from the date of grant. All share data and option prices have been
adjusted to give retroactive effect to the 1.94 exchange ratio effective
October 31, 1995 in the conversion from the mutual to stock form of
organization. A summary of changes in shares under option and options
exercisable for the years ended July 31 is presented below:
1996 1995
---- ----
Outstanding at beginning of year 117,046 120,926
Granted -- 5,820
Cancelled -- (9,700)
---------- ----------
Outstanding at end of year 117,046 117,046
---------- ----------
Exercisable at end of year 87,300 27,806
========== ==========
The options outstanding are exercisable as follows at July 31, 1996:
Stock Option price Expiration
options per share year
------- --------- ----
111,226 $ 5.15 2003
5,820 5.35 2004
The Board of Directors and stockholders adopted the 1993 Stock Option Plan
for Outside Directors (the Directors' Plan) which authorized the grant of
non-statutory stock options to outside directors for an aggregate of
51,734 shares of authorized but unissued common stock. Options are
immediately exercisable at the market price at the time of the grant and
expire 10 years from the date of grant. In connection with the offering,
the Company granted options to purchase 49,794 shares at $5.15 per share.
In fiscal 1995, the Company granted options to purchase an additional 194
shares at $5.35 per share.
Net Income Per Common Share
Net income per share from the date of conversion, October 31, 1995 to July
31, 1996 has been computed based on 3,766,389 weighted average shares of
common stock outstanding. The pro forma net income per share for the year
ended July 31, 1996 has been calculated as if the conversion had been
completed on August 1, 1995. The net proceeds of the offering are assumed
to have been invested at a net effective yield of 7.87%, (the approximate
weighted average yield on all interest earning assets during the period
from August 1, 1995 to October 31, 1995) for the period from August 1,
1995 to October 31, 1995, and income so calculated, reduced for income
taxes at an assumed effective rate of 38.6%, was added to reported net
income for the period to obtain the pro forma net income used in the
calculations.
<PAGE>
(13) Stockholders' Equity, Continued
Net Income Per Common Share, continued
Net income per share of common stock for the year ended July 31, 1995 and
from the date of conversion, November 3, 1993 to July 31, 1994 is computed
by dividing net income for the years ended July 31, 1995 and period
November 1, 1993 to July 31, 1994, respectively, by 2,052,000, the number
of shares of common stock issued and outstanding for the period.
The pro forma net income per share for the year ended July 31, 1994 has
been calculated as if the 2,052,000 shares issued had been sold on August
1, 1993. The net proceeds of the offering are assumed to have been
invested at a net effective yield of 7.19%, (the approximate weighted
average yield on all interest earnings assets during the period from
August 1, 1993 to October 31, 1993) for the period from August 1, 1993 to
November 3, 1993, and income so calculated, reduced for income taxes at an
assumed effective tax rate of 38.6%, was added to reported net income for
the period to obtain the pro forma net income used in the calculations.
Dividends on Common Stock
From January 31, 1994 to October 31, 1995 the Bank declared a quarterly
cash dividend of approximately $.10 per share. Upon approval by the OTS,
the MHC elected to waive receipt of its dividends on its 1,125,000 shares
thereby reducing the actual dividends declared in 1996, 1995 and 1994 to
$92,600, $371,000 and $276,000, respectively.
The most recent dividend waiver approval by the OTS has the following
terms: (i) the mutual holding company's board of directors determines that
such waiver is consistent with such directors' fiduciary duties to the
mutual holding company's members; (ii) for as long as the savings Bank
subsidiary is controlled by the mutual holding company, the dollar amount
of dividends waived by the mutual holding company are considered as a
restriction on the retained earnings of the savings Bank, which
restriction, if material, is disclosed in the public financial statements
of the savings Bank as a note to the financial statements; (iii) the
amount of any dividend waived by the mutual holding company is available
for declaration as a dividend solely to the mutual holding company, and,
in accordance with Statement of Financial Accounting Standards No. 5,
where the savings Bank determines that the payment of such dividend to the
mutual holding company is probable, an appropriate dollar amount is
recorded as a liability; (iv) the amount of any waived dividend is
considered as having been paid by the savings Bank (and the savings Bank's
capital ratios adjusted accordingly) in evaluating proposed dividends
under OTS capital distribution regulations; and (v) in the event the
mutual holding company converts to stock form, the appraisal submitted to
the OTS in connection with the conversion application takes into account
the aggregate amount of the dividends waived by the mutual holding
company.
OTS regulations impose limitations on all capital distributions. The rule
establishes three tiers of institutions. An institution that exceeds all
fully phased-in capital requirements before and after a proposed
distribution ("Tier 1 Institution"), may after prior notice but without
the approval of the OTS, make capital distributions during a calendar year
up to (i) 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the
excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net income over the
most recent four-quarter period. The Institution is a Tier 1 Institution
and accordingly had available at July 31, 1996, approximately $9.0 million
for distribution.
(13) Stockholders' Equity, Continued
Dividends on Common Stock, continued
In addition, the OTS would prohibit a proposed capital distribution by any
institution which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or
unsound practice. In addition, FDICIA provides that, as a general rule, a
financial institution may not make a capital distribution if it would be
undercapitalized after making the capital distribution. Also, an
institution meeting the Tier 1 capital criteria which has been notified
that it needs more than normal supervision will be treated as a Tier 2 or
Tier 3 Institution subject to additional capital distribution limitations
unless the OTS deems otherwise.
(14) Pension and Other Benefit Plans
Substantially all full-time employees of the Company are included in a
noncontributory defined benefit pension plan.
The following tables set forth the plan's funded status at April 30, 1996
and 1995, amounts recognized in the statements of financial condition as
of July 31, 1996 and 1995 and the composition of net pension cost for the
years ended July 31, 1996, 1995 and 1994:
1996 1995
---- ----
(In Thousands)
Actuarial present value of benefit obligation:
Vested $ 1,111 1,120
Nonvested 6 13
-------- ------
Total accumulated benefit obligation $ 1,117 1,133
======== ======
Projected benefit obligation for service rendered to date $ (1,607) (1,615)
Plan assets at fair value (primarily common stocks and
U.S. Government and government sponsored agency
securities) 1,662 1,396
-------- ------
Plan assets greater (less) than projected benefit obligation 55 (219)
Unrealized transition asset at April 1, 1987 being recognized
over 26 years 81 95
Unrecognized prior service cost (118) (129)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions (57) 187
-------- ------
Accrued pension cost included in other liabilities $ (39) (66)
======== ======
1996 1995 1994
---- ---- ----
(In Thousands)
Net pension cost included the following components:
Service cost-benefits earned during the period $ 101 96 109
Interest cost on projected benefit obligation 122 118 120
Actual return on plan assets (200) (68) (41)
Net amortization and deferral 87 (48) (81)
---- ----- ----
Net pension cost $ 110 98 107
===== ===== ====
(14) Pension and Other Benefit Plans, Continued
In determining the actuarial present value of the projected benefit
obligation the weighted average discount rate used was 8.0% in 1996 and
7.5% in 1995 and the expected long-term rate of return on assets was 8.50%
in 1996 and 1995. The rate of increase of future compensation levels used
was 5% in 1996 and 1995.
The Company also has a 401(k) profit sharing plan covering substantially
all full-time employees. Employee contributions are voluntary and the
employee may elect to defer from one percent to twenty percent of base
(qualifying) compensation. Employer contributions are discretionary and
there were no such contributions for the fiscal years ended July 31, 1996,
1995 and 1994.
(15) Employee Stock Ownership Plan (ESOP)
In connection with the Conversion and Reorganization, the Company formed
an ESOP. The ESOP covers employees who have completed at least one year of
service and have attained the age of 21. The ESOP borrowed $1.7 million
for a ten year term from the Company and purchased 174,570 shares, equal
to 8% of the total number of shares issued in the offering. The Bank makes
scheduled quarterly contributions to the ESOP sufficient to service the
debt. The cost of shares not committed to be released is reported as a
reduction in stockholders' equity. Dividends, if any, on allocated and
unallocated shares are used for debt service. Shares are released to
participants based on compensation.
In connection with the formation of the ESOP, the Company adopted
Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" (SOP 93-6). SOP 93-6 requires that (1) compensation
expense be recognized based on the average fair value of the ESOP shares
committed to be released; (2) dividends on unallocated shares used to pay
debt service be reported as reduction of debt or accrued interest payable
and that dividends on allocated shares be charged to retained earnings;
and (3) ESOP shares which have not been committed to be released are not
considered outstanding for purposes of computing earnings per share and
book value per share.
Compensation expense related to the ESOP amounted to $118,000 for the year
ended July 31, 1996. The fair value of unearned ESOP shares at July 31,
1996 totaled $1.6 million.
The ESOP shares as of July 31, 1996 were as follows:
Allocated shares 2,909
Shares earned, but unallocated 8,728
Unearned shares 162,933
----------
174,570
(16) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement 107), requires all
entities to disclose the estimated fair value of certain on- and
off-balance sheet financial instruments.
(16) Fair Value of Financial Instruments, Continued
In many instances, the assumptions used in estimating fair values were
based upon subjective assessments of market conditions and perceived risks
of the financial instruments at a certain point in time. The fair value
estimates can be subject to significant variability with changes in
assumptions. Furthermore, these fair value estimates do not reflect any
premium or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial instrument. In
addition, the tax ramifications related to the realization of unrealized
gains and losses are not permitted to be considered in the estimation of
fair value.
Fair value estimates are based solely on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Examples would include
portfolios of loans serviced for others, net fee income from the Company's
subsidiaries, core deposit intangibles, mortgage banking operations, and
deferred tax assets. Fair value estimates, methods and assumptions are set
forth as follows for the Company's financial instruments.
Cash, Investments and Mortgage-Backed Securities
For cash and cash equivalents the carrying amount is a reasonable estimate
of fair value. The fair value of investment and mortgage-backed securities
is estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers. The fair value of ground
rents owned is estimated by discounting the cash flows using the current
30 year treasury bond rate. The fair value of Federal Home Loan Bank stock
is estimated to be equal to its carrying amount given it is not a publicly
traded equity security, it has an adjustable dividend rate, and all
transactions in the stock are executed at the stated par value.
The following table summarizes the carrying amount and estimated fair
value of securities available for sale, investment securities,
mortgage-backed securities and other investments at July 31:
1996 1995
-------------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
(In Thousands)
Securities available for sale $ 40,266 40,266 3,030 3,030
Investment securities 24,109 23,651 13,918 13,652
Mortgage-backed securities 100,195 97,627 156,775 152,621
Ground rents owned 4,903 3,863 4,938 4,025
Federal Home Loan Bank of Atlanta stock 3,141 3,141 2,914 2,914
<PAGE>
(16) Fair Value of Financial Instruments, Continued
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Mortgage loans are segregated by type, including but not
limited to residential, commercial, and construction. Consumer and other
loans are segregated by type, including but not limited to automobile
loans, home equity lines of credit and commercial. Each loan category may
be segmented, as appropriate, into fixed and adjustable interest rate
terms, ranges of interest rates, performing and nonperforming, and
repricing frequency.
The fair value of each loan portfolio is calculated by discounting both
scheduled and unscheduled cash flows through the remaining contractual
maturity using the origination rate that the Company would charge under
current conditions to originate similar financial instruments. Unscheduled
cash flows take the form of estimated prepayments and are generally based
upon anticipated experience derived from current and prospective economic
and interest rate environments. For certain types of loans, anticipated
prepayment experience exists in published tables from securities dealers.
The estimated fair value of loans held for sale is based on the terms of
the related sale commitments.
The fair value of significant nonperforming mortgage loans is based on
recent external appraisals of related real estate collateral, or estimated
cash flows and are discounted using a rate commensurate with the credit
risk associated with those cash flows. Assumptions regarding credit risk,
cash flows and discount rates are judgmentally determined using available
market information and specific borrower information. The fair value of
nonperforming consumer loans is based on the Company's historical
experience with such loans.
The following table represents the carrying value and estimated fair value
of loans receivable at July 31:
1996 1995
-------------------------- -----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
(In Thousands)
Mortgage loans $ 242,668 237,499 214,111 206,351
Construction and land development loans 22,666 22,666 11,333 11,083
Consumer and other loans 17,120 16,891 13,006 12,560
--------- ---------- -------- ----------
282,454 277,056 238,450 229,994
Less allowance for possible losses 4,412 -- (6,361) --
---------- ---------- -------- ----------
Total loans $ 278,042 277,056 232,089 229,994
========== ========== ======== ==========
Deposits and Borrowings
The fair value of deposits with no stated maturity, such as
interest-bearing or non-interest-bearing checking accounts, passbook,
money fund accounts and mortgage escrow accounts, is equal to the amount
payable upon demand. The fair value of certificates of deposit is based on
the lower of redemption (net of penalty) or discounted value of
contractual cash flows. Discount rates for certificates of deposit are
estimated using the rates currently offered by the Company for deposits of
similar remaining maturities.
(16) Fair Value of Financial Instruments, Continued
Deposits and Borrowings, continued
The fair value of advances from the FHLBA is based on the discounted value
of contractual cash flows. Discount rates are estimated using the rates
currently offered for advances with both similar contractual terms and
remaining maturities.
For securities sold under agreements to repurchase the carrying amount is
a reasonable estimate of fair value, as the agreements mature within 90
days.
The following table represents the carrying value and estimated fair value
of deposits and borrowings at July 31:
1996 1995
-------------------------- -----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
(In Thousands)
Mortgage escrow accounts and
deposits with no stated maturities $ 98,724 98,724 105,559 105,559
Certificates of deposit 216,119 219,024 210,906 212,310
Securities sold under agreements to
repurchase 34,445 34,420 34,338 34,338
Advances from the Federal Home
Loan Bank of Atlanta 62,824 62,029 44,137 43,881
(17) Regulatory Matters
The Federal Deposit Insurance Corporation, through the Savings Association
Insurance Fund, insures deposits of accountholders up to $100,000. The
Bank pays an annual premium to provide for this insurance. The Bank is
also a member of the Federal Home Loan Bank System and is required to
maintain an investment in the stock of the Federal Home Loan Bank of
Atlanta equal to at least 1% of the unpaid principal balances of its
residential mortgage loans, .3% of its total assets or 5% of its
outstanding advances from the Bank, whichever is greater. Purchases and
sales of stock are made directly with the Bank at par value.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (as defined in the
regulations and as set forth in the table below, as defined) of total and
Tier I capital (as defined) to risk-weighted assets (as defined), and of
Tier I capital to average assets (as defined). Management believes, as of
July 31, 1996, that the Bank meets all capital adequacy requirements to
which it is subject.
(17) Regulatory Matters, Continued
The most recent notification from the Office of Thrift Supervision (OTS)
categorized the Bank as adequately capitalized under the regulatory
framework for prompt corrective action. To be categorized as adequately
capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.
There are no conditions or events since that notification that management
believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table (in thousands).
[GRAPHIC OMITTED]
(a) Percentage of capital to average assets.
(b) Percentage of capital to average assets for actual and capital
adequacy purposes and percentage of capital to risk weighed
assets to be well capitalized under prompt corrective action
provisions.
(c) Percentage of capital to risk weighted assets.
<PAGE>
(18) Condensed Financial Information (Parent Company Only)
Summarized financial information for the Company are as follows as of and for the year ended July 31, 1996
(in thousands):
Statement of Financial Condition
Cash $ 6,709
Equity in net assets of the Bank 42,261
Note receivable - Bank 1,629
-------
$ 50,599
Accrued expenses and other liabilities $ 1
--------
Stockholders' equity 50,598
-------
$ 50,599
Statement of Income
Income from note receivable $ 107
Expenses 137
-------
Loss before equity in net income of subsidiary and income taxes (30)
Equity in net income of subsidiary 1,564
-------
Income before income taxes 1,534
Income taxes (benefit) (12)
-------
Net income $ 1,546
========
Statement of Cash Flows
Operating activities:
Net income $ 1,546
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net income of subsidiary (1,564)
Other, net 1
Net cash used in operating activities (17)
-------
Investing activities:
Purchase of stock of subsidiary (8,899)
Loan to fund ESOP (1,746)
Loan repayment 117
-------
Net cash used in investing activities (10,528)
------
Financing activities:
Proceeds from common stock offering net of expenses 21,040
Common stock acquired by ESOP (1,746)
Purchase of treasury stock (2,040)
-------
Net cash provided by financing activities 17,254
-------
Increase in cash and equivalents 6,709
Cash and equivalents, beginning of year --
-------
Cash and equivalents, end of year $ 6,709
========
<PAGE>
Independent Auditors' Report
The Board of Directors
American National Bancorp, Inc.
Baltimore, Maryland:
We have audited the accompanying consolidated statements of financial condition
of American National Bancorp, Inc. and subsidiary (the Company) as of July 31,
1996 and 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended July 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American National
Bancorp, Inc. and subsidiary as of July 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the years in the three-year
period ended July 31, 1996, in conformity with generally accepted accounting
principles.
Baltimore, Maryland
September 5, 1996
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly financial data for the years ended July 31 is as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands except per share data)
1996:
Interest income $ 8,171 8,252 8,324 8,671
Net interest income 2,776 3,139 3,424 3,526
Provision for loan losses 290 210 62 210
Income before provision
for income taxes 285 596 1,020 446
Net income 183 431 673 259
======= ====== ======= ======
Net income per common share
(from date of conversion) $ N/A .11 .18 .07
======= ====== ====== ======
1995:
Interest income $ 7,295 7,524 8,095 8,055
Net interest income 3,041 2,810 3,144 2,751
Provision for loan losses 1,850 300 942 294
Income (loss) before provision
for income taxes (813) 537 (5) 241
Net income (loss) (480) 343 (30) 177
======= ====== ======= ======
Net income (loss) per common share $ (.23) .17 (.02) .08
====== ====== ====== ======
</TABLE>
<PAGE>
CORPORATE INFORMATION
<TABLE>
<S> <C>
Annual Meeting. The Annual Meeting of Annual Report on Form 10-K. A copy of the
Stockholders will be held at 4:00 p.m., on Company's Annual Report on Form 10-K for
November 21, 1996, at the Company's main the fiscal year ended July 31, 1996 will be
office at 211 North Liberty Street, furnished without charge to stockholders
Baltimore, Maryland. upon written request to the Corporate
Secretary, American National Bancorp, Inc.,
Stock Listing. The Company's Common Stock 211 North Liberty Street, Baltimore,
trades over-the-counter on the Nasdaq Maryland 21201, (410) 752-0400.
National Market under the symbol "ANBK."
Branch Locations
Board of Directors
Howard K. Thompson, Chairman Baltimore - (410) 752-0400
A. Bruce Tucker 211 North Liberty Street
Lenwood M. Ivey Baltimore, Maryland 21201
Jimmie T. Noble
David L. Pippenger Towson - (410) 825-5330
Joseph M. Solomon Towson Town Center
Betty J. Stull 825 Dulaney Valley Road
Suite 275
Officers Baltimore, Maryland 21204
A. Bruce Tucker, President and Chief Executive Perry Hall - (410) 256-6700
Officer Perry Hall Square Shopping Center
Joseph M. Solomon, Executive Vice President and 4371 Ebenezer Road
Chief Operating Officer Baltimore, Maryland 21236
Mark S. Barker, Senior Vice President
Howard I. Scaggs, III, Senior Vice President Pikesville - (410) 764-6841
James M. Uveges, Senior Vice President and Chief Fallstaff Shopping Center
Financial Officer 6832 Reisterstown Road
Susan C. Arrington, Vice President Baltimore, Maryland 21215
Linda L. Farndon, Vice President
Eugene P. Helldorfer, Vice President Glen Burnie - (410) 761-4545
Robert F. Hickey, Vice President Harundale Mall
Karen S. Harrity, Controller 206 Harundale Mall
Mary Jayne Engelhardt, Counsel Glen Burnie, Maryland 21061
Special Counsel Ellicott City - (410) 461-1500
Luse Lehman Gorman Pomerenk & Schick, P.C. Valley Mede Plaza
5335 Wisconsin Avenue, N.W. 9469 Baltimore National Pike
Washington, D.C. 20015 Ellicott City, Maryland 21043
Independent Auditor Eastpoint - (410) 285-6671
KPMG Peat Marwick LLP 7848 Eastpoint Mall
111 South Calvert Street Baltimore, Maryland 21224
Baltimore, Maryland 21202
Reisterstown/Owings Mills - (410) 526-4400
Transfer Agent 11700 Reisterstown Road
Registrar and Transfer Company Reisterstown, Maryland 21136
10 Commerce Drive
Cranford, New Jersey 07016-3572 Catonsville/Woodlawn - (410) 788-9214
(800) 368-5948 2 West Rolling Crossroads, Suite 110
(North Rolling Road at Johnnycake)
Consolidation of Multiple Accounts. Baltimore, Maryland 21228
Stockholders who receive multiple dividend
checks or quarterly reports probably have
duplicate accounts with the Company. These
may be consolidated into a single, more
convenient account by contacting the
Transfer Agent.
</TABLE>
<PAGE>
ANNEX V
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 0-26870
-------
AMERICAN NATIONAL BANCORP, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1943817
- ----------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
211 North Liberty Street, Baltimore, Maryland 21201-3978
- ------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (410)-752-0400
--------------------------
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), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS: 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--3,613,011 shares as of May
31, 1997.
<PAGE>
AMERICAN NATIONAL BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition 1
at April 30, 1997 (unaudited) and July 31, 1996
Consolidated Statements of Operations (unaudited) 2
for the Three Months ended April 30, 1997 and 1996
and for the Nine months ended April 30, 1997 and 1996
Consolidated Statements of Cash Flows (unaudited) 3
for the Nine Months ended April 30, 1997 and 1996
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION 12
<PAGE>
<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Financial Condition (Unaudited)
<CAPTION>
Assets April 30, 1997 July 31, 1996
- ------------------------------------- -------------- -------------
(In thousands)
<S> <C> <C>
Cash:
On hand and due from banks $ 3,841 $ 2,671
Interest-bearing deposits 517 1,837
Federal funds sold 903 394
Securities available for sale 30,781 40,266
Investment securities 30,320 24,109
Mortgage-backed securities 102,630 100,195
Loans receivable, net 322,805 278,042
Federal Home Loan Bank stock, at cost 4,370 3,141
Investments in real estate, net 5,035 5,670
Investments in and advances to real
estate joint ventures 397 1,270
Property and equipment, net 1,416 1,198
Prepaid expenses and other assets 511 612
Deferred income taxes 1,792 1,866
-------------- --------------
$ 505,318 $ 461,271
============== ==============
Liabilities and Stockholders' Equity
- --------------------------------------
Liabilities:
Deposits $ 329,516 $ 313,083
Borrowed funds 40,623 34,445
Advances from the Federal Home Loan
Bank of Atlanta 81,323 62,824
Drafts payable 1,424 859
Advance payments by borrowers for taxes
and insurance 5,699 1,760
Income taxes payable 275 -
Accrued expenses and other liabilities 1,143 1,030
-------------- --------------
Total Liabilities 460,003 414,001
Stockholders' Equity:
Serial preferred stock 1,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 8,000,000
shares authorized, 3,980,500 shares
issued and 3,613,011 shares outstanding
at April 30, 1997 40 40
Additional paid-in capital 30,636 30,705
Unearned common stock acquired by
management recognition and retention
plans (896) (77)
Unearned employee stock ownership plan
(ESOP) shares (1,489) (1,629)
Treasury stock at cost, 367,489 shares
and 199,025 shares at April 30, 1997
and July 31, 1996 respectively (4,145) (2,040)
Retained income - substantially restricted 22,587 21,970
Net unrealized holding loss on securities,
net of income taxes (1,418) (1,699)
------------- -------------
Total Stockholders' Equity 45,315 47,270
------------- -------------
$ 505,318 $ 461,271
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-1-
<PAGE>
<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Nine months ended April 30,
1997 1996
----------- ----------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans receivable $ 19,144 $ 15,962
Mortgage-backed securities 6,288 7,436
Investment securities 1,817 764
Other 574 585
--------- ---------
Total interest income 27,823 24,747
Interest expense:
Deposits 11,562 11,930
Borrowed funds 4,926 3,478
--------- ---------
Total interest expense 16,488 15,408
--------- ---------
Net interest income 11,335 9,339
Provision for loan losses 460 562
--------- ---------
Net interest income after
provision for loan losses 10,875 8,777
Noninterest income:
Fees and service charges 566 449
Gain (loss) on sales of:
Loans receivable, net 24 16
Mortgage-backed securities, net (5) 30
Investment securities, net (53) (14)
Other 112 134
--------- ---------
Total noninterest income 644 615
Noninterest expenses:
Salaries and employee benefits 3,503 3,228
Net occupancy 986 1,021
Professional services 326 286
Advertising 610 517
Federal deposit insurance premiums 2,405 586
Furniture, fixtures and equipment 345 226
Loss on investment in real estate 113 300
Equity in net loss of real estate
joint ventures 363 112
Other 1,263 1,215
---------- ---------
Total noninterest expenses 9,914 7,491
---------- ---------
Income before income taxes 1,605 1,901
Income tax provision 539 614
---------- ----------
Net income $ 1,066 $ 1,287
========== ==========
Earnings per common share $ 0.30 N/A
========== ==========
Proforma earnings per common share N/A $ 0.40
========== ==========
<CAPTION>
Three months ended April 30,
1997 1996
----------- ----------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans receivable $ 6,582 $ 5,508
Mortgage-backed securities 2,095 2,395
Investment securities 605 213
Other 200 208
--------- ---------
Total interest income 9,482 8,324
Interest expense:
Deposits 3,867 3,841
Borrowed funds 1,660 1,059
--------- ---------
Total interest expense 5,527 4,900
--------- ---------
Net interest income 3,955 3,424
Provision for loan losses 40 62
--------- ---------
Net interest income after
provision for loan losses 3,915 3,362
Noninterest income:
Fees and service charges 177 157
Gain (loss) on sales of:
Loans receivable, net 2 2
Mortgage-backed securities, net 59 13
Investment securities, net (53) (18)
Other 25 56
--------- ---------
Total noninterest income 210 210
Noninterest expenses:
Salaries and employee benefits 1,176 1,077
Net occupancy 340 347
Professional services 119 103
Advertising 196 166
Federal deposit insurance premiums 24 182
Furniture, fixtures and equipment 119 79
Loss on investment in real estate 27 188
Equity in net loss of real estate
joint ventures 226 -
Other 422 410
---------- ---------
Total noninterest expenses 2,649 2,552
---------- ---------
Income before income taxes 1,476 1,020
Income tax provision 495 347
---------- ----------
Net income $ 981 $ 673
========== ==========
Earnings per common share $ 0.28 $ 0.18
========== ==========
Proforma earnings per common share N/A N/A
========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
-2-
<PAGE>
<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Nine months ended April 30,
1997 1996
------------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,066 $ 1,287
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 405 397
Noncash compensation under stock-
based benefit plans 388 114
Amortization of loan fees (315) (303)
Amortization of premiums and
discounts, net 276 (154)
Provision for losses on loans
and investments in real estate 460 720
Loss (gain) on sales of assets, net 34 (32)
Loans originated for sale (4,540) (3,258)
Sales of loans originated for sale 3,163 2,801
Deferred income taxes (111) 506
Decrease (increase) in prepaid
expenses and other assets 101 (23)
Increase (decrease) in accrued expenses
and other liabilities 113 (198)
Decrease (increase) in income taxes
payable 275 (270)
Other, net (661) 48
---------- ----------
Net cash provided by operating activities 654 1,635
---------- ----------
Cash flows from investing activities:
Sales of investment securities
available for sale 2,947 969
Purchases of investment securities
available for sale - (2,000)
Repayments of mortgage-backed securities
available for sale 2,860 2,502
Sales of mortgage-backed securities
available for sale 6,857 41,041
Purchases of mortgage-backed securities
available for sale (3,164) (10,988)
Maturities of investment securities 3,000 11,000
Purchases of investment securities (9,040) (13,265)
Repayments of mortgage-backed securities 3,462 6,750
Purchases of mortgage-backed securities (5,984) (19,198)
Loan principal repayments 34,792 31,824
Loan originations (58,231) (58,849)
Loan purchases (20,751) (11,363)
Increase in deferred loan fees, net 455 442
Decrease in investments in real estate 1,134 2,722
Decrease in investments in and advances
to real estate joint ventures 1,236 865
Purchases of property and equipment (623) (452)
Federal Home Loan Bank stock purchases, net (1,229) -
----------- -----------
Net cash used in investing activities (42,279) (18,000)
----------- -----------
(continued)
-3-
<PAGE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Nine months ended April 30,
1997 1996
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 16,433 $ 1,889
Net increase (decrease) in borrowed funds 6,178 (1,617)
Proceeds from Federal Home Loan Bank
advances 120,276 171,597
Repayment of Federal Home Loan Bank
advances (101,777) (172,751)
Increase in drafts payable 565 311
Increase in advance payments by borrowers
for taxes and insurance 3,939 3,562
Proceeds from issuance of common stock,
net of expenses - 21,040
Proceeds from exercise of stock options 106 -
Common stock acquired by ESOP - (1,746)
Cash dividends paid (324) (92)
Purchase of treasury stock (2,316) -
Purchase of stock to fund 1996 Recognition
and Retention Plan (1,096) -
----------- -----------
Net cash provided by financing activities 41,984 22,193
----------- ----------
Net increase in cash and cash equivalents 359 5,828
Cash and cash equivalents at beginning of
period 4,902 5,360
----------- -----------
Cash and cash equivalents at end of period $ 5,261 $ 11,188
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed
funds $ 16,450 $ 15,151
Income taxes paid, net 346 297
========== ============
Noncash activities: Loans transferred to
real estate acquired through foreclosure $ 499 $ 2,363
========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
-4-
<PAGE>
AMERICAN NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
April 30, 1997
(1) Basis of Presentation
-----------------------
The accompanying unaudited consolidated financial statements include all
adjustments, consisting of normal recurring adjustments, which are necessary,
in the opinion of management, to fairly reflect the Company's financial
position, results of operations and cash flows for the periods presented. The
statements have been prepared using the accounting policies described in the
July 31, 1996 Annual Financial Statements. The results of operations for the
three and nine months ended April 30, 1997 are not necessarily indicative of
the results which may be expected for the entire year.
(2) Principles of Consolidation
----------------------------
The consolidated financial statements include the accounts of American
National Bancorp, Inc., (the "Company"), and its wholly owned subsidiary,
American National Savings Bank, F.S.B. (the "Bank") and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
(3) Reclassification of Prior Year's Statements
-------------------------------------------
Certain amounts in the 1996 financial statements have been reclassified
to conform with the 1997 presentation.
(4) Securities Available For Sale
-----------------------------
On August 8, 1994, the Bank transferred approximately $36.3 million of
its collateralized mortgage obligations (CMO), net of unrealized loss of
approximately $1.8 million, from the available for sale portfolio to held to
maturity. On that date, certain accounting issues were resolved permitting
the Bank to transfer substantially all of these securities from the available
for sale portfolio to the held to maturity portfolio as originally intended.
The unrealized loss at the time of the transfer is being amortized over the
remaining lives of the securities as an adjustment of yield. The unrealized
loss, net of taxes, was $1.1 million and as a component of stockholders'
equity is being reduced through the amortization.
(5) Earnings Per Common Share
-------------------------
Earnings per share were computed by dividing net income for the three and
nine months ended April 30, 1997 by the weighted average number of shares of
common stock and common stock equivalents outstanding for the three months
ended (3,571,856 shares) and for the nine months ended (3,574,933 shares),
respectively. ESOP shares that have not been committed to be released are not
considered outstanding for the computation of earnings per share in accordance
with Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP 93-6"). Shares granted but not yet issued under the
Company's stock option plans are considered common stock equivalents for
earnings per share calculations.
Without the one-time Federal Deposit Insurance Corporation (FDIC) special
assessment, earnings per share for the nine months ended April 30, 1997 would
have been income of $.68 per share. See Management's Discussion and Analysis
- - Noninterest Expense.
Earnings per share information for the three months ended April 30, 1996
was computed by dividing the net income for the three months ended April 30,
1996 by the weighted average number of shares of common stock outstanding
during the period of 3,810,294 shares.
-5-
<PAGE>
The pro forma net income per share for the nine months ended April 30,
1996 has been calculated as if the 2,182,125 shares issued had been sold on
August 1, 1995. The net proceeds of the offering are assumed to have been
invested at a net effective yield of 7.86%, (the approximate weighted average
yield on all interest earning assets during the period from August 1, 1995 to
October 31, 1995) for the period from August 1, 1995 to October 31, 1995, and
income so calculated, reduced for income taxes at an assumed effective tax
rate of 38.6%, was added to reported net income for the period to obtain the
pro forma net income used in the calculation.
(6) Dividends on Common Stock
-------------------------
On April 17, 1997, the Company declared a quarterly cash dividend of
$0.03 per share payable on May 16, 1997 to stockholders of record as of April
30, 1997.
(7) Employee Stock Benefit Plans
----------------------------
At its Annual Meeting on November 21, 1996, stockholders approved the
Company's 1996 Recognition and Retention Plan (RRP) and the 1996 Stock Option
Plan (the Stock Plan).
The RRP authorizes the grant of stock to directors and officers of the
Company for 87,285 shares. Shares will vest at the rate of 20% of the
initially awarded amount per year with the first installment being earned on
the first trading day of 1998 and succeeding installments being earned on the
first trading day of the following year.
The Stock Plan authorized the grant of stock to directors and officers
for the aggregate of 218,213 of authorized, but unissued shares. Options are
exercisable at the market price at the time of grant on a cumulative basis at
a rate of 20 percent per year commencing one year from the date of grant and
expire 10 years from the date of grant.
(8) Impact of New Accounting Standards
----------------------------------
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (Statement
125). Statement 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996
and is to be applied prospectively. This Statement requires, among other
things, that the Company record at fair value, assets and liabilities
resulting from a transfer of financial assets. In December 1996, Statement
127 was issued which deferred the effective date of certain provisions of
Statement 125 until January 1, 1998 related to repurchase agreements,
securities, lending and similar transactions. The Company adopted the
provisions of Statement 125 as of January 1, 1997 and there was no significant
impact on operations as a result of the adoption of this Statement.
-6-
<PAGE>
AMERICAN NATIONAL BANCORP, INC.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis covers material changes in the
financial condition since July 31, 1996 and material changes in the results of
operations for the three and nine months ended April 30, 1997 as compared to
the same period in 1996. This discussion should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the 1996 Annual Report to Stockholders.
Financial Condition
- -------------------
Total assets increased by $44.0 million, or 9.5%, to $505.3 million at
April 30, 1997 from $461.3 million at July 31, 1996. Assets increased
primarily due to an increase in mortgage loans originated and purchased.
Loans receivable increased by $44.8 million, or 16.1% to $322.8 million from
$278.0 million at July 31, 1996. Mortgage-backed securities increased by $2.4
million, or 2.4%, to $102.6 million at April 30, 1997, from $100.2 million at
July 31, 1996. Investment securities increased by $6.2 million, or 25.8%, to
$30.3 million, at April 30, 1997, from $24.1 million at July 31, 1996.
Securities available for sale decreased $9.5 million, or 23.6%, to $30.8
million at April 30, 1997 from $40.3 million at July 31, 1996 due to the sale
of securities.
Deposits increased by $16.4 million, or 5.2%. Borrowed funds increased
by $6.2 million, or 17.9%. Advances from the Federal Home Loan Bank of
Atlanta increased $18.5 million, or 29.4%. The increases are due to the
funding of loan originations and loan and security purchases.
Total stockholders' equity decreased by $2.0 million to $45.3 million at
April 30, 1997 compared to $47.3 million at July 31, 1996. This decrease was
the result of the Company repurchasing 189,074 shares of common stock for $2.3
million or $12.25 per share, the purchase of 87,285 shares of common stock in
the second quarter to fund the 1996 Recognition and Retention Plan which was
approved by the stockholders at the November 21, 1996 annual meeting, and
quarterly dividends of approximately $324,000 for the nine months ended April
30, 1997, partially offset by a decrease in the net unrealized holding loss on
securities of $281,000 and net income for the nine months of $1.1 million.
Results of Operations
- ---------------------
The consolidated earnings of the Company depend primarily on the
difference between the interest earned on its loan, mortgage-backed securities
and investment portfolios and the interest paid on deposits and borrowings.
This difference is known as "net interest income". The Company's net income
also is affected by its provision for losses on loans and investments in real
estate, as well as the amount of non-interest income, including loan fees and
service charges, and non-interest expense, such as salaries and employee
benefits, deposit insurance premiums, occupancy and equipment costs and income
taxes. Earnings of the Company also are affected significantly by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities.
-7-
<PAGE>
Interest Income. Interest income totalled $9.5 million and $27.8 million
for the three and nine months ended April 30, 1997, compared to $8.3 million
and $24.7 million for the three and nine months ended April 30, 1996,
respectively. The $1.2 million increase for the three months ended April 30,
1997 compared to the three months ended April 30, 1996 primarily resulted from
a $46.6 million, or 10.5%, increase in average interest earning assets to
$489.8 million for the three months ended April 30, 1997 and an increase in
the yield on average interest earning assets to 7.7% for the three months
ended April 30, 1997, from 7.5% for the three months ended April 30, 1996.
The increase in average interest earning assets resulted from a $55.9 million,
or 21.7%, increase in average loans to $314.2 million from $258.3 million; and
a $19.2 million, or 137.1% increase in average investment securities to $33.2
million from $14.0 million, offset by a $28.3 million, or 17.8%, decrease in
average mortgage-backed securities. The increase in the yield on interest-
earning assets was due to increases in the weighted average yield on consumer
loans and investment and mortgage-backed securities partially offset by
decreases in the weighted average yield on mortgage loans and other interest-
earning assets.
The $3.1 million increase for the nine months ended April 30, 1997 was
due to a $46.5 million, or 10.7%, increase in average interest earning assets
to $478.8 million for the nine months ended April 30, 1997 and an increase of
eleven (11) basis points in the yield on average interest earning assets to
7.7%. Average loans increased $55.1 million and average investment securities
increased $17.5 million. These increases were offset by a decrease in average
mortgage-backed securities of $26.3 million.
Interest Expense. Interest expense totalled $5.5 million and $16.5
million for the three and nine months ended April 30, 1997, compared to $4.9
million and $15.4 million for the three and nine months ended April 30, 1996.
The $627,000 increase for the three months ended April 30, 1997 was due to a
$43.1 million increase in average interest-bearing liabilities and an increase
of 9 basis points in the average cost of funds. The $1.1 million increase for
the nine months ended April 30, 1997 compared to the nine months ended April
30, 1996 was due to a $42.8 million increase in average interest-bearing
liabilities, offset by a decrease of 18 basis points in the average cost of
funds. The Company utilized deposits, FHLB advances and other borrowings to
fund loan originations and purchases of loans and securities.
Net Interest Income. Net interest income totalled $4.0 million and $11.3
million for the three and nine months ended April 30, 1997 compared to $3.4
million and $9.3 million for the three and nine months ended April 30, 1996.
The increase in net interest income for the three and nine months was
primarily due to the results of operations discussed above, which resulted in
an increase in the Company's interest rate spread to 2.78% from 2.64% for the
three months and 2.70% from 2.40% for the nine months.
Provision for Loan Losses. The Company maintains an allowance for loan
losses based upon management's periodic evaluation of known and inherent risks
in the loan portfolio, the Company's past loan loss experience, adverse
situations that may affect borrowers' ability to repay loans, estimated value
of underlying loan collateral, and current and expected future economic
conditions. The allowance for loan losses was $3.8 million, or 1.2%, of net
loans receivable, at April 30, 1997, compared to $4.4 million, or 1.6% of net
loans receivable at July 31, 1996. Nonperforming assets decreased from $4.7
million, or 1.0%, of total assets at July 31, 1996, to $2.9 million, or .6% of
total assets at April 30, 1997. The provision for loan losses decreased by
$102,000 to $460,000 for the nine months ended April 30, 1997 from $562,000
for the nine months ended April 30, 1996. This decrease reflects the results
of management's evaluations mentioned above.
-8-
<PAGE>
The following table sets forth information regarding nonperforming loans,
real estate owned and restructured loans within the meaning of Statement 15,
at the dates indicated.
<TABLE>
<CAPTION>
At At
April 30, 1997 July 31, 1996
-------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Nonperforming loans:
One to four-family residential
real estate $ 806 $ 690
Multifamily residential real
estate 1,487 1,580
Commercial real estate 75 1,374
Construction loans 215 -
Consumer loans 218 265
-------- --------
Total nonperforming loans 2,801 3,909
Total real estate owned <F1> 141 766
-------- --------
Total nonperforming assets 2,942 4,675
Restructured loans <F2> 780 1,636
-------- --------
Total nonperforming assets and
restructured loans $ 3,722 $ 6,311
======== =======
Impaired loan balance with a
valuation allowance of $498,000
and $1.4 million at April 30, 1997
and July 31, 1996, respectively $ 1,500 $ 2,953
======== =======
Total nonperforming loans to total loans
receivable .82% 1.31%
Total nonperforming loans to total assets .55% .85%
Total nonperforming loans and real estate
owned to total assets .58% 1.01%
<FN>
<F1> Represents property acquired by the Company through foreclosure or deed
in lieu of foreclosure.
<F2> All restructured loans are performing in accordance with their
restructured payment terms.
</FN>
</TABLE>
Noninterest Income. Noninterest income, consisting primarily of deposit
fees, loan servicing fees, and gains and losses on sales of loans, mortgage-
backed securities and investments, totalled $210,000 and $644,000 for the
three and nine months ended April 30, 1997, compared to $210,000 and $615,000
for the three and nine months ended April 30, 1996. The $29,000 increase for
nine months ended April 30, 1997 is due to increases in deposit fees collected
partially offset by the loss on the sale of mortgage-backed and investment
securities for the nine months ended April 30, 1997.
Noninterest Expense. Noninterest expense, consisting primarily of
salaries and employee benefits, occupancy and equipment, federal deposit
insurance premiums and provision for losses on investments in real estate
("REO"), totalled $2.6 million and $9.9 million for the three and nine months
ended April 30, 1997, compared to $2.6 million and $7.5 million for the three
and nine months ended April 30, 1996. The increases in non-interest expense
for the three months ended April 30, 1997 were the result of amortization of
the 1996 Recognition and Retention Plan, an increase in professional services
and additional loss recognized on the investment in a real estate joint
venture, and were partially offset by a $158,000 decrease in the Federal
deposit insurance premium.
-9-
<PAGE>
The $2.4 million increase for the nine months ended April 30, 1997 was
due to the results of changes noted above as well as the Federal Deposit
Insurance Corporation ("FDIC") one-time special assessment to recapitalize the
Savings Association Insurance Fund. On September 30, 1996, legislation was
enacted and signed into law which provided a resolution to the disparity in
the Bank Insurance Fund/ Savings Association Insurance Fund ("SAIF") premiums.
In particular, SAIF-insured institutions paid a one-time assessment of 65.7
cents on every $100 of deposits held at March 31, 1995. As a result of the
new law, the Company paid approximately $2.1 million. The special assessment
is tax deductible, therefore, the cost, net of income tax benefits, is
approximately $1.4 million. The Company has made a one-time charge to
earnings of this amount for the fiscal quarter ended October 31, 1996. Also,
beginning January 1, 1997, the previous annual minimum premium of 23 basis
points was reduced to 6.5 basis points.
Net Income. Net income was $981,000 or $.28 per share for the three
months ended April 30, 1997, compared to $673,000 or $.18 per share for the
three months ended April 30, 1996. The $308,000 increase in net income was
primarily due to an increase in net interest income of $531,000 and a decrease
in the provision for loan loss of $22,000, partially offset by increases in
noninterest expense of $97,000 and income tax expense of $148,000. Net income
was $1.1 million for the nine months ended April 30, 1997 compared to $1.3
million for the nine months ended April 30, 1996. The $221,000 decrease in
net income was primarily due to an increase in noninterest expense of $2.4
million from the FDIC special assessment, partially offset by an increase in
net interest income of $2.0 million, a decrease in the provision for loan loss
of $102,000, an increase in noninterest income of $29,000, and a decrease in
the income tax provision of $75,000. Without the one-time FDIC special
assessment, net income for the nine months ended April 30, 1997 would have
been $2.4 million, or $.68 per share.
Liquidity and Capital Resources
- -------------------------------
The Bank is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision (OTS) regulations. This requirement,
which varies from time to time depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
required ratio currently is 5%. The Bank's liquidity ratio averaged 3.51%
during the month of April 1997 due to securities pledged against short term
borrowings. The securities were released on May 30, 1997 and the Bank is
currently in compliance with the liquidity ratio. In addition, the Bank is
required to maintain short term liquid assets of at least 1% of the Bank's
average daily balance of net withdrawable deposit accounts and current
borrowings. The Bank adjusts liquidity as appropriate to meet its asset and
liability management objectives. At April 30, 1997, the Bank was in
compliance with such liquidity requirements.
The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, FHLB advances and earnings and
funds provided from operations. While scheduled principal repayments on loans
and mortgage-backed securities are a relatively predictable source of funds,
deposit flows and loan prepayments are greatly influenced by general interest
rates, economic conditions, and competition. The Bank manages the pricing of
its deposits to maintain a desired deposit balance. In addition, the Bank
invests excess funds in federal funds, and other short-term interest-earning
and other assets, which provide liquidity to meet lending requirements.
Regulatory capital regulations require minimum levels of tangible and
core capital of 1.5% and 3%, respectively, of adjusted total assets and risk-
based capital of 8% of risk-weighted assets. The Bank was in compliance with
the regulatory capital requirements with tangible, core and risk-based capital
ratios of approximately 8.26%, 8.26%, and 17.37%, respectively, at April 30,
1997. Also, the Bank is in the "well capitalized" category at April 30, 1997
under the regulatory framework for prompt corrective action.
-10-
<PAGE>
Impact of New Accounting Standards
- ----------------------------------
Stock-Based Compensation. In November 1995, the FASB issued Statement of
Financial Accounting Standards No. 123 Accounting for Awards of Stock-Based
Compensation to Employees (Statement 123). Statement 123 is effective for
years beginning after December 15, 1995. The Statement defines a fair value-
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
an employee stock option or similar equity instrument, and for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value-based method of accounting prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees (Opinion 25). Under the fair value-based
method, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. Under the intrinsic value-based method, compensation cost is
the excess, if any, of the quoted market price of the stock at the grant date
or other measurement date over the amount an employee must pay to acquire the
stock. Most fixed stock option plans, the most common type of stock
compensation plan, have no intrinsic value at grant date, and under Opinion 25
no compensation cost is recognized for them. Compensation cost is recognized
for other types of stock based compensation plans under Opinion 25, including
plans with variable, usually performance-based features. Statement 123
requires that an employer's financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for them. Management adopted the provisions of Statement 123
as of August 1, 1996 using the intrinsic value-based method and believes that
the adoption will not have a material impact on the Company's financial
statements. The Company will provide disclosure about its stock based
employee compensation plans in its 1997 financial statements, as required by
Statement 123.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued statement of Financial Accounting Standards 128, Earnings Per Share
(Statement 128). Statement 128 is effective for fiscal years ending after
December 15, 1997. This Statement simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, Earnings per Share,
and makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Management
has not determined when it will adopt the provision of Statement 128 but
believes that the adoption of Statement 128 will not have a material impact on
the Company's financial statements.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
There are various claims and lawsuits in which the Company is
periodically involved incidental to the Company's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
No Form 8-K reports were filed during the period ended April 30, 1997.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
AMERICAN NATIONAL BANCORP, INC.
Date: June 12, 1997 By: /s/ A. Bruce Tucker
-------------- ------------------------------------
A. Bruce Tucker
PRESIDENT and
CHIEF EXECUTIVE OFFICER
Date: June 12, 1997 By: /s/ James M. Uveges
-------------- -----------------------------------
James M. Uveges
SENIOR VICE PRESIDENT and
CHIEF FINANCIAL OFFICER
-13-
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
The Crestar Articles implement the provisions of the VSCA, which provide for the
indemnification of Crestar's directors and officers in a variety of
circumstances, which may include indemnification for liabilities under the
Securities Act of 1933. Under sections 13.1-697 and 13.1-702 of the VSCA, a
Virginia corporation generally is authorized to indemnify its directors and
officers in civil or criminal actions if they acted in good faith and believed
their conduct to be in the best interests of the corporation and, in the case of
criminal actions, had no reasonable cause to believe that the conduct was
unlawful. The Crestar Articles require indemnification of directors and officers
with respect to certain liabilities, expenses and other amounts imposed upon
them by reason of having been a director or officer, except in the case of
willful misconduct or a knowing violation of criminal law. Crestar also carries
insurance on behalf of directors, officers, employees or agents that may cover
liabilities under the Securities Act of 1933. In addition, the VSCA and the
Crestar Articles eliminate the liability of a director or officer of Crestar in
a stockholder or derivative proceeding. This elimination of liability will not
apply in the event of willful misconduct or a knowing violation of the criminal
law or any federal or state securities law. Sections 13.1-692.1 and 13.1-696 to
- -704 of the VSCA are hereby incorporated herein by reference.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2(a) Agreement and Plan of Reorganization, dated as of June 23, 1997
(attached to the Proxy Statement/Prospectus as Annex I)
2(b) Stock Option Agreement dated as of June 23, 1997, between
Crestar and American National (attached to the Proxy
Statement/Prospectus as Annex II)
5 Opinion of Hunton & Williams with respect to legality
8 Opinion of Hunton & Williams with respect to tax consequences of
the Merger
23(a) Consent of KPMG Peat Marwick LLP (Crestar Financial Corporation)
23(b) Consent of Deloitte & Touche LLP (Citizens Bancorp)
23(c) Consent of KPMG Peat Marwick LLP (American National)
23(d) Consent of Keefe, Bruyette & Woods (American National)
23(e) Consent of Hunton & Williams (included in Exhibit 5 and Exhibit
8)
24 Power of Attorney (included on signature pages of the
Registration Statement)
28 Form of American National Proxy
II-1
<PAGE>
(b) Financial Statement Schedules -- [None]
(c) Report, Opinion or Appraisal -- (attached to the Proxy
Statement/Prospectus as Annex III)
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
1. To file, during any period in which offers or
sales are being made, a post-effective amendment
to this registration statement.
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts
or events arising after the effective
date of the registration statement (or
the most recent post-effective amendment
thereof) which, individually or in the
aggregate, represent a fundamental
change in the information set forth in
the registration statement.
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration
statement.
Provided, however, that paragraphs (a)(1)(i)
and (a)(1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8, and the
information required to be included in a
post-effective amendment by those paragraphs is
contained in periodic reports filed by the
registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any
liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof.
3. To remove from registration by means of a
post-effective amendment any of the securities
being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
4. That prior to any public reoffering of the
securities registered hereunder through the use
of a prospectus which is a part of this
registration statement, by any person or party
who is deemed to be an underwriter within the
meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will
contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information
called for by the other items of the applicable
form.
5. That every prospectus (i) that is filed pursuant
to the paragraph immediately preceding, or (ii)
that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933
and is used in connection with an offering of
securities subject to Rule 415, will be filed as
part of an amendment to the registration
statement and will not be used until such
amendment is effective, and that, for the
purposes of determining any liability under the
Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new
registration statement relating to the
securities offered therein, and the offering of
such securities at that time shall be deemed to
be the initial bona fide offering thereof.
6. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling
persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as
expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a
claim for indemnification against such
liabilities (other than the payment by the
Registrant of expenses incurred or paid by a
director, officer or controlling person of the
Registrant in the successful defense of any
action, suit or proceeding) is asserted by such
director, officer or controlling person in
connection with the securities being registered,
the Registrant will, unless in the opinion of
its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether
such indemnification by it is against public
policy as expressed in the Securities Act of
1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this form, within
one business day of receipt of such request, and to send the
incorporated documents by first-class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this registration to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Richmond, Commonwealth of Virginia, on
August 29, 1997.
CRESTAR FINANCIAL CORPORATION
(Registrant)
By: /s/ Richard G. Tilghman
----------------------------------
Richard G. Tilghman
Chairman of the Board &
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on August 29, 1997. Each of the directors and/or officers of Crestar Financial
Corporation whose signature appears below hereby appoints John C. Clark, III,
Linda F. Rigsby and Lathan M. Ewers, Jr., 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-effective amendments 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.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard G. Tilghman Chairman of the Board & Chief Executive
- ---------------------------- Officer and Director (Principal Executive Officer)
Richard G. Tilghman
/s/ James M. Wells, III President, Chief Operating Officer and Director
- ----------------------------
James M. Wells, III
/s/ Richard F. Katchuk Corporate Executive Vice President &
- ---------------------------- Chief Financial Officer (Principal Financial Officer)
Richard F. Katchuk
/s/ James D. Barr Group Executive Vice President -
- ---------------------------- Controller & Treasurer
James D. Barr (Principal Accounting Officer)
/s/ J. Carter Fox Director
- ----------------------------
J. Carter Fox
II-5
<PAGE>
/s/ Bonnie Guiton Hill Director
- ----------------------------
Bonnie Guiton Hill
- ---------------------------- Director
Charles R. Longsworth
/s/ Patrick J. Maher Director
- ----------------------------
Patrick J. Maher
/s/ Frank E. McCarthy Director
- ----------------------------
Frank E. McCarthy
/s/ Paul D. Miller Director
- ----------------------------
Paul D. Miller
/s/ G. Gilmer Minor, III Director
- ----------------------------
G. Gilmer Minor, III
/s/ Gordon F. Rainey, Jr. Director
- ----------------------------
Gordon F. Rainey, Jr.
- ---------------------------- Director
Frank S. Royal, M. D.
/s/ Jeffrey R. Springer Director
- ----------------------------
Jeffrey R. Springer
/s/ Alfred H. Smith, Jr. Director
- ----------------------------
Alfred H. Smith, Jr.
/s/ Eugene P. Trani Director
- ----------------------------
Eugene P. Trani
/s/ L. Dudley Walker Director
- ----------------------------
L. Dudley Walker
/s/ Robert C. Wilburn Director
- ----------------------------
Robert C. Wilburn
- ---------------------------- Director
Karen Hastie Williams
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
2(a) Agreement and Plan of Reorganization, dated as of June 23, 1997
(attached to the Proxy Statement/Prospectus as Annex I)
2(b) Stock Option Agreement dated as of June 23, 1997, between
Crestar and American National (attached to the Proxy
Statement/Prospectus as Annex II)
5 Opinion of Hunton & Williams with respect to legality
8 Opinion of Hunton & Williams with respect to tax consequences of
the Merger
23(a) Consent of KPMG Peat Marwick LLP (Crestar Financial Corporation)
23(b) Consent of Deloitte & Touche LLP (Citizens Bancorp)
23(c) Consent of KPMG Peat Marwick LLP (American National)
23(d) Consent of Keefe, Bruyette & Woods (American National)
23(e) Consent of Hunton & Williams (included in Exhibit 5 and Exhibit
8)
24 Power of Attorney (included on signature pages of the
Registration Statement)
28 Form of American National Proxy
II-7
Exhibit 5
HUNTON & WILLIAMS
951 EAST BYRD STREET
RICHMOND, VA 23219
August 29, 1997
Board of Directors
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Registration Statement on Form S-4
American National Bancorp, Inc.
-------------------------------
Ladies and Gentlemen:
We are acting as counsel for Crestar Financial Corporation (the
"Company") in connection with the registration under the Securities Act of 1933
of 2,672,000 shares of its common stock (the "Common Stock"). The transaction in
which the Common Stock will be issued is described in the Company's Registration
Statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission on August 29, 1997 and relating to the Company's
acquisition of American National Bancorp, Inc. In connection with the filing of
the Registration Statement you have requested our opinion concerning certain
corporate matters.
We are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the Commonwealth of Virginia.
2. The Common Stock has been duly authorized and, when the shares have
been issued as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us in the Proxy
Statement/Prospectus included therein. In giving this consent, we do not admit
that we are within the category of persons whose consent is required by section
7 of the Securities Act of 1933 or the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
Very truly yours,
HUNTON & WILLIAMS
Exhibit 8
August 28, 1997
Crestar Financial Corporation
919 East Main Street, 16th Floor
Richmond, Virginia 23219
American National Bancorp, Inc.
211 North Liberty Street
Baltimore, Maryland 21201
Merger of American National Bancorp, Inc.
Into Crestar Financial Corporation
Certain Federal Income Tax Consequences
---------------------------------------
Gentlemen:
We have acted as counsel to Crestar Financial Corporation
("Crestar"), a Virginia corporation, in connection with the proposed merger of
American National Bancorp, Inc. ("American National"), a Delaware corporation,
into Crestar (the "Holding Company Merger"). After the Holding Company Merger,
American National Savings Bank, F.S.B. ("Savings Bank"), currently a
wholly-owned subsidiary of American National, will merge into Crestar Bank, a
wholly-owned subsidiary of Crestar (the "Bank Merger").
In the Holding Company Merger, each outstanding share of
American National common stock (other than any shares held by Crestar) is to be
converted into a fraction of a share of Crestar common stock having a fair
market value of $20.25 or, at the election of each American National
shareholder, $20.25 in cash. For that purpose, Crestar common stock will be
valued at the average closing price of Crestar common stock for the ten trading
days ending on the tenth day before the effective date of the Holding Company
Merger (the "Effective Date"). However, a share of American National common
stock will not be converted into less than 0.405 or more than 0.675 of a share
of Crestar common stock. Any American National shareholder who becomes entitled
to a fractional share of Crestar common stock as a result of the Holding Company
Merger, after aggregating all the shareholder's shares of American National
common stock, will receive cash from Crestar in lieu of the fractional share.
The total
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 2
number of shares of American National common stock that may be exchanged for
cash pursuant to the cash election is limited to 40 percent of the shares
outstanding immediately before the Holding Company Merger. American National
shareholders are not entitled to exercise dissenter's rights with respect to the
Holding Company Merger.
You have requested our opinion concerning certain federal
income tax consequences of the Holding Company Merger and the Bank Merger. In
giving this opinion, we have reviewed the Agreement and Plan of Reorganization
dated as of June 23, 1997 among Crestar, Crestar Bank, American National, and
Savings Bank; the Plan of Merger relating to the Holding Company Merger; the
Plan of Merger relating to the Bank Merger; the Form S-4 Registration Statement
under the Securities Act of 1933 relating to the Holding Company Merger (the
"S-4"); and such other documents as we have considered necessary. In addition,
we have assumed the following:
1. The fair market value of the Crestar common stock
(including any fractional share interest) received by an American National
shareholder in exchange for American National common stock will be approximately
equal to the fair market value of the American National common stock surrendered
in the exchange.
2. None of the compensation received by any
shareholder-employee of American National will be separate consideration for, or
allocable to, any shares of American National common stock; none of the shares
of Crestar common stock received by any shareholder-employee in the Holding
Company Merger will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any shareholder- employee
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
3. The payment of cash in lieu of fractional shares of Crestar
common stock is solely for the purpose of avoiding the expense and inconvenience
to Crestar of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the Holding Company Merger to American National shareholders in lieu of
fractional shares of Crestar common stock will not exceed one percent of the
total consideration issued in the Holding Company Merger to the American
National shareholders in exchange for their American National common stock.
4. No share of American National common stock has been or will
be redeemed in anticipation of the Holding Company Merger, and American National
has not made and will not make any extraordinary distribution with respect to
its stock in anticipation of the Holding Company Merger.
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 3
5. Crestar has no plan or intention to reacquire any of its
stock issued in the Holding Company Merger or to make any extraordinary
distribution with respect to such stock.
6. There is no plan or intention by shareholders of American
National to sell, exchange, or otherwise dispose of a number of shares of
Crestar common stock received in the Holding Company Merger that would reduce
the American National shareholders' ownership of Crestar common stock to a
number of shares having a fair market value, as of the Effective Date, of less
than 50 percent of the fair market value of all the formerly outstanding
American National common stock as of the Effective Date. For this purpose,
shares of American National common stock exchanged for cash in the Holding
Company Merger or exchanged for cash in lieu of fractional shares of Crestar
common stock are treated as outstanding American National common stock on the
Effective Date. Moreover, shares of American National common stock and shares of
Crestar common stock held by American National shareholders and otherwise sold,
redeemed, or disposed of before or after the Holding Company Merger are
considered in making the above determination.
7. Following the Holding Company Merger, Crestar will continue
the historic business of American National or use a significant portion of
American National's historic business assets in a business.
8. The liabilities of American National that will be assumed
by Crestar and the liabilities, if any, to which the transferred assets of
American National are subject were incurred by American National in the ordinary
course of business.
9. There is no indebtedness existing between (a) American
National or any subsidiary of American National and (b) Crestar or any
subsidiary of Crestar.
10. Neither Crestar nor any subsidiary of Crestar (a) has
transferred or will transfer cash or other property to American National or any
subsidiary of American National in anticipation of the Holding Company Merger or
the Bank Merger or (b) has made or will make any loan to American National or
any subsidiary of American National in anticipation of the Holding Company
Merger or the Bank Merger.
11. On the Effective Date, the fair market value of the assets
of American National transferred to Crestar will exceed the sum of American
National's liabilities assumed by Crestar plus the amount of liabilities, if
any, to which the transferred assets are subject.
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 4
12. Crestar has no plan or intention to sell or otherwise
dispose of any of the assets of American National acquired in the Holding
Company Merger, except in the Bank Merger.
13. Crestar, Crestar Bank, American National, Savings Bank,
and the shareholders of American National will pay their respective expenses, if
any, incurred in connection with the Holding Company Merger and the Bank Merger.
14. For each of Crestar, Crestar Bank, American National, and
Savings Bank, not more than 25 percent of the fair market value of its adjusted
total assets consists of stock and securities of any one issuer, and not more
than 50 percent of the fair market value of its adjusted total assets consists
of stock and securities of five or fewer issuers. For purposes of the preceding
sentence, (a) a corporation's adjusted total assets exclude cash, cash items
(including accounts receivable and cash equivalents), and United States
government securities, (b) a corporation's adjusted total assets exclude stock
and securities issued by any subsidiary at least 50 percent of the voting power
or 50 percent of the total fair market value of the stock of which is owned by
the corporation, but the corporation is treated as owning directly a ratable
share (based on the percentage of the fair market value of the subsidiary's
stock owned by the corporation) of the assets owned by any such subsidiary, and
(c) all corporations that are members of the same "controlled group" within the
meaning of section 1563(a) of the Internal Revenue Code (the "Code") are treated
as a single issuer.
15. At all times during the five-year period ending on the
Effective Date, the fair market value of all of American National's United
States real property interests was and will have been less than 50 percent of
the total fair market value of (a) its United States real property interests,
(b) its interests in real property located outside the United States, and (c)
its other assets used or held for use in a trade or business. For purposes of
the preceding sentence, (x) United States real property interests include all
interests (other than an interest solely as a creditor) in real property and
associated personal property (such as movable walls and furnishings) located in
the United States or the Virgin Islands and interests in any corporation (other
than a controlled corporation) owning any United States real property interest,
(y) American National is treated as owning its proportionate share (based on the
relative fair market value of its ownership interest to all ownership interests)
of the assets owned by any controlled corporation or any partnership, trust, or
estate in which American National is a partner or beneficiary, and (z) any such
entity in turn is treated as owning its proportionate share of the assets owned
by any controlled corporation or any partnership, trust, or estate in which the
entity is a partner or beneficiary. As used in this paragraph, "controlled
corporation" means any corporation at least 50 percent of the fair market value
of the stock of which is owned by
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 5
American National, in the case of a first-tier subsidiary of American National,
or by a controlled corporation, in the case of a lower-tier subsidiary.
16. Any shares of Crestar common stock received in exchange
for shares of American National common stock that (a) were acquired in
connection with the performance of services, including stock acquired through
the exercise of an option or warrant acquired in connection with the performance
of services, and (b) are subject to a substantial risk of forfeiture within the
meaning of section 83(a) of the Code will be subject to substantially the same
risk of forfeiture after the Holding Company Merger.
17. No outstanding American National common stock acquired in
connection with the performance of services was or will have been acquired
within six months before the Effective Date by any person subject to section
16(b) of the Securities Exchange Act of 1934 other than pursuant to an option
granted more than six months before the Effective Date.
18. Neither American National nor Savings Bank has filed, and
neither holds any asset subject to, a consent pursuant to section 341(f) of the
Code and regulations thereunder.
19. Neither American National nor Savings Bank is a party to,
and neither holds any asset subject to, a "safe harbor lease" under former
section 168(f)(8) of the Code and regulations thereunder.
20. No share of Savings Bank stock has been or will be
redeemed in anticipation of the Bank Merger, and Savings Bank has not made and
will not make any extraordinary distribution with respect to its stock in
anticipation of the Bank Merger.
21. Crestar Bank has no plan or intention to reacquire any of
its outstanding stock or to make any extraordinary distribution with respect to
such stock.
22. Crestar Bank will continue the historic business of
Savings Bank or use a significant portion of Saving Bank's historic business
assets in a business.
23. The liabilities of Savings Bank that will be assumed by
Crestar Bank and the liabilities, if any, to which the transferred assets of
Savings Bank are subject will have been incurred by Savings Bank in the ordinary
course of business.
24. On the effective date of the Bank Merger, the adjusted
federal income tax basis and the fair market value of the assets of Savings Bank
transferred to Crestar Bank each
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 6
will exceed the sum of Savings Bank's liabilities assumed by Crestar Bank plus
the amount of liabilities, if any, to which the transferred assets are subject.
25. Crestar Bank has no plan or intention to sell or otherwise
dispose of any of the assets of Savings Bank to be acquired in the Bank Merger,
except for dispositions made in the ordinary course of business.
26. Crestar has no plan or intention to dispose of any Crestar
Bank stock.
On the basis of the foregoing, and assuming that (a) with
respect to any nonresident alien or foreign entity that is a shareholder of
American National, American National will comply with all applicable statement
and notification requirements (if any) of Treasury Regulation ss. 1.897-2(g) &
(h), (b) the Holding Company Merger will be consummated in accordance with the
Plan of Merger therefor, and (c) the Bank Merger will be consummated in
accordance with the Plan of Merger therefor, we are of the opinion that (under
current law) for federal income tax purposes:
1. The Holding Company Merger will be a reorganization within
the meaning of section 368(a)(1)(A) of the Code.
2. American National will not recognize gain or loss (a) on
the transfer of its assets to Crestar in exchange for Crestar common stock,
cash, and the assumption of American National's liabilities or (b) on the
constructive distribution of Crestar common stock and cash to American National
shareholders.
3. Crestar will not recognize gain or loss on the acquisition
of American National's assets in exchange for Crestar common stock, cash, and
the assumption of American National's liabilities.
4. An American National shareholder will not recognize gain or
loss on the exchange of his shares of American National common stock solely for
shares of Crestar common stock (including any fractional share interest) in the
Holding Company Merger.
5. The aggregate basis of shares of Crestar common stock
(including any fractional share interest) received in the Holding Company Merger
by an American National shareholder who exchanges his shares of American
National common stock solely for shares of Crestar common stock will be the same
as the aggregate basis of the shares of American National common stock exchanged
therefor.
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 7
6. An American National shareholder who exchanges shares of
American National common stock for both shares of Crestar common stock
(including any fractional share interest) and cash (excluding cash received in
lieu of a fractional share) will recognize any gain realized (including any gain
treated as a dividend) up to the amount of such cash received, but will not
recognize any loss.
7. The aggregate basis of shares of Crestar common stock
(including any fractional share interest) received in the Holding Company Merger
by an American National shareholder who exchanges shares of American National
common stock for shares of Crestar common stock and cash (excluding cash
received in lieu of a fractional share) will be the same as the aggregate basis
of the shares of American National common stock exchanged therefor, decreased by
the amount of such cash received and increased by the amount of gain recognized
by the shareholder (including any gain treated as a dividend).
8. The holding period for shares of Crestar common stock
(including any fractional share interest) received by an American National
shareholder in the Holding Company Merger will include the holding period for
the shares of American National common stock exchanged therefor, if such shares
of American National common stock are held as a capital asset on the Effective
Date.
9. Cash received by an American National shareholder in lieu
of a fractional share of Crestar common stock will be treated as having been
received as full payment in exchange for such fractional share pursuant to
section 302(a) of the Code.
10. The Bank Merger will be a reorganization within the
meaning of section 368(a)(1)(A) and section 368(a)(1)(D) of the Code.
11. Savings Bank will not recognize gain or loss (a) on the
transfer of its assets to Crestar Bank in exchange for the assumption of
liabilities and in constructive exchange for Crestar Bank stock or (b) on the
constructive distribution of Crestar Bank stock to Crestar. (We note, however,
that Savings Bank or Crestar Bank may be required to include in income certain
amounts as a result of (i) the termination of any bad-debt reserve maintained by
Savings Bank for federal income tax purposes and (ii) other possible required
changes in accounting methods.)
12. Crestar Bank will not recognize gain or loss on the
acquisition of Savings Bank's assets in exchange for the assumption of Savings
Bank's liabilities and in constructive exchange for Crestar Bank stock. (We
note, however, that Savings Bank or Crestar Bank may be required to include in
income certain amounts as a result of (i) the termination of any bad-
<PAGE>
Crestar Financial Corporation
American National Bancorp, Inc.
August 28, 1997
Page 8
debt reserve maintained by Savings Bank for federal income tax purposes and (ii)
other possible required changes in accounting methods.)
13. Crestar will not recognize gain or loss on the
constructive exchange of shares of Savings Bank stock for shares of Crestar Bank
stock in the Bank Merger.
We are also of the opinion that the material federal income
tax consequences of the Holding Company Merger are fairly summarized in the S-4
under the headings "Summary-- Certain Federal Income Tax Consequences of the
Transaction" and "The Holding Company Merger--Certain Federal Income Tax
Consequences." We consent to the use of this opinion as an exhibit to the S-4
and to the reference to this firm under such headings. In giving this consent,
we do not admit that we are within the category of persons whose consent is
required by section 7 of the Securities Act of 1933 or the rules and regulations
promulgated thereunder by the Securities and Exchange Commission.
Very truly yours,
HUNTON & WILLIAMS
Exhibit 23(a)
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the use of our report included in Crestar Financial Corporation's
Annual Report on Form 10-K for the year ended December 31, 1996 incorporated
herein by reference and to the reference to our firm under the heading
"Experts." Our report refers to our reliance on another auditor's report with
respect to amounts related to Citizens Bancorp included in the aforementioned
consolidated financial statements.
/s/ KPMG Peat Marwick LLP
Richmond, Virginia
August 28, 1997
Exhibit 23(b)
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in this Registration Statement of
Crestar Financial Corporation on Form S-4 of our report dated January 16, 1997,
on Citizens National Bancorp as of and for the year ended December 31, 1996,
which is incorporated by reference in the Annual Report on Form 10-K of Crestar
Financial Corporation for the year ended December 31, 1996 and to the reference
to us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
Richmond, Virginia
August 28, 1997
Exhibit 23(c)
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
American National Bancorp, Inc.
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts."
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
August 28, 1997
Exhibit 23(d)
CONSENT OF KEEFE, BRUYETTE & WOODS, INC.
We hereby consent to the use of our name and to the description of our opinion
letter dated the date of the Proxy Statement/Prospectus referred to below, under
the caption "THE MERGER--Opinions of Financial Advisor" in, and to the inclusion
of such opinion letter in the Appendix to the Proxy Statement/Prospectus of
Crestar Financial Corporation and American National Bancorp, Inc., which Proxy
Statement Prospectus is part of this Registration Statement on Form S-4 of
Crestar Financial Corporation. By giving such consent we do not thereby admit
that we are experts with respect to any part of such Registration Statement
within the meaning of the term "expert" as used in, or that we come within the
category of persons whose consent is required under, the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
commission promulgated thereunder.
Keefe, Bruyette & Woods, Inc.
August 27, 1997
Exhibit 28
AMERICAN NATIONAL BANCORP, INC.
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints _______________ and _______________,
either one of whom may act with full power of substitution, to act as proxies
for the undersigned and to vote all shares of Common Stock of American National
Bancorp, Inc. ("American National") which the undersigned is entitled to vote at
the Special Meeting of Shareholders to be held on _____________ at _____ _.m.,
local time, at ______________________________________, 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. If no
direction is made, this proxy will be voted FOR Proposal 1. If any other
business is properly presented at the Special Meeting, this proxy will be voted
by the proxies in their discretion.
The Board of Directors recommends that shareholders vote FOR Proposal
1.
1. FOR [ ] AGAINST [ ] ABSTAIN [ ]
Approval and adoption of the Agreement and Plan of Reorganization dated
June 23, 1997, among Crestar Financial Corporation ("Crestar"), Crestar
Bank, American National Bank and American National Savings Bank, FSB,
providing for the acquisition of American National by Crestar, as
described in the Proxy Statement/Prospectus.
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned acknowledges receipt prior to the execution of this proxy of a
Notice of Special Meeting of Shareholders dated ____________, and of a Proxy
Statement/Prospectus dated _____________, 1997.
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 ____________________, 1997 ------------------------------------
Signature
------------------------------------
Signature
Please Mark, Sign, Date and Return the Proxy Card Promptly
Using the Enclosed Envelope.
