<PAGE>
As filed with the Securities and Exchange Commission on November 8, 1994
Registration No. 33-55313
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
BB&T FINANCIAL CORPORATION
(Exact name of registrant as specified in charter)
================================================================================
North Carolina 6711 56-1056232
(state or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
================================================================================
223 West Nash Street
Wilson, North Carolina 27893
(919) 399-4291
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Scott E. Reed
Senior Executive Vice President,
Treasurer, and Chief Financial Officer
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
(919) 399-4418
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Barbara E. Mathews, Esq. George Whitley, Esq.
Arnold & Porter LeClair, Ryan, Joynes, Epps
777 South Figueroa Street & Framme
Suite 4000 707 E. Main Street, 11th Floor
Los Angeles, CA 90017-2513 Richmond, VA 23219
(213) 243-4153 (804) 343-4089
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box [ ]
<TABLE>
<CAPTION>
===================================================================================================
CALCULATION OF REGISTRATION FEE
===================================================================================================
<S> <C> <C> <C> <C>
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered/*/ unit price registration fee
- ---------------------------------------------------------------------------------------------------
Common Stock
($2.50 Par Value) 4,517,862 Not Applicable $29.875/**/ $46,542/***/
===================================================================================================
</TABLE>
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.
- ------------------
/*/ The estimated maximum number of shares to be issued.
/**/ Estimated solely for the purpose of computing the registration fee.
Computed in accordance with Rule 457(f)(1) based upon 2,732,523 shares of
Commerce Common Stock outstanding as of August 29, 1994; 266,545 shares of
Commerce Common Stock issuable upon the exercise of options outstanding as of
August 29, 1994, 200,000 shares of Commerce Common Stock issuable pursuant to
the Commerce Bank Dividend Reinvestment and Stock Purchase Plan and 262,895
shares of Commerce Common Stock issuable upon conversion of Commerce's 10%
Convertible Subordinated Capital Notes due August 31, 2002; a market value of
Commerce Common Stock as of August 26, 1994 of $29.875 per share; and an
Exchange Ratio of 1.305.
/***/ 1/29 of 1% of the proposed maximum aggregate offering price. Previously
paid.
<PAGE>
BB&T FINANCIAL CORPORATION
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Heading in Proxy
Item of Form S-4 Statement/Prospectus
---------------- --------------------
<S> <C>
1. Forepart of Registration Cover Page of Registration Statement;
Statement and Outside Front Cross-Reference Sheet; Outside Front Cover Page
Cover Page of Prospectus of Proxy Statement/Prospectus
2. Inside Front and Outside Available Information; Incorporation of Certain
Back Cover Pages of Documents by Reference; Table of Contents
Prospectus
3. Risk Factors, Ratio of Summary; Information Concerning the Special
Earnings to Fixed Charges Meeting; The Acquisition; Information About
and Other Commerce; Selected Financial Data; Selected
Consolidated Financial and Other Data of
Commerce; Ownership of Commerce Common Stock by
Certain Beneficial Owners and Management;
Market Prices and Dividends
4. Terms of Transaction Summary; The Acquisition; Description of BB&T
Financial Common Stock to be Issued in the
Acquisition and Comparison of Stockholders'
Rights
5. Pro Forma Financial Pro Forma Combined Condensed Financial
Information Statements
6. Material Contracts with Summary; The Acquisition--Background of and
the Company Being Acquired Reasons for the Acquisition Agreement
7. Additional Information Not Applicable
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters
8. Interests of Named Experts; Opinions
Experts and Counsel
9. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act
Liabilities
10. Information with Respect Summary; Information About BB&T Financial;
to S-3 Registrants Market Prices and Dividends
11. Incorporation of Certain Incorporation of Certain Documents by Reference
Information by Reference
12. Information with Respect Not Applicable
to S-2 or S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Heading in Proxy
Item of Form S-4 Statement/Prospectus
---------------- --------------------
<S> <C>
14. Information with Respect Not Applicable
to Registrants Other Than
S-3 or S-2 Registrants
15. Information with Respect Incorporation of Certain Documents by
to S-3 Companies Reference; Summary; Information About Commerce;
Market Prices and Dividends
16. Information with Respect Not Applicable
to S-2 or S-3 Companies
17. Information with Respect Not Applicable
to Companies Other than S-3
or S-2 Companies
18. Information If Proxies, Summary; Information Concerning the Special
Consents or Authorizations Meeting; The Acquisition
Are To Be Solicited
19. Information If Proxies, Not Applicable
Consents or Authorizations
Are Not To Be Solicited or
in an Exchange Offer
</TABLE>
-iii-
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOVEMBER 9, 1994
Dear Fellow Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders of
Commerce Bank ("Commerce") to be held at the Ramada Oceanfront Towers, Virginia
Beach, Virginia on December 8, 1994, at 9:00 a.m., Eastern Time (the "Special
Meeting").
At this important meeting, you will be asked to consider and vote on the
approval of an Agreement and Plan of Reorganization and a related Plan of
Merger (collectively, the "Acquisition Agreement") pursuant to which Commerce
will be combined with BB&T Financial Corporation ("BB&T Financial") by merging
Commerce with a wholly owned subsidiary of BB&T Financial (the "Merger"). Upon
consummation of the Merger, each outstanding share of Commerce common stock
will be exchanged for 1.305 shares of BB&T Financial common stock, with cash
being paid in lieu of issuing fractional shares.
Your Board of Directors has retained the investment banking firm of Alex.
Brown & Sons Incorporated ("Alex. Brown") to act as its financial advisor in
connection with the proposed transaction with BB&T Financial. As discussed in
the accompanying Proxy Statement/Prospectus, Alex. Brown has delivered to the
Board of Directors its written opinion that, as of this date, the terms of the
proposed transaction with BB&T Financial are fair to Commerce's stockholders
from a financial point of view.
The exchange of Commerce common stock for BB&T Financial common stock (other
than cash in lieu of any fractional shares) pursuant to the Acquisition
Agreement will be a tax-free transaction for federal income tax purposes.
Details of the proposed transaction are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read carefully in its entirety.
Approval of the transaction with BB&T Financial requires the affirmative vote
of at least a majority of the outstanding shares of the common stock of
Commerce.
We wish to call your attention to the discussion in the accompanying Proxy
Statement/Prospectus concerning BB&T Financial's proposed affiliation with
Southern National Corporation ("SNC"), a North Carolina based bank holding
company with total assets of $8.2 billion at June 30, 1994. It is anticipated
that the effective date for that transaction, which is intended to effect a
"merger of equals," will occur after completion of our transaction with BB&T
Financial. Under the terms of the agreement with SNC, each share of BB&T
Financial common stock will be converted into 1.45 shares of the common stock
of the merged company which will be named Southern National Corporation and
whose common stock will continue to be listed on the New York Stock Exchange
under the symbol "SNB." See "COMPARATIVE PER SHARE DATA" and "INFORMATION ABOUT
BB&T FINANCIAL--SNC Merger."
Your Board of Directors has unanimously approved the Acquisition Agreement
and the transaction with BB&T Financial and believes they are in the best
interests of Commerce and our stockholders. Accordingly, the Board unanimously
recommends that you vote TO APPROVE the Acquisition Agreement.
In view of the importance of the action to be taken, we urge you to complete,
sign and date your proxy, and return it promptly in the enclosed envelope,
whether or not you plan to attend the Special Meeting. Your vote is important,
regardless of the number of shares you own. If you attend the Special Meeting,
you may vote in person even if you have previously mailed your proxy.
We deeply appreciate your continuing loyalty and support, and we look forward
to seeing you at the Special Meeting.
Sincerely,
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
Thomas C. Broyles G. Robert Aston, Jr.
Chairman of the Board President and Chief Executive Officer
<PAGE>
COMMERCE BANK
VIRGINIA BEACH, VIRGINIA 23462
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 8, 1994
To Our Stockholders:
A Special Meeting of stockholders of Commerce Bank ("Commerce") will be held
at the Ramada Oceanfront Towers located at 57th Street and Oceanfront Avenue,
Virginia Beach, Virginia on December 8, 1994 at 9:00 a.m., Eastern Time
("Special Meeting"), for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
between Commerce and BB&T Financial Corporation ("BB&T Financial"), dated
as of June 24, 1994 and amended as of August 25, 1994, and a related Plan
of Merger, dated as of June 24, 1994 (collectively, the "Acquisition
Agreement"), pursuant to which Branch Banking and Trust Company of
Virginia, a to be formed Virginia chartered bank and wholly owned
subsidiary of BB&T Financial, will be merged with and into Commerce (the
"Merger") and the outstanding shares of Commerce common stock will be
converted into shares of BB&T Financial common stock in accordance with the
exchange ratio described in the enclosed Proxy Statement/Prospectus; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournments thereof.
The Board of Directors has fixed October 31, 1994 as the record date for the
Special Meeting, and only holders of record of Commerce common stock at the
close of business on that date are entitled to receive notice of and to vote at
the Special Meeting or any adjournments thereof.
By Order of the Board of Directors,
David W. Edmondson
Senior Vice President and Corporate
Secretary
Virginia Beach, Virginia
November 9, 1994
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF COMMERCE RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE ACQUISITION AGREEMENT.
<PAGE>
PROXY STATEMENT/PROSPECTUS
COMMERCE BANK
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 8, 1994
BB&T FINANCIAL CORPORATION
PROSPECTUS
4,517,862 SHARES OF COMMON STOCK
PAR VALUE $2.50 PER SHARE
(SUBJECT TO CERTAIN ADJUSTMENTS)
This Proxy Statement/Prospectus is furnished by the Board of Directors of
Commerce Bank, Virginia Beach, Virginia ("Commerce") in connection with the
solicitation of proxies from the holders of shares of Commerce's outstanding
common stock, $2.50 par value per share ("Commerce Common Stock"), for use at
the special meeting of stockholders of Commerce to be held on December 8, 1994
("Special Meeting").
At the Special Meeting, stockholders will be asked to consider and vote upon
an Agreement and Plan of Reorganization, dated as of June 24, 1994 and amended
as of August 25, 1994 (as amended, the "Reorganization Agreement"), entered
into by and between Commerce and BB&T Financial Corporation, Wilson, North
Carolina ("BB&T Financial"), and a related Plan of Merger, dated as of June 24,
1994 (the "Plan of Merger"), pursuant to which Branch Banking and Trust Company
of Virginia ("BB&T-VA"), a to be formed Virginia chartered bank and wholly
owned subsidiary of BB&T Financial, will be merged with and into Commerce (the
"Merger"). The Reorganization Agreement and Plan of Merger are referred to
herein as the "Acquisition Agreement."
In the Merger, the stockholders of Commerce will receive 1.305 shares of BB&T
Financial common stock, $2.50 par value per share ("BB&T Financial Common
Stock"), for each share of Commerce Common Stock ("Exchange Ratio") (the Merger
and share exchange collectively are the "Acquisition"); provided, that in the
event that BB&T Financial shall have a record date between June 24, 1994 and
the effective date of the Acquisition for a special distribution to
stockholders, a stock split, stock dividend or similar change in
capitalization, an equitable and appropriate adjustment shall be made to the
Exchange Ratio to reflect the effect of such distribution or change.
Alex. Brown & Sons Incorporated ("Alex. Brown") has rendered its opinion,
updated to the date hereof, to the Board of Directors of Commerce that the
terms proposed by BB&T Financial are fair to Commerce's stockholders from a
financial point of view. See "THE ACQUISITION--Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF COMMERCE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE TO APPROVE THE ACQUISITION AGREEMENT. FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE ACQUISITION AGREEMENT.
This Proxy Statement/Prospectus and the accompanying form of proxy are being
sent to stockholders of Commerce beginning on or about November 9, 1994.
This Proxy Statement/Prospectus does not cover any resales of the BB&T
Financial Common Stock offered hereby to be received by the stockholders deemed
to be "affiliates" of Commerce or BB&T Financial upon consummation of the
Acquisition. No person is authorized to make use of this Proxy
Statement/Prospectus in connection with such resales, although such securities
may be traded without the use of this Proxy Statement/Prospectus by those
stockholders of BB&T Financial not deemed to be "affiliates" of BB&T Financial
or Commerce.
On July 29, 1994, BB&T Financial entered into an Agreement and Plan of
Reorganization with Southern National Corporation ("SNC") pursuant to which
BB&T Financial will be merged with SNC in a "merger of equals." The record date
for voting on the SNC Agreement by BB&T Financial stockholders will most likely
occur prior to the consummation of the Acquisition. In such event, Commerce
stockholders will not have an opportunity to vote upon the SNC Agreement. See
"INFORMATION ABOUT BB&T FINANCIAL--SNC Merger."
THE BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION HAS NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE BUREAU OF FINANCIAL INSTITUTIONS OF THE
VIRGINIA STATE CORPORATION COMMISSION OR ANY STATE SECURITIES AUTHORITY, NOR
HAS ANY OF THEM PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No person is authorized to give any information or make any representation
other than those contained or incorporated in this Proxy Statement/Prospectus,
and, if given or made, such information or representation should not be relied
upon as having been authorized. This Proxy Statement/Prospectus does not
constitute an offer to exchange or sell, or a solicitation of an offer to
exchange or purchase, the securities offered by this Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction in
which such offer or solicitation is not authorized or to or from any person to
whom it is unlawful to make such offer or solicitation. Neither the delivery of
this Proxy Statement/Prospectus nor any distribution of securities made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of BB&T Financial or Commerce since the date of
this Proxy Statement/Prospectus.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS NOVEMBER 9, 1994.
<PAGE>
AVAILABLE INFORMATION
BB&T Financial has filed with the Securities and Exchange Commission
("Commission") a Registration Statement on Form S-4 under the Securities Act of
1933, as amended ("Securities Act"), relating to the shares of BB&T Financial
Common Stock that may be issued in connection with the Acquisition. This Proxy
Statement/Prospectus constitutes the prospectus of BB&T Financial filed as part
of the Registration Statement and does not contain all the information set
forth in the Registration Statement, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission. The
information omitted may be obtained from the public reference facilities of the
Commission or inspected and copied at the principal or regional offices of the
Commission at the addresses listed in the next paragraph. Information contained
in this Proxy Statement/Prospectus regarding Commerce and its subsidiary has
been furnished by Commerce and information herein regarding BB&T Financial and
its subsidiaries has been furnished by BB&T Financial.
BB&T Financial and Commerce are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Commission in the case of BB&T Financial and the Federal Deposit Insurance
Corporation ("FDIC") in the case of Commerce. Such reports, proxy statements
and other information with regard to BB&T Financial can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices at 500 West Madison St., Suite 1400, Chicago, Illinois 60621
and 7 World Trade Center, New York, New York 11048. Copies of such materials
can be obtained from the Commission's Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information with regard to Commerce can be inspected and
copied at the FDIC's Registration and Disclosure Section, Room 640, 1776 F
Street, N.W., Washington, D.C. 20429. Such reports, proxy statements and other
information with respect to BB&T Financial and Commerce may also be inspected
at the office of the National Association of Securities Dealers Stock Market,
Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by BB&T Financial with the
Commission are hereby incorporated by reference in this Proxy
Statement/Prospectus:
(i) BB&T Financial's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993;
(ii) BB&T Financial's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994, and June 30, 1994; and
(iii) BB&T Financial's Current Reports on Form 8-K dated January 10,
1994, February 4, 1994, August 2, 1994, August 31, 1994, and the amendment
thereto also dated August 31, 1994, and November 7, 1994 (which includes
the consolidated financial statements of SNC and its subsidiaries
incorporated by reference herein--see "EXPERTS").
The following documents previously filed by Commerce with the FDIC are hereby
incorporated by reference in this Proxy Statement/Prospectus:
(i) Commerce's Annual Report on Form F-2 for the fiscal year ended
December 31, 1993 and the amendment thereto dated August 30, 1994;
(ii) Commerce's Quarterly Reports on Form F-4 for the quarters ended
March 31, 1994 and June 30, 1994;
(iii) Commerce's Current Report on Form F-3 dated July 5, 1994; and
(iv) The description of Commerce Common Stock contained in Commerce's
registration statement filed pursuant to section 12 of the Exchange Act,
and any amendment or report filed for the purpose of updating such
description.
All documents subsequently filed by BB&T Financial and Commerce pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
consummation of the Acquisition and issuance of the shares of BB&T Financial
Common Stock offered hereby are deemed to be incorporated by reference in this
Proxy
2
<PAGE>
Statement/Prospectus and are deemed to be a part hereof from the date of filing
of such documents. Any statement contained in a document filed by BB&T
Financial or Commerce and incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE OTHER DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO
BB&T FINANCIAL OR COMMERCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE TO EACH
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
DIRECTED TO BB&T FINANCIAL'S SECRETARY, 223 WEST NASH STREET, WILSON, NORTH
CAROLINA 27893, TELEPHONE (919) 339-4291 OR UPON WRITTEN OR ORAL REQUEST
DIRECTED TO COMMERCE'S SECRETARY, 5101 CLEVELAND STREET, SUITE 206, VIRGINIA
BEACH, VIRGINIA 23462, TELEPHONE (804) 456-1007, RESPECTIVELY. IN ORDER TO
ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENTS, THE REQUEST SHOULD BE MADE
NO LATER THAN CLOSE OF BUSINESS ON NOVEMBER 30, 1994. PERSONS REQUESTING COPIES
OF EXHIBITS TO DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE
IN SUCH DOCUMENTS WILL BE CHARGED THE COST OF REPRODUCTION AND MAILING.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
Summary.................................................................... 4
Recent Financial Data...................................................... 10
Selected Financial Data.................................................... 12
Comparative Per Share Data................................................. 15
Information Concerning the Special Meeting................................. 16
The Acquisition............................................................ 17
Pro Forma Combined Condensed Financial Statements.......................... 35
Capitalization............................................................. 43
Information About BB&T Financial........................................... 44
Information About Commerce................................................. 53
Selected Consolidated Financial and Other Data of Commerce................. 54
Ownership of Commerce Common Stock By Certain Beneficial Owners and
Management................................................................ 55
Market Prices and Dividends................................................ 57
Description of BB&T Financial Common Stock To Be Issued in the Acquisition
and Comparison of Stockholders' Rights.................................... 58
Description of Stockholders' Rights of SNC................................. 64
Experts.................................................................... 69
Opinions................................................................... 69
Stockholder Proposals...................................................... 69
Other Matters.............................................................. 70
</TABLE>
Appendices:
I.Agreement and Plan of Reorganization and Amendment No. 1 to Agreement and
Plan of Reorganization
II.Plan of Merger
III.Option Agreement
IV.Opinion of Alex. Brown & Sons Incorporated.
3
<PAGE>
SUMMARY
The following is a brief summary of this Proxy Statement/Prospectus and the
appendices hereto prepared in accordance with applicable disclosure
regulations. This summary is not intended to be complete and should be read in
conjunction with, and is qualified in its entirety by reference to, more
detailed information contained in this Proxy Statement/Prospectus, the
information incorporated by reference herein, the text of the Appendices hereto
and the other documents referred to herein and therein.
As used in this Proxy Statement/Prospectus, the terms "BB&T Financial" and
"Commerce" refer to such corporations respectively, and, unless the context
otherwise requires, to their respective subsidiaries or subsidiary.
TIME, PLACE, AND PURPOSE OF THE SPECIAL MEETING
The Special Meeting will be held on December 8, 1994 at 9:00 a.m., at the
Ramada Oceanfront Towers located at 57th Street and Oceanfront Avenue, Virginia
Beach, Virginia. At the Special Meeting, Commerce stockholders will vote upon a
proposal to approve the Acquisition Agreement, attached hereto as Appendices I
and II. On October 31, 1994, the record date ("Record Date") for the Special
Meeting, there were approximately 1,883 holders of record of the 2,734,870
shares of Commerce Common Stock then outstanding and entitled to vote at the
Special Meeting. See "INFORMATION CONCERNING THE SPECIAL MEETING."
PARTIES TO THE ACQUISITION
BB&T Financial
BB&T Financial, a North Carolina corporation headquartered in Wilson, North
Carolina, is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended ("BHCA"). BB&T Financial also is registered as a
savings institution holding company under the savings institution holding
company laws of North Carolina. The principal executive offices of BB&T
Financial are located at 223 West Nash Street, Wilson, North Carolina 27893,
and its telephone number is (919) 399-4291.
As of June 30, 1994, BB&T Financial had total consolidated assets of
approximately $9.9 billion, total deposits through its depository institution
subsidiaries of approximately $7.4 billion and consolidated stockholders'
equity of approximately $804.1 million. See "SELECTED FINANCIAL DATA" and
"INFORMATION ABOUT BB&T FINANCIAL."
BB&T Financial owns and operates four commercial bank subsidiaries: Branch
Banking and Trust Company ("BB&T-NC"), a wholly owned North Carolina chartered
bank subsidiary; and, through BB&T Financial Corporation of South Carolina
("BB&T Financial-SC") (which is a wholly-owned subsidiary of BB&T Financial),
Branch Banking and Trust Company of South Carolina ("BB&T-SC"), a wholly owned
South Carolina chartered banking corporation headquartered in Greenville, South
Carolina; The Lexington State Bank ("Lexington"), a wholly-owned South Carolina
chartered banking corporation headquartered in Lexington, South Carolina; and
The Community Bank of South Carolina ("Community"), a wholly-owned South
Carolina chartered banking corporation headquartered in Varnville, South
Carolina. As of June 30, 1994, BB&T-NC had assets of $8.3 billion and deposit
liabilities of $6.2 billion, BB&T-SC had assets of $510.6 million and deposit
liabilities of $453.7 million, Lexington had assets of $602.5 million and
deposit liabilities of $491.4 million and Community had assets of $117.2
million and deposit liabilities of $99.1 million. The deposits of BB&T-NC,
BB&T-SC, Lexington and Community are insured by the FDIC.
On August 22, 1994, Citizens Savings Bank, S.S.B., Inc., Newton, North
Carolina ("Citizens-Newton"), which was a North Carolina chartered savings bank
subsidiary of BB&T Financial with assets of $247 million and deposit
liabilities of $212 million at June 30, 1994, was merged with and into BB&T-NC.
On September 12, 1994, Mutual Savings Bank of Rockingham County, S.S.B., Inc.,
Reidsville, North Carolina ("Mutual Savings") and Citizens Savings Bank of
Mooresville, S.S.B., Inc., Mooresville, North Carolina ("Citizens-
Mooresville"), each of which was a North Carolina chartered savings bank
subsidiary of BB&T
4
<PAGE>
Financial, were merged with and into BB&T-NC. Together, Mutual Savings and
Citizens-Mooresville had assets of $149 million and deposit liabilities of $124
million at June 30, 1994.
SNC Merger
On July 29, 1994, BB&T Financial and SNC, a North Carolina corporation
headquartered in Lumberton, North Carolina, entered into the SNC Agreement,
pursuant to which BB&T Financial will be merged with SNC (after the effective
date of such merger, the "Continuing Corporation") in a "merger of equals" (the
"SNC Merger"). The Continuing Corporation will be named "Southern National
Corporation." The SNC Agreement also provides that after the SNC Merger,
Southern National Bank of North Carolina ("SNB-NC"), SNC's North Carolina
national bank subsidiary, will be merged with and into BB&T-NC and operate
under the name "Branch Banking and Trust Company"; Southern National Bank of
South Carolina ("SNB-SC"), SNC's South Carolina national bank subsidiary, will
be merged with and into BB&T-SC and operate under the name "Branch Banking and
Trust Company of South Carolina"; and SNB Savings Bank, Inc., S.S.B. ("SNB
Savings"), SNC's North Carolina savings bank subsidiary, will be merged,
directly or indirectly, with and into BB&T-NC. The headquarters of the
Continuing Corporation will be located in Winston-Salem, North Carolina, the
present location of the administrative headquarters of SNB-NC. The SNC
Agreement also provides that the Board of Directors of the Continuing
Corporation shall be comprised of 24 persons, 12 to be selected by the current
Board of Directors of BB&T Financial and 12 to be selected by the current Board
of Directors of SNC. John A. Allison IV, the current Chairman and Chief
Executive Officer of BB&T Financial, will be elected as Chairman of the Board
and Chief Executive Officer of the Continuing Corporation.
SNC is a registered bank holding company under the BHCA, having as its
principal assets all of the outstanding common stock of SNB-NC and SNB-SC. As
of June 30, 1994, SNC reported total consolidated assets of approximately $8.2
billion, total consolidated deposits of approximately $6.2 billion and total
consolidated stockholders' equity of approximately $593.9 million. For the six
months ended June 30, 1994, SNC also reported total consolidated earnings of
approximately $53 million, for a 1.31% return on assets and 19.88% return on
common equity. Under the terms of the SNC Agreement, each share of BB&T
Financial Common Stock will be converted into 1.45 shares of the common stock
of the Continuing Corporation whose common stock will continue to be listed on
the New York Stock Exchange ("NYSE") under the Symbol "SNB." It is anticipated
that the SNC Merger will occur subsequent to the Acquisition. For additional
information concerning the SNC Merger, see "COMPARATIVE PER SHARE DATA," "PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS" and "INFORMATION ABOUT BB&T
FINANCIAL-SNC Merger."
BB&T Financial continues to evaluate the possibility of acquiring additional
commercial banks, savings institutions, insurance agencies and other companies
in North Carolina, South Carolina and Virginia. BB&T Financial may enter into
acquisition agreements with one or more of such institutions after the date of
this Proxy Statement/Prospectus.
Commerce
Commerce is a Virginia banking corporation headquartered in Virginia Beach,
Virginia. Commerce operates 21 banking offices serving the cities of Virginia
Beach, Portsmouth, Norfolk, Chesapeake, Suffolk, Hampton and Newport News,
Virginia, together with the Grafton area of York County located on the western
side of Newport News. The principal executive offices of Commerce are located
at 5101 Cleveland Street, Virginia Beach, Virginia 23462, and its telephone
number is (804) 456-1007.
As of June 30, 1994, Commerce had total assets of approximately $692.1
million, total deposits of approximately $636.4 million and total stockholders'
equity of approximately $46.6 million. See "INFORMATION ABOUT COMMERCE" and
"SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COMMERCE."
5
<PAGE>
TERMS OF THE ACQUISITION
Under the Acquisition Agreement, if all of the required regulatory approvals
are received and all of the conditions to the Acquisition are satisfied, BB&T-
VA will be merged with and into Commerce (the "Merger"), whereupon the separate
existence of BB&T-VA will cease. (Commerce as existing on and after the
"Effective Date" (as defined below) being hereinafter sometimes referred to as
the "Surviving Corporation.") See "THE ACQUISITION--Regulatory Considerations."
Pursuant to the Acquisition Agreement, stockholders of Commerce will receive
for each share of Commerce Common Stock 1.305 shares of BB&T Financial Common
Stock ("Exchange Ratio") (the Merger and share exchange collectively are the
"Acquisition"); provided, that in the event that BB&T Financial shall have a
record date between June 24, 1994 and the effective date of the Acquisition for
a special distribution to stockholders, a stock split, stock dividend or
similar change in capitalization, an equitable and appropriate adjustment shall
be made to the Exchange Ratio to reflect the effect of such distribution or
change. See "THE ACQUISITION--Exchange of Commerce Common Stock."
At the Effective Date, Commerce's obligations with respect to its authorized
and outstanding 10% Convertible Subordinated Capital Notes Due 2002 ("Capital
Notes"), issued by Commerce pursuant to the Indenture, dated as of September
13, 1990, between Commerce and NationsBank of Virginia, N.A., as Trustee
("Indenture"), will be assumed by BB&T Financial and the Surviving Corporation
by a supplemental indenture and each holder of a Capital Note will have the
right, during the period such Capital Note is convertible, to convert each
Capital Note into shares of BB&T Financial Common Stock at a conversion rate
("Conversion Rate") equal to 1.305 shares of BB&T Financial Common Stock for
each share of Commerce Common Stock into which such Capital Notes would have
been converted immediately prior to the Effective Date, and cash in lieu of any
fractional shares. The Conversion Rate is subject to adjustment in accordance
with the terms of the Indenture. See "THE ACQUISITION--Exchange of Commerce
Common Stock."
In addition, at the Effective Date, Commerce's obligations with respect to
options granted under its 1985 Stock Option Plan and its 1993 Incentive Stock
Plan (the "Commerce Stock Option Plans") (allowing holders to acquire an
aggregate of up to 259,743 shares of Commerce Common Stock as of October 31,
1994) will be assumed by BB&T Financial and each stock option outstanding under
such plans will become the right to receive, upon payment by the holder of the
adjusted exercise price, that number of shares of BB&T Financial Common Stock
the option holder would have received pursuant to the Acquisition if he or she
had exercised such option immediately prior thereto, and cash in lieu of any
fractional shares. The conversion of the Commerce stock options is subject to
the restrictions imposed on "incentive stock options" by federal law. See "THE
ACQUISITION--Exchange of Commerce Common Stock," "THE ACQUISITION--Interests of
Certain Persons in the Acquisition and Effect of the Acquisition on Employees
and Benefit Plans--Stock Options" and "OWNERSHIP OF COMMERCE COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
EFFECTIVE DATE OF THE ACQUISITION
The "Effective Date" of the Acquisition will be the time and date specified
in the Articles of Merger that are delivered for filing to the Virginia State
Corporation Commission. The Effective Date will occur as soon as practicable
following the date that all conditions specified in the Acquisition Agreement
have been satisfied or waived. The Effective Date currently is anticipated to
be in the first quarter of 1995. See "THE ACQUISITION--Conditions to
Consummation of the Acquisition."
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION AND EFFECT OF THE ACQUISITION
ON EMPLOYEES AND BENEFIT PLANS
Effective at the Effective Date of the Acquisition, BB&T Financial will enter
into employment agreements with Commerce's executive officers G. Robert Aston,
Jr. and R. Scott Morgan. The agreements will provide for employment terms of
ten years and for certain other benefits and will supercede existing employment
agreements. Commerce and BB&T Financial also will enter into a five-year
consulting
6
<PAGE>
agreement with Commerce's Chairman of the Board, Thomas C. Broyles. The
Reorganization Agreement also contains provisions concerning the continued
employment of certain Commerce employees and with respect to employee benefits
after the Acquisition. See "THE ACQUISITION--Interests of Certain Persons in
the Acquisition and Effect of the Acquisition on Employees and Benefit Plans."
REGULATORY CONSIDERATIONS
The Acquisition cannot be consummated until all required approvals have been
received from the Board of Governors of the Federal Reserve System ("Federal
Reserve"), the FDIC and the Bureau of Financial Institutions of the Virginia
State Corporation Commission ("Bureau"). The applications for approval of the
Acquisition by the Federal Reserve and the Bureau, the organization of BB&T-VA
by the Bureau and the Merger by the FDIC and the Bureau, respectively, were
filed in September 1994. The Federal Reserve application was approved on
November 1, 1994. The other applications are still pending. See "THE
ACQUISITION-- Regulatory Considerations."
STOCKHOLDER APPROVAL
The Acquisition Agreement must be approved by the affirmative vote of at
least a majority of the outstanding shares of Commerce Common Stock. See
"INFORMATION CONCERNING THE SPECIAL MEETING--Record Date, Voting Rights and
Vote Required."
OPINION OF FINANCIAL ADVISOR
Commerce has retained Alex. Brown to act as its financial advisor in
connection with the Acquisition, and Alex. Brown has rendered its opinion to
Commerce's Board of Directors that the Exchange Ratio is fair from a financial
point of view to Commerce stockholders. The full text of Alex. Brown's opinion,
updated to the date hereof, is set forth as Appendix IV to this Proxy
Statement/Prospectus and should be read in its entirety with respect to the
assumptions made and other matters considered and limitations on the review
undertaken. See "THE ACQUISITION--Opinion of Financial Advisor."
OTHER CONDITIONS TO THE ACQUISITION
Consummation of the Acquisition is subject to the satisfaction of certain
conditions in addition to regulatory approvals, the approval of Commerce's
stockholders and receipt of the opinion of Alex. Brown. In particular, BB&T
Financial's obligations under the Acquisition Agreement are conditioned upon,
among other things, receipt of an opinion from KPMG Peat Marwick LLP that the
Acquisition will qualify for pooling-of-interests accounting treatment.
Commerce and BB&T Financial may waive certain of the conditions to their
respective obligations to consummate the Acquisition, other than (i) the
approvals required of Commerce's stockholders and of proper regulatory
authorities, and (ii) after approval of the Acquisition Agreement by Commerce's
stockholders, any reduction in the number of shares of BB&T Financial Common
Stock into which each share of Commerce Common Stock will be converted and
exchanged in the Acquisition or the payment terms for fractional interests. See
"THE ACQUISITION--Conditions to Consummation of the Acquisition."
TERMINATION
The Reorganization Agreement is subject to termination by the mutual
agreement in writing of the parties or, in case of certain defaults, by notice
of termination given by the party not in default. In addition, the
Reorganization Agreement may be terminated if the stockholders of Commerce do
not approve the Acquisition Agreement. Unless extended by the parties, the
Reorganization Agreement may be terminated by either party if the Acquisition
is not consummated before June 30, 1995, or at an earlier date if a required
approval of any regulatory agency is denied and the period for appeals from
that denial has expired. See "THE ACQUISITION--Termination."
7
<PAGE>
AMENDMENT
The Acquisition Agreement may be amended or supplemented in writing by mutual
agreement of BB&T Financial and Commerce, provided that such amendment or
supplement must be approved by their respective Boards of Directors and
provided further that no amendment or supplement executed after approval of the
Acquisition Agreement by Commerce's stockholders may reduce either the number
of shares of BB&T Financial Common Stock into which each share of Commerce
Common Stock will be converted and exchanged in the Acquisition or the payment
terms for fractional interests. See "THE ACQUISITION--Amendment."
DISSENTERS' RIGHTS
Under Virginia law, stockholders of Commerce will have no dissenters' rights
in connection with the Acquisition. See "THE ACQUISITION--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary discussion of certain federal income tax
consequences of the Acquisition to stockholders of Commerce. All stockholders
should read carefully the discussion in "THE ACQUISITION--Certain Federal
Income Tax Consequences of the Acquisition" and other sections of this Proxy
Statement/Prospectus.
Consummation of the Acquisition is conditioned upon receipt by the parties of
an opinion from KPMG Peat Marwick LLP, satisfactory in form and substance to
each of the parties, to the effect that the Acquisition will constitute one or
more reorganizations within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended ("Code"), and that the exchange of Commerce Common
Stock to the extent exchanged for BB&T Financial Common Stock will not give
rise to the recognition of gain or loss for federal income tax purposes to
Commerce's stockholders. See "THE ACQUISITION--Certain Federal Income Tax
Consequences of the Acquisition."
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL INCOME TAX LAWS AND BECAUSE THE
TAX CONSEQUENCES MAY VARY DEPENDING UPON A HOLDER'S INDIVIDUAL CIRCUMSTANCES OR
TAX STATUS, IT IS RECOMMENDED THAT EACH STOCKHOLDER OF COMMERCE CONSULT HIS OR
HER TAX ADVISER CONCERNING THE FEDERAL (AND ANY APPLICABLE STATE, LOCAL OR
OTHER) TAX CONSEQUENCES OF THE ACQUISITION.
RESALES BY AFFILIATES
As a condition to BB&T Financial's obligation to consummate the Acquisition,
affiliates of Commerce must have entered into agreements that they will not
sell any shares of BB&T Financial Common Stock received upon consummation of
the Acquisition except in compliance with Rule 145 under the Securities Act or
otherwise in compliance with the Securities Act and the rules and regulations
promulgated thereunder. See "THE ACQUISITION--Restrictions on Resales by
Affiliates."
OPTION AGREEMENT
As a condition of BB&T Financial's entering into the Reorganization Agreement
and to increase the probability that the Acquisition will be consummated,
Commerce and BB&T Financial entered into an Option Agreement, dated as of June
24, 1994 ("Option Agreement"). The Option Agreement provides for the purchase
by BB&T Financial of up to 540,000 shares of Commerce Common Stock
(approximately 19.8% of the Commerce Common Stock), subject to adjustment, at
an exercise price of $31.50 per share ("Commerce Option"). The Option Agreement
is attached to this Proxy Statement/Prospectus as Appendix III.
Exercise of the Commerce Option is permitted only upon the occurrence of the
events and subject to the limitations specified in the Option Agreement. See
"THE ACQUISITION--The Option Agreement."
8
<PAGE>
MARKET PRICES AND DIVIDENDS
The information presented in the following table reflects the last reported
sale prices for BB&T Financial Common Stock and Commerce Common Stock on June
23, 1994, the last trading day prior to the public announcement of the proposed
Acquisition, and the pro forma equivalent per share market value of the
Commerce Common Stock, calculated by multiplying the closing price of BB&T
Financial Common Stock on such date by the Exchange Ratio (1.305). The table
also reflects the last reported sale prices for BB&T Financial Common Stock and
Commerce Common Stock on November 2, 1994.
MARKET VALUE
<TABLE>
<CAPTION>
HISTORICAL
----------------------- COMMERCE EQUIVALENT
BB&T FINANCIAL COMMERCE PER SHARE BASIS
-------------- -------- -------------------
<S> <C> <C> <C>
June 23, 1994................... $31.25 $32.50 $40.78
November 2, 1994................ 30.00 37.50 39.15
</TABLE>
On July 29, 1994, the last trading day prior to the public announcement of
the execution of the SNC Agreement, the last reported sale price per share for
SNC Common Stock on the NYSE Composite Transactions List was $21.13, and the
last reported sale price per share for BB&T Common Stock on the Nasdaq/NMS was
$31.00. On November 2, 1994, the last reported sale price per share for SNC
Common Stock on the NYSE Composite Transactions List was $20.50. The pro forma
equivalent per share market values of the Commerce Common Stock (giving effect
to the SNC Merger) on July 29, 1994 and November 2, 1994 were $39.98 and
$38.79, respectively, calculated by multiplying the last reported sale price of
SNC Common Stock on such dates by the SNC Merger exchange ratio (1.45) and
multiplying the product thereof by the Exchange Ratio (1.305).
BB&T Financial Common Stock is traded in the NASDAQ Stock Market and the
shares are quoted on The Nasdaq/National Market System ("Nasdaq/NMS"). BB&T
Financial has paid regular quarterly cash dividends since 1921. Although BB&T
Financial currently intends to continue to pay quarterly cash dividends on the
BB&T Financial Common Stock, there can be no assurance that BB&T Financial's
dividend policy will remain unchanged after completion of the Acquisition. The
declaration and payment of dividends thereafter will depend upon business
conditions, operating results, capital and reserve requirements and the BB&T
Financial Board of Directors' consideration of other relevant factors. See
"MARKET PRICES AND DIVIDENDS."
Commerce Common Stock is traded in the NASDAQ Stock Market and the shares are
quoted on the Nasdaq/NMS. Commerce has paid regular quarterly cash dividends
since 1992. However, there can be no assurance that dividends would be paid in
the future. The declaration, payment and amount of any such future dividends
would depend upon business conditions, operating results, capital and reserve
requirements, regulatory authorizations and the consideration of other relevant
factors by the Commerce Board of Directors. See "MARKET PRICES AND DIVIDENDS."
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
Upon completion of the Acquisition, stockholders of Commerce will become
stockholders of BB&T Financial and their rights as such will be governed by
North Carolina law and BB&T Financial's Amended Articles of Incorporation and
By-laws. The rights of the stockholders of BB&T Financial are different in some
respects from the rights of the stockholders of Commerce. See "DESCRIPTION OF
BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION AND COMPARISON OF
STOCKHOLDERS' RIGHTS" and "DESCRIPTION OF STOCKHOLDERS' RIGHTS OF SNC."
THE SHARES OF BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION ARE
NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
9
<PAGE>
RECENT FINANCIAL DATA OF BB&T FINANCIAL, COMMERCE AND SNC
For the three months ended September 30, 1994, net income for BB&T Financial
was $32.2 million or $.88 per share (on a fully-diluted basis), compared with
$27.0 million or $.74 per share for the same period in fiscal 1993. For the
nine months ended September 30, 1994, net income for BB&T Financial increased
to $87.6 million, or $2.39 per share (on a fully-diluted basis) from $78.0
million or $2.17 per share for the same period in fiscal 1993. On September 30,
1994 and 1993, BB&T Financial had total assets of $10.19 billion and $9.03
billion, respectively. Total loans were $6.99 billion at September 30, 1994,
compared with $6.15 billion on September 30, 1993. Deposits at September 30,
1994 and 1993 were $7.50 billion and $6.88 billion, respectively.
For the nine months ended September 30, 1994, net income for Commerce was
$5.45 million or $1.85 per fully-diluted share, compared with $4.86 million or
$1.70 per fully-diluted share for the same period of 1993. As of September 30,
1994, Commerce had total assets of $699.6 million, total loans of $428.1
million and total deposits of $643.0 million.
For the nine months ended September 30, 1994, SNC reported net income of
$80.9 million, compared with $42.4 million for the first three quarters of
1993. Fully-diluted earnings per share were reported to be $1.68 for the nine
months, compared with $.91 for the first three quarters of 1993. SNC reported
total assets of $8.50 billion, total loans of $5.25 billion and total deposits
of $6.26 billion at September 30, 1994.
The following tables set forth certain unaudited financial data for BB&T
Financial, Commerce and SNC, respectively. In the opinion of the respective
managements of BB&T Financial, Commerce and SNC, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
financial position and results of operations of such unaudited periods have
been included. The financial position and results of operations for the periods
ended September 30, 1994 are not necessarily indicative of operations that may
be expected in future periods.
BB&T FINANCIAL
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------------
1994 1993 1994 1993
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income, taxable
equivalent..................... $175,544 $154,316 $ 503,392 $ 446,935
Interest expense................ 78,145 62,736 217,717 183,669
--------- --------- ----------- ----------
Net interest income............. 97,399 91,580 285,675 263,266
Provision for loan losses....... 750 4,363 5,250 14,769
Noninterest income.............. 33,527 30,671 97,399 86,073
Noninterest expense............. 80,169 77,683 243,945 219,931
Income tax expense.............. 17,800 13,183 46,293 36,678
--------- --------- ----------- ----------
Net income.................. $ 32,207 $ 27,022 $ 87,586 $ 77,961
========= ========= =========== ==========
Securities gains included in
noninterest income............. $ 995 $ 214 $ 2,120 $ 1,476
PER SHARE DATA
Net income:
Primary....................... $ .88 $ .74 $ 2.39 $ 2.21
Fully diluted................. .88 .74 2.39 2.17
Cash dividends paid............. .29 .25 .83 .75
Book value...................... 22.66 21.49 22.66 21.49
Closing market price............ 29.00 33.88 29.00 33.88
SELECTED PERIOD END BALANCES
Assets.......................... $10,187,834 $9,027,008
Securities...................... 2,413,176 2,247,520
Loans........................... 6,986,594 6,145,688
Deposits........................ 7,496,739 6,878,800
Shareholders' equity............ 827,551 772,111
RATIOS
Performance Ratios (Annualized):
Return on average assets...... 1.28% 1.20% 1.18% 1.23%
Return on average equity...... 15.71 14.05 14.59 14.39
Net interest margin, taxable
equivalent................... 4.29 4.53 4.28 4.65
</TABLE>
10
<PAGE>
COMMERCE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1994 1993 1994 1993
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income................. $ 12,592 $ 11,957 $ 36,524 $ 35,359
Interest expense................ 5,257 5,192 15,220 15,816
--------- --------- ---------- ----------
Net interest income............. 7,335 6,765 21,304 19,543
Provision for loan losses....... 600 700 1,800 2,225
Noninterest income.............. 2,064 3,893 6,826 8,256
Noninterest expense............. 6,131 6,831 18,357 17,711
Income tax expense.............. 821 1,415 2,524 3,003
--------- --------- ---------- ----------
Net income.................. $ 1,847 $ 1,712 $ 5,449 $ 4,860
========= ========= ========== ==========
Securities gains (losses)
included in noninterest income. $ (28) $ 1,268 $ 41 $ 1,354
PER SHARE DATA
Net income:
Primary....................... $ .64 $ .62 $ 1.93 $ 1.77
Fully diluted................. .62 .60 1.85 1.70
Cash dividends paid............. .20 .14 .50 .36
Book value...................... 17.32 16.48 17.32 16.48
Closing market price............ 37.13 23.75 37.13 23.75
SELECTED PERIOD END BALANCES
Assets.......................... $ 699,610 $ 681,896
Securities...................... 201,638 246,303
Loans........................... 428,114 372,870
Deposits........................ 643,005 629,692
Shareholders' equity............ 47,363 41,917
RATIOS
Performance Ratios (Annualized):
Return on average assets...... 1.06% 1.02% 1.06% 1.00%
Return on average equity...... 15.59 16.25 15.61 16.22
Net interest margin, taxable
equivalent................... 4.54 4.36 4.48 4.36
SNC
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
AT OR FOR THE AT OR FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1994 1993 1994 1993
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income................. $148,653 $ 136,232 $ 420,886 $ 407,529
Interest expense................ 66,811 58,354 181,363 177,971
--------- --------- ---------- ----------
Net interest income............. 81,842 77,878 239,523 229,558
Provision for loan losses....... 989 3,540 3,692 11,493
Noninterest income.............. 19,225 19,927 60,727 73,548
Noninterest expense............. 56,976 61,100 172,491 186,477
Income tax expense.............. 15,089 11,436 43,123 35,539
Less cumulative effect of
changes in accounting
principles, net of income
taxes.......................... -- -- -- 27,217
--------- --------- ---------- ----------
Net income.................. $ 28,013 $ 21,729 $ 80,944 $ 43,380
========= ========= ========== ==========
Securities gains (losses)
included in noninterest income. $ (48) $ 170 $ 906 $ 14,197
PER SHARE DATA
Net income:
Primary....................... $ .61 $ .49 $ 1.76 $ .92
Fully diluted................. .58 .47 1.68 .91
Cash dividends paid............. .20 .17 .54 .47
Book value...................... 12.30 14.77 12.30 12.98
Closing market price............ 20.75 20.50 20.75 20.50
SELECTED PERIOD END BALANCES
Assets.......................... $8,502,290 $7,861,218
Securities...................... 2,651,311 2,394,766
Loans........................... 5,247,797 4,939,957
Deposits........................ 6,262,346 6,137,469
Shareholders' equity............ 609,219 611,519
RATIOS
Performance Ratios (Annualized):
Return on average assets...... 1.34% 1.13% 1.32% .75%
Return on average equity...... 20.36 15.47 20.04 10.06
Net interest margin, taxable
equivalent................... 4.29 4.44 4.28 4.46
</TABLE>
11
<PAGE>
SELECTED FINANCIAL DATA
The following tables represent selected historical financial information for
BB&T Financial, Commerce and SNC and selected combined pro forma financial
information for BB&T Financial, Commerce and SNC. This information is derived
from the historical consolidated financial statements of BB&T Financial,
Commerce and SNC. The information for BB&T Financial, Commerce and SNC set
forth below should be read in conjunction with such historical financial
statements and the notes thereto incorporated herein by reference.
The selected combined pro forma financial information showing the combined
results of BB&T Financial, Commerce and SNC is provided for informational
purposes only. It is not necessarily indicative of actual results that would
have been achieved had the Acquisition and the SNC Merger been consummated on
the dates at the beginning of the periods presented, nor is it necessarily
indicative of future results. For additional pro forma information, see "PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------- -------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T FINANCIAL (HISTORI-
CAL)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $391,720 $348,021 $724,678 $ 687,165 $ 702,387 $ 666,972 $ 654,914
Net income............. 55,379 50,939 105,012 82,621 68,335 61,309 53,015
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 9,878 $ 8,887 $ 9,867 $ 7,932 $ 7,391 $ 6,204 $ 6,204
Deposits............... 7,422 6,897 7,566 6,405 6,216 5,325 5,119
Long-term debt......... 396 106 351 127 118 105 115
Stockholders' equity... 804 763 797 654 575 457 407
PER SHARE DATA:
Net income............. $ 1.52 $ 1.47 $ 2.95 $ 2.53 $ 2.30 $ 2.20 $ 2.02
Fully diluted income... 1.52 1.43 2.91 2.43 2.21 2.13 1.95
Cash dividend declared. .54 .50 1.02 .91 .85 .81 .74
Book value, end of pe-
riod.................. 22.17 21.13 21.90 20.01 18.18 16.55 15.43
AVERAGE SHARES OUTSTAND-
ING:
(thousands):
Primary................ 36,552 34,684 35,620 32,705 29,760 27,834 26,278
Fully diluted.......... 36,552 35,843 36,188 34,741 31,756 29,772 28,221
Shares outstanding-end-
ing................... 36,271 36,113 36,399 32,685 31,647 27,638 26,385
COMMERCE (HISTORICAL)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $ 28,694 $ 27,765 $ 57,902 $ 53,149 $ 46,787 $ 38,759 $ 31,505
Net income............. 3,602 3,148 6,551 4,942 2,599 547 1,687
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 692 $ 666 $ 690 $ 645 $ 479 $ 405 $ 303
Deposits............... 636 616 634 598 445 374 278
Long-term debt......... 7 7 7 6 6 6 1
Stockholders' equity... 47 40 44 37 24 21 21
PER SHARE DATA:
Net income............. $ 1.29 $ 1.15 $ 2.38 $ 2.05 $ 1.36 $ .29 $ .86
Fully diluted income... 1.23 1.11 2.28 1.97 1.35 .29 .86
Cash dividend declared. .30 .22 .51 .26 .05 -- --
Book value, end of pe-
riod.................. 17.10 15.91 16.22 14.90 13.63 12.79 13.07
AVERAGE SHARES OUTSTAND-
ING:
(thousands):
Primary................ 2,802 2,726 2,748 2,413 1,913 1,945 1,969
Fully diluted.......... 3,068 2,993 3,013 2,676 2,176 1,945 1,969
Shares outstanding-end-
ing................... 2,725 2,534 2,687 2,511 1,745 1,650 1,572
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT OR FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------- -------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T FINANCIAL/COMMERCE
(PRO FORMA)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $420,414 $375,786 $782,580 $ 740,314 $ 749,174 $ 705,731 $ 686,419
Net income............. 58,981 54,087 111,563 87,563 70,934 61,856 54,702
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 10,570 $ 9,553 $ 10,557 $ 8,577 $ 7,870 $ 6,609 $ 6,507
Deposits............... 8,059 7,513 8,200 7,003 6,661 5,699 5,397
Long-term debt......... 403 113 358 133 124 110 117
Stockholders' equity... 851 803 841 691 600 478 428
PER SHARE DATA:
Net income............. $ 1.47 $ 1.41 $ 2.85 $ 2.44 $ 2.20 $ 2.04 $ 1.90
Fully diluted income... 1.46 1.37 2.80 2.35 2.11 1.98 1.84
Cash dividend declared. .54 .50 1.02 .91 .85 .81 .74
Book value, end of pe-
riod.................. 21.36 20.38 21.06 19.23 17.66 16.06 15.04
AVERAGE SHARES OUTSTAND-
ING:
(thousands):
Primary................ 40,209 38,242 39,206 35,854 32,257 30,372 28,847
Fully diluted.......... 40,556 39,749 40,120 38,233 34,596 32,310 30,791
Shares outstanding-end-
ing................... 39,827 39,419 39,905 35,962 33,924 29,791 28,436
SNC (HISTORICAL)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $314,576 $324,918 $ 634,982 $650,186 $672,312 $667,803 $639,419
Net income (1)......... 52,931 47,868 8,193 59,163 44,609 30,869 36,416
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 8,236 $ 7,585 $ 8,274 $ 7,380 $ 6,567 $ 6,403 $ 6,148
Deposits............... 6,229 6,042 6,395 6,041 5,504 5,149 4,981
Long-term debt......... 217 371 480 290 293 389 309
Common stockholders'
equity................ 520 522 491 501 425 370 349
Stockholders' equity... 594 595 564 575 425 370 349
PER SHARE DATA
Net income (1)......... $ 1.15 $ 1.08 $ .07 $ 1.34 $ 1.17 $ .82 $ .97
Fully diluted income
(1)................... 1.10 1.03 .07 1.31 1.17 .82 .97
Cash dividend declared. .34 .30 .64 .50 .46 .42 .39
Book value per common
share, end of period.. 11.98 12.62 11.42 13.16 12.15 10.96 10.34
AVERAGE SHARES OUTSTAND-
ING
(thousands):
Primary................ 43,636 41,899 42,331 40,778 38,079 37,461 37,375
Fully diluted.......... 48,189 46,468 46,889 44,994 38,112 37,461 37,375
Shares outstanding-end-
ing................... 43,386 41,333 42,961 38,090 34,993 33,776 33,770
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AT, OR FOR THE
SIX MONTHS
ENDED JUNE 30, AT, OR FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------- ------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BB&T FINANCIAL/COMMERCE/SNC
(PRO FORMA)
INCOME DATA
($ in thousands):
Total interest and non-
interest income....... $734,990 $700,704 $1,417,562 $1,390,500 $1,421,485 $1,373,534 $1,325,838
Net income (1)......... 111,912 101,955 119,756 146,726 115,543 92,725 91,118
PERIOD-END BALANCE SHEET
ITEMS
($ in millions):
Assets................. $ 18,806 $ 17,138 $ 18,831 $ 15,956 $ 14,436 $ 13,013 $ 12,655
Deposits............... 14,288 13,555 14,595 13,044 12,166 10,848 10,378
Long-term debt......... 620 484 837 423 417 499 425
Common stockholders'
equity................ 1,371 1,325 1,324 1,192 1,025 849 777
Stockholders' equity... 1,445 1,398 1,407 1,266 1,025 848 777
PER SHARE DATA
Net income (1)......... $ 1.07 $ 1.02 $ 1.16 $ 1.53 $ 1.36 $ 1.14 $ 1.15
Fully diluted income
(1)................... 1.05 .98 1.15 1.48 1.33 1.12 1.14
Cash dividend declared. .34 .30 .64 .50 .46 .42 .39
Book value per common
share, end of period.. 13.56 13.45 13.13 13.22 12.17 11.03 10.36
AVERAGE SHARES OUTSTAND-
ING
(thousands):
Primary................ 101,938 97,350 99,180 92,765 84,852 81,500 79,203
Fully diluted.......... 106,995 104,104 105,064 100,432 88,275 84,310 82,022
Shares outstanding-end-
ing .................. 101,135 98,491 100,823 90,235 84,183 76,973 75,002
</TABLE>
- --------
(1) Net income and primary and fully-diluted net income per share for the six
months ended June 30, 1993, and the twelve months ended December 31, 1993,
do not include the cumulative effect of changes in accounting principles
resulting from the adoption by SNC, effective January 1, 1993, of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" ("SFAS 109"), SFAS No. 106, "Accounting for Post Retirement Benefits
Other Than Pensions" ("SFAS 106"), and SFAS No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift institutions ("SFAS 72"). The impact of
adoption of SFAS 109, SFAS 106 and SFAS 72 on net income and primary net
income per share and fully-diluted net income per share of SNC was
$27,217,000, $0.65 and $0.60, respectively, for the six months ended June
30, 1993, and $27,217,000, $0.64 and $0.58, respectively, for the twelve
months ended December 31, 1993. The effects on primary and fully diluted
earnings per share on a pro forma basis were $0.28 and $0.26, respectively,
for the six months ended June 30, 1993, and $0.27 and $0.26, respectively,
for the year ended December 31, 1993.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents at the dates and for the periods indicated (i)
certain historical and pro forma combined per share data for BB&T Financial
Common Stock after giving effect to the Acquisition and to the combination that
would be effected by both the Acquisition and the SNC Merger and (ii) certain
historical and pro forma data for Commerce Common Stock. The pro forma
financial data relating to the Acquisition is presented using the pooling-of-
interests method of accounting and the application of the Exchange Ratio of
1.305 shares of BB&T Financial Common Stock for each outstanding share of
Commerce Common Stock. The pro forma financial data relating to the SNC Merger
assumes the prior consummation of the Acquisition and is presented using the
pooling-of-interests method of accounting and the application of the exchange
ratio in the SNC Merger of 1.45 shares of the Continuing Corporation's common
stock for each outstanding share of BB&T Financial Common Stock. The data
presented should be read in conjunction with the historical financial
statements and the related notes thereto included elsewhere herein or
incorporated herein by reference and in conjunction with the pro forma combined
condensed financial information included elsewhere herein.
<TABLE>
<CAPTION>
COMMERCE
COMMERCE EQUIVALENT
HISTORICAL BB&T/ EQUIVALENT BB&T/ PRO FORMA
------------------ COMMERCE PRO FORMA COMMERCE/ (BB&T/
BB&T PRO FORMA (BB&T/ SNC SNC COMMERCE/
FINANCIAL COMMERCE COMBINED COMMERCE) HISTORICAL PRO FORMA SNC)
--------- -------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS PER
SHARE
Six Months Ended June
30, 1994............... $ 1.52 $ 1.29 $ 1.47 $ 1.92 $ 1.15 $ 1.07 $ 2.02
Fiscal Years Ended (1)
1993................... 2.95 2.38 2.85 3.71 .07 1.16 2.20
1992................... 2.53 2.05 2.44 3.18 1.34 1.53 2.90
1991................... 2.30 1.36 2.20 2.87 1.17 1.36 2.57
FULLY DILUTED EARNINGS
PER SHARE
Six Months Ended June
30, 1994............... $ 1.52 $ 1.23 $ 1.46 $ 1.91 $ 1.10 $ 1.05 $ 1.99
Fiscal Years Ended (1)
1993................... 2.91 2.28 2.80 3.65 .07 1.15 2.18
1992................... 2.43 1.97 2.35 3.07 1.31 1.48 2.80
1991................... 2.21 1.35 2.11 2.75 1.17 1.33 2.52
CASH DIVIDENDS DECLARED
PER SHARE
Six Months Ended June
30, 1994............... $ .54 $ .30 $ .54 $ .70 $ .34 $ .34 $ .64
Fiscal Years Ended (1)
1993................... 1.02 .51 1.02 1.33 .64 .64 1.21
1992................... .91 .26 .91 1.19 .50 .50 .95
1991................... .85 .05 .85 1.11 .46 .46 .87
BOOK VALUE PER SHARE
As of June 30, 1994..... $22.17 $17.10 $21.36 $27.87 $11.98 $13.56 $25.66
Fiscal Years Ended (1)
1993................... 21.90 16.22 21.06 27.48 11.42 13.13 24.92
1992................... 20.01 14.90 19.23 25.10 13.16 13.22 25.00
1991................... 18.18 13.63 17.66 23.05 12.15 12.17 23.05
</TABLE>
- --------
(1) The fiscal years of BB&T Financial, Commerce and SNC end on December 31.
15
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to the stockholders of
Commerce as of the Record Date and is accompanied by a form of proxy which is
solicited by the Board of Directors of Commerce for use at the Special Meeting
of Commerce's stockholders to be held on December 8, 1994 and any adjournment
thereof. At the Special Meeting, stockholders will vote on whether to approve
the Acquisition Agreement. Proxies may be voted on such other matters as may
properly come before the Special Meeting, or any adjournment thereof, in the
best judgment of the proxy holders named therein.
The record date for voting on the SNC Agreement by BB&T Financial
stockholders will most likely occur prior to the consummation of the
Acquisition. In such event, Commerce stockholders will not have an opportunity
to vote upon the SNC Agreement. See "INFORMATION ABOUT BB&T FINANCIAL--SNC
MERGER."
Holders of Commerce Common Stock are requested to complete, date and sign the
accompanying proxy and return it promptly to Commerce in the enclosed postage-
paid envelope.
RECORD DATE, VOTING RIGHTS AND VOTE REQUIRED
Only the holders of Commerce Common Stock on the Record Date (October 31,
1994) are entitled to receive notice of and to vote at the Special Meeting and
at any adjournments thereof. On the Record Date, there were 2,734,870 shares of
Commerce Common Stock outstanding which were held by approximately 1,883
holders of record. Each share of Commerce Common Stock outstanding on the
Record Date is entitled to one vote as to each of the matters submitted at the
Special Meeting.
APPROVAL OF THE ACQUISITION AGREEMENT WILL REQUIRE THE AFFIRMATIVE VOTE OF AT
LEAST A MAJORITY OF THE OUTSTANDING SHARES OF COMMERCE COMMON STOCK. FAILURE OF
A HOLDER OF COMMERCE COMMON STOCK TO VOTE SUCH SHARES WILL HAVE THE SAME EFFECT
AS A VOTE "AGAINST" THE ACQUISITION AGREEMENT.
As of the Record Date, the directors and executive officers of Commerce and
their affiliates owned a total of 647,846 shares, or 23.7% of Commerce Common
Stock (exclusive of Capital Notes and shares subject to outstanding options
that are currently exercisable), all of which are expected to be voted in favor
of the Acquisition Agreement.
VOTING AND REVOCATION OF PROXIES
The shares of Commerce Common Stock represented by properly completed proxies
received at or prior to the time for the Special Meeting will be voted as
directed by the stockholders, unless revoked as described below. If no
instructions are given, executed proxies will be voted "FOR" approval of the
Acquisition Agreement. If any other matters are properly presented at the
Special Meeting and may be properly voted on, the proxies solicited hereby will
be voted on such matters in accordance with the decision of a majority of the
Commerce Board of Directors. However, in such event, voting authority will only
be exercised to the extent permissible under the applicable federal securities
laws. Management is not aware of any other business to be presented at the
Special Meeting. This proxy is being solicited for the Special Meeting called
to consider the Acquisition Agreement and any adjournment(s) of the Special
Meeting and will not be used for any other meeting.
The presence of a stockholder at the Special Meeting will not automatically
revoke such stockholder's proxy. A stockholder may, however, revoke a proxy at
any time prior to its exercise by filing a written notice of revocation with,
or by delivering a duly executed proxy bearing a later date to, the Secretary
of Commerce at Commerce's principal executive offices prior to the Special
Meeting, or by attending the Special Meeting and voting in person. A proxy will
not be revoked by the death or incapacity of the stockholder executing it
unless, before the shares are voted, notice of such death or incapacity is
filed with the Secretary of Commerce or other person authorized to tabulate
votes.
16
<PAGE>
SOLICITATION OF PROXIES
Commerce will bear the costs of soliciting proxies, except under certain
circumstances. In addition to use of the mails, proxies may be solicited
personally or by telephone or facsimile by directors, officers and other
employees of Commerce, who will not be specially compensated for such
solicitation activities. Arrangements also will be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation materials to the beneficial owners of shares held of record by
such persons, and such persons will be reimbursed for their reasonable expenses
incurred in that connection by Commerce. Commerce will not utilize the services
of a proxy soliciting firm in connection with the solicitation of proxies in
connection with the Special Meeting.
No person is authorized to give any information or to make any representation
not contained or incorporated by reference in this Proxy Statement/Prospectus
and, if given or made, such information or representation should not be relied
upon as having been authorized by Commerce, BB&T Financial or any other person.
The delivery of this Proxy Statement/Prospectus will not, under any
circumstances, create any implication that there has been no change in the
affairs of Commerce or BB&T Financial since the date of this Proxy
Statement/Prospectus.
RECOMMENDATION
The Board of Directors of Commerce has unanimously approved the Acquisition
Agreement and believes that the proposed transaction is fair to and in the best
interests of Commerce and its stockholders. The Board of Directors of Commerce
unanimously recommends that Commerce's stockholders vote FOR approval of the
Acquisition Agreement.
In making its recommendation, the Board of Directors of Commerce has
considered, among other things, the opinion of Alex. Brown that BB&T
Financial's proposal is fair to Commerce's stockholders from a financial point
of view. See "THE ACQUISITION--Opinion of Financial Advisor."
THE ACQUISITION
The following summary of certain terms and provisions of the Reorganization
Agreement, Plan of Merger and Option Agreement is qualified in its entirety by
reference to each of such documents, which are incorporated by reference herein
and are attached hereto as Appendices I, II and III.
BACKGROUND OF THE ACQUISITION
In October 1993, BB&T Financial and Commerce, together with Commerce's
financial advisor, Alex. Brown, entered into discussions concerning a preferred
stock purchase arrangement whereby BB&T Financial would commit to purchase up
to $12 million of a newly created class of Commerce preferred stock. The
preferred stock, which was designed to qualify as Tier 1 capital for regulatory
purposes, would allow Commerce to enhance its capital position and would make
available additional capital to help support the possible future expansion of
Commerce. The preferred stock purchase agreement with BB&T Financial was
publicly announced in April, 1994, but no shares of preferred stock have been
issued thereunder.
During the course of the negotiations with respect to the preferred stock
arrangement, John A. Allison, IV, Chief Executive Officer of BB&T Financial,
expressed an interest on several occasions to his counterpart at Commerce, G.
Robert Aston, Jr., in exploring the possibility of a business combination of
BB&T Financial and Commerce. The discussions were general and exploratory in
nature and did not result in any specific offers or proposals being made. In
March, 1994, Mr. Allison reiterated the interest of BB&T Financial in exploring
the possibility of a potential business combination with Commerce. Mr. Aston
indicated to Mr. Allison that Commerce would be in a better position to respond
to BB&T Financial after the Commerce annual stockholders' meeting scheduled for
the middle of May.
17
<PAGE>
In late May 1994, a special committee of the Commerce Board of Directors was
formed (the "Special Committee") to study the strategic options available to
Commerce, including the possibility of pursuing discussions with BB&T Financial
concerning a possible business combination. The Special Committee was comprised
of five independent directors from the Commerce Board (Messrs. Thomas C.
Broyles; J.W. Whiting Chisman, Jr.; Andrew S. Fine; Ernest F. Hardee; and J.
Alan Lindauer) and three members of Commerce senior management (Messrs. G.
Robert Aston, Jr., President and Chief Executive Officer; R. Scott Morgan,
Executive Vice President and Senior Lending Officer; and Gerald T. McDonald,
Executive Vice President and Chief Financial Officer).
The Special Committee held its first meeting on May 25, 1994. At that
meeting, representatives of Alex. Brown presented and discussed a financial
evaluation of Commerce assuming Commerce continued as an independent entity or
merged with a larger institution. Alex. Brown identified potential merger
partners and furnished estimates of the exchange ratios or prices that Commerce
could reasonably expect to receive in a business combination. A second meeting
of the Special Committee was held on May 31, 1994 with representatives of Alex.
Brown that focused primarily on a potential business combination with BB&T
Financial.
After considering the information furnished by Alex. Brown and based on
various other factors, including the prospect of remaining independent in view
of the likelihood of further consolidation in the banking industry and the
relationship already established with BB&T Financial in connection with the
preferred stock purchase arrangement, the Special Committee concluded that it
would be advisable to explore a potential business combination with BB&T
Financial involving a tax-free exchange of Commerce Common Stock. The Special
Committee believed that BB&T Financial had the financial capacity and desire to
make a proposal which would be attractive to Commerce stockholders from a
financial point of view. In addition, the Special Committee believed BB&T
Financial had a banking culture that would be compatible with that of Commerce,
particularly since Commerce would be able to operate as a separate bank within
the holding company system. Accordingly, the Special Committee authorized Alex.
Brown to contact BB&T Financial. In view of the discussions which ensued with
BB&T Financial and the ultimate result of the negotiations, Alex. Brown was not
thereafter authorized to contact other institutions concerning their possible
interest in submitting a merger proposal.
During the period of June 8 through June 13, 1994, three meetings took place
between representatives of BB&T Financial and Commerce at which potential terms
and conditions of a possible transaction with BB&T Financial were discussed.
Based on the preliminary discussions at these meetings, the parties decided to
meet on June 21 to negotiate the terms of the transaction, including price, and
to arrive at a definitive agreement. Over the course of the next two days, the
managements of BB&T Financial and Commerce, with the assistance of their
respective legal advisors and Commerce's financial advisor, negotiated the
terms of the transaction as set forth in the Acquisition Agreement and the
Option Agreement.
At a meeting of the Commerce Board of Directors on June 23, 1994, the
management of Commerce, as well as Commerce's financial and legal advisors,
reviewed for the Commerce Board of Directors, among other things, a summary of
the terms of the Acquisition Agreement and the Option Agreement. Alex. Brown
presented its analysis of the BB&T Financial offer and delivered its opinion,
updated to the date hereof, that the terms of the offer are fair to the
Commerce stockholders from a financial point of view. See "--Opinion of
Financial Advisor." Based upon its review and after receiving the advice of
Alex. Brown and considering various other factors, the Commerce Board of
Directors unanimously approved and authorized the execution and adoption of the
Acquisition Agreement and the Option Agreement. See "--Reasons for the
Acquisition; Recommendation of the Commerce Board of Directors" and "--The
Option Agreement." The terms of the Acquisition and the execution of the
Acquisition Agreement and the Option Agreement were announced in a joint press
release on June 24, 1994.
REASONS FOR THE ACQUISITION; RECOMMENDATION OF THE COMMERCE BOARD OF DIRECTORS
The Commerce Board of Directors believes that the Acquisition and the
Acquisition Agreement are in the best interests of Commerce and the Commerce
stockholders. As explained below, this conclusion is
18
<PAGE>
supported by the opinion of its independent financial advisor. In considering
the terms and conditions of the Acquisition Agreement, the Commerce Board of
Directors considered a number of factors. The Commerce Board of Directors did
not assign any relative or specific weights to the factors considered. The
material factors considered were:
(i) The Financial Terms of the Acquisition. In this regard, the Commerce
Board of Directors was of the view that, based on historical and
anticipated trading ranges for BB&T Financial Common Stock, the value of
the consideration to be received by Commerce stockholders resulting from
the Exchange Ratio represented a fair multiple of Commerce's per share book
value, market value and earnings. The Commerce Board of Directors also
considered that, under the proposed Exchange Ratio and based on the
Commerce Board of Directors' belief that BB&T Financial would continue to
pay dividends at its current rate, although there can be no assurance that
current dividends are indicative of future dividends, the Acquisition would
result in a substantial increase in dividend income to Commerce
stockholders. See "COMPARATIVE PER SHARE DATA." In addition, the Commerce
Board of Directors considered the fact that, based on the Exchange Ratio,
Commerce stockholders would own approximately 10% of the combined company,
which percentage compared favorably to the percentages indicated by the
contribution analysis presented to the Board. See "--Opinion of Financial
Advisor" for a discussion of this comparative information.
(ii) The Terms, Other than the Financial Terms, and Structure of the
Acquisition. In this respect, the Commerce Board of Directors considered
the benefits to the customers and employees of Commerce and the communities
it serves by allowing Commerce to remain a separate bank within the BB&T
Financial system. The Commerce Board of Directors further considered the
active role that Commerce, as BB&T Financial's first merger partner in
Virginia, would play in connection with additional financial institution
acquisitions in Virginia. The Commerce Board of Directors also considered
that the Acquisition would qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended (the "Code"). See "--Certain
Federal Income Tax Consequences."
(iii) Certain Financial and Other Information Concerning BB&T
Financial. In this respect, the Commerce Board of Directors considered,
among other things, the consistently high position of BB&T Financial among
its peer group of national and regional financial institutions in terms of
profitability, capital adequacy and asset quality. The Commerce Board of
Directors also considered that the historical dividends per share, net
income per share and book value per share of BB&T Financial Common Stock to
be received by Commerce stockholders, after giving effect to the Exchange
Ratio, would represent a substantial increase in the historical dividends
per share, net income per share and book value per share of Commerce Common
Stock, although there can be no assurance that pro forma amounts are
indicative of future dividends, income per share or book value per share of
BB&T Financial. The Commerce Board of Directors further considered the
diversification of risk associated with ownership in an institution which
serves a broad geographic area which encompasses most of North Carolina and
parts of South Carolina. In addition, the Commerce Board of Directors
considered the increased marketability and liquidity of BB&T Financial
Common Stock.
(iv) Opinion of Financial Advisor. The Commerce Board of Directors also
considered the opinion of Alex. Brown as to the fairness, from a financial
point of view, of the terms of the Acquisition Agreement to Commerce
stockholders. See "--Opinion of Financial Advisor."
(v) Certain other Considerations. The Commerce Board of Directors further
determined that the addition of resources resulting from the Acquisition
will enable Commerce to provide a wider and improved array of financial
services to consumers and businesses and to achieve added flexibility in
dealing with the changing competitive environment in its market area. In
addition, the Commerce Board of Directors considered the prospects of
nationwide interstate banking, the continued disintegration of traditional
geographic and industry lines and the likelihood of further consolidation
in the banking industry.
19
<PAGE>
The Commerce Board of Directors believes that the Acquisition and the
Acquisition Agreement are in the best interests of Commerce and the Commerce
stockholders. The Commerce Board of Directors unanimously recommends that
Commerce's stockholders vote TO APPROVE the Acquisition Agreement.
OPINION OF FINANCIAL ADVISOR
Commerce retained Alex. Brown to act as its financial advisor in connection
with the Acquisition and related matters. Commerce selected Alex. Brown to act
as its financial advisor based upon Alex. Brown's qualifications, expertise and
reputation, as well as its familiarity with Commerce's business and market
area. Alex. Brown regularly publishes research reports regarding Commerce, the
financial services industry in general and the businesses and securities of
publicly owned companies in that industry.
Representatives of Alex. Brown attended the meeting of Commerce's Board of
Directors on June 23, 1994, at which time the Acquisition Agreement was
approved and adopted. Alex. Brown rendered an opinion to Commerce's Board of
Directors that, on June 23, 1994, based on the matters set forth therein, the
Exchange Ratio of 1.305 shares of BB&T Financial Common Stock for each share of
Commerce Common Stock is fair to the stockholders of Commerce from a financial
point of view. Alex. Brown did not determine or recommend the type or amount of
merger consideration. No limitations were imposed by the Commerce Board of
Directors upon Alex. Brown with respect to the investigations made or
procedures followed by it in rendering its opinion.
The full text of Alex. Brown's opinion, updated to the date hereof, which
sets forth assumptions made, matters considered and limits on the review
undertaken, is attached hereto as Appendix IV and is incorporated herein by
reference. Commerce stockholders are urged to read the opinion of Alex. Brown
in its entirety. The following summary of the opinion is qualified in its
entirety by reference to the full text of the opinion.
In rendering its opinion, Alex. Brown (i) reviewed the Acquisition Agreement,
certain publicly available business and financial information concerning
Commerce and BB&T Financial and certain internal financial analyses and
forecasts for Commerce prepared by Commerce's management; (ii) held discussions
with members of executive management of Commerce and BB&T Financial regarding
the past and current business operations, financial condition and future
prospects of Commerce and BB&T Financial; (iii) reviewed the reported price and
trading activity of Commerce Common Stock and BB&T Financial Common Stock and
compared certain financial and stock market information for Commerce and BB&T
Financial with similar information for certain other companies, the securities
of which are publicly traded; (iv) reviewed the financial terms of certain
recent business combinations which Alex. Brown deemed comparable in whole or in
part; and (v) performed such other studies and analyses as Alex. Brown
considered appropriate.
Alex. Brown relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to the financial
forecasts reviewed by Alex. Brown in rendering its opinion, Alex. Brown assumed
that such forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Commerce as to
the future financial performance of Commerce. Alex. Brown did not make an
independent evaluation or appraisal of the assets or liabilities of Commerce
nor was it furnished with any such appraisal.
The summary set forth below does not purport to be a complete description of
the analyses performed by Alex. Brown in this regard. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors discussed below, Alex. Brown believes that its analyses must be
considered as a whole and that selecting portions of its analyses or of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process
20
<PAGE>
underlying its opinion. No one of the analyses performed by Alex. Brown was
assigned a greater significance than any other. In performing its analyses,
Alex. Brown made numerous assumptions with respect to industry performance,
business and economic conditions and other matters, many of which are beyond
Commerce or BB&T Financial's control. The analyses performed by Alex. Brown are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of business do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
Analysis of Selected Publicly Traded Companies. In preparing its opinion,
Alex. Brown, using publicly available information, compared selected financial
information including book value, tangible book value, recent earnings, asset
quality ratios and loan loss reserve levels, for Commerce and a group of
selected comparable financial institutions.
The group comprised ten selected banking organizations located in the states
of Arkansas, Georgia, North Carolina, South Carolina, Virginia and West
Virginia that possessed an asset base between $300 million and $1.5 billion
("Regional Comparable Group"). The Regional Comparable Group included Allied
Bankshares, Inc., Carolina First Corp., Century South Banks, Inc., L.S.B.
Bancshares, Inc. of South Carolina, NBSC Corp., Piedmont BankGroup, Inc.,
Premier Bankshares Corp., Simmons First National Corp., First United
Bancshares, Inc. and WesBanco, Inc. As of June 22, 1994, the relative multiples
of the market price of Commerce Common Stock and the mean market price of the
common stock of the Regional Comparable Group to such selected March 31, 1994
financial data were: to trailing 12 months earnings per share, 12.6x for
Commerce and 12.8x for the Regional Comparable Group; to stated book value,
172.6% for Commerce and 156.9% for the Regional Comparable Group; to tangible
book value, 176.2% for Commerce and 184.9% for the Regional Comparable Group;
and to total assets, 11.5% for Commerce and 15.2% for the Regional Comparable
Group.
Analysis of Comparable Acquisition Transactions. In preparing its opinion,
Alex. Brown analyzed certain comparable merger and acquisition transactions for
bank institutions based upon the acquisition price relative to stated book
value, latest twelve months earnings, total assets, premium to core deposits
and one month prior to announcement market price premium. The analysis included
a review and comparison of the mean multiples represented by a sample of
recently effected or pending bank acquisitions nationwide having a transaction
value between $50 million and $200 million which were announced since January
1, 1992 (a total of 55 transactions), as segmented into: (i) transactions in
Georgia, Maryland, North Carolina, South Carolina and Virginia (4 transactions)
("Regionally-Segmented Transactions"); (ii) transactions in which the selling
bank demonstrated a return on average assets of between 0.70% and 1.20% during
the year of an announced acquisition (25 transactions) ("Profitability-
Segmented Transactions"); and (iii) transactions in which the selling bank had
non-performing assets of less than 1.00% for the most recent quarter prior to
an announced acquisition (27 transactions) ("Asset Quality-Segmented
Transactions").
Based on the closing stock price of BB&T Financial Common Stock on June 22,
1994 ($31.25), the market value of the merger consideration at June 23, 1994
was $40.78 per Commerce share (the "Comparison Value"). The relative multiples
of the Comparison Value and each of the comparable acquisition transaction
segmentations are provided in the following table:
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<TABLE>
<CAPTION>
PURCHASE PRICE TO
---------------------------
ONE MONTH
LAST 12 PRIOR
MONTHS CORE MARKET
EARNINGS DEPOSIT PRICE
TRANSACTION GROUP BOOK VALUE PER SHARE ASSETS PREMIUM PREMIUM
----------------- ---------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
COMPARISON VALUE................ 238.6% 17.4x 18.2% 13.7% 51.7%
Comparable Acquisition Transac-
tions:
(a) Nationwide.................. 197.8% 14.7x 16.7% 10.9% 38.8%
(b) Regionally-Segmented........ 208.5% 21.0x 18.1% 11.3% 29.9%
(c) Profitability-Segmented..... 188.6% 15.9x 15.1% 9.5% 42.2%
(d) Asset Quality-Segmented..... 216.1% 15.7x 18.4% 12.7% 41.6%
</TABLE>
Contribution Analysis. Alex. Brown analyzed the historical (March 31, 1994)
contribution of each of Commerce and BB&T Financial (pro forma for its
acquisition of L.S.B. Bancshares, Inc. of South Carolina) to, among other
things, the total assets, total equity and three months ended March 31, 1994
net income of the pro forma combined company. This analysis showed that
Commerce would have contributed 6.51% of the total assets, 5.49% of the total
equity and 6.11% of the three months ended March 31, 1994 net income to the pro
forma combined company, compared with a proposed ownership of 10.0% of the
combined company to be held by Commerce stockholders. This analysis did not
include any merger synergies.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of the future dividend streams that Commerce
could produce through December 31, 1998, under different assumptions as to
required equity levels, if Commerce performed in accordance with management's
forecasts and certain variants thereof. Alex. Brown also estimated the terminal
value for Commerce's common equity after the period by applying book value
acquisition multiples (188.6%--238.6%) derived from the average price to book
multiples generated by the different segmentations in the comparable
transaction analysis. The dividend streams and terminal values were then
discounted to present values using discount rates ranging from 13.5% to 16.5%
which reflect different assumptions regarding the required rates of return of
holders or prospective buyers of Commerce Common Stock.
Reference Range. Based in part on the several analyses discussed above, Alex.
Brown developed, for purposes of its opinion, a reference range for the value
of Commerce Common Stock of $30.50 to $42.27 per share of Commerce Common
Stock. The values reflected in the foregoing reference range were considered
along with the other analyses performed by Alex. Brown and were not intended to
represent the price at which 100% of the Commerce Common Stock could actually
be sold. The foregoing reference range was based in part on the application of
economic and financial models and is not necessarily indicative of actual
values, which may be significantly more or less than such estimates. The
reference ranges does not purport to be an appraisal.
Compensation of Financial Advisor. Pursuant to the terms of an engagement
letter dated June 4, 1993 and an addendum dated May 31, 1994, Commerce has
agreed to pay Alex. Brown a fee of 1.00% of the aggregate consideration to be
paid in the Acquisition for acting as financial advisor to Commerce in
connection with the Acquisition, including rendering its opinion. Commerce paid
$25,000 of this fee to Alex. Brown upon execution of the engagement letter and
the balance of this fee is payable to Alex. Brown upon consummation of the
Acquisition. Whether or not the Acquisition is consummated, Commerce has agreed
to reimburse Alex. Brown for certain reasonable out-of-pocket expenses and has
also agreed to indemnify Alex. Brown and certain related persons against
certain liabilities relating to or arising out of its engagement.
Certain Relationships. Alex. Brown has acted, from time to time, as financial
advisor to Commerce, including acting as financial advisor to Commerce in
connection with the Preferred Stock Purchase Agreement with BB&T Financial
dated April 21, 1994. In the ordinary course of its business, Alex. Brown makes
a market in Commerce and BB&T Financial securities and may hold positions in
securities of Commerce and BB&T Financial.
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THE FULL TEXT OF ALEX. BROWN'S OPINION AS OF THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX IV TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE, AND
SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE SUMMARY OF THE OPINION OF ALEX. BROWN SET FORTH IN
THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE OPINION.
GENERAL DESCRIPTION OF THE TERMS OF THE ACQUISITION
On the Effective Date, holders of Commerce Common Stock will receive a number
of shares of BB&T Financial Common Stock based on the Exchange Ratio. See "--
Exchange of Commerce Common Stock." BB&T-VA will be merged with and into
Commerce, with Commerce as the surviving corporation and wholly owned
subsidiary of BB&T Financial (Commerce as existing on and after the Effective
Date being hereinafter sometimes referred to as the "Surviving Corporation").
Immediately after the Effective Date, BB&T Financial will distribute all of the
outstanding common stock of the Surviving Corporation to BB&T Financial
Corporation of Virginia, a to be formed Virginia corporation and wholly owned
subsidiary of BB&T Financial ("BB&T Financial-Va"), and the Surviving
Corporation will become a wholly owned subsidiary of BB&T Financial-Va. Unless
the BB&T Financial-Va Board of Directors votes otherwise, the Surviving
Corporation will be named "Commerce Bank" for a period of not less than three
years after the Effective Date.
Upon consummation of the Merger, all of the members of the Commerce Board of
Directors will become members of the Board of Directors of the Surviving
Corporation. In addition, BB&T Financial has agreed to cause seven members of
the Commerce Board of Directors designated by Commerce's Chief Executive
Officer (the "BB&T Financial-Va Designees"), and three other persons designated
by BB&T Financial, to become members of the BB&T Financial-Va Board of
Directors upon consummation of the Acquisition. The BB&T Financial-Va Designees
are: G. Robert Aston, Jr.; Ramon W. Breeden, Jr.; Thomas C. Broyles; J.W.
Whiting Chisman, Jr.; Andrew S. Fine; Ernest F. Hardee; and J. Alan Lindauer.
Mr. Lindauer will become Chairman of the Board of BB&T Financial-Va.
The Reorganization Agreement provides that BB&T Financial and Commerce will
each bear and pay their own costs and expenses incurred in connection with the
transactions contemplated by the Reorganization Agreement, including fees and
expenses of each party's own financial consultants, accountants and counsel,
except that BB&T Financial and Commerce will each bear and pay 50 percent of
the cost of printing this Proxy Statement/Prospectus. BB&T Financial will,
however, reimburse Commerce for all reasonable out-of-pocket expenses incurred
by Commerce in connection with the transactions contemplated by the
Reorganization Agreement if the Reorganization Agreement is terminated.
However, the Reorganization Agreement further provides that BB&T Financial's
obligation to reimburse Commerce for such expenses will not apply if Commerce
materially breaches any provision of the Acquisition Agreement or the Option
Agreement.
EXCHANGE OF COMMERCE COMMON STOCK
At the Effective Date, each share of Commerce Common Stock outstanding
immediately prior to the Effective Date will be exchanged for 1.305 shares of
BB&T Financial Common Stock; provided, that in the event that BB&T Financial
shall have a record date between June 24, 1994 and the effective date of the
Acquisition for a special distribution to stockholders, a stock split, stock
dividend or similar change in capitalization, an equitable and appropriate
adjustment shall be made to the Exchange Ratio to reflect the effect of such
distribution or change.
No fractional shares of BB&T Financial Common Stock will be issued in
connection with the Acquisition. Instead, cash will be paid in lieu of
fractional shares in an amount equal to the product of the fractional share
multiplied by the average of the reported closing price of BB&T Financial
Common Stock
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<PAGE>
on the Nasdaq/NMS on the ten trading days ending on the tenth business day
prior to the Effective Date of the Acquisition (the "BB&T Financial Average
Closing Price").
At the Effective Date, Commerce's obligations with respect to its authorized
and outstanding Capital Notes, issued by Commerce pursuant to the Indenture,
will be assumed by BB&T Financial and the Surviving Corporation by a
supplemental indenture and each holder of a Capital Note will have the right,
during the period such Capital Note is convertible, to convert each Capital
Note into shares of BB&T Financial Common Stock at a Conversion Rate equal to
1.305 shares of BB&T Financial Common Stock for each share of Commerce Common
Stock into which such Capital Notes would have been converted immediately prior
to the Effective Date, subject to payment of cash in lieu of any fractional
shares and to further adjustment in accordance with the terms of the Indenture.
To the extent not exercised prior to the Effective Date, Commerce's
obligations with respect to stock options granted under the Commerce Stock
Option Plans will be assumed by BB&T Financial and each stock option
outstanding under such plan shall become the right to receive, upon payment of
the adjusted exercise price, that number of shares of BB&T Financial Common
Stock the option holder would have received pursuant to the Acquisition if he
or she had exercised such option immediately prior thereto, and cash in lieu of
any fractional shares. The conversion of the Commerce stock options is subject
to the restrictions imposed on "incentive stock options" by federal law. See
"--Interests of Certain Persons in the Acquisition and Effect of the
Acquisition on Employees and Benefit Plans--Stock Options."
The market price of BB&T Financial Common Stock following the completion of
the Acquisition will depend on the results of operations and the financial
condition of BB&T Financial, the pending SNC Merger, the general level of
interest rates, the perception of the banking industry generally, and other
relevant factors that may affect the price of BB&T Financial Common Stock and
that may affect the securities markets generally. Accordingly, BB&T Financial
Common Stock could trade at prices higher or lower than those trading prices
that may have been considered by Commerce's Board of Directors in approving the
Exchange Ratio.
EXCHANGE OF COMMERCE COMMON STOCK CERTIFICATES
As soon as practical after the Effective Date, BB&T-NC, as the transfer agent
for BB&T Financial Common Stock ("Transfer Agent"), will mail to each holder of
record of Commerce Common Stock a letter of instruction regarding the
procedures to be followed in the exchange of certificates of Commerce Common
Stock for certificates of BB&T Financial Common Stock. When it is received,
holders of Commerce Common Stock should follow the instructions contained
therein.
Commerce's stockholders should not forward any certificates representing
shares of Commerce Common Stock except in accordance with the letter of
instruction from the Transfer Agent to be sent after the Effective Date.
COMMERCE'S STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES TO THE TRANSFER
AGENT UNTIL INSTRUCTED TO DO SO.
Upon surrender of certificates representing shares of Commerce Common Stock
to the Transfer Agent after the Effective Date, each holder of Commerce Common
Stock will receive a certificate representing the number of shares of BB&T
Financial Common Stock to which such holder is entitled pursuant to the
Exchange Ratio, and each holder of Commerce Common Stock entitled to receive a
fraction of a share of BB&T Financial Common Stock shall also receive cash in
an amount equal to such fractional part of a share of BB&T Financial Common
Stock multiplied by the BB&T Financial Average Closing Price. At the Effective
Date, Commerce's obligations with respect to its Capital Notes will be assumed
by BB&T Financial and the Surviving Corporation by a supplemental indenture,
and each holder of a Capital Note will have the right, during the period such
Capital Note is convertible, to convert each Capital Note into the number of
shares of
24
<PAGE>
BB&T Financial Common Stock to which such holder is entitled pursuant to the
Conversion Rate, subject to payment of cash in lieu of any fractional shares
and to further adjustment in accordance with the terms of the Indenture. In
addition, at the Effective Date, Commerce's obligations with respect to stock
options granted under the Commerce Stock Option Plans will be assumed by BB&T
Financial, and each stock option outstanding under each such Plan will become
the right to receive, upon payment of the adjusted exercise price, that number
of shares of BB&T Financial Common Stock the option holder would have received
pursuant to the Acquisition if he or she had exercised such option immediately
prior thereto. However, a holder of any Commerce option who would otherwise be
entitled to receive a fraction of a share of BB&T Financial Common Stock upon
exercise of all his or her options at any one time will receive cash in an
amount equal to such fractional part of a share of BB&T Financial Common Stock
multiplied by the BB&T Financial Average Closing Price. The conversion of the
Commerce stock options is subject to the restrictions imposed on "incentive
stock options" by federal law.
A certificate for BB&T Financial Common Stock will be issued only in the name
in which the certificate for Commerce Common Stock surrendered for exchange is
registered. BB&T Financial will issue a single certificate for shares of BB&T
Financial Common Stock to which a Commerce stockholder is entitled. In no event
will the Transfer Agent, BB&T Financial or any party to the Acquisition be
liable to any person for any BB&T Financial Common Stock or dividends thereon
or cash delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
After the Effective Date and until surrender of Commerce Common Stock to the
Transfer Agent, each certificate that represented outstanding Commerce Common
Stock immediately prior to the Effective Date will be deemed to evidence
ownership of the number of shares of BB&T Financial Common Stock into which the
shares represented by such certificates have been exchanged and any right to
receive cash in lieu of fractional shares into which such shares would have
converted. No Commerce stockholder will, however, receive the dividends or
other distributions on BB&T Financial Common Stock until the certificates
representing Commerce Common Stock are surrendered for exchange. Upon surrender
of certificates representing Commerce Common Stock, each such stockholder will
receive the number of shares of BB&T Financial Common Stock to which such
stockholder is entitled under the Exchange Ratio and cash in lieu of any
fractional shares, plus any dividends or other distributions on BB&T Financial
Common Stock which are payable to holders as of any record date following the
Effective Date. No Commerce stockholder will be entitled to dividends, voting
rights or any other stockholder right in respect of any fractional share. All
fractional share interests of each stockholder will be aggregated, and no such
stockholder will receive a cash payment equal to, or greater than, the BB&T
Financial Average Closing Price.
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
The respective obligations of BB&T Financial and Commerce to consummate the
Acquisition are subject to the satisfaction of certain conditions, including,
without limitation, the taking of all necessary corporate action with respect
to the Acquisition Agreement, including the approval of the Acquisition
Agreement by the stockholders of Commerce; the continuing effectiveness of the
registration statement under the Securities Act and applicable state securities
or "Blue Sky" laws or exemptions to those laws; the registration or exemption
from registration under applicable state securities or "Blue Sky" laws of the
BB&T Financial Common Stock to be issued pursuant to the Acquisition Agreement;
the absence of any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits consummation of the
transactions contemplated by the Reorganization Agreement; the receipt of an
opinion from BB&T Financial's counsel or tax advisor, in form and substance
satisfactory to Commerce and BB&T Financial, substantially to the effect that
the Acquisition will constitute one or more reorganizations under Section 368
of the Code, and that the stockholders of Commerce will not recognize any gain
or loss to the extent that such stockholders exchange shares of Commerce Common
Stock for shares of BB&T Financial Common Stock; the accuracy of the
representations and warranties set forth in the Reorganization Agreement in all
material respects as of the Effective Date as though made on and as of such
date; the performance by Commerce and BB&T Financial in all material respects
of all material obligations and compliance with all
25
<PAGE>
material covenants required by the Reorganization Agreement; the receipt of
certain opinions of counsel and certificates from officers of Commerce and BB&T
Financial; the receipt of all necessary regulatory approvals for the
Acquisition and expiration of all notice periods and waiting periods required
after the granting of any such approvals, without any condition or requirement
contained therein which, in the reasonable opinion of the BB&T Financial Board
of Directors, would so materially adversely affect the business or economic
benefits of the transactions contemplated by the Reorganization Agreement as to
render consummation of those transactions inadvisable or unduly burdensome; and
that neither BB&T Financial nor Commerce has reasonably determined in good
faith that there has been a material adverse change in the condition,
operations or prospects of the other party since December 31, 1993.
Consummation of the Acquisition also is subject to the condition that BB&T
Financial will have received written agreements from the affiliates of Commerce
that they will not sell any shares of BB&T Financial Common Stock received upon
consummation of the Acquisition except in compliance with Rule 145 under the
Securities Act or otherwise in compliance with the Securities Act and the rules
and regulations promulgated thereunder. It is also a condition that BB&T
Financial will have determined that the Acquisition will qualify for the
pooling-of-interests method of accounting.
Either Commerce or BB&T Financial may waive certain of the conditions imposed
with respect to its or their respective obligations to consummate the
Acquisition, except for (i) the requirements that the Acquisition be approved
by Commerce's stockholders and that all required regulatory approvals for the
Acquisition be received and (ii) after approval of the Acquisition Agreement by
Commerce's stockholders, any reduction in the number of shares of BB&T
Financial Common Stock into which each share of Commerce Common Stock will be
converted in the Acquisition or the payment terms for fractional interests
thereof.
TERMINATION
The Reorganization Agreement may be terminated at any time on or prior to the
Effective Date by the mutual consent in writing of the parties. Either party
may elect to terminate the Reorganization Agreement by notifying the other
party in writing upon a breach by the other party in any material respect of
(i) any covenant or undertaking contained in the Reorganization Agreement, Plan
of Merger or Option Agreement, or (ii) any representation or warranty contained
in the Reorganization Agreement, which breach has been materially adverse. The
Reorganization Agreement may only be terminated as a result of such breach 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 Effective Date. Either party may also elect to terminate the
Reorganization Agreement on the Effective Date if the conditions precedent to
the obligations of such party to consummate the transactions contemplated by
the Reorganization Agreement have not been satisfied or fulfilled. The
Reorganization Agreement also may be terminated by either party if any of the
regulatory applications for prior approval are denied and the time period for
appeals and requests for reconsideration of such denial has run, or if the
Commerce stockholder approval required to consummate the Acquisition is not
obtained. In addition, the Reorganization Agreement may be terminated by either
party if the Effective Date has not occurred prior to the close of business on
June 30, 1995. The Reorganization Agreement may also be terminated by either
party if such party determines in good faith that any condition precedent to
such party's obligations would be impossible to satisfy. The terminating party
must, however, give the other party notice at least ten days prior to such
termination and provide the other party a reasonable opportunity to discuss the
matter with a view to achieving a mutually acceptable resolution.
AMENDMENT
The Acquisition Agreement may be amended or supplemented in writing by mutual
agreement of BB&T Financial and Commerce, provided that such amendment or
supplement must be approved by their respective Boards of Directors, and
provided further that no amendment or supplement executed after approval of the
Acquisition Agreement by Commerce's stockholders may reduce either the number
of shares of BB&T Financial Common Stock into which each share of Commerce
Common Stock will be converted in the
26
<PAGE>
Acquisition or the payment terms for fractional interests. The Reorganization
Agreement was amended as of August 25, 1994 to change the structure of the
Acquisition to provide that BB&T-VA will be a direct subsidiary of BB&T
Financial prior to the Merger and, immediately following the Merger, BB&T
Financial will distribute all of the outstanding common stock of the Surviving
Corporation to BB&T Financial-Va and the Surviving Corporation will become a
subsidiary of BB&T Financial-Va.
CONDUCT OF COMMERCE'S AND BB&T FINANCIAL'S BUSINESS PRIOR TO THE EFFECTIVE DATE
Under the terms of the Reorganization Agreement, neither Commerce nor any
Commerce subsidiary may, without the prior written consent of BB&T Financial,
which consent may not be withheld on an arbitrary basis or basis inconsistent
with BB&T Financial's interests as an acquiror of Commerce, among other things:
(i) carry on its business other than in the usual, regular and ordinary course
in substantially the same manner as theretofore conducted, or establish or
acquire any new subsidiary or cause or permit any subsidiary to engage in any
new activity or expand any existing activities; (ii) declare, set aside, make
or pay any dividend or other distribution in respect of its capital stock that
would cause the Acquisition not to be accounted for as a pooling-of-interests,
as determined by BB&T Financial; (iii) issue any shares of its capital stock
other than pursuant to the Option Agreement, the Commerce Stock Option Plans,
the Capital Notes, or the Commerce Dividend Reinvestment and Stock Purchase
Plan; (iv) issue, grant or authorize any rights other than pursuant to the
Option Agreement or effect any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization; (v) amend its articles
of incorporation or by-laws; impose, or suffer the imposition, on any share of
stock held by Commerce in any Commerce subsidiary of any material lien, charge
or encumbrance or permit any such lien to exist; or waive or release any
material right or cancel or compromise any material debt or claim other than in
the ordinary course of business; (vi) merge with any other corporation or bank
or permit any other corporation, savings institution or bank to merge into it
or consolidate with any other corporation, savings institution or bank; acquire
control over any other firm, bank, corporation, savings institution or
organization; or liquidate, sell or otherwise dispose of any assets or acquire
any assets, other than in the ordinary course of its business; (vii) fail to
comply in any material respect with any laws, regulations, ordinances or
governmental actions applicable to it and to the conduct of its business except
where Commerce or any Commerce subsidiary is in good faith contesting the
validity of any of the foregoing; (viii) increase the rate of compensation of
any of its directors, officers or employees, or pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees, except in a manner and amount consistent with
past practice; (ix) enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees; provided however, that this subpart shall not prevent renewals of
any of the foregoing consistent with past practice; (x) solicit or encourage
inquiries or proposals with respect to, furnish any information relating to, or
participate in any negotiations or discussions concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, Commerce or any Commerce subsidiary or any business
combination with Commerce or any Commerce subsidiary other than as contemplated
by the Reorganization Agreement; or authorize any officer, director, agent or
affiliate of it to do any of the above; or fail to notify BB&T Financial
immediately if any such inquiries or proposals are received by, any such
information is required from, or any such negotiations or discussions are
sought to be initiated with, Commerce; (xi) enter into (a) any material
agreement, arrangement or commitment not made in the ordinary course of
business, including, without limitation, agreements or memoranda of
understanding with regulatory authorities, (b) any agreement, indenture or
other instrument not made in the ordinary course of business relating to the
borrowing of money by Commerce or a Commerce subsidiary or guarantee by
Commerce or a Commerce subsidiary of any such obligation, (c) any agreement,
arrangement or commitment not cancellable by Commerce without penalty or cost
within 30 days after the Effective Date relating to the employment or severance
of a consultant or the employment, severance, election or retention in office
of any present or former director, officer or employee (this clause shall not
apply to the normal election of directors by stockholders and the election of
officers by
27
<PAGE>
directors not pursuant to a specific agreement, arrangement or commitment not
previously disclosed as provided in the Reorganization Agreement), or (d) any
contract, agreement or understanding with a labor union; (xii) change its
lending, investment or asset liability management policies in any material
respect or materially change the mix (by type of security) and average maturity
of the securities portfolio, except as may be required by applicable law,
regulation or directives, and except that after approval of the Acquisition
Agreement by its stockholders, Commerce shall cooperate in good faith with BB&T
Financial to adopt policies, practices and procedures consistent with those
used by BB&T Financial, effective on or before the consummation of the
Acquisition; (xiii) change its methods of accounting in effect at December 31,
1993, except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any of
its methods of reporting income and deductions for federal income tax purposes
from those employed in the preparation of its federal income tax returns for
the year ended December 31, 1993, except as required by changes in law or
regulation; or (xiv) agree to do any of the foregoing.
Except with the prior written consent of Commerce, which consent may not be
arbitrarily or unreasonably withheld, prior to the Effective Date, neither BB&T
Financial nor any of its subsidiaries may: (i) exercise the Option Agreement
other than in accordance with its terms, or dispose of the shares of Commerce
Common Stock issuable upon exercise of the option rights conferred thereby
other than as permitted or contemplated by the terms of the Option Agreement,
see "THE ACQUISITION--The Option Agreement"; (ii) enter into a merger or other
business combination transaction with any other corporation or person in which
BB&T Financial would not be the surviving or continuing entity after the
consummation thereof; (iii) sell or lease all or substantially all of the
assets and business of BB&T Financial; or (iv) declare an extraordinary or
special dividend or distribution on BB&T Financial Common Stock in an amount
equal to more than 10% of BB&T Financial's stockholders' equity as reflected on
the financial statements of BB&T Financial as of the three months ended prior
to such payment.
REGULATORY CONSIDERATIONS
The Acquisition is subject to certain regulatory approvals, as set forth
below. To the extent that the following information describes statutes and
regulations, it is qualified in its entirety by reference to the particular
statutes and regulations and the regulations promulgated under such statutes.
The Acquisition is subject to approval by the Federal Reserve under the BHCA,
which prohibits a bank holding company, such as BB&T Financial or BB&T
Financial-Va, from acquiring direct or indirect ownership or control of more
than five percent (5%) of the voting shares of any bank, such as Commerce,
unless the Federal Reserve has approved the transaction. In considering an
application for approval of such an acquisition, the Federal Reserve reviews
the financial and managerial resources and future prospects of the bank holding
companies and the banks concerned and the convenience and needs of the
communities to be served. The Federal Reserve also is required to evaluate
whether the Acquisition would result in a monopoly or would be in furtherance
of any combination or conspiracy or attempt to monopolize the business of
banking in any part of the United States or otherwise would substantially
lessen competition or tend to create a monopoly or which in any manner would be
in restraint of trade, unless it finds that the anticompetitive effects of the
proposed transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served. In addition, the Federal Reserve must take into
account the records of BB&T Financial and Commerce in meeting the credit needs
of the entire community, including low- and moderate-income neighborhoods,
served by such institutions. The BHCA requires that any bank acquisition or
merger may not be consummated until the 30th day after approval, during which
the United States Department of Justice ("DOJ") may challenge the transaction
on antitrust grounds. BB&T Financial filed an application with the Federal
Reserve for approval to consummate the Acquisition in September 1994, which
application was approved on November 1, 1994.
The Acquisition also is subject to approval by the Bureau under Section 6.1-
399 of the Code of Virginia, which permits a regional bank holding company,
such as BB&T Financial, to acquire, directly or indirectly,
28
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more than five percent (5%) of the voting shares of a Virginia bank holding
company, such as BB&T Financial-Va, or a Virginia bank, such as BB&T-VA or
Commerce, if the Bureau has approved of the transaction based upon its review
of an application submitted to the Bureau pursuant to applicable law. Approval
of such an application is conditioned upon, among other things, the Bureau's
determination that the laws of the state in which the regional bank holding
company is located, in this case, North Carolina, would permit Virginia bank
holding companies to acquire banks and bank holding companies in that state.
North Carolina law would permit a Virginia bank holding company to acquire a
bank or bank holding company located in that state, subject to appropriate
regulatory approvals. The Bureau also must determine whether (i) the proposed
acquisition would be detrimental to the safety and soundness of the companies
involved; (ii) the applicant, its directors and officers are qualified by
character, experience and financial responsibility to control and operate a
Virginia bank; (iii) the proposed acquisition would be prejudicial to the
interests of the depositors, creditors, beneficiaries of fiduciary accounts or
stockholders of the companies involved; and (iv) the acquisition is in the
public interest.
The organization of an interim Virginia-chartered bank, such as BB&T-VA, is
subject to approval by the Bureau of an application of an interim institution
to begin business in Virginia. Approval of an application is conditioned upon,
among other things, the Bureau's determination that the authorization of the
application would be in the public interest.
The Merger, in and of itself, is subject to approval by the FDIC pursuant to
the Bank Merger Act. The Bank Merger Act requires that the FDIC take into
consideration the financial and managerial resources and future prospects of
the existing and proposed institutions and the convenience and needs of the
communities to be served. Further, the FDIC may not approve the Merger if it
would result in a monopoly or if it would be in furtherance of any combination
or conspiracy to monopolize or attempt to monopolize the business of banking in
any part of the United States, or if its effect in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would be in any other manner in restraint of trade, unless the FDIC finds
that the anticompetitive effects of the Merger are clearly outweighed in the
public interest by the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. In addition, the FDIC
must take into account the record of performance of the existing and proposed
institution under the Community Reinvestment Act of 1977 ("CRA") in meeting the
credit needs of the entire community, including low- and moderate-income
neighborhoods, served by such institution. Applicable regulations also require
publication of notice of the application for approval of the Merger and provide
an opportunity for the public to comment on the application in writing and to
request a hearing.
The Bank Merger Act requires that any bank merger, including the Merger, may
not be consummated until the 30th day after approval, during which time the DOJ
may challenge the Merger on antitrust grounds.
The Merger will proceed under Section 6.1-43 of the Code of Virginia, which
allows bank mergers when all applicable laws governing such merger are complied
with.
The Acquisition will not proceed in the absence of all required approvals.
There can be no assurance that such approvals will be received and, if they
are, there can be no assurance as to the date of such approvals or that such
approvals will not be conditioned upon matters that could cause the BB&T
Financial Board of Directors to abandon the Acquisition. If any condition or
requirement is imposed which, in the reasonable opinion of the BB&T Financial
Board of Directors, would so materially adversely affect the economic or
business benefits to BB&T Financial of the transactions contemplated by the
Reorganization Agreement as to render consummation of the transactions
inadvisable or unduly burdensome, the Reorganization Agreement permits BB&T
Financial to terminate the Reorganization Agreement.
BB&T Financial and Commerce are not aware of any other governmental approvals
or actions that are required for consummation of the Acquisition or the Merger
except as described above. Should any such approval or action be required, it
is presently contemplated that such approval or action would be sought or
taken. There can be no assurance that any such approval or action, if needed,
could be obtained, would not
29
<PAGE>
delay consummation of the Acquisition or would not be conditioned in a manner
that would cause BB&T Financial to abandon the Acquisition.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION AND EFFECT OF THE ACQUISITION
ON EMPLOYEES AND BENEFIT PLANS
Directors. Upon consummation of the Merger, all of the members of the
Commerce Board of Directors will become members of the Board of Directors of
the Surviving Corporation. In addition, BB&T Financial has agreed to cause
seven members of the Commerce Board of Directors designated by Commerce's Chief
Executive Officer, and three other persons designated by BB&T Financial, to
become members of the BB&T Financial-Va Board of Directors upon consummation of
the Merger. See "--General Description of the Terms of the Acquisition".
Upon consummation of the Acquisition (assuming it is consummated prior to the
SNC Merger), three members of the Commerce Board of Directors designated by
Commerce will become members of the BB&T Financial Board of Directors. Upon
consummation of the SNC Merger, one of such Commerce directors will be one of
"BB&T Financial Designees" (as hereinafter defined) to become a member of the
Continuing Corporation Board of Directors. The remaining two Commerce directors
then serving on the BB&T Financial Board of Directors will become members of
the Board of Directors of the "NC Continuing Bank" (hereinafter defined). See
"INFORMATION ABOUT BB&T FINANCIAL--SNC Merger."
In connection with the Acquisition, Commerce and BB&T Financial will enter
into a five year consulting agreement ("Consulting Agreement") with Thomas C.
Broyles, the current Chairman of the Board of Commerce. Under the Consulting
Agreement Mr. Broyles will continue to provide services to Commerce and BB&T
Financial, particularly focusing on building ties in the communities served by
Commerce and assisting BB&T Financial in introducing itself to the Virginia
financial services market, and will receive compensation of $2,500 per month.
The Consulting Agreement also will contain other terms and conditions customary
to such agreements.
Indemnification of Directors and Officers. Following the Effective Date, BB&T
Financial has agreed to indemnify the directors and officers of Commerce who
are currently entitled to indemnification pursuant to Virginia law to the
maximum extent permitted by North Carolina and federal law, if applicable. In
addition, BB&T Financial has agreed to purchase and to keep in force directors'
and officers' liability insurance to provide coverage for actions or omissions
by directors and officers of Commerce for claims made for the period commencing
with and after the Effective Date. However, such insurance will be provided
only if, and to the extent that, any similarly situated officer or director of
BB&T Financial is insured from time to time. From and after the Effective Date,
BB&T Financial has also agreed to indemnify each present and former director of
Commerce (the "Indemnified Parties") against any and all costs or expenses
(including reasonable attorney's fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any and all claims, actions,
suits or proceedings, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters existing or occurring at or prior to
the Effective Date, whether asserted or claimed prior to, at or after the
Effective Date, to the fullest extent permitted by applicable law (and also
advance expenses incurred to the fullest extent permitted by applicable law),
except for liability or litigation expense incurred on account of activities
known or believed by such person to be clearly in conflict with the best
interest of Commerce or BB&T Financial or activities such person had reasonable
cause to believe were criminal. Any Indemnified Party wishing to claim
indemnification under such provision must notify BB&T Financial thereof within
45 days of learning of such claim, action, suit, proceeding or investigation.
However, failure to so notify shall not relieve BB&T Financial of any liability
it may have to such Indemnified Party if such failure does not materially
prejudice the indemnifying party. BB&T Financial has agreed to pay the
reasonable fees and expenses of the Indemnified Parties as provided in the
Reorganization Agreement.
Employment Agreements. Upon consummation of the Acquisition, Messrs. Aston
and Morgan, who currently are officers of Commerce as described below (each, an
"Officer"), will enter into agreements (each an "Employment Agreement") with
BB&T Financial and Commerce providing for continued employment
30
<PAGE>
with BB&T Financial for a period of ten years, in the positions, and for the
base salaries ("Base Salary") as are set forth below:
<TABLE>
<CAPTION>
CURRENT POSITION BASE
NAME WITH COMMERCE SALARY
---- ---------------- --------
<S> <C> <C>
G. Robert Aston............. President and Chief Executive Officer $418,000
R. Scott Morgan............. Executive Vice President and Senior $173,600
Lending Officer
</TABLE>
Subject to adjustment as described below, each Officer will receive a
minimum annual salary at least equal to the Base Salary. After the Effective
Date, each Officer, provided each is otherwise eligible to participate in the
BB&T Financial Executive Incentive Compensation Plan and the BB&T Financial
Long-Term Incentive Compensation Plan (the "Long-Term Plan" and, collectively,
the "Plans"), may elect to participate in the Plans. In the event that an
Officer makes such an election, such Officer's Base Salary will be reduced to
reflect a base salary which, when added to the "Target Award" (as defined in
the BB&T Financial Executive Incentive Compensation Plan) and the assumed
value of options granted under the Long-Term Plan (pursuant to BB&T
Financial's standard practices for valuing such options) would result in
compensation equal to such Officer's Base Salary. After the first year
following the Effective Date, any salary increase for any Officer will be
determined in accordance with BB&T Financial's annual salary plan, provided,
however, each Officer will receive annual salary increases at least equal to
the average of such increases for all BB&T Financial officers in any year.
Each Officer will be entitled to receive, on the same basis as other officers
of BB&T Financial, such group employee benefits as BB&T Financial may from
time to time extend to its employees. In addition, BB&T Financial agrees
either to provide health insurance to each Officer's dependents or to
reimburse each Officer for the cost of providing such health insurance under
the BB&T Financial health insurance plan. Mr. Aston's Employment Agreement
also provides that Commerce either will continue to pay the premiums due on
that portion for which Mr. Aston is the beneficiary of the Commerce insurance
policy maintained on the life of Mr. Aston, or will reimburse Mr. Aston for
any amounts paid by him to maintain such insurance policy, including any taxes
due on the amount of such reimbursements.
If an Officer voluntarily terminates employment with BB&T Financial, such
Officer will be entitled to receive 50% of that Officer's compensation then
provided under the Employment Agreement until the end of the term of the
Employment Agreement. Subject to the limitations set forth in the Employment
Agreement, if an Officer terminates employment with BB&T Financial at any time
during the term of the Employment Agreement, the Officer may not engage in
businesses that compete with Commerce in specified areas.
In the event of a "Change in Control" (as defined in the Employment
Agreements) of BB&T Financial, each Officer would have the right to
voluntarily terminate his employment with Commerce or BB&T Financial up until
18 months after the Change in Control. Upon such termination, each Officer
would be entitled to receive severance benefits equal to approximately three
years' Base Salary and continuation of certain group employee benefits and
dependent health insurance for a period of three years or, if earlier, until
the Officer becomes entitled to participate in similar plans or programs of a
subsequent employer. Approval and consummation of the SNC Merger in accordance
with the terms of the SNC Agreement would constitute a Change in Control of
BB&T Financial, thereby entitling each Officer to voluntarily terminate his
employment during the specified 18-month period and receive the severance
benefits provided for under his Employment Agreement.
The Employment Agreements will supercede existing employment agreements.
Stock Options. Certain executive officers of Commerce hold options under the
Commerce Stock Option Plans to acquire up to 259,743 shares of Commerce Common
Stock as of October 31, 1994. The aggregate net realizable value (i.e., the
difference between the option exercise price and the underlying stock's market
value) of the stock options held by the executive officers of Commerce
amounted to approximately $5.6 million based on the closing sale price of
$37.00 per share of Commerce Common Stock on October 31, 1994, as quoted on
the Nasdaq/NMS. Such options, to the extent not exercised prior to the
Effective Date, will become, by virtue of the Acquisition, the right to
receive, upon payment of the adjusted exercise price specified in the option,
31
<PAGE>
that number of shares of BB&T Financial Common Stock the option holder would
have received pursuant to the Acquisition if he or she had exercised such
option immediately prior thereto, and cash in lieu of any fractional shares.
See "THE ACQUISITION-- Exchange of Commerce Common Stock."
Mr. Aston's Employment Agreement provides that, in addition to the other
options he may be entitled to exchange in the Acquisition, BB&T Financial
agrees to assume Commerce's obligations pursuant to certain nonqualified
options issued to him on December 16, 1992, to acquire up to 6,802 shares of
Commerce Common Stock. Each such stock option outstanding and held by Mr.
Aston shall become the right to receive, upon payment of the exercise price,
1.305 shares of BB&T Financial Common Stock for each share of Commerce Common
Stock covered by such options. The per share exercise price of the BB&T
Financial options shall equal the exercise price of the Commerce options of
$23.50 divided by 1.305, or $18.01.
Employees and Benefit Plans. The Reorganization Agreement provides that,
upon the Effective Date, each person who is an employee of Commerce as of the
Effective Date (individually, an "Employee") shall automatically become an
employee of the Surviving Corporation, upon substantially the same terms and
conditions of employment, including compensation and benefits, and comparable
responsibilities that each Employee had on the day before the Effective Date.
BB&T Financial will attempt to avoid lay-offs of Commerce employees following
the Effective Date, and to meet efficiency goals for the Surviving Corporation
through attrition and reassignment. Each Employee will be eligible to receive
group hospitalization, medical, life, disability and other benefits comparable
to those provided to present employees of BB&T Financial without the
imposition of any waiting period or limitation on pre-existing conditions.
Such benefits shall not in the aggregate to all Employees as a group be less
in amount or value than those presently provided by Commerce. Employees also
will have the opportunity to participate in BB&T Financial's and its
subsidiaries 401(k) savings plans upon consummation of the Merger. Each
participating employee will have the right or option either to receive the
benefits to which he or she is entitled as a result of the termination of
Commerce's 401(k) plan or to have such benefits "rolled" into the 401(k)
savings plans maintained by BB&T Financial and its subsidiaries, on the same
basis and applying the eligibility standards as would apply to employees of
BB&T Financial, recognizing past service of those employees of Commerce as if
such service had been performed on behalf of BB&T Financial for vesting and
qualification, but not for funding, purposes.
Following the Merger, the Employees will be entitled to participate, to the
same extent and on the same terms as the employees of BB&T Financial, in any
retirement, pension or similar plans in effect for the benefit of BB&T
Financial employees (other than any employee stock ownership plan established
for the benefit of certain of BB&T Financial's employees) which when
considered as a whole will be no less favorable than the benefits currently
provided to such employees. Employees of Commerce will receive credit for
their period of service to such companies for participation and vesting
purposes only.
RESTRICTIONS ON RESALES BY AFFILIATES
Certain directors and officers of Commerce may be deemed "affiliates" of
Commerce. Any sale or other disposition by such affiliates of BB&T Financial
Common Stock received by them pursuant to the Acquisition may be made only in
compliance with an exemption from the registration requirements of the
Securities Act and the restrictions set forth below.
The respective obligations of BB&T Financial and Commerce to consummate the
Acquisition are subject to the condition that each affiliate of Commerce must
execute and deliver to BB&T Financial a letter to the effect that each such
person will not dispose of any shares of BB&T Financial Common Stock to be
received pursuant to the Acquisition in violation of the Securities Act or the
applicable rules and regulations of the Commission.
This Proxy Statement/Prospectus may not be used by any such affiliate of
Commerce for the resale of any shares of BB&T Financial Common Stock received
pursuant to the Acquisition.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following is a summary description of certain anticipated federal income
tax consequences of the Acquisition to stockholders of Commerce; it is not
intended to be a complete description of the federal income
32
<PAGE>
tax consequences of the Acquisition. The federal income tax laws are complex,
and a stockholder's individual circumstances may affect the tax consequences to
the stockholder. In addition, no information is provided with respect to the
tax consequences of the Acquisition under applicable state, local and other tax
laws. Consequently, each Commerce stockholder is urged to consult his or her
own tax advisor regarding the tax consequences of the Acquisition.
Consummation of the Acquisition is conditioned upon the receipt by Commerce
and BB&T Financial of an opinion of KPMG Peat Marwick LLP, satisfactory in form
and substance to both parties, substantially to the effect that the Acquisition
will constitute one or more reorganizations under Section 368 of the Code and
that the stockholders of Commerce will not recognize any gain or loss for
federal income tax purposes to the extent that such stockholders exchange
shares of Commerce Common Stock for shares of BB&T Financial Common Stock. See
"--Conversion of Commerce Common Stock" and "--Conditions to Consummation of
the Acquisition."
If the Acquisition constitutes a reorganization within the meaning of Section
368 of the Code, (i) no gain or loss will be recognized by BB&T Financial or
Commerce by reason of the Acquisition; (ii) a stockholder of Commerce will
recognize no gain or loss for federal income tax purposes to the extent BB&T
Financial Common Stock is received in the Acquisition in exchange for Commerce
Common Stock; (iii) the tax basis in the BB&T Financial Common Stock received
by a stockholder will be the same as the tax basis in the Commerce Common Stock
surrendered in exchange therefor; and (iv) the holding period for BB&T
Financial Common Stock received in exchange for Commerce Common Stock will
include the period during which the stockholder held the Commerce Common Stock
surrendered in the exchange, provided that the Commerce Common Stock was held
as a capital asset at the Effective Date.
If Commerce Common Stock is held as a capital asset at the Effective Date,
the receipt of cash in lieu of a fractional share will give rise to capital
gain or loss measured by the difference, if any, between the amount of cash
received for such fractional share and a stockholder's basis in the fractional
share.
ACCOUNTING TREATMENT
BB&T Financial will use the pooling-of-interests method of accounting in
connection with the Acquisition. The pooling-of-interests method of accounting
combines assets and liabilities at their historical costs. It is a condition to
BB&T Financial's obligation to consummate the Acquisition that the Acquisition
qualify for treatment as a pooling-of-interests. See "PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS."
DISSENTERS' RIGHTS
Pursuant to Section 6.1-43 of the Code of Virginia, no stockholder of
Commerce is entitled to dissenters' rights in connection with the Acquisition.
Section 13.1-730 of the Code of Virginia generally grants dissenters' rights to
stockholders in connection with a plan of merger if stockholder approval is
required for the merger and the stockholder is entitled to vote on the merger.
However, Section 6.1-43 provides that in connection with the merger of Virginia
chartered banks, the dissenters' rights provision of Section 13.1-730 does not
apply.
THE OPTION AGREEMENT
The Option Agreement was entered into as a condition to BB&T Financial's
entering into the Reorganization Agreement and is intended to increase the
probability that the Acquisition will be consummated. Exercise of the Commerce
Option may tend to make the acquisition of a controlling interest in Commerce
more expensive to any prospective acquiror other than BB&T Financial even if
such an acquisition would be beneficial to Commerce's stockholders. The
existence of the Commerce Option is intended to make it less likely that a
prospective acquiror, other than BB&T Financial, will seek a business
combination with Commerce. The following is a brief summary of the Commerce
Option and is qualified in
33
<PAGE>
its entirety by reference to the Option Agreement, a copy of which is attached
to this Proxy Statement/Prospectus as Appendix III and incorporated by
reference herein.
The Option Agreement permits the exercise by BB&T Financial of the Commerce
Option to purchase 540,000 shares of Commerce Common Stock at a price of $31.50
per share (subject to adjustments), payable in cash, upon the occurrence of
certain events described below. The shares subject to the Commerce Option
represent approximately 19.8% of the outstanding Commerce Common Stock.
BB&T Financial may exercise the Commerce Option, in whole or in part, at any
time or from time to time, upon or after the occurrence of a "Purchase Event."
As used in the Option Agreement, "Purchase Event" means:
(i) Commerce shall have entered into an agreement with a person (other
than BB&T Financial or its affiliates) to: (a) acquire, merge or
consolidate with, or enter into any similar transaction with Commerce, (b)
purchase, lease or otherwise acquire all or substantially all of the assets
of Commerce or (c) purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction)
securities representing more than 10% of the voting power of Commerce or
its subsidiary;
(ii) any person shall have acquired beneficial ownership of more than 10%
of the outstanding shares of Commerce Common Stock or shall have merged,
consolidated with or consummated a similar transaction with Commerce or
shall have purchased, leased or otherwise acquired all or substantially all
of Commerce's assets; or
(iii) a bona fide proposal is made by any person (other than BB&T
Financial or its affiliates) by public announcement or written
communication that is or becomes the subject of public disclosure, or in an
application to any federal or state regulatory authority, to (a) acquire,
merge or consolidate with, or enter into any similar transaction with
Commerce, (b) purchase, lease or otherwise acquire all or substantially all
of the assets of Commerce or (c) purchase or otherwise acquire (including
by way of merger, consolidation, share exchange, tender or exchange offer
or any similar transaction) securities representing more than 25% of the
voting power of Commerce.
Commerce is required to notify BB&T Financial upon the occurrence of a
transaction, offer or event giving rise to a Purchase Event. In the event BB&T
Financial wishes to exercise the Commerce Option, it must send Commerce written
notice specifying (i) the total number of shares it will purchase and (ii) the
place and date not earlier than three business days nor later than 20 business
days after the date on which such notice is given for the closing of such
purchase. If prior notification to, or approval of, any federal or state
regulatory agency is required, BB&T Financial and/or Commerce will promptly
file the required notice or application for approval and the period of time
that otherwise would run pursuant to such notice period will run instead from
the date on which the last required notification period has expired or has been
terminated or such approvals have been obtained and any requisite waiting
period has passed.
The Option Agreement will expire and terminate, to the extent not previously
exercised, upon the earlier of (i) the Effective Date; (ii) the date on which
the Reorganization Agreement is terminated, other than a termination based upon
a material breach by Commerce of specified covenants in the Reorganization
Agreement or the failure of Commerce to obtain stockholder approval of the
transactions contemplated by the Reorganization Agreement by the vote required
under applicable law, in either case following the occurrence of a Purchase
Event or (iii) 18 months after the Reorganization Agreement is terminated based
upon a material breach by Commerce of a specified covenant or the failure of
Commerce to obtain stockholder approval of the transactions contemplated by the
Reorganization Agreement by the vote required under applicable law, in either
case following the occurrence of a Purchase Event.
In the event that Commerce's capitalization changes by reason of a stock
dividend, split-up, merger, recapitalization, combination, exchange of shares
or the like, the number of shares subject to the Commerce Option and the
purchase price per share thereof will be adjusted so that the economic value of
the Commerce Option remains unaltered.
34
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet as of June
30, 1994, and unaudited pro forma combined condensed statements of income for
the six months ended June 30, 1994 and 1993 and the years ended December 31,
1993, 1992 and 1991, combine the historical financial statements of BB&T
Financial and Commerce after giving effect to the Acquisition and combine the
pro forma financial statements of BB&T Financial after giving effect to the
Acquisition with the historical financial statements of SNC. The pro forma
combined condensed balance sheet gives effect to the Acquisition and the SNC
Merger as if they had occurred on June 30, 1994, and the pro forma combined
condensed statements of income give effect to the Acquisition and the SNC
Merger as if they had occurred at the beginning of the period presented, in
each case, by the pooling-of-interests method of accounting. The pro forma per
share data assumes the application of the Exchange Ratio of 1.305 shares of
BB&T Financial Common Stock for each outstanding share of Commerce Common Stock
in the Acquisition and an exchange ratio of 1.45 shares of common stock of the
Continuing Corporation ("Continuing Corporation Common Stock") for each
outstanding share of BB&T Financial Common Stock. For additional information
about the SNC Merger, see "INFORMATION ABOUT BB&T FINANCIAL--SNC Merger."
The pro forma adjustments and combined amounts are provided for informational
purposes only. The pro forma financial information presented is not necessarily
indicative of actual results that would have been achieved had the Acquisition
and the SNC Merger been consummated on June 30, 1994, or at the beginning of
the periods presented, nor is it necessarily indicative of future results.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $262,116 16,704 278,820 198,181 477,001
Interest and dividends
on securities.......... 64,358 6,885 71,243 73,444 144,687
Interest on short-term
investments............ 1,374 343 1,717 608 2,325
-------- ------ ------- ------- -------
Total interest income. 327,848 23,932 351,780 272,233 624,013
-------- ------ ------- ------- -------
INTEREST EXPENSE
Interest on deposits.... 109,167 9,602 118,769 89,696 208,465
Interest on short-term
borrowed funds......... 20,660 30 20,690 15,575 36,265
Interest on long-term
debt................... 9,745 331 10,076 9,281 19,357
-------- ------ ------- ------- -------
Total interest ex-
pense................ 139,572 9,963 149,535 114,552 264,087
Net Interest Income..... 188,276 13,969 202,245 157,681 359,926
Provision for loan loss-
es..................... 4,500 1,200 5,700 2,703 8,403
-------- ------ ------- ------- -------
Net Interest Income
After Provision for
Loan Losses............ 183,776 12,769 196,545 154,978 351,523
Noninterest income...... 63,872 4,762 68,634 42,343 110,977
Noninterest expense..... 163,776 12,226 176,002 116,356 292,358
-------- ------ ------- ------- -------
Income before income
taxes.................. 83,872 5,305 89,177 80,965 170,142
Income taxes............ 28,493 1,703 30,196 28,034 58,230
-------- ------ ------- ------- -------
Net income.............. 55,379 3,602 58,981 52,931 111,912
Preferred dividend re-
quirement.............. -- -- -- 2,598 2,598
-------- ------ ------- ------- -------
Net income applicable to
common shares.......... $ 55,379 3,602 58,981 50,333 109,314
======== ====== ======= ======= =======
EARNINGS PER SHARE
Primary net income.... $ 1.52 1.29 1.47 1.15 1.07
Fully diluted net in-
come................. 1.52 1.23 1.46 1.10 1.05
======== ====== ======= ======= =======
AVERAGE COMMON SHARES
(thousands)
Primary............... 36,552 2,802 40,209 43,636 101,938
Fully diluted......... 36,552 3,068 40,556 48,189 106,995
======== ====== ======= ======= =======
</TABLE>
36
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T
BB&T FINANCIAL/ BB&T FINANCIAL/
FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
--------- -------- ---------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans........ $230,686 15,002 245,688 200,581 446,269
Interest and dividends on
securities.............. 61,216 8,077 69,293 69,186 138,479
Interest on short-term
investments............. 717 323 1,040 1,530 2,570
-------- ------ ------- ------- -------
Total interest income.. 292,619 23,402 316,021 271,297 587,318
-------- ------ ------- ------- -------
INTEREST EXPENSE
Interest on deposits..... 107,185 10,311 117,496 100,491 217,987
Interest on short-term
borrowed funds.......... 9,758 9 9,767 7,465 17,232
Interest on long-term
debt.................... 3,990 304 4,294 11,661 15,955
-------- ------ ------- ------- -------
Total interest expense. 120,933 10,624 131,557 119,617 251,174
-------- ------ ------- ------- -------
Net Interest Income...... 171,686 12,778 184,464 151,680 336,144
Provision for loan loss-
es...................... 10,406 1,525 11,931 7,953 19,884
-------- ------ ------- ------- -------
Net Interest Income After
Provision for Loan
Losses.................. 161,280 11,253 172,533 143,727 316,260
Noninterest income....... 55,402 4,363 59,765 53,621 113,386
Noninterest expense...... 142,248 10,880 153,128 125,377 278,505
-------- ------ ------- ------- -------
Income before income tax-
es...................... 74,434 4,736 79,170 71,971 151,141
Income taxes............. 23,495 1,588 25,083 24,103 49,186
-------- ------ ------- ------- -------
Net income (1)........... 50,939 3,148 54,087 47,868 101,955
Preferred dividend re-
quirement............... -- -- -- 2,598 2,598
-------- ------ ------- ------- -------
Net income applicable to
common shares........... $ 50,939 3,148 54,087 45,270 99,357
======== ====== ======= ======= =======
EARNINGS PER SHARE
Primary (1)............. $ 1.47 1.15 1.41 1.08 1.02
======== ====== ======= ======= =======
Fully diluted (1)....... $ 1.43 1.11 1.37 1.03 .98
======== ====== ======= ======= =======
AVERAGE COMMON SHARES
(thousands)
Primary................ 34,684 2,726 38,242 41,899 97,350
Fully diluted.......... 35,843 2,993 39,749 46,468 104,104
======== ====== ======= ======= =======
</TABLE>
- --------
(1) Net income and primary and fully-diluted net income per share for the six
months ended June 30, 1993, and the twelve months ended December 31, 1993,
do not include the cumulative effect of changes in accounting principles
resulting from the adoption by SNC, effective January 1, 1993, of SFAS 109,
SFAS No. 106 and SFAS No. 72. The impact of adoption of SFAS 109, SFAS 106
and SFAS 72 on net income and primary net income per share and fully-
diluted net income per share of SNC was $27,217,000, $0.65 and $0.60,
respectively, for the six months ended June 30, 1993. The effects on
primary and fully diluted earnings per share on a pro forma basis were
$0.28 and $0.26, respectively.
37
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $479,212 30,861 510,073 405,121 915,194
Interest and dividends
on securities.......... 124,271 15,689 139,960 139,768 279,728
Interest on short-term
investments............ 1,668 697 2,365 2,421 4,786
-------- ------ ------- ------- ---------
Total interest income. 605,151 47,247 652,398 547,310 1,199,708
-------- ------ ------- ------- ---------
INTEREST EXPENSE
Interest on deposits.... 212,668 20,322 232,990 195,204 428,194
Interest on short-term
borrowed funds......... 24,733 26 24,759 18,525 43,284
Interest on long-term
debt................... 10,961 635 11,596 23,118 34,714
-------- ------ ------- ------- ---------
Total interest
expense.............. 248,362 20,983 269,345 236,847 506,192
-------- ------ ------- ------- ---------
Net Interest Income..... 356,789 26,264 383,053 310,463 693,516
Provision for loan
losses................. 19,048 2,825 21,873 31,438 53,311
-------- ------ ------- ------- ---------
Net Interest Income
After Provision for
Loan Losses............ 337,741 23,439 361,180 279,025 640,205
Noninterest income...... 119,527 10,655 130,182 87,672 217,854
Noninterest expense..... 301,574 23,706 325,280 336,059 661,339
-------- ------ ------- ------- ---------
Income before income
taxes.................. 155,694 10,388 166,082 30,638 196,720
Income taxes............ 50,682 3,837 54,519 22,445 76,964
-------- ------ ------- ------- ---------
Net income (1).......... 105,012 6,551 111,563 8,193 119,756
Preferred dividend
requirement............ -- -- -- 5,196 5,196
-------- ------ ------- ------- ---------
Net income (loss)
applicable to common
shares................. $105,012 6,551 111,563 2,997 114,560
======== ====== ======= ======= =========
EARNINGS PER SHARE
Primary (1)............ $ 2.95 2.38 2.85 .07 1.16
======== ====== ======= ======= =========
Fully-diluted (1)...... $ 2.91 2.28 2.80 .07 1.15
======== ====== ======= ======= =========
AVERAGE COMMON SHARES
(thousands)
Primary............... 35,620 2,748 39,206 42,331 99,180
Fully diluted......... 36,188 3,013 40,120 46,889 105,064
======== ====== ======= ======= =========
</TABLE>
- --------
(1) Net income and primary and fully-diluted net income per share for the six
months ended June 30, 1993, and the twelve months ended December 31, 1993,
do not include the cumulative effect of changes in accounting principles
resulting from the adoption by SNC, effective January 1, 1993, of SFAS 109,
SFAS No. 106 and SFAS No. 72. The impact of adoption of SFAS 109, SFAS 106
and SFAS 72 on net income and primary net income per share and fully-
diluted net income per share of SNC was $27,217,000, $0.64 and $0.58,
respectively, for the twelve months ended December 31, 1993. The effects on
primary and fully diluted earnings per share on a pro forma basis were
$0.27 and $0.26, respectively.
38
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $454,061 30,175 484,236 428,923 913,159
Interest and dividends
on securities.......... 135,529 13,689 149,218 137,025 286,243
Interest on short-term
investments............ 2,026 1,075 3,101 5,486 8,587
-------- ------ ------- ------- ---------
Total interest income. 591,616 44,939 636,555 571,434 1,207,989
-------- ------ ------- ------- ---------
INTEREST EXPENSE
Interest on deposits.... 249,876 21,845 271,721 251,172 522,893
Interest on short-term
borrowed funds......... 16,996 19 17,015 14,964 31,979
Interest on long-term
funds.................. 8,711 550 9,261 25,652 34,913
-------- ------ ------- ------- ---------
Total interest ex-
pense................ 275,583 22,414 297,997 291,788 589,785
-------- ------ ------- ------- ---------
Net Interest Income..... 316,033 22,525 338,558 279,646 618,204
Provision for loan loss-
es..................... 32,975 4,225 37,200 25,671 62,871
-------- ------ ------- ------- ---------
Net Interest Income
After Provision for
Loan Losses............ 283,058 18,300 301,358 253,975 555,333
Noninterest income...... 95,549 8,210 103,759 78,752 182,511
Noninterest expense..... 254,133 19,091 273,224 233,572 506,796
-------- ------ ------- ------- ---------
Income before income
taxes.................. 124,474 7,419 131,893 99,155 231,048
Income taxes............ 41,853 2,477 44,330 39,992 84,322
-------- ------ ------- ------- ---------
Net income.............. 82,621 4,942 87,563 59,163 146,726
Preferred dividend re-
quirement.............. -- -- -- 4,605 4,605
-------- ------ ------- ------- ---------
Net income applicable to
common shares.......... $ 82,621 4,942 87,563 54,558 142,121
======== ====== ======= ======= =========
EARNINGS PER SHARE
Primary net income.... $ 2.53 2.05 2.44 1.34 1.53
Fully diluted net
income............... 2.43 1.97 2.35 1.31 1.48
======== ====== ======= ======= =========
AVERAGE COMMON SHARES
(thousands)
Primary............... 32,705 2,413 35,854 40,778 92,765
Fully diluted......... 34,741 2,676 38,233 44,994 100,432
======== ====== ======= ======= =========
</TABLE>
39
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL/
BB&T FINANCIAL COMMERCE COMMERCE SNC COMMERCE/SNC
-------------- -------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest on loans....... $467,671 31,725 499,396 456,154 955,550
Interest and dividends
on securities.......... 136,888 8,275 145,163 124,221 269,384
Interest on short-term
investments............ 6,939 1,027 7,966 10,569 18,535
-------- ------ ------- ------- ---------
Total interest income. 611,498 41,027 652,525 590,944 1,243,469
-------- ------ ------- ------- ---------
INTEREST EXPENSE
Interest on deposits.... 323,126 23,796 346,922 315,460 662,382
Interest on short-term
borrowed funds......... 18,023 94 18,117 20,078 38,195
Interest on long-term
debt................... 9,116 568 9,684 33,060 42,744
-------- ------ ------- ------- ---------
Total interest
expense.............. 350,265 24,458 374,723 368,598 743,321
-------- ------ ------- ------- ---------
Net Interest Income..... 261,233 16,569 277,802 222,346 500,148
Provision for loan
losses................. 42,317 2,925 45,242 30,602 75,844
-------- ------ ------- ------- ---------
Net Interest Income
After Provision for
Loan Losses............ 218,916 13,644 232,560 191,744 424,304
Noninterest income...... 90,888 5,760 96,648 81,368 178,016
Noninterest expense..... 214,999 15,584 230,583 204,601 435,184
-------- ------ ------- ------- ---------
Income before income
taxes.................. 94,805 3,820 98,625 68,511 167,136
Income taxes............ 26,470 1,221 27,691 23,902 51,593
-------- ------ ------- ------- ---------
Net income.............. $ 68,335 2,599 70,934 44,609 115,543
======== ====== ======= ======= =========
EARNINGS PER SHARE
Primary net income.... $ 2.30 1.36 2.20 1.17 1.36
Fully diluted net
income............... 2.21 1.35 2.11 1.17 1.33
======== ====== ======= ======= =========
AVERAGE COMMON SHARES
(thousands)
Primary............... 29,760 1,913 32,257 38,079 84,852
Fully diluted......... 31,756 2,176 34,596 38,112 88,275
======== ====== ======= ======= =========
</TABLE>
40
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BB&T BB&T
BB&T PRO FORMA FINANCIAL/ PRO FORMA FINANCIAL/
FINANCIAL COMMERCE ADJUSTMENTS COMMERCE SNC ADJUSTMENTS COMMERCE/SNC(C)
---------- -------- ----------- ---------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks,
noninterest-bearing.... $ 335,091 28,303 363,394 266,117 629,511
Interest-bearing bank
balances............... 31,447 12,613 44,060 12,760 56,820
Federal funds sold...... 31,260 -- 31,260 -- 31,260
Loans held for sale..... -- -- -- 45,327 45,327
Securities available for
sale................... 2,356,886 127,203 2,484,089 915,010 3,399,099
Securities held to
maturity............... 106,242 90,494 196,736 1,712,234 1,908,970
Loans................... 6,692,768 408,433 7,101,201 5,098,647 12,199,848
Less allowance for
loan losses............ (96,524) (7,188) (103,712) (69,838) (173,550)
---------- ------- ---------- --------- ----------
Net loans.............. 6,596,244 401,245 6,997,489 5,028,809 12,026,298
Bank premises and
equipment.............. 150,662 19,229 169,891 146,725 316,616
Goodwill................ 32,635 385 33,020 6,377 39,397
Other assets............ 238,004 12,595 250,599 103,003 353,602
---------- ------- ---------- --------- ----------
Total assets........... $9,878,471 692,067 10,570,538 8,236,362 18,806,900
========== ======= ========== ========= ==========
LIABILITIES
Deposits
Noninterest-bearing.... $ 842,974 101,268 944,242 772,598 1,716,840
Interest-bearing....... 6,579,499 535,124 7,114,623 5,456,205 12,570,828
---------- ------- ---------- --------- ----------
Total deposits......... 7,422,473 636,392 8,058,865 6,228,803 14,287,668
Short-term borrowed
funds.................. 1,147,593 -- 1,147,593 1,131,961 2,279,554
Long-term debt.......... 396,252 6,790 403,042 216,686 619,728
Negative goodwill....... 35,155 -- 35,155 15,903 51,058
Other liabilities....... 72,895 2,292 75,187 49,142 124,329
---------- ------- ---------- --------- ----------
Total liabilities...... 9,074,368 645,474 9,719,842 7,642,495 17,362,337
---------- ------- ---------- --------- ----------
STOCKHOLDERS' EQUITY
Preferred stock......... -- -- -- 3,850 3,850
Common stock............ 90,678 6,813 2,077 (a) 99,568 216,928 189,179 (b) 505,675
Paid-in capital......... 278,775 29,787 (2,077)(a) 306,485 153,205 (189,179)(b) 270,511
Retained earnings....... 462,609 10,587 473,196 236,756 709,952
Unrealized holding gains
(losses) on securities
available for sale..... (21,632) (594) (22,226) (13,385) (35,611)
Less loan to employee
stock ownership plan... (4,419) -- (4,419) -- (4,419)
Less reserve for
restricted stock....... (1,908) -- (1,908) (3,487) (5,395)
---------- ------- ---------- --------- ----------
Total stockholders'
equity................. 804,103 46,593 850,696 593,867 1,444,563
---------- ------- ---------- --------- ----------
Total liabilities and
stockholders' equity.. $9,878,471 692,067 10,570,538 8,236,362 18,806,900
========== ======= ========== ========= ==========
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(a) To reflect the issuance of 3,556,337 shares of BB&T Financial Common Stock
for all of the 2,725,163 outstanding shares of Commerce Common Stock, based
upon an exchange ratio of 1.305 shares of BB&T Financial Common Stock for
each outstanding share of Commerce Common Stock.
(b) To reflect the issuance of 57,749,660 shares of common stock of the
Continuing Corporation for all of the 39,827,352 pro forma outstanding
shares of BB&T Financial Common Stock, assuming the consummation of the
Acquisition and an exchange ratio of 1.45 shares of common stock of the
Continuing Corporation for each outstanding share of BB&T Financial Common
Stock.
(c) In consummating the SNC Merger, BB&T Financial and SNC will incur one-time
charges to close and/or consolidate overlapping branch facilities and
eliminate other duplicative operations. It is estimated that these charges
will total approximately $80 million on a pretax basis. Adjustments will
include the settlement of obligations under existing employment contracts,
severance pay for involuntary termination and related employee benefits,
and early retirement benefits; expenses related to effecting the SNC
Merger; and the write-down of premises and equipment to net realizable
value. The impact of these adjustments has not been reflected in the pro
forma condensed balance sheet as of June 30, 1994.
42
<PAGE>
PRO FORMA CAPITALIZATION
(UNAUDITED)
The following table sets forth the unaudited historical capitalization of
BB&T Financial, Commerce and SNC as of June 30, 1994, and the pro forma
capitalization of BB&T Financial and Commerce and BB&T Financial, Commerce and
SNC as if the transactions had been consummated on June 30, 1994. For
additional information, reference is made to the historical financial
statements and notes thereto of BB&T Financial, Commerce and SNC incorporated
by reference herein.
<TABLE>
<CAPTION>
BB&T FINANCIAL/ BB&T FINANCIAL
COMMERCE COMMERCE/SNC
BB&T PRO FORMA PRO FORMA
FINANCIAL COMMERCE COMBINED SNC COMBINED(2)
---------- -------- --------------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:
9.28%, $20 million senior capital notes, dated
1986, due in annual installments of amounts
ranging from $3,000,000 to $4,000,000 through
1996.............................................. $ -- $ -- $ -- $ 10,000 $ 10,000
$5 million Industrial Revenue Bond, dated 1984,
secured by premises with a net book value of
$6,244,000 at June 30, 1994, due in quarterly
installments of $83,340. Interest rate is
variable--5.815% at June 30, 1994................. -- -- -- 1,750 1,750
Capitalized lease obligations...................... -- 1,795 1,795 4,550 6,345
Advances from Federal Home Loan Bank of Atlanta,
with varying maturities to 2006 with interest
rates from 3.73% to 8.95%......................... 59,357 -- 59,357 199,938 259,295
Other mortgage indebtedness........................ -- -- -- 448 448
Medium-term bank notes issued by subsidiary bank... 336,895 -- 336,895 -- 336,895
10% convertible subordinated capital notes due
2002.............................................. -- 4,995 4,995 -- 4,995
---------- ------- ---------- -------- ----------
Total long-term debt and capital lease obligations.. $ 396,252 $ 6,790 $ 403,042 $216,686 $ 619,728
========== ======= ========== ======== ==========
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par, 5,000,000 shares
authorized, 770,000 shares issued and
outstanding....................................... $ -- $ -- $ -- $ 3,850 $ 3,850
Common stock (1)................................... 90,678 6,813 99,568 216,928 505,675
Paid-in capital.................................... 278,775 29,787 306,485 153,205 270,511
Retained earnings.................................. 462,609 10,587 473,196 236,756 709,952
Net unrealized loss on securities available for
sale.............................................. (21,632) (594) (22,226) (13,385) (35,611)
Loans to employee stock ownership plan............. (4,419) -- (4,419) -- (4,419)
Reserve for restricted stock....................... (1,908) -- (1,908) (3,487) (5,395)
---------- ------- ---------- -------- ----------
Total shareholders' equity......................... $ 804,103 $46,593 $ 850,696 $593,867 $1,444,563
---------- ------- ---------- -------- ----------
Total long-term debt, capital lease obligations
and shareholders' equity.......................... $1,200,355 $53,383 $1,253,738 $810,553 $2,064,321
========== ======= ========== ======== ==========
</TABLE>
- --------
(1) On June 30, 1994, BB&T Financial had 36,271,016 shares of its $2.50 par
value common stock issued and outstanding, Commerce had 2,725,163 shares
of its $2.50 par value common stock issued and outstanding and SNC had
43,385,610 shares of its $5 par value common stock issued and outstanding.
The adjustments assume that BB&T Financial will issue 3,556,337 shares of
BB&T Financial Common Stock for all of the outstanding shares of Commerce
assuming an exchange ratio of 1.305, and that the Continuing Corporation
will then issue 57,749,660 shares of Continuing Corporation Common Stock
for the 39,827,352 pro forma outstanding shares of BB&T Financial Common
Stock assuming an exchange ratio of 1.45.
(2) In consummating the SNC Merger, BB&T Financial and SNC will incur one-time
charges to close and/or consolidate overlapping branch facilities and
eliminate other duplicative operations. It is estimated that these charges
will total approximately $80 million on a pretax basis. Adjustments will
include the settlement of obligations under existing employment contracts,
severance pay for involuntary termination and related employee benefits,
and early retirement benefits; expenses related to effecting the SNC
Merger; and the write-down of premises and equipment to net realizable
value. The impact of these adjustments has not been reflected in the pro
forma capitalization as of June 30, 1994.
43
<PAGE>
INFORMATION ABOUT BB&T FINANCIAL
BB&T FINANCIAL CORPORATION
BB&T Financial is a bank holding company, the principal assets of which are
all of the outstanding shares of common stock of BB&T-NC, BB&T Financial-SC
(which in turn owns all of the outstanding shares of capital stock of BB&T-SC,
Lexington and Community) and its two North Carolina savings bank subsidiaries.
BB&T Financial also includes among its assets interest-bearing bank balances
with and loans to BB&T-NC. BB&T Financial's principal sources of revenue are
interest, dividends and management fees received from its subsidiaries. There
are limitations on the subsidiaries' ability to supply funds to BB&T Financial.
See "MARKET PRICES AND DIVIDENDS." At June 30, 1994, BB&T Financial had
consolidated assets of approximately $9.9 billion, total insured deposits
through its subsidiaries of approximately $7.4 billion and total consolidated
stockholders' equity of approximately $804.1 million.
BRANCH BANKING AND TRUST COMPANY
BB&T-NC is a North Carolina chartered commercial bank. At June 30, 1994,
BB&T-NC operated 224 offices in 121 cities and towns in North Carolina and had
4,015 employees. BB&T-NC provides a wide range of commercial, consumer banking,
trust and investment services primarily through its branch network. BB&T-NC
also operates an insurance department and a travel department and is a broker-
dealer in government and municipal securities. At June 30, 1994, BB&T-NC had
total assets of approximately $8.3 billion, consolidated deposit liabilities of
approximately $6.2 billion and consolidated stockholders' equity of
approximately $655.5 million.
BRANCH BANKING AND TRUST COMPANY OF SOUTH CAROLINA
BB&T-SC, a South Carolina chartered commercial bank, is among the ten largest
banks in South Carolina. At June 30, 1994, BB&T-SC operated 19 offices in five
counties in South Carolina and had approximately 182 employees. BB&T-SC
provides a full range of commercial banking, consumer banking, trust and
investment services through its branch network. At June 30, 1994, BB&T-SC had
total assets of approximately $510.6 million, deposit liabilities of
approximately $453.7 million and stockholders' equity of approximately $44.2
million.
LEXINGTON AND COMMUNITY
Lexington and Community are both South Carolina chartered commercial banks.
At June 30, 1994, Lexington operated 17 offices in 9 cities and towns in South
Carolina, had 350 employees and had total assets of approximately $602.5
million, deposit liabilities of approximately $491.4 million and stockholders'
equity of approximately $55.8 million. At June 30, 1994, Community operated 8
offices in 7 cities and towns in South Carolina, had 75 employees and had total
assets of approximately $117.2 million, deposit liabilities of approximately
$99.1 million and stockholders' equity of approximately $9.0 million. Both
banks provide a full range of commercial banking, trust and investment services
through their respective branch networks. Lexington and Community also offer
discount brokerage services both directly and through Carolina Securities
Corporation.
BB&T-SC, Lexington and Community are expected to be merged or otherwise
consolidated into a single bank to be named "Branch Banking and Trust Company
of South Carolina."
SAVINGS BANK SUBSIDIARIES
At June 30, 1994, BB&T Financial owned three North Carolina chartered savings
banks in North Carolina: Citizens-Newton, with $247 million in assets at June
30, 1994; Mutual Savings, with $87 million in assets at June 30, 1994; and
Citizens-Mooresville, with $64 million in assets at June 30, 1994. Citizens-
Newton was merged into BB&T-NC on August 22, 1994. Mutual Savings and Citizens-
Mooresville were merged into BB&T-NC on September 12, 1994.
44
<PAGE>
BB&T FINANCIAL'S ACQUISITION PROGRAM
BB&T Financial primarily has focused its business strategy on meeting the
banking needs of the retail and small and middle market commercial customer
through an extensive branch network. To complement this strategy, since 1990,
BB&T Financial has expanded its customer base through the acquisition of 14
North Carolina-based savings institutions with aggregate assets of
approximately $3.1 billion and branches of a 15th savings institution and,
through the acquisition of L.S.B. Bancshares, Inc. of South Carolina, a
registered bank holding company, two South Carolina-based commercial banks
(Lexington and Community) with aggregate assets of approximately $706 million
and aggregate deposit liabilities of approximately $574 million as of June 30,
1994. All the acquired savings institutions have been or will be merged into
BB&T-NC, and Lexington and Community are expected to be merged or otherwise
consolidated with BB&T-SC into a single bank to be named "Branch Banking and
Trust Company of South Carolina."
On July 29, 1994, BB&T Financial entered into the SNC Agreement pursuant to
which SNC will be merged with BB&T Financial in a "merger of equals." See
"SUMMARY--Parties to the Acquisition." For additional detailed information
regarding the SNC Merger, see "--SNC Merger" below.
In the last three years, BB&T Financial also has acquired the assets and
liabilities of eleven insurance agencies with operations in several cities
throughout North Carolina. The agencies write commercial and personal insurance
policies as agents on behalf of various insurance underwriters. All insurance
operations are conducted through a department of BB&T-NC in the communities
where the acquired agencies operated.
BB&T Financial continues to evaluate possible acquisitions of commercial
banks, savings institutions, insurance agencies and other companies in the
Carolinas and Virginia and may after the date of this Proxy
Statement/Prospectus enter into agreements to acquire one or more such
institutions.
Additional information about BB&T Financial's completed acquisitions and the
SNC Merger is included in the BB&T Financial documents incorporated by
reference in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." See also "PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
45
<PAGE>
MANAGEMENT
The following tables set forth the current directors and executive officers
of BB&T Financial and certain information concerning their background.
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR OF
BB&T
AGE AS OF PRINCIPAL OCCUPATION(S) FINANCIAL
NAME 12/31/93 DURING LAST FIVE YEARS SINCE
---- --------- ----------------------- -----------
<C> <C> <S> <C>
Joseph B. Alala, Jr... 60 Senior Partner, Alala, Mullen, 1983
Holland and Cooper, P.A.
(Attorneys), Gastonia, N.C.
John A. Allison IV.... 45 Chairman of the Board and Chief 1986
Executive Officer of BB&T
Financial and Branch Banking
and Trust Company, Wilson,
N.C.
W. Watson Barnes...... 57 President, Wilson Petroleum 1981
Company, Inc. (Distributor of
Petroleum products), Wilson,
N.C.
Paul B. Barringer..... 63 President and Chief Executive 1975
Officer, Coastal Lumber
Company (Dealer in lumber
products), Weldon, N.C.
Robert L. Brady....... 63 Senior Vice President, Branch 1991
Banking and Trust Company,
Greensboro, N.C. Prior to
April 1992, President, Gate
City Federal Savings Bank,
Greensboro, N.C.
Raymond S. Caughman... 67 President, The Lexington State June 1994
Bank, Lexington, S.C.
W. G. Clark III....... 60 President, Clark Industries, 1981
Inc. (Farming), Tarboro, N.C.
Jesse W. Corbett, Jr.. 57 Personal Investments, Morehead 1981
City, N.C. Prior to June 1988,
President, Corbett Motor
Company, Inc. (Automobile
dealership), Wilson, N.C.
W. R. Cuthbertson, Jr. 63 Senior Vice President, Branch 1983
Banking and Trust Company,
Charlotte, N.C.
Fred H. Deaton, Jr.... 62 Personal Investments, 1974
Statesville, N.C.
Albert J. Dooley, Sr.. 64 Partner, Dooley, Dooley, Spence June 1994
& Parker, P.A. (Attorneys),
Lexington, S.C.
Joe L. Dudley, Sr..... 56 President and Chief Executive 1992
Officer, Dudley Products, Inc.
(Hair care products),
Greensboro, N.C.
Tom D. Efird.......... 54 President, Standard 1982
Distributors, Inc. (Beverage
wholesaler), Gastonia, N.C.
O. William Fenn, Jr... 67 Personal Investments, High 1991
Point, N.C. Prior to April
1992, Vice Chairman, LADD
Furniture Company (Furniture
manufacturer), High Point,
N.C.
James E. Heins........ 63 Telecommunications Consultant, 1985
Pinehurst, N.C. Prior to
August, 1991, Vice President
of Government Relations,
ALLTEL Corporation
(Telecommunications), Sanford,
N.C.
Raymond A. Jones, Jr.. 69 Personal Investments, 1975
Charlotte, N.C.
Kelly S. King......... 45 Senior Executive Vice 1991
President, BB&T, and
President, Branch Banking and
Trust Company.
J. Ernest Lathem, M.D. 60 Urologist, The Willow Practice, 1987
P.A., Greenville, S.C.
James H. Maynard...... 54 Chairman, Investors Management 1985
Corporation (Restaurants),
Raleigh, N.C.
A. Winniett Peters.... 67 Chairman of the Board, Standard 1977
Commercial Tobacco Company
(Tobacco processors and
exporters), Wilson, N.C.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EMPLOYEE OF
AGE AS OF PRINCIPAL OCCUPATION(S) BB&T-
NAME 12/31/93 DURING LAST FIVE YEARS NC SINCE
---- --------- ----------------------------- -----------
<C> <C> <S> <C>
Richard L. Player, Jr... 59 President, Player, Inc. 1990
(Commercial and industrial
general contractor),
Fayetteville, N.C.
Larry J. Waggoner....... 58 Real Estate Development and 1985
Investments, Naples, Fla.
Prior to August 1991
President, Rental Towel &
Uniform Services, Inc.
(Rental services), Graham,
N.C.
Henry G. Williamson, Jr. 46 President and Chief Operating 1986
Officer, BB&T Financial and
Chief Operating Officer,
Branch Banking and Trust
Company, Wilson, N.C.
William B. Young, M.D... 68 Retired Specialist in 1974
Internal Medicine, Wilson,
N.C.
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EMPLOYEE OF
AGE AS OF PRINCIPAL OCCUPATION(S) BB&T-
NAME 12/31/93 DURING LAST FIVE YEARS NC SINCE
---- --------- ----------------------------- -----------
<C> <C> <S> <C>
John A. Allison IV...... 45 Chairman of the Board and 1971
Chief Executive Officer,
BB&T Financial and Branch
Banking and Trust Company
Henry G. Williamson, Jr. 46 President and Chief Operating 1972
Officer, BB&T Financial and
Chief Operating Officer,
Branch Banking and Trust
Company
Kelly S. King........... 45 Senior Executive Vice 1972
President, BB&T Financial
and President, Branch
Banking and Trust Company
W. Kendall Chalk........ 48 Senior Executive Vice 1975
President, BB&T Financial
and Branch Banking and Trust
Company
Scott E. Reed........... 45 Senior Executive Vice 1972
President and Treasurer,
BB&T Financial and Senior
Executive Vice President,
Branch Banking and Trust
Company
</TABLE>
CAPITAL ADEQUACY GUIDELINES
Bank Holding Companies. The Federal Reserve has adopted risk-based capital
guidelines for bank holding companies. Under these guidelines, the minimum
ratio of total capital to risk-weighted assets (including certain off-balance
sheet activities, such as standby letters of credit) is 8%. At least half of
the total capital is required to be "Tier 1 capital," principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
items. The remainder ("Tier 2 capital") may consist of a limited amount of
subordinated debt, certain hybrid capital instruments and other debt
securities, perpetual preferred stock, and a limited amount of the general loan
loss allowance. In addition to the risk-based capital guidelines, the Federal
Reserve has adopted a minimum Tier 1 (leverage) capital ratio, under which a
bank holding company must maintain a minimum level of Tier 1 capital to average
total consolidated assets of at least 3% in the case of a bank holding company
which has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 100 to 200 basis points above the stated
minimum.
The following table sets forth BB&T Financial's regulatory capital position
at June 30, 1994 on a historical basis as well as a pro forma basis assuming
consummation of the Acquisition. See "PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS."
47
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, 1994
--------------------------------------------------
PRO FORMA PRO FORMA
BB&T FINANCIAL/ BB&T FINANCIAL/
HISTORICAL COMMERCE COMMERCE/SNC
-------------- ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Stockholders' Equity........ $804,103 $850,696 $1,444,563
======== ========= ==========
REGULATORY CAPITAL
Tier 1 risk-based:
Actual.................... $781,765 12.26% $828,069 12.13% $1,424,803 12.57%
Required.................. 254,959 4.00 272,993 4.00 453,543 4.00
-------- ----- --------- ------ ---------- -----
Excess.................... $526,806 8.26% $555,076 8.13% $ 971,260 8.57%
======== ===== ========= ====== ========== =====
Total risk-based:
Actual.................... $861,648 13.52% $918,593 13.46% $1,573,017 13.87%
Required.................. 509,917 8.00 545,987 8.00 907,086 8.00
-------- ----- --------- ------ ---------- -----
Excess.................... $351,731 5.52% $372,606 5.46% $ 665,931 5.87%
======== ===== ========= ====== ========== =====
Leverage:
Actual.................... $781,765 7.96% $828,069 7.88% $1,424,803 7.64%
Required.................. 294,698 3.00 315,270 3.00 559,355 3.00
-------- ----- --------- ------ ---------- -----
Excess.................... $487,067 4.96% $512,799 4.88% $ 865,448 4.64%
======== ===== ========= ====== ========== =====
</TABLE>
48
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires
each federal banking agency, including the Federal Reserve, to revise its risk-
based capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of
nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. The Federal Reserve, the FDIC
and the Office of the Comptroller of the Currency ("OCC") have issued a joint
advance notice of proposed rulemaking, and have issued a revised proposal,
soliciting comments on a proposed framework for implementing the interest rate
risk component of the risk-based capital guidelines. Under the proposal, an
institution's assets, liabilities, and off-balance sheet positions would be
weighed by risk factors that approximate the instruments' price sensitivity to
a 100 basis point change in interest rates. Institutions with interest rate
risk exposure in excess of a threshold level would be required to hold
additional capital proportional to that risk. The Federal Reserve, the FDIC,
the OCC and the Office of Thrift Supervision also issued a joint notice of
proposed rulemaking soliciting comments on a proposed revision to the risk-
based capital guidelines to take account of concentration of credit risk and
the risk of non-traditional activities. The proposal would amend each agency's
risk-based capital standards by explicitly identifying concentration of credit
risk and the risk arising from non-traditional activities, as well as an
institution's ability to manage those risks, as important factors to be taken
into account by the agency in assessing an institution's overall capital
adequacy. The proposal was adopted without modification as a final rule by the
Federal Reserve on August 3, 1994, and by the FDIC on August 9, 1994.
Publication of a final interagency rule is subject to the completion of each
agency's approval process. The final rule will not become effective until 30
days after publication. BB&T Financial does not expect the final rule to have a
material impact on its capital requirements.
FDIC-Insured, Non-Member Banks. As state-chartered, FDIC-insured institutions
which are not members of the Federal Reserve System, BB&T-NC, BB&T-SC,
Lexington and Community are subject to capital requirements imposed by the
FDIC. The FDIC requires state-chartered banks to comply with risk-based capital
standards substantially similar to those required by the Federal Reserve. See
"--Capital Adequacy Guidelines--Bank Holding Companies." The FDIC also requires
state-chartered banks to maintain a minimum leverage ratio similar to that
adopted by the Federal Reserve. Under the FDIC's leverage capital requirement,
state nonmember banks that are in general considered strong banking
organizations and are not anticipating or experiencing any significant growth
are required to maintain a minimum leverage ratio of 3% of Tier 1 capital to
total assets; all other banks are required to maintain a minimum ratio of 100
to 200 basis points above the stated minimum, with an absolute minimum leverage
ratio of not less than 4%. As of December 31, 1993, the Tier 1 and total risk-
based capital ratios of BB&T-NC were 13.06% and 14.66%, respectively, and its
leverage capital ratio was 8.56%; the Tier 1 and total risk-based capital
ratios of BB&T-SC were 11.04% and 12.29%, respectively, and its leverage
capital ratio was 8.77%; the Tier 1 and total risk-based capital ratios of
Lexington were 13.65% and 14.86%, respectively, and its leverage capital ratio
was 7.95%; and the Tier 1 and total risk-based capital ratios of Community were
13.28% and 14.53%, respectively, and its leverage capital ratio was 7.03%.
SNC MERGER
General. BB&T Financial and SNC entered into the SNC Agreement on July 29,
1994. Pursuant to the SNC Agreement, BB&T Financial will be merged with SNC in
a "merger of equals," with the name of the continuing corporation to be
"Southern National Corporation." The effective date of the SNC Merger is
currently anticipated to be in the first half of 1995. (The surviving company
as existing on and after the effective date of the SNC Merger is hereinafter
referred to as the "Continuing Corporation.") On a pro forma basis as of June
30, 1994, the Continuing Corporation would have had approximately $18.1 billion
in assets (excluding Commerce) and would have had the largest deposit market
share in North Carolina and the third largest deposit market share in South
Carolina. The headquarters of the Continuing Corporation will be in Winston-
Salem, North Carolina, the present location of the administrative headquarters
of SNB-NC.
49
<PAGE>
As soon as practicable after the consummation of the SNC Merger, the SNC
Agreement provides that SNB-NC will be merged (the "North Carolina Bank
Merger") with and into BB&T-NC under the name "Branch Banking and Trust
Company" (BB&T-NC as it will exist from and after the consummation of the North
Carolina Bank Merger is referred to herein as the "NC Continuing Bank"); SNB-SC
will be merged (the "South Carolina Bank Merger") with and into BB&T-SC under
the name "Branch Banking and Trust Company of South Carolina" (BB&T-SC as it
will exist from and after the consummation of the South Carolina Bank Merger is
referred to herein as the "SC Continuing Bank"); and SNB Savings will be
merged, directly or indirectly, with and into BB&T-NC. Each of SNB-NC and SNB-
SC is a full-service commercial bank providing a wide range of commercial and
retail banking services through 233 offices throughout North and South
Carolina. SNB Savings, which operates seven offices in six cities and towns in
North Carolina, is engaged primarily in the origination of mortgage loans on
residential real estate and, to a lesser degree, other consumer and commercial
loans.
SNC has two other active subsidiaries: Unified Investors Life Insurance
Company ("Unified") and Southern International Corporation ("Southern").
Unified is a reinsurer and underwriter of certain credit life and accident and
health insurance policies written by a non-affiliated insurance company in
connection with certain loans made by the banking and savings bank subsidiaries
of SNC. Southern provides advice to customers of SNC's subsidiaries who conduct
international business. Through subsidiaries of SNB-NC and SNB Savings, SNC is
also engaged in selling property, casualty and life insurance; offering
investment alternatives, including discount brokerage services, fixed rate and
variable annuities, mutual funds, government and municipal bonds; and providing
lease financing of personal and real property to retail and commercial
customers, as well as to states and municipalities.
The Board of Directors of BB&T Financial has concluded that the consummation
of the SNC Merger is in the best interest of BB&T Financial and, with the
advice of independent financial advisors, that the terms of the SNC Merger are
fair to BB&T Financial stockholders. BB&T Financial believes that the SNC
Merger is an important element in its efforts to expand its market share in the
North Carolina and South Carolina banking markets. In addition to the
opportunity to expand its business in the Carolinas by a merger with a
profitable and established bank holding company of comparable size and its
subsidiary institutions, BB&T Financial's Board of Directors, in approving the
SNC Agreement, considered, among other things, information concerning the
financial condition, results of operations and future prospects of SNC, SNB-NC
and SNB-SC; the nature of the banking business of SNC, SNB-NC and SNB-SC; and
the overall compatibility of the management of SNC, SNB-NC and SNB-SC with that
of BB&T Financial and its subsidiaries. BB&T Financial's Board of Directors
also believes that the combination of BB&T Financial's resources with those of
SNC will enable the resulting organization to realize certain economies of
scale, to provide a wider array of financial services to customers of each of
its subsidiaries and to compete more effectively in the rapidly changing
financial services industry.
Upon consummation of SNC Merger, the Continuing Corporation will operate 537
banking offices in the North and South Carolina banking market. The combined
entity, through Commerce, also will operate 21 banking offices in Virginia.
Terms of SNC Merger. Under the terms of the SNC Agreement, each share of SNC
common stock, par value $5.00 per share ("SNC Common Stock"), outstanding
immediately prior to the effective date of the SNC Merger (other than shares
held by dissenting stockholders) will remain one share of common stock of the
Continuing Corporation (after the effective date of the SNC Merger, "Continuing
Corporation Common Stock"). Each share of BB&T Financial Common Stock
outstanding immediately prior to the effective date of the SNC Merger (other
than shares held by dissenting stockholders) will be converted into 1.45 shares
of Continuing Corporation Common Stock, subject to adjustment, and cash in lieu
of any fractional shares. Additionally, each share of SNC 6 3/4% Cumulative
Convertible Preferred Stock, Series A ("SNC Series A Preferred Stock")
outstanding immediately prior to the effective date of the SNC Merger will
remain one share of Continuing Corporation Series A Preferred Stock, designated
as "6 3/4% Cumulative Convertible
50
<PAGE>
Preferred Stock, Series A," with the same terms, designations, preferences,
limitations, privileges and relative rights as the SNC Series A Preferred
Stock. Pro forma financial information giving effect to the Acquisition and the
combination of BB&T Financial and Commerce with SNC appears herein under "PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS." Comparative per share data
that, among other things, present pro forma data in terms of one share of
Commerce common stock, appears herein under "COMPARATIVE PER SHARE DATA." The
SNC Agreement includes certain provisions affecting the conduct of BB&T
Financial's business pending consummation of the SNC Merger. Copies of the SNC
Agreement are available upon request directed to BB&T Financial's Secretary at
the address set forth under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Consummation of the SNC Merger is contingent upon, among other things,
obtaining various federal and state regulatory approvals and the approval of
the stockholders of BB&T Financial and SNC. The record date for voting on the
SNC Agreement by BB&T Financial stockholders will most likely occur prior to
the consummation of the Acquisition. In such event, Commerce stockholders will
not have an opportunity to vote upon the SNC Agreement.
Management and Operations of Continuing Corporation. The SNC Agreement
provides for a 24 member Board of Directors of the Continuing Corporation,
comprised of 12 directors selected by the BB&T Financial Board of Directors
(including one Commerce director) (the "BB&T Financial Designees") and 12
directors selected by the SNC Board of Directors (the "SNC Designees"). In
accordance with North Carolina law, all persons elected as directors of the
Continuing Corporation Board of Directors to fill vacancies created by the
resignation of SNC directors or any newly created seats will serve until the
first meeting of shareholders of the Continuing Corporation at which directors
are elected ("First Shareholders' Meeting"). The nominating committee of the
Continuing Corporation Board of Directors shall nominate for reelection at the
First Shareholders' Meeting the BB&T Designees and such SNC Designees that may
also be required to stand for reelection, such that thereafter the Continuing
Corporation Board of Directors, consistent with the classification of the
current SNC Board of Directors, will be divided into three classes, each of
which will be comprised of an equal number of the BB&T Financial Designees and
the SNC Designees. At each subsequent annual meeting of shareholders of the
Continuing Corporation, each director elected will serve for a three-year term
measured from the date of the annual meeting at which such director was elected
or until his or her successor is elected.
The Board of Directors of the NC Continuing Bank will be comprised of current
BB&T Financial directors (including two Commerce directors) and SNC directors
who do not serve as directors of the Continuing Corporation and such other
persons as may be determined at the time the North Carolina Bank Merger is
effected.
After consummation of the SNC Merger, John A. Allison IV ("Allison") shall be
elected Chairman of the Board and Chief Executive Officer of the Continuing
Corporation, and L. Glenn Orr, Jr. ("Orr"), the current Chairman of the SNC
Board of Directors, and Allison will be elected as members of the Executive
Committee of the Continuing Corporation's Board of Directors for as long as
they are directors of the Continuing Corporation. Each committee of the Board
of Directors of the Continuing Corporation will consist of an equal number of
BB&T Financial Designees and SNC Designees. Allison and Orr will each serve on
the Boards of Directors of the NC Continuing Bank and the SC Continuing Bank.
After consummation of the SNC Merger, Allison will be the Chief Executive
Officer of the Continuing Corporation. Orr will retire as an employee of the
Continuing Corporation following the SNC Merger. Allison and four additional
executive officers from each of BB&T Financial and SNC will comprise the
executive management group of the Continuing Corporation.
Stock Option Agreements. Simultaneously with the execution of the SNC
Agreement, SNC granted BB&T Financial an option (the "SNC Option") to purchase
up to 8,663,736 authorized but unissued shares of SNC Common Stock at a price
of $20.625 per share, such number of shares and exercise price being subject
51
<PAGE>
to adjustment in certain circumstances. Also simultaneously with the execution
of the SNC Agreement, BB&T Financial granted SNC an option (the "BB&T Financial
Option") to purchase up to 7,217,932 authorized but unissued shares of BB&T
Financial Common Stock at a price of $30.625 per share, such number of shares
and exercise price being subject to adjustment in certain circumstances. The
purpose of the BB&T Financial Option and the SNC Option is to increase the
likelihood that the SNC Merger will be consummated by making more difficult and
more expensive a third-party attempt to acquire control of BB&T Financial,
BB&T-NC or BB&T-SC, or SNC, SNB-NC or SNB-SC. Accordingly, the BB&T Financial
Option and the SNC Option are each exercisable only upon the occurrence of
certain events that create the potential of another party acquiring control of
BB&T Financial, BB&T-NC or BB&T-SC, or SNC, SNB-NC or SNB- SC. Although the
shares issuable upon the exercise of the BB&T Financial Option and the SNC
Option represent approximately 16.6% of the BB&T Financial Common Stock and SNC
Common Stock, respectively, that would be outstanding after such exercise,
neither BB&T Financial nor SNC may acquire more than 5% of the other company's
common stock without prior approval of the Federal Reserve Board (although the
options may be transferred to other parties under certain circumstances). The
SNC Option would terminate (i) on the effective date of the SNC Merger, (ii)
upon termination of the SNC Agreement under certain circumstances or (iii) on
the date one year after termination of the SNC Agreement due to a willful
breach by SNC of any specified covenant in the SNC Agreement or, under certain
circumstances, the failure of SNC's stockholders to approve the SNC Merger. The
BB&T Financial Option would terminate (i) upon the effective date of the SNC
Merger, (ii) upon the termination of the SNC Agreement under certain
circumstances or (iii) on the date one year after termination of the SNC
Agreement due to a willful breach by BB&T Financial of any specified covenant
in the SNC Agreement or, under certain circumstances, the failure of BB&T
Financial's stockholders to approve the SNC Merger. Copies of the SNC
Agreement, SNC Option and BB&T Financial Option are available upon request from
the Secretary of BB&T Financial.
INFORMATION INCORPORATED BY REFERENCE
For additional information about BB&T Financial and the SNC Merger described
above contained in documents incorporated by reference in this Proxy
Statement/Prospectus, see "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
52
<PAGE>
INFORMATION ABOUT COMMERCE
GENERAL
Commerce is a commercial bank chartered in 1978 under the laws of the
Commonwealth of Virginia and headquartered in Virginia Beach, Virginia.
Commerce provides a broad range of financial services through 21 banking
offices serving the cities of Virginia Beach, Portsmouth, Norfolk, Chesapeake,
Suffolk, Hampton and Newport News, Virginia, together with the Grafton area of
York County located on the western side of Newport News (commonly referred to
as the "Hampton Roads area"). At June 30, 1994, Commerce had total assets of
approximately $692.1 million, total deposits of approximately $636.4 million
and total stockholders' equity of approximately $46.6 million.
Commerce maintains a regional "Banking Group" for each of the six
geographically distinct communities within the Hampton Roads area. From a
customer perspective, each Banking Group is marketed as a separate bank
headquartered in its community, with its own president and commercial loan
officers and a regional board of directors. It is the responsibility of each
regional board, acting under delegated authority of the Board of Directors, to
direct Commerce's overall development of its respective region.
The Hampton Roads area covers the Norfolk-Virginia Beach-Newport News
metropolitan statistical area ("MSA"), which is the second largest MSA in
Virginia, with a population of 1.4 million based on 1990 census figures. This
area, which covers both the north and south sides of the James River at the
mouth of the Chesapeake Bay, contains the two largest Virginia cities in terms
of population, Virginia Beach and Norfolk, with populations of 393,000 and
261,000, respectively, based on 1990 census figures. The economy of the area is
heavily influenced by major United States military installations and extensive
port activity. Ship building and ship repair, a diversified industrial base and
tourism also contribute significantly to the local economy.
Commerce is subject to state and federal banking laws and regulations which
impose specific requirements or restrictions on and provide for general
regulatory oversight with respect to virtually all aspects of its operations.
As of June 30, 1994, Commerce employed 345 people on a full-time equivalent
basis.
INFORMATION INCORPORATED BY REFERENCE
For additional information about Commerce contained in documents incorporated
by reference in this Proxy Statement/Prospectus, see the documents referred to
in "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
53
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COMMERCE
The following table presents summary financial information for Commerce. This
information is derived from the historical consolidated financial statements of
Commerce. The information set forth below should be read in conjunction with
such historical financial statements and the notes incorporated by reference
herein.
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------ --------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income......... $ 23,932 $ 23,402 $ 47,247 $ 44,939 $ 41,027 $ 35,273 $ 28,644
Interest expense........ 9,963 10,624 20,983 22,414 24,458 21,925 16,987
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 13,969 12,778 26,264 22,525 16,569 13,348 11,657
Provision for loan
losses................. 1,200 1,525 2,825 4,225 2,925 2,695 715
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses............ 12,769 11,253 23,439 18,300 13,644 10,653 10,942
Noninterest income...... 4,693 4,277 9,248 7,112 4,860 3,475 2,861
Securities gains........ 69 86 1,407 1,098 900 11 --
Noninterest expense..... 12,226 10,880 23,706(1) 19,091 15,584 13,475 11,448
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................. 5,305 4,736 10,388 7,419 3,820 664 2,355
Income taxes............ 1,703 1,588 3,837 2,477 1,221 117 668
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 3,602 $ 3,148 $ 6,551 $ 4,942 $ 2,599 $ 547 $ 1,687
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Net income:
Primary............... $ 1.29 $ 1.15 $ 2.38 $ 2.05 $ 1.36 $ .29 $ .86
Fully diluted......... 1.23 1.11 2.28 1.97 1.35 .29 .86
Book value.............. 17.10 15.91 16.22 14.90 13.63 12.79 13.07
Cash dividends declared. .30 .22 .51 .26 .05 -- --
======== ======== ======== ======== ======== ======== ========
DAILY AVERAGES:
Assets.................. $685,716 $640,941 $656,528 $571,461 $443,927 $347,634 $269,712
Earning assets.......... 633,949 592,057 606,714 526,600 406,751 318,480 247,086
Loans, net of unearned
income................. 392,227 331,154 347,585 314,338 293,190 250,719 197,567
Investment securities... 228,293 243,380 243,039 190,922 98,556 57,981 39,988
Deposits................ 626,807 590,961 604,608 529,560 410,756 319,620 245,430
Long-term debt.......... 6,808 6,450 6,650 5,649 5,685 2,376 76
Shareholders' equity.... 46,484 39,158 40,783 31,577 22,309 21,156 19,595
Primary shares
outstanding............ 2,802 2,726 2,748 2,412 1,913 1,945 1,969
Fully diluted shares
outstanding............ 3,068 2,993 3,013 2,679 2,176 1,945 1,969
======== ======== ======== ======== ======== ======== ========
AT PERIOD END:
Assets.................. $692,067 $666,397 $689,630 $644,849 $478,659 $405,437 $303,251
Earning assets.......... 638,743 619,422 638,864 590,494 437,149 368,856 276,801
Loans, net of unearned
income................. 408,433 347,084 378,258 326,265 302,900 280,231 214,428
Investment securities... 217,697 254,224 247,175 238,680 123,727 71,937 47,872
Deposits................ 636,392 616,186 634,141 597,984 445,175 374,366 278,067
Long-term debt.......... 6,790 6,866 6,828 5,626 5,671 5,697 711
Shareholders' equity.... 46,593 40,322 43,589 37,413 23,770 21,105 20,549
Allowance for loan
losses................. 7,188 6,645 6,527 5,671 3,717 3,387 2,228
Nonperforming assets.... 5,273 4,877 3,998 6,189 5,851 2,266 2,341
======== ======== ======== ======== ======== ======== ========
FINANCIAL RATIOS:
Return on average
assets................. 1.06% .99% 1.00% .86% .59% .16% .63%
Return on average
shareholders' equity... 15.62 16.21 16.06 15.65 11.65 2.59 8.61
Net interest margin..... 4.44 4.35 4.33 4.28 4.07 4.19 4.72
Net overhead ratio...... 2.40 2.25 2.23(2) 2.27 2.64 3.14 3.48
======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------
(1) 1993 included a special non-recurring noncash adjustment of $910,000 for
the write down of an intangible asset.
(2) 1993 excludes item 1 above.
54
<PAGE>
OWNERSHIP OF COMMERCE COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1994, certain information as
to each person who was known to be the beneficial owner of more than 5% of the
outstanding shares of Commerce Common Stock and as to the shares of Commerce
Common Stock beneficially owned by directors individually and by all officers
and directors of Commerce as a group. Such information is based upon certain
reports regarding such ownership required to be filed with the FDIC pursuant
to the Exchange Act and the stock ownership records of Commerce.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
AMOUNT AND NATURE OF COMMERCE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK OUTSTANDING(1)
------------------------ ----------------------- ---------------------------
<S> <C> <C>
FMR Corp. ("Fidelity In-
vestments")
Boston, Massachusetts.... 237,000 8.7%
Sally James Andrews....... 6,300(2)(3) *
G. Robert Aston, Jr. ..... 88,936(2)(4) 3.0%
Ramon W. Breeden, Jr. .... 87,317(2)(3) 2.9%
John W. Brown............. 1,512 *
Thomas C. Broyles......... 29,778 1.0%
Bradford L. Cherry........ 4,023(3) *
J.W. Whiting Chisman,
Jr. ..................... 91,996(2)(3) 3.1%
Elwood L. Edwards......... 2,545 *
Andrew S. Fine............ 114,600(2)(3) 3.8%
Ernest F. Hardee.......... 79,615(2) 2.7%
John C. Harry, III........ 2,032 *
E.L. Hudson............... 45,476(2)(3) 1.5%
William J. Jones.......... 12,663(2) *
Arthur J. Lancaster, Jr. . 11,193(2) *
W. Ashton Lewis........... 31,395(2)(3) 1.1%
J. Alan Lindauer, Jr. .... 106,687(2)(3)(5) 3.6%
R. Scott Morgan........... 22,109(2)(4) *
Donald N. Patten.......... 24,414(2)(3) *
Edward B. Snyder.......... 24,458(2)(3) *
George W. Vakos........... 28,039(2)(3) 1.0%
F. Lewis Wood............. 20,308(2)(3) *
All Directors and Execu-
tive Officers as a Group. 894,243(2)(3)(4) 30.0%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Securities Exchange
Act of 1934 (the "1934 Act"), as adopted by the FDIC with which Commerce
files reports, proxy statements and other information pursuant to the
informational requirements of the 1934 Act. Under this rule, in general, a
person is deemed to be the beneficial owner of a security if he has or
shares the power to vote or to direct the voting of the security or the
power to dispose or to direct the disposition of the security, or if he
has the right to acquire beneficial ownership of the security within 60
days.
(2) Includes the indicated number of shares, or shares that may be acquired
upon the conversion of the Capital Notes, held by their close relatives or
held jointly with their spouses or as custodians or trustees for the
benefit of their children or others--Mrs. Andrews, 5,200 shares; Mr.
Aston, 1,859 shares; Mr. Breeden, 22,178 shares; Mr. Chisman, 11,757
shares; Mr. Fine, 4,506 shares; Mr. Hardee, 56,359 shares; Mr. Hudson,
1,211 shares; Mr. Lancaster, 7,906 shares; Mr. Lewis, 8,704 shares; Mr.
Lindauer, 1,770 shares; Mr. Morgan, 1,151 shares; Mr. Patten, 3,384
shares; Mr. Snyder, 11,655 shares; Mr. Vakos, 7,808 shares; and Mr. Wood,
5,892 shares; and all executive officers (exclusive of Messrs. Aston and
Morgan) as a group, 1,204 shares. The amounts shown in the table also
include the indicated number of shares, and shares that may be acquired
upon the conversion of the Capital Notes, held by certain corporations
55
<PAGE>
and partnerships under the control of--Mr. Fine, 93,523 shares; Mr. Hardee,
1,839 shares; Mr. Hudson, 34,298 shares; Mr. Jones, 10,688 shares; Mr.
Lewis, 16,194 shares; and Mr. Patten, 4,736 shares.
(3) Includes the indicated number of shares that may be acquired upon the
conversion of the Capital Notes held in their own names or for their
benefit--Mrs. Andrews, 263 shares; Mr. Breeden, 13,158 shares; Mr. Cherry,
1,316 shares; Mr. Chisman, 46,895 shares; Mr. Fine, 2,790 shares; Mr.
Hudson, 1,421 shares; Mr. Lewis, 1,737 shares; Mr. Lindauer, 8,369 shares;
Mr. Patten, 2,894 shares; Mr. Snyder, 1,053 shares; Mr. Vakos, 6,421
shares; and Mr. Wood, 2,737 shares.
(4) Includes the indicated number of shares that may be acquired within 60 days
pursuant to the exercise of stock options granted under the Commerce Stock
Option Plans--Mr. Aston, 79,732 shares; Mr. Morgan, 13,040 shares; and all
other executive officers as a group, 149,011 shares.
(5) Includes 34,786 shares held by Commerce's Trust Department as trustee for
Mr. Lindauer, and as to which shares Mr. Lindauer has the power to direct
the voting.
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<PAGE>
MARKET PRICES AND DIVIDENDS
BB&T Financial Common Stock is actively traded in the NASDAQ Stock Market
under the symbol "BBTF," and is quoted on the Nasdaq/NMS. Commerce Common Stock
is traded in the NASDAQ Stock Market under the symbol "CBVA" and the shares are
quoted on the Nasdaq/NMS.
The following tables reflect the high and low closing sales prices for BB&T
Financial Common Stock and Commerce Common Stock as quoted on the Nasdaq/NMS
for the periods indicated. Prices shown represent interdealer prices without
retail mark-up, mark-down or commissions, and may not represent actual
transactions.
BB&T Financial
<TABLE>
<CAPTION>
TABLE OF CLOSING PRICES
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.......................... $33.63 $29.13 $35.38 $31.00 $27.75 $21.88
2nd Quarter.......................... 31.50 28.13 35.88 30.25 30.13 25.50
3rd Quarter.......................... 31.88 28.88 34.63 32.25 29.88 27.38
4th Quarter (through November 2,
1994)............................... 30.00 28.50 35.88 29.13 32.25 28.75
Commerce
<CAPTION>
TABLE OF CLOSING PRICES
-----------------------------------------
1994 1993 1992
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.......................... $27.50 $25.50 $24.50 $19.12 $19.00 $13.50
2nd Quarter.......................... 39.00 24.50 24.75 21.00 19.50 15.75
3rd Quarter.......................... 39.50 36.00 25.50 22.75 17.50 15.75
4th Quarter (through November 2,
1994)............................... 38.00 36.00 25.50 23.00 21.50 17.00
</TABLE>
Cash Dividends Paid Per Share
The following table reflects the cash dividends per share paid or declared on
the BB&T Financial Common Stock for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
1st Quarter...................................................... $.27 $.25 $.22
2nd Quarter...................................................... .27 .25 .22
3rd Quarter...................................................... .29 .25 .22
4th Quarter...................................................... -- .27 .25
</TABLE>
The holders of BB&T Financial Common Stock are entitled to receive dividends
when and if declared by the BB&T Financial Board of Directors out of funds
legally available therefor. BB&T Financial has paid regular quarterly cash
dividends since 1921. Although BB&T Financial currently intends to continue to
pay quarterly cash dividends on the BB&T Financial Common Stock, there can be
no assurance that BB&T Financial's dividend policy will remain unchanged after
completion of the Acquisition. The declaration and payment of dividends
thereafter will depend upon business conditions, operating results, capital and
reserve requirements and the BB&T Financial Board of Directors' consideration
of other relevant factors.
BB&T Financial is a legal entity separate and distinct from its subsidiaries
and its revenues depend in significant part on the payment of dividends from
its subsidiary financial institutions, particularly BB&T-NC. BB&T Financial's
bank subsidiaries are subject to certain legal restrictions on the amount of
dividends they are permitted to pay. For example, North Carolina chartered
banks, such as BB&T-NC, are subject to legal
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<PAGE>
limitations on the amount of dividends they are permitted to pay. Prior
approval of the Commissioner is required if the total of all dividends declared
by BB&T-NC in any calendar year exceeds its net profits (as defined by statute)
for that year combined with its retained net profits (as defined by statute)
for the preceding two calendar years, less any required transfers to surplus.
South Carolina chartered banks, such as BB&T-SC, Lexington and Community are
required by regulation to obtain the prior written approval of the South
Carolina State Board of Financial Institutions to pay any cash dividend. A
Virginia chartered bank, such as Commerce, is prohibited from paying a dividend
that would impair its paid-in capital. In addition, the Bureau may limit the
payment of dividends by any Virginia chartered bank if it determines that the
limitation is in the public interest and is necessary to ensure the bank's
financial soundness.
Under current federal law, insured depository institutions, such as BB&T-NC,
BB&T-SC, Lexington, Community and Commerce are prohibited from making capital
distributions, including the payment of dividends, if, after making such
distribution, the institution would become "undercapitalized" (as such term is
defined in federal law). Based on its subsidiaries' current financial
condition, BB&T Financial does not expect that this provision will have any
impact on its ability to obtain dividends from its insured depository
institution subsidiaries.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by BB&T Financial's bank subsidiaries.
The declaration, payment and amount of any such future dividends would depend
upon business conditions, operating results, capital, reserve requirements,
regulatory authorizations and the consideration of other relevant factors by
the BB&T Financial Board of Directors.
The following table reflects the cash dividends paid per share on the
Commerce Common Stock for the periods indicated:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
1st Quarter................................................... $.15 $.08 $.05
2nd Quarter................................................... .15 .10 .05
3rd Quarter................................................... .15 .12 .05
4th Quarter................................................... -- .14 .08
</TABLE>
The holders of Commerce Common Stock are entitled to receive dividends when
and if declared by the Commerce Board of Directors out of funds legally
available therefor. The declaration, payment and amount of any future dividends
would depend upon business conditions, operating results, capital, reserve
requirements, regulatory authorizations and the consideration of other relevant
factors by the Commerce Board of Directors. There can, therefore, be no
assurance that any dividends would be paid in the future.
DESCRIPTION OF BB&T FINANCIAL COMMON STOCK TO BE ISSUED
IN THE ACQUISITION AND COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
BB&T Financial's authorized capital stock consists of two classes,
represented by 100,000,000 shares of BB&T Financial Common Stock, $2.50 par
value, of which 36,271,016 shares were issued and outstanding and 6,479,309
shares were reserved for issuance as of June 30, 1994 and 4,000,000 shares of
nonvoting preferred stock, $2.50 par value, no shares of which are issued or
outstanding. BB&T Financial's Amended Articles of Incorporation authorize the
BB&T Financial Board of Directors, without stockholder approval, to fix the
preferences, limitations and relative rights of the preferred stock and to
establish series of such preferred stock and determine the variations between
each series. If any shares of preferred stock are issued, the rights of holders
of BB&T Financial Common Stock will be subject to the rights and preferences
conferred to holders of such preferred stock.
58
<PAGE>
Commerce's authorized capital stock consists of two classes represented by
5,000,000 shares of Commerce Common Stock, $2.50 par value, of which 2,725,163
shares were issued and outstanding and 1,396,809 shares were reserved for
issuance as of June 30, 1994, and 1,000,000 shares of preferred stock, $5.00
par value, no shares of which are issued or outstanding. Commerce's Amended
Articles of Incorporation authorize the Commerce Board of Directors, without
stockholder approval, to fix the preferences, limitations and relative rights
of the preferred stock and to establish series of such preferred stock and
determine the variations between each series. If any shares of preferred stock
are issued, the rights of the holders of Commerce Common Stock will be subject
to the rights and preferences conferred to the holders of such preferred stock.
DIVIDEND RIGHTS
The holders of BB&T Financial Common Stock are entitled to share ratably in
dividends when and as declared by the BB&T Financial Board of Directors out of
funds legally available therefor. One of the principal sources of income to
BB&T Financial is dividends from its subsidiaries. For a description of certain
restrictions on the payment of dividends by banks, see "MARKET PRICES AND
DIVIDENDS." BB&T Financial's Amended Articles of Incorporation permit the BB&T
Financial Board of Directors to issue non-voting preferred stock with terms set
by the BB&T Financial Board of Directors, which terms may include the right to
receive dividends ahead of the holders of BB&T Financial Common Stock. No
shares of such preferred stock are presently outstanding.
The holders of Commerce Common Stock also are entitled to share ratably in
dividends when and as declared by the Commerce Board of Directors out of funds
legally available therefor. For a description of certain restrictions on the
payment of dividends of banks, see "MARKET PRICES AND DIVIDENDS." Commerce's
Amended Articles of Incorporation permit the Commerce Board of Directors to
issue preferred stock with terms set by the Commerce Board of Directors, which
terms may include the right to receive dividends ahead of the holders of
Commerce Common Stock. No shares of such preferred stock are presently
outstanding.
VOTING RIGHTS
The holders of BB&T Financial Common Stock and Commerce Common Stock have one
vote for each share held on any matter presented for consideration by the
stockholders. The holders of BB&T Financial Common Stock are not entitled to
cumulative voting in the election of directors.
Under Virginia law, the right of cumulative voting in the election of
directors does not exist unless it is expressly provided for in the
corporation's articles of incorporation. Commerce's Amended Articles of
Incorporation do not provide for cumulative voting.
PREEMPTIVE RIGHTS
Neither the holders of BB&T Financial Common Stock nor the holders of
Commerce Common Stock have any preemptive or preferential rights to purchase or
to subscribe for additional shares of BB&T Financial Common Stock or Commerce
Common Stock, respectively, or any other securities that BB&T Financial or
Commerce may issue.
ASSESSMENT AND REDEMPTION
The shares of BB&T Financial Common Stock presently outstanding are, and
those shares of BB&T Financial Common Stock issuable upon consummation of the
Acquisition will be, when issued, fully paid and nonassessable. Such shares are
not convertible and do not have any redemption provisions.
59
<PAGE>
The shares of Commerce Common Stock presently outstanding are fully paid and
nonassessable and such shares do not have any redemption provisions.
LIQUIDATION RIGHTS
In the event of liquidation, dissolution or winding up of BB&T Financial or
Commerce, whether voluntary or involuntary, the holders of BB&T Financial
Common Stock or Commerce Common Stock, as applicable, will be entitled to share
ratably in any of the net assets or funds of BB&T Financial or Commerce,
respectively, which are available for distribution to their stockholders after
the satisfaction of their liabilities or after adequate provision is made
therefor, subject to the rights of the holders of any preferred stock
outstanding at the time.
TRANSFER AGENT
The Transfer Agent and Registrar for BB&T Financial Common Stock is BB&T-NC.
Commerce serves as the Transfer Agent and Registrar for Commerce Common Stock.
CERTAIN PROVISIONS WHICH MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of the By-laws and Amended Articles of Incorporation of
BB&T Financial, the Amended Articles of Incorporation of Commerce and North
Carolina and Virginia law, and certain other arrangements, some of which are
described below, may discourage an attempt to acquire control of BB&T Financial
or Commerce which a majority of the stockholders of BB&T Financial or Commerce
might determine to be in their best interest or in which stockholders might
receive a premium over the current market price for their shares. These
provisions also may render the removal of a director or of the entire Board of
Directors of BB&T Financial or Commerce, as applicable, more difficult and may
deter or delay corporate changes of control which have not received the
requisite approval of the Board of Directors of BB&T Financial or Commerce, as
applicable.
Election and Removal of Directors. All of BB&T Financial's directors are
elected each year. Under BB&T Financial's Amended Articles of Incorporation,
approval by the vote of at least two-thirds of the outstanding shares of BB&T
Financial Common Stock is required for the removal of any director or the
entire BB&T Financial Board of Directors. Under North Carolina law, a director
may be removed by stockholder vote only if the number of votes cast to remove
him exceeds the number of votes cast not to remove him.
All of Commerce's directors are elected each year. Under Virginia law, a
director of Commerce may be removed with or without cause by stockholder vote
if the number of votes cast to remove him constitutes a majority of the votes
entitled to be cast at a meeting called for such purpose.
Authorized Preferred Stock. BB&T Financial's Amended Articles of
Incorporation authorize 4,000,000 shares of nonvoting preferred stock. The BB&T
Financial Board of Directors may, subject to applicable law and the rules of
the National Association of Securities Dealers for Nasdaq/NMS companies,
authorize the issuance of preferred stock at such times, for such purposes and
for such consideration as it may deem advisable without further stockholder
approval. The issuance of preferred stock under certain circumstances may have
the effect of discouraging an attempt by a third party to acquire control of
BB&T Financial by, for example, authorizing the issuance of a series of
preferred stock with rights and preferences designed to impede the proposed
transaction. A series of preferred stock also could be used for a stockholder
rights plan, which may be adopted without stockholder approval. Such a plan, if
adopted, could deter attempts by third parties to acquire a significant number
of shares of BB&T Financial Common Stock without the prior approval of the BB&T
Financial Board of Directors.
Commerce's Amended Articles of Incorporation authorize the issuance of up to
1,000,000 shares of preferred stock. The Commerce Board of Directors could,
subject to applicable law and the rules of the National Association of
Securities Dealers for Nasdaq/NMS companies, issue this preferred stock with
such
60
<PAGE>
rights and preferences as the Board of Directors deems desirable without
stockholder approval for purposes similar to those described above. Therefore,
the existence of such authorized preferred stock could deter attempts of third
parties to acquire a significant number of shares of Commerce Common Stock
without prior approval of the Board of Directors of Commerce.
North Carolina and Virginia Stockholder Protection Legislation. The North
Carolina Shareholder Protection Act and the North Carolina Control Share
Acquisition Act both apply to BB&T Financial. These Acts are designed to
protect stockholders against certain changes in control and to provide
stockholders with the opportunity to vote on whether to accord voting rights to
certain stockholders.
The North Carolina Shareholder Protection Act ("N.C. Shareholder Protection
Act") is a "fair price" statute that requires the affirmative vote of 95% of
the voting shares of a corporation for the adoption of a business combination
(including a merger) with another entity if the other entity beneficially owns
more than 20% of the voting shares of the corporation. This vote is not
required if the stockholders of the corporation receive a specified minimum
price for their shares as part of the business combination and the stockholders
receive a proxy statement for the purpose of soliciting their approval for the
business combination. The proxy statement must contain the opinion of those
directors not elected by the other entity as to the advisability of the
business combination and may include an opinion from an outside investment firm
as to the fairness of the transaction. A North Carolina corporation may opt out
of the provisions of the N.C. Shareholder Protection Act in its articles of
incorporation or by-laws.
The North Carolina Control Share Acquisition Act ("Share Acquisition Act")
requires the approval of a majority of a corporation's disinterested
stockholders before an acquiror of the corporation's shares who crosses one of
three voting thresholds (20%, 33 1/3% or 50%) may obtain voting control with
respect to those shares that exceed the threshold. The Share Acquisition Act
also provides disinterested stockholders with certain redemption rights if the
acquiror gains majority voting power for the election of the corporation's
directors as a result of the affirmative vote of the disinterested
stockholders. A merger pursuant to an agreement of merger with the corporation
does not fall under the purview of the Share Acquisition Act. A North Carolina
corporation may opt out of the provisions of the Share Acquisition Act in its
articles of incorporation or by-laws.
BB&T Financial has chosen not to opt out of the N.C. Shareholder Protection
Act or the Share Acquisition Act. BB&T Financial's Amended Articles of
Incorporation and By-laws do not contain any provision that would prevent the
application of either of the Acts to BB&T Financial. As a result, the effect of
these Acts may be to deter or delay changes in control which are opposed by the
BB&T Financial Board of Directors or stockholders.
The Virginia Stock Corporation Act ("VSCA") also provides similar
restrictions on "affiliated transactions" (including, among other various
transactions, mergers, share exchanges, sales, leases, or other dispositions of
material assets, issuances of securities, dissolutions, and similar
transactions) with an "interested stockholder" (generally the beneficial owner
of more than 10% of any class of the corporation's outstanding voting shares).
During the three years following the date a stockholder becomes an interested
stockholder, any affiliated transaction with the interested stockholder must be
approved by both a majority of the "disinterested directors" (those directors
who were directors before the interested stockholder became an interested
stockholder or who were recommended for election by a majority of disinterested
directors) and by the affirmative vote of the holders of two-thirds of the
corporation's voting shares other than shares beneficially owned by the
interested stockholder. The foregoing requirements do not apply to affiliated
transactions if, among other things, a majority of the disinterested directors
approve the interested stockholder's acquisition of voting shares making such a
person an interested stockholder prior to such acquisition. Beginning three
years after the stockholder becomes an interested stockholder, the corporation
may engage in an affiliated transaction with the interested stockholder if (i)
the affiliated transaction is approved by the holders of two-thirds of the
corporation's voting shares, other than shares beneficially owned by the
interested stockholder, (ii) the affiliated transaction has been approved by a
majority of the
61
<PAGE>
disinterested directors or (iii) subject to certain additional requirements, in
the affiliated transaction the holders of each class or series of voting shares
will receive consideration meeting specified fair price and other requirements
designed to insure that all stockholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
On June 23, 1994, the directors of Commerce by the requisite vote adopted a
resolution that exempts BB&T Financial from the restrictions of the affiliated
transactions provisions of the VSCA.
Prior to the enactment of the foregoing legislation, the stockholders of
Commerce approved the adoption of a so-called "fair-price amendment" to the
Amended Articles of Incorporation. The fair-price amendment generally provides
that certain business combinations (including mergers, consolidations,
dispositions of assets and similar corporate transactions) involving Commerce
and a person or entity owning 5% or more of Commerce Common Stock (an
"Acquiring Person") must be approved by the holders of at least 80% of the
outstanding shares of Commerce Common Stock, unless such business combination
either:
(i) has been approved by at least 80% of those directors who are not
affiliated or associated with the Acquiring Person, or
(ii) will result in the receipt by all stockholders of a specified
minimum amount and form of payment for their shares and will satisfy
certain other conditions.
The fair-price amendment does not apply to the Acquisition.
Under the VSCA's control share acquisitions law, voting rights of shares of
stock of a Virginia corporation acquired by an acquiring person at ownership
levels of 20%, 33 1/3% and 50% of the outstanding shares may, under certain
circumstances, be denied unless conferred by a special stockholder vote of a
majority of the outstanding shares entitled to vote for directors, other than
shares held by the acquiring person and officers and directors of the
corporation or, among other exceptions, such acquisition of shares is made
pursuant to a merger agreement with the corporation or the corporation's
articles of incorporation or by-laws permit the acquisition of such shares
prior to the acquiring person's acquisition thereof. If authorized in the
corporation's articles of incorporation or by-laws, the statute also permits
the corporation to redeem the acquired shares at the average per share price
paid for them if the voting rights are not approved or if the acquiring person
does not file a "control share acquisition statement" with the corporation
within sixty days of the last acquisition of such shares. If voting rights are
approved for control shares comprising more than fifty percent of the
corporation's outstanding stock, objecting stockholders may have the right to
have their shares repurchased by the corporation for "fair value."
The VSCA's control share acquisitions law does not apply to the Acquisition.
Supermajority Voting Provisions. BB&T Financial's Amended Articles of
Incorporation require the affirmative vote of two-thirds of the outstanding
shares entitled to vote to approve a merger, consolidation, or other business
combination, unless the transaction is approved, prior to consummation, by two-
thirds of the members of the BB&T Financial Board of Directors. This provision
could tend to make the acquisition of BB&T Financial more difficult to
accomplish without the cooperation or favorable recommendation of the BB&T
Financial Board of Directors.
The VSCA provides that, unless a corporation's articles of incorporation
provide for a higher or lower vote, certain significant corporate actions must
be approved by the affirmative vote of the holders of more than two-thirds of
the votes entitled to be cast on the matter. Corporate actions requiring a two-
thirds vote include amendments to a corporation's articles of incorporation,
adoption of plans of merger or exchange, sales of all or substantially all of a
corporation's assets other than in the ordinary course of business and adoption
of plans of dissolution ("Fundamental Actions"). The VSCA provides that a
corporation's articles of incorporation may either increase the vote required
to approve Fundamental Actions or may decrease the required vote to not less
than a majority of the votes entitled to be cast.
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<PAGE>
The supermajority provision contained in Commerce's Amended Articles of
Incorporation decreases the stockholder vote required to approve Fundamental
Actions to the affirmative vote of the holders of a majority of the shares
entitled to vote, provided that two-thirds of the members of the Board of
Directors then in office have approved and recommended the approval of the
Fundamental Action. In the absence of such approval and recommendation by the
Board, the stockholder vote required for approval of Fundamental Actions is
increased to 80% of the shares entitled to vote on the matter.
The Acquisition was approved by two-thirds of the members of the Board of
Directors of Commerce and thus requires the affirmative vote of only a majority
of the shares entitled to vote on the Acquisition.
Amendments to Articles of Incorporation. BB&T Financial's Amended Articles of
Incorporation require approval by holders of at least two-thirds of the
outstanding shares entitled to vote in order to amend certain provisions of
BB&T Financial's Amended Articles of Incorporation. Those provisions require
holders of at least two-thirds of its outstanding shares to approve (i) the
removal of a director or the entire BB&T Financial Board of Directors, (ii) a
merger, consolidation or other business combination not approved by two-thirds
of the BB&T Financial Board of Directors and (iii) an amendment or repeal of
the By-laws. Any other amendment of the Amended Articles of Incorporation
requires the affirmative vote of the holders of a majority of the shares
entitled to vote on such amendment.
See the discussion above concerning "Supermajority Voting Provisions" with
respect to the stockholder vote requirements to amend Commerce's Amended
Articles of Incorporation.
Amendments to By-laws. BB&T Financial's By-laws may be amended by either the
vote of a majority of the BB&T Financial Board of Directors or by the
affirmative vote of the holders of at least two-thirds of the outstanding BB&T
Financial Common Stock.
Commerce's By-laws may be amended at any time by either the vote of a
majority of the Commerce Board of Directors or of the Commerce stockholders if
the votes cast in support of an amendment to the By-laws exceed the votes cast
opposing such amendment.
Employee Stock Plans. BB&T Financial established employee stock ownership
plans for the benefit of the employees of certain savings institutions upon
their acquisitions by BB&T Financial. These plans, which hold 255,906 shares of
BB&T Financial Common Stock as of June 30, 1994, are subparts of BB&T
Financial's Savings and Thrift Plan, which holds an additional 1,639,839 shares
of BB&T Financial Common Stock as of June 30, 1994. Under plan terms,
participants in BB&T Financial's Savings and Thrift Plan have the right to
direct the trustee as to the voting of the shares held in their accounts on all
matters, including the election of directors. Under these plans, including each
employee stock ownership plan, the trustee is required, subject to applicable
law, to vote the shares as to which participant directions are not received and
as to shares not allocated to participant accounts in the same proportion as
the allocated shares as to which directions are received. Plan terms also would
require the trustee of each plan to follow participant instructions as to the
tendering of any shares held in participant accounts in the event of a tender
offer. Shares allocated to participant accounts as to which instructions are
not received and unallocated shares are, again subject to applicable law,
tendered pursuant to the same procedures as to which shares would be voted. As
a result of these so-called "pass-through" provisions, any third-party attempt
to acquire control of BB&T Financial by means of a proxy contest or tender
offer may require the support of the plan participants. The BB&T Financial
employee stock plans established thus may tend to discourage such attempts to
the extent that participants oppose third-party attempts to acquire control and
stockholder approval or support is required for such attempts.
Commerce has not established an employee stock ownership or similar plan.
THE SHARES OF BB&T FINANCIAL COMMON STOCK TO BE ISSUED IN THE ACQUISITION ARE
NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
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<PAGE>
DESCRIPTION OF STOCKHOLDERS' RIGHTS OF SNC
In the SNC Merger, BB&T Financial will be merged with and into SNC, which
will then continue as the Continuing Corporation under its existing Amended and
Restated Articles of Incorporation. Thus, the SNC Merger will have an effect on
the rights of Commerce stockholders. Therefore, the following information
describing the rights of the stockholders of SNC is provided.
GENERAL
SNC is authorized to issue 120,000,000 shares of SNC Common Stock, $5 par
value, of which 43,385,610 shares were issued and outstanding as of June 30,
1994. SNC is also authorized to issue 5,000,000 shares of preferred stock, $5
par value ("SNC Preferred Stock"), of which 770,000 shares of SNC Series A
Preferred Stock have been issued. If the SNC Agreement is approved by such
stockholders, SNC's Amended and Restated Articles of Incorporation will be
simultaneously amended to authorize the issuance of up to 300,000,000 shares of
SNC Common Stock.
The SNC Series A Preferred Stock was issued in connection with an offering of
3,080,000 Depositary Shares, each representing one-quarter interest in a share
of SNC Series A Preferred Stock. Each owner of a Depositary Share is entitled,
in proportion to the one-quarter interest in a share of SNC Series A Preferred
Stock represented by such Depositary Share, to all the rights and preferences
of the SNC Series A Preferred Stock represented thereby (including dividend,
voting, redemption, conversion and liquidation rights). The SNC Series A
Preferred Stock is convertible at any time into such number of whole shares of
SNC Common Stock as is equal to the aggregate stated value of shares
surrendered for conversion divided by $16.93 per share of SNC Common Stock,
subject to adjustment (under formulae set forth in SNC's Amended and Restated
Articles of Incorporation) in certain events.
Under SNC's Amended and Restated Articles of Incorporation, the SNC Board of
Directors, or a duly authorized committee thereof, has the power, without
further action by the SNC stockholders, to provide for the issuance of
preferred stock in one or more series and to fix the voting power,
designations, preferences and relative, participating, optional or special
rights, and qualifications, limitations or restrictions thereof, by adopting a
resolution or resolutions creating and designating such series. The rights of
the holders of SNC Common Stock are subject to the rights and preferences of
the holders of SNC Series A Preferred Stock and would be subject to any rights
and preferences of any other SNC Preferred Stock or series thereof that the SNC
Board of Directors may issue.
Under North Carolina law, any outstanding shares of capital stock of SNC
reacquired by SNC would be considered authorized but unissued shares.
DIVIDEND RIGHTS
Unless SNC's Amended and Restated Articles of Incorporation are amended to
provide otherwise, SNC may issue to the holders of shares of SNC Common Stock
share dividends in SNC Common Stock. If certain requirements are met, share
dividends in shares of another class or series may be issued to holders of SNC
Common Stock. Additionally, the holders of shares of SNC Common Stock will be
entitled to receive such other distributions as the Board of Directors of SNC
may declare, and the requirement that no distributions may be made if, after
giving effect thereto: (i) SNC would not be able to pay its debts as they
become due in the ordinary course of business; or (ii) SNC's total assets would
be less than the sum of SNC's total liabilities plus the amount that would be
needed, if SNC were to be dissolved at the time of distribution, to satisfy
claims of holders of SNC Series A Preferred Stock and such stockholders which
have preferential rights superior to the rights of holders of SNC Common Stock.
Holders of shares of the SNC Series A Preferred Stock are entitled to
receive, when and as declared by the Board of Directors of SNC, out of assets
of SNC legally available for payment, an annual cash dividend
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of 6.75% per annum (equivalent to $1.6875 per Depositary Share). Dividends on
the SNC Series A Preferred Stock are cumulative from the date of issue and
payable quarterly on February 15, May 15, August 15 and November 15 of each
year commencing May 15, 1992, at such annual rate. Dividends payable on the SNC
Series A Preferred Stock for any period less than a full dividend period shall
be computed on the basis of a 360-day year consisting of twelve 30-day months.
Each such dividend will be payable to holders of record as they appear on the
stock register of SNC on such record dates, not more than 60 days nor less than
10 days preceding the payment dates, as shall be fixed by the SNC Board of
Directors. In the event that full cumulative dividends on the SNC Series A
Preferred Stock have not been paid when due, SNC may not: (i) declare or pay
any dividends or make other distributions (other than: (A) dividends payable in
shares of common stock or other capital stock of SNC ranking junior to the SNC
Series A Preferred Stock with respect to the payment of dividends and upon
liquidation, dissolution or winding up; or (B) options, warrants or rights to
subscribe for or purchase such shares) on the SNC Common Stock or on any other
capital stock of SNC ranking junior to the SNC Series A Preferred Stock with
respect to the payment of dividends; or (ii) purchase, redeem or otherwise
acquire any shares of SNC Series A Preferred Stock (other than with funds
previously deposited in trust for the redemption of shares of SNC Series A
Preferred Stock pursuant to any sinking fund) or any other shares of capital
stock of SNC ranking on a parity with or junior to the SNC Series A Preferred
Stock (except by conversion into or exchange for capital stock of SNC ranking
junior to the SNC Series A Preferred Stock as to payment of dividends and upon
liquidation, dissolution or winding up). In the event dividends on any shares
of SNC Series A Preferred Stock are in arrears for six full quarterly periods,
whether or not consecutive, the holders of the SNC Series A Preferred Stock
would be entitled to certain voting rights. See "--Voting Rights." SNC is not
in arrears on any dividends payable to the holders of the SNC Series A
Preferred Stock.
Debt instruments to which SNC is subject contain provisions restricting its
payment of dividends. Under the most restrictive of these provisions, at June
30, 1994, approximately $222.4 million was available for the payment of
dividends on SNC's capital stock.
While SNC is not subject to the restrictions on dividends applicable to
national banks, the ability of SNC to pay distributions to the holders of SNC
Common Stock will depend to a large extent upon the amount of dividends SNB-NC
and SNB-SC, which are subject to the restrictions imposed by the National Bank
Act, and SNB Savings, which is subject to the restrictions imposed by the
regulations of the Savings Institution Division of the North Carolina
Department of Commerce, pay to SNC.
There can be no assurance as to the payment of dividends on shares of SNC
Common Stock in the future since such payment will depend upon the earnings and
financial condition of SNC and its bank and savings bank subsidiaries, as well
as other related factors.
VOTING RIGHTS
Each holder of SNC Common Stock is entitled to one vote per share and to the
same and identical voting rights as other holders of SNC Common Stock. Holders
of SNC Common Stock do not have cumulative voting rights in the election of
directors so long as SNC has shares of any class of securities entitled to be
voted at a meeting that are held of record by more than 2,000 stockholders or
listed on a national securities exchange, unless SNC's Amended and Restated
Articles of Incorporation are amended to provide otherwise. Directors are
elected by a plurality of the votes cast, and at each election for directors
every shareholder entitled to vote at such election shall have the right to
vote, in person or by proxy, the number of shares outstanding of record in his
name for as many persons as there are directors to be elected.
Shares of SNC Common Stock owned by any of its subsidiaries in a non-
fiduciary capacity are not eligible to vote on any matter. Shares of SNC Common
Stock held by SNC or any of its subsidiaries either as a sole- or co-fiduciary
may be voted in the election of directors and in all other matters by the
registered owners, unless otherwise limited by the terms of the individual
trust agreements.
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In general, unless SNC's Amended and Restated Articles of Incorporation are
amended to provide otherwise or a bylaw is adopted by the stockholders, action
on a matter is approved if the votes cast favoring the action exceed the votes
cast opposing the action. However, generally (i) the affirmative vote of a
majority of the shares entitled to be cast of each voting group entitled to
vote separately is required to approve a merger or share exchange; (ii) the
affirmative vote of a majority of the shares of each voting group entitled to
vote thereon is required to amend SNC's Amended and Restated Articles of
Incorporation, if the amendment would give rise to dissenters' rights; and
(iii) the affirmative vote of a majority of the shares of capital stock of SNC
entitled to be cast may be required to approve the dissolution of SNC or to
approve the sale of all or substantially all the property of SNC. With respect
to sales of assets in the regular course of business, the SNC Board of
Directors may approve such sales without shareholder approval.
Holders of SNC Common Stock and SNC Series A Preferred Stock have dissenters'
rights of appraisal with respect to their shares as provided by statute in
connection with certain types of merger (such as the SNC Merger) or share
exchange transactions. Dissenters' rights are also available with respect to
certain sales of all or substantially all the property of SNC and amendments to
SNC's Amended and Restated Articles of Incorporation that materially and
adversely affect certain enumerated rights of the dissenters' shares.
The SNC Board of Directors, without stockholder approval, may issue shares of
SNC Preferred Stock with voting and conversion rights that could adversely
affect the voting power of the holders of SNC Common Stock.
Holders of SNC Series A Preferred Stock do not have any voting rights except
as set forth below or as otherwise from time to time expressly required by law.
Whenever dividends on any shares of SNC Series A Preferred Stock are in arrears
for six full quarterly periods, whether or not consecutive, the holders of such
shares of SNC Series A Preferred Stock (voting separately as a class with all
other series of cumulative preferred stock upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election
of two additional directors (on the terms set forth below) of SNC at the next
annual meeting of stockholders and at each subsequent meeting until all
dividends accumulated on such shares of SNC Series A Preferred Stock have been
fully paid or set aside for payment. In such case, the entire SNC Board of
Directors will be increased by two directors. Each director so elected will
continue to serve for the full term for which he has been elected,
notwithstanding that prior to the end of such term such default ceases to
exist.
So long as any shares of SNC Series A Preferred Stock remain outstanding, SNC
will not, without the affirmative vote of the holders, given in person or by
proxy at a meeting, of at least two-thirds of the shares of SNC Series A
Preferred Stock outstanding at the time (voting separately as one class): (i)
authorize, create or issue, or increase the authorized or issued amount of, any
class of series of stock ranking prior to the SNC Series A Preferred Stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up; (ii) authorize, create or issue, or increase the
authorized or issued amount of, any class or series of stock (including any
class or series of preferred stock) which ranks on a parity with the SNC Series
A Preferred Stock as to dividends and upon liquidation, dissolution or winding
up ("Parity Stock") unless SNC's Amended and Restated Articles of Incorporation
or other provisions of the charter creating or authorizing such class or series
provide that if in any case the stated dividends or amounts payable upon
liquidation, dissolution or winding up are not paid in full on the SNC Series A
Preferred Stock and all outstanding shares of Parity Stock, the shares of all
Parity Stock will share ratably in the payment of dividends, including
accumulations (if any) in accordance with the sums which would be payable on
all Parity Stock if all dividends in respect of all shares of Parity Stock were
paid in full, and on any distribution of assets upon liquidation, dissolution
or winding up ratably in accordance with the sums which would be payable in
respect of all shares of Parity Stock if all sums payable were discharged in
full; or (iii) amend, alter or repeal the provisions of SNC's Amended and
Restated Articles of Incorporation, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of such shares of SNC Series A Preferred Stock or the
holders thereof; provided, however, that any increase in the amount of the
authorized preferred stock or any outstanding series of preferred stock or any
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other capital stock of SNC, or the creation and issuance of other series of
preferred stock including SNC Series A Preferred Stock, or of any other capital
stock of SNC, in each case junior to the SNC Series A Preferred Stock with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up will not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
PREEMPTIVE RIGHTS
The stockholders of SNC do not have preemptive rights. Thus, if additional
shares of SNC Common Stock or SNC Preferred Stock were issued, holders of such
stock, to the extent they did not participate in such additional issuance of
shares, would own proportionately smaller interests in a larger amount of
outstanding capital stock.
ASSESSMENT AND REDEMPTION
All outstanding shares of SNC Common Stock are, and those to be issued
pursuant to the SNC Agreement will be, fully paid and nonassessable. All
outstanding shares of SNC Series A Preferred Stock are fully paid and
nonassessable.
The SNC Common Stock is not convertible, redeemable or entitled to any
sinking fund.
LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of the affairs of
SNC, holders of outstanding shares of SNC Common Stock are entitled to share,
in proportion to their respective interests, in SNC's assets and funds
remaining after payment, or provision for payment, of all debts and other
liabilities of SNC. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of SNC, the holders of shares of the SNC Series A
Preferred Stock will be entitled to receive out of the assets of SNC available
for distribution to stockholders, before any distribution is made to holders of
Common Stock, liquidating distributions in the amount of $100 per share of the
SNC Series A Preferred Stock (equivalent to $25 per Depositary Share), plus
accrued but unpaid dividends to, but excluding, the date of final distribution,
but the holders of the shares of the SNC Series A Preferred Stock will not be
entitled to receive the liquidation price of such shares until the liquidation
preference of any other shares of SNC's capital stock ranking senior to the SNC
Series A Preferred Stock with respect to rights upon liquidation, dissolution
or winding up shall have been paid (or a sum set aside therefor sufficient to
provide for payment) in full. No such senior capital stock of SNC is
outstanding, and the holders of the SNC Series A Preferred Stock have certain
voting rights with respect to the issuance of any such senior capital stock.
See "--Voting Rights." If upon any voluntary or involuntary liquidation,
dissolution or winding up of SNC, the assets of SNC shall be insufficient to
make such full payments to holders of the SNC Series A Preferred Stock and any
other SNC Preferred Stock ranking with respect to rights upon liquidation,
dissolution or winding up on a parity with the SNC Series A Preferred Stock,
then such assets shall be distributed pro-rata among holders of the SNC Series
A Preferred Stock or any other such SNC Preferred Stock. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of the SNC Series A Preferred Stock will not be entitled to any further
participation in any distribution of assets by SNC. Neither a consolidation or
merger of SNC with or into another corporation nor a merger of another
corporation with or into SNC nor a sale, lease or conveyance of all or any part
of SNC's property or business shall be considered a liquidation, dissolution,
or winding up of SNC.
Because SNC is a bank and savings bank holding company, its rights, the
rights of its creditors and of its stockholders, including the holders of the
shares of the SNC Series A Preferred Stock, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization may be subject to
the prior claims of the subsidiary's creditors except to the extent that SNC
may itself be a creditor with recognized claims against the subsidiary and any
interests in the liquidation accounts established by savings associations or
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savings banks acquired by SNC for the benefit of eligible account holders in
connection with the conversion of such savings associations to stock form. The
Board of Directors of SNC, without shareholder approval, may issue SNC
Preferred Stock with liquidation rights that may affect the amount of assets
and funds remaining for payment to holders of SNC Common Stock upon a
liquidation of SNC.
CERTAIN PROVISIONS WHICH MAY HAVE AN ANTI-TAKEOVER EFFECT
Authorized Preferred Stock. The rights of holders of SNC Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any SNC
Preferred Stock that may be issued in the future. Any such issuance may
adversely affect the interests of holders of SNC Common Stock by limiting the
control which such holders may exert by exercise of their voting rights, by
subordinating their rights in liquidation to the rights of the holders of such
SNC Preferred Stock, and otherwise. In addition, the issuance of SNC Preferred
Stock may, in some circumstances, deter or discourage takeover attempts and
other changes in control of SNC, including takeovers and changes in control
which some holders of SNC Common Stock may deem to be in their best interests
and in the best interests of SNC, by making it more difficult for a person who
has gained a substantial equity interest in SNC to obtain voting control or to
exercise control effectively. SNC has no current plans or agreements with
respect to the issuance of any shares of SNC Preferred Stock other than the
issuance of SNC Series A Preferred Stock.
Classified Board of Directors and Election and Removal of Directors. The SNC
Board of Directors is divided into three classes so that each director serves
for a term ending on the date of the third annual meeting following the annual
meeting at which such director was elected. In the event of any increase in the
authorized number of directors, the newly created directorships resulting from
such increase would be apportioned among the three classes of directors so as
to maintain such classes as nearly equal as possible. Because of the
classification of directors, unless the stockholders act under North Carolina
law to remove directors from office, two annual meetings generally would be
required to elect a majority of the SNC Board of Directors, and three rather
than one would be required to replace the entire board. Amendment of the
provisions of SNC's Amended and Restated Articles of Incorporation providing
for the structure of the SNC Board of Directors and proving for the removal of
directors and the selection of a director to fill a vacancy on the SNC Board of
Directors requires the affirmative vote of not less than two-thirds of the
total number of issued and outstanding shares of SNC Common Stock entitled to
vote thereon.
The SNC By-laws provide for a Board of Directors having not less than three
nor more than twenty-five members as determined from time to time by vote of a
majority of the members of the Board of Directors or by resolution of the
stockholders of SNC. As long as the stockholders of SNC do not have cumulative
voting rights with respect to the election of directors, the SNC Board of
Directors may increase or decrease the number of directors not more than 30% in
any twelve-month period. Vacancies, whether arising from an increase in the
number of directors or from the failure by stockholders to elect the full
authorized number of directors, may be filled by the stockholders or by the SNC
Board of Directors (by the affirmative vote of a majority of the remaining
directors if less than a quorum of the directors remains). Pursuant to SNC's
By-laws, however, less than a majority of the full SNC Board of Directors may
not increase the number of directors to a number which: (i) exceeds by more
than two the number of directors last fixed by stockholders where such number
was fifteen or less; or (ii) exceeds by more than four the number of directors
last fixed by stockholders where such number was sixteen or more. Presently,
membership on the SNC Board of Directors is fixed at twenty-three.
Pursuant to SNC's Amended and Restated Articles of Incorporation, members of
the SNC Board of Directors may be removed only for cause. In addition, the
directors may be removed only by the vote of a majority of the outstanding
shares of SNC Common Stock entitled to vote in the election of directors.
North Carolina Stockholder Protection Legislation. SNC has opted out of the
N.C. Shareholder Protection Act, but not the Share Acquisition Act.
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EXPERTS
The consolidated financial statements of BB&T Financial and its subsidiaries
included in BB&T Financial's Annual Report on Form 10-K for the year ended
December 31, 1993 incorporated herein by reference have been incorporated by
reference in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. Such financial
statements have been restated in BB&T Financial's Current Report on Form 8-K
dated August 31, 1994.
The consolidated financial statements of BB&T Financial and its subsidiaries
which are incorporated herein by reference from BB&T Financial's Current Report
on Form 8-K dated August 31, 1994, which restates the consolidated financial
statements that are incorporated by reference from BB&T Financial's Annual
Report on Form 10-K for the year ended December 31, 1993 to reflect the
acquisition of L.S.B. Bancshares, Inc. of South Carolina by BB&T Financial
during 1994, have been incorporated by reference herein in reliance upon the
reports of KPMG Peat Marwick LLP and other auditors, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firms as experts in accounting and auditing.
The financial statements of Commerce at December 31, 1993 and for the year
then ended incorporated by reference herein have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated by reference herein. Such financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Commerce as of December 31, 1992 and for each of
the two years in the period ended December 31, 1992 incorporated by reference
herein have been incorporated by reference in reliance on the report of Coopers
& Lybrand, independent accountants, incorporated by reference herein, and have
been incorporated by reference in reliance upon the authority of that firm as
experts in auditing and accounting.
The consolidated financial statements of SNC and its subsidiaries as of
December 31, 1993 and 1992, and for each of the years in the three-year period
ended December 31, 1993, included in BB&T Financial's Current Report on Form 8-
K, dated November 7, 1994, and incorporated by reference in this Proxy
Statement/Prospectus, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP and KPMG Peat Marwick LLP,
independent public accountants, and are incorporated herein by reference upon
the authority of said firms as experts in giving said reports.
OPINIONS
The validity of the shares of BB&T Financial Common Stock offered hereby is
being passed upon for BB&T Financial by Jerone C. Herring, Esquire, Vice
President and Secretary of BB&T Financial. As of the date of this Prospectus,
Mr. Herring beneficially owned 13,508 shares of BB&T Financial Common Stock and
held options exercisable within 60 days of such date to acquire 11,529 shares
of BB&T Financial Common Stock. Certain matters with regard to the federal law
will be passed upon for BB&T Financial by Arnold & Porter, Washington, D.C.,
special counsel to BB&T Financial. Certain matters with regard to the federal
and Virginia income tax consequences of the Acquisition have been passed upon
for BB&T Financial by KPMG Peat Marwick.
STOCKHOLDER PROPOSALS
It is not anticipated that Commerce will hold a 1995 Annual Meeting of
Stockholders unless the Acquisition is not consummated prior to April 1995. If
the Acquisition is not consummated prior to that
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time, any stockholder proposal intended for inclusion in Commerce's proxy
materials for the 1995 Annual Meeting of Stockholders must be received at
Commerce's main office at 5101 Cleveland Street, Suite 206, Virginia Beach,
Virginia 23462 no later than January 11, 1995. Any such proposal shall be
subject to the requirements of the proxy rules adopted by the FDIC under the
Exchange Act.
OTHER MATTERS
The Commerce Board of Directors does not intend to bring any matter before
the Special Meeting other than as specifically set forth in the Notice of
Special Meeting of Stockholders, nor does it know of any matter to be brought
before the Special Meeting by others. If, however, any other matters properly
come before the Special Meeting, it is the intention of each of the
proxyholders to vote such proxy in accordance with the decision of a majority
of the Commerce Board of Directors.
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APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
Agreement and Plan of Reorganization ("Reorganization Agreement" or
"Agreement"), dated as of June 24, 1994, between COMMERCE BANK ("Commerce"), a
bank chartered under the laws of the Commonwealth of Virginia, having its home
office at 5101 Cleveland Street, Virginia Beach, Virginia 23462, and BB&T
FINANCIAL CORPORATION ("BB&T Financial"), a North Carolina corporation having
its home office at 223 West Nash Street, Wilson, North Carolina 27893.
WITNESSETH
Whereas, the parties hereto desire that Branch Banking and Trust Company of
Virginia ("BB&T-VA"), a to be formed Virginia chartered bank, which will be a
wholly owned subsidiary of BB&T FINANCIAL CORPORATION OF VIRGINIA ("BB&T
Financial-Va"), a to be formed Virginia corporation and wholly owned subsidiary
of BB&T Financial, shall be merged with and into Commerce (said transaction
being hereinafter referred to as the "Merger") pursuant to a plan of merger in
the form attached hereto as Annex A ("Plan of Merger");
Whereas, the parties desire to provide for certain undertakings, conditions,
representations, warranties and covenants in connection with the transactions
contemplated hereby;
Now, Therefore, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
"Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956,
as amended.
"BB&T Financial Common Stock" shall mean the shares of common stock, par
value $2.50 per share, of BB&T Financial.
"BB&T Financial Subsidiary" shall mean each of Branch Banking and Trust
Company, a North Carolina chartered bank subsidiary of BB&T Financial, and
Branch Banking and Trust Company of South Carolina, an indirect wholly owned
subsidiary of BB&T Financial.
"Closing Date" shall mean the date specified pursuant to Section 4.11 hereof
as the date on which the parties hereto shall close the transactions
contemplated herein.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"CRA" shall mean the Community Reinvestment Act of 1977, as amended.
"Effective Date" shall mean the date specified pursuant to Section 4.11
hereof as the effective date of the Merger.
"Environmental Claim" means any written notice from any governmental
authority or third party alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup
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costs, governmental response costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based upon, or
resulting from the presence, or release into the environment, of any Materials
of Environmental Concern.
"Environmental Laws" means all applicable federal, state and local laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, that relate to pollution or protection
of human health or the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
"Financial Statements" shall mean (a) with respect to BB&T Financial, (i) the
consolidated balance sheets (including related notes and schedules, if any) of
BB&T Financial as of December 31, 1993 and 1992 and the related consolidated
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the three years ended December 31,
1993, 1992 and 1991 as filed by BB&T Financial in Securities Documents and (ii)
the consolidated balance sheets of BB&T Financial (including related notes and
schedules, if any) and related statements of income, shareholders' equity and
cash flows (including related notes and schedules, if any) included in
Securities Documents filed by BB&T Financial with respect to periods ended
subsequent to December 31, 1993, and (b) with respect to Commerce, (i) the
consolidated balance sheets (including related notes and schedules, if any) of
Commerce as of December 31, 1993 and 1992 and the related consolidated
statements of income, changes in shareholders' equity and cash flows (including
related notes and schedules, if any) for each of the three years ended December
31, 1993, 1992 and 1991 as filed by Commerce in Securities Documents and (ii)
the consolidated balance sheets of Commerce (including related notes and
schedules, if any) and related statements of income, changes in shareholders'
equity and cash flows (including related notes and schedules, if any) included
in Securities Documents filed by Commerce with respect to periods ended
subsequent to December 31, 1993.
"Commerce Subsidiary" shall mean Commerce Financial Services, Inc.
"Joint Venture" shall mean any joint venture, partnership or similar
arrangement in which Commerce or the Commerce Subsidiary is a member, party to
or partner (whether general or limited).
"Material Adverse Effect" shall mean a material adverse effect on the
financial condition, results of operations, business or prospects of Commerce.
"Materials of Environmental Concern" means pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other materials
regulated under Environmental Laws.
"Option Agreement" shall mean the Option Agreement dated as of even date
herewith between Commerce and BB&T Financial, which shall be executed
immediately following execution of this Reorganization Agreement.
"Previously Disclosed" shall mean disclosed in (i) a Securities Document
delivered by one party to the other on or prior to the execution of this
Reorganization Agreement or (ii) in a letter from one party to the other party
delivered and dated not later than July 1, 1994 specifically referring to this
Agreement, provided that such letter is not materially inconsistent with a
draft of such letter delivered to the other party and dated on or prior to the
date of this Agreement.
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"Proxy Statement" shall mean the proxy statement together with any
supplements thereto sent to shareholders of Commerce to solicit their votes in
connection with this Agreement and the Plan of Merger.
"Registration Statement" shall mean the registration statement with respect
to the BB&T Financial Common Stock to be issued in the Merger as declared
effective by the Commission under the Securities Act.
"Rights" shall mean warrants, options, rights, convertible securities and
other arrangements or commitments which obligate an entity to issue or dispose
of any of its capital stock or other ownership interests, and stock
appreciation rights, performance units and similar stock-based rights whether
or not they obligate the issuer thereof to issue stock or other securities or
to pay cash.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, proxy statements, registration
statements and all similar documents filed, or required to be filed, pursuant
to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules
and regulations of the Commission and the FDIC promulgated thereunder.
"State Board" shall mean the Virginia State Corporation Commission, Bureau of
Financial Institutions.
"TILA" shall mean the Truth in Lending Act, as amended.
"VASCA" shall mean the Virginia Stock Corporation Act, as amended.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMMERCE
Commerce represents and warrants to BB&T Financial as follows:
2.1 CAPITAL STRUCTURE
The authorized capital stock of Commerce consists of (i) 5,000,000 shares of
common stock, par value $2.50 per share ("Commerce Common Stock") and (ii)
1,000,000 shares of preferred stock, par value $5.00 per share. As of the date
hereof, there were 2,725,163 shares of Commerce Common Stock issued and
outstanding and no shares of preferred stock outstanding. All outstanding
shares of Commerce Common Stock have been duly issued and are validly
outstanding, fully paid and nonassessable. No other classes of capital stock of
Commerce are authorized. No shares of Commerce Common Stock are held in the
treasury of Commerce. No shares of capital stock have been reserved for any
purpose, except for (i) 262,895 shares of Commerce Common Stock in connection
with Commerce's 10% Convertible Subordinated Capital Notes due August 31, 2002
("Convertible Notes"), (ii) 209,637 shares of Commerce Common Stock in
connection with Commerce's 1985 Stock Option Plan, (iii) 157,500 shares of
Commerce Common Stock in connection with Commerce's 1993 Incentive Stock Plan
(clauses (ii) and (iii) together are referred to herein as the "Stock Option
Plans"), (iv) 234,547 shares of Commerce Common Stock in connection with
Commerce's Dividend Reinvestment and Stock Purchase Plan, (v) 480,000 shares of
Commerce Common Stock in connection with the Preferred Stock Purchase Agreement
with BB&T Financial dated April 21, 1994 ("Preferred Stock Purchase Agreement")
and (vi) 540,000 shares of Commerce Common Stock in connection with the Option
Agreement. Except as set forth herein, there are no Rights authorized, issued
or outstanding with respect to the capital stock of Commerce. Shareholders of
Commerce do not have preemptive rights.
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2.2 ORGANIZATION, STANDING AND AUTHORITY
Commerce is a bank duly organized, validly existing and in good standing
under the laws of the Commonwealth of Virginia with full corporate power and
authority to carry on its business as now conducted and does not do business in
any other states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires
qualification to do business.
2.3 OWNERSHIP OF COMMERCE SUBSIDIARY
Except as Previously Disclosed, Commerce does not own, directly or
indirectly, any outstanding capital stock or other voting securities or
ownership interests of any corporation, bank, savings association, partnership,
Joint Venture, or other organization, except for the Commerce Subsidiary. The
outstanding shares of capital stock of the Commerce Subsidiary are validly
issued and outstanding, fully paid and nonassessable and all such shares are
directly or indirectly owned by Commerce free and clear of all liens, claims
and encumbrances or preemptive rights of any person. No Rights are authorized,
issued or outstanding with respect to the capital stock of the Commerce
Subsidiary and there are no agreements, understandings or commitments relating
to the right of Commerce to vote or to dispose of said shares. None of the
shares of capital stock of the Commerce Subsidiary has been issued in violation
of the preemptive rights of any person.
2.4 ORGANIZATION, STANDING AND AUTHORITY OF THE COMMERCE SUBSIDIARY
The Commerce Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of Virginia. The Commerce Subsidiary: (i) has
full corporate power and authority to carry on its business as now conducted;
(ii) is duly qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where failure to so qualify
would not have a Material Adverse Effect; and (iii) is not engaged in any
activities that have not been Previously Disclosed.
2.5 AUTHORIZED AND EFFECTIVE AGREEMENT
a. Commerce has all requisite corporate power and authority to enter into and
(subject to receipt of all necessary governmental approvals and the receipt of
approval of stockholders of Commerce of the Plan of Merger) to perform all of
its obligations under this Reorganization Agreement, the Plan of Merger and the
Option Agreement. The execution and delivery of this Reorganization Agreement,
the Plan of Merger and the Option Agreement and consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action in respect thereof, except, in the
case of this Reorganization Agreement and the Plan of Merger, the approval of
Commerce shareholders pursuant to and to the extent required by applicable law.
This Reorganization Agreement, the Plan of Merger and the Option Agreement
constitute legal, valid and binding obligations of Commerce, each of which is
enforceable against Commerce in accordance with its respective terms, in each
such case subject to (i) bankruptcy, fraudulent transfer, insolvency,
moratorium, reorganization, conservatorship, receivership, or other similar
laws from time to time in effect relating to or affecting the enforcement of
rights of creditors of FDIC-insured institutions or the enforcement of
creditors' rights generally, (ii) laws relating to the safety and soundness of
depository institutions and their holding companies, and (iii) general
principles of equity, and except that the availability of equitable remedies or
injunctive relief is within the discretion of the appropriate court.
b. Neither the execution and delivery of this Reorganization Agreement, the
Plan of Merger and the Option Agreement nor consummation of the transactions
contemplated hereby or thereby, nor compliance by Commerce with any of the
provisions hereof or thereof shall (i) conflict with or result in a breach of
any provision of the articles of incorporation, charter or by-laws of Commerce
or the Commerce Subsidiary, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result
in the creation of any lien, charge or encumbrance upon any material property
or asset of Commerce or the Commerce Subsidiary pursuant to, any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation, or
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(iii) subject to receipt of all required governmental approvals, violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Commerce or the Commerce Subsidiary.
2.6 SECURITIES DOCUMENTS AND REPORTS
Commerce has timely filed all Securities Documents required by the Securities
Laws since December 31, 1988, and such Securities Documents complied in all
material respects with the Securities Laws as in effect at the times of such
filings. Commerce has in all material respects timely filed all reports
required to be filed with the FDIC and the State Board and such reports
complied in all material respects with applicable law and regulations as in
effect at the times of such filings.
2.7 FINANCIAL STATEMENTS; MINUTE BOOKS
The Financial Statements of Commerce fairly present or will fairly present,
as the case may be, the consolidated financial position of Commerce and the
Commerce Subsidiary as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity and statements of cash flows for
the periods then ended (subject, in the case of unaudited interim statements,
to normal year-end audit adjustments that are not material in amount or effect)
in conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis (except as stated
therein). The minute books of Commerce and the Commerce Subsidiary contain
legally sufficient records of all meetings and other corporate actions of its
shareholders and Board of Directors (including committees of its Board of
Directors).
2.8 MATERIAL ADVERSE CHANGE
Commerce has not, on a consolidated basis, suffered any material adverse
change in its business, financial condition, results of operations or prospects
since December 31, 1993.
2.9 ABSENCE OF UNDISCLOSED LIABILITIES
Neither Commerce nor the Commerce Subsidiary has any liability (contingent or
otherwise) that is material to Commerce on a consolidated basis or that, when
combined with all similar liabilities, would be material to Commerce on a
consolidated basis, except as has been Previously Disclosed and except for
liabilities made in the ordinary course of its business consistent with past
practices since the date of Commerce's most recent Financial Statements.
2.10 PROPERTIES
a. Commerce and the Commerce Subsidiary have good and marketable title free
and clear of all liens, encumbrances, charges, defaults or equitable interests
to all of the properties and assets, real and personal, reflected on the
consolidated balance sheet included in the Financial Statements of Commerce as
of December 31, 1993 or acquired after such date, except (i) liens for current
taxes not yet due and payable, (ii) pledges to secure deposits and other liens
incurred in the ordinary course of banking business, (iii) such imperfections
of title, easements and encumbrances, if any, as are not material in character,
amount or extent, or (iv) dispositions and encumbrances for adequate
consideration in the ordinary course of business.
b. All material leases pursuant to which Commerce or the Commerce Subsidiary,
as lessee, leases real or personal property, are, with respect to Commerce or
the Commerce Subsidiary, valid and enforceable in accordance with their
respective terms, in each such case subject to (i) bankruptcy, fraudulent
transfer, insolvency, moratorium, reorganization, conservatorship,
receivership, or other similar laws from time to time in effect relating to or
affecting the enforcement of rights of creditors of FDIC-insured institutions
or the enforcement of creditors' rights generally, (ii) laws relating to the
safety and soundness of depository institutions and their holding companies,
and (iii) general principles of equity, and except that the availability of
equitable remedies or injunctive relief is within the discretion of the
appropriate court.
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2.11 ENVIRONMENTAL MATTERS
a. Commerce and the Commerce Subsidiary are in substantial compliance with
all Environmental Laws. Neither Commerce nor the Commerce Subsidiary has
received any communication alleging that Commerce or the Commerce Subsidiary is
not in such compliance and, to the best knowledge of Commerce, there are no
present circumstances that would prevent or interfere with the continuation of
such compliance.
b. Commerce has not received notice of any pending, and is not aware of any
threatened, legal, administrative, arbitral or other proceedings, asserting
Environmental Claims or other claims, causes of action or governmental
investigations of any nature, seeking to impose, or that could result in the
imposition of, any liability arising under any Environmental Laws upon (i)
Commerce or the Commerce Subsidiary, (ii) any person or entity whose liability
for any Environmental Claim Commerce or the Commerce Subsidiary has or may have
retained either contractually or by operation of law, (iii) any real or
personal property owned or leased by Commerce or the Commerce Subsidiary, or
any real or personal property which Commerce or the Commerce Subsidiary has
been, or is, judged to have managed or to have supervised or to have
participated in the management of, or (iv) any real or personal property in
which Commerce or the Commerce Subsidiary holds a security interest securing a
loan recorded on the books of Commerce or the Commerce Subsidiary. Neither
Commerce nor the Commerce Subsidiary is subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
c. With respect to all real and personal property owned or leased by Commerce
or the Commerce Subsidiary, or all real and personal property which Commerce or
the Commerce Subsidiary has been, or is, judged to have managed or to have
supervised or to have participated in the management of, Commerce has provided
BB&T Financial with access to copies of any environmental audits, analyses and
surveys that have been prepared relating to such properties (a list of all of
which has been Previously Disclosed). To the best of Commerce's knowledge,
Commerce and the Commerce Subsidiary are in compliance in all material respects
with all recommendations contained in any such environmental audits, analyses
and surveys.
d. There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws against Commerce or the Commerce Subsidiary or against any person or
entity whose liability for any Environmental Claim Commerce or the Commerce
Subsidiary has or may have retained or assumed either contractually or by
operation of law.
2.12 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the consolidated balance sheets
included in the Financial Statements of Commerce is or will be adequate in the
opinion of Commerce management in all material respects as of their respective
dates under the requirements of generally accepted accounting principles
applicable to banks to provide for reasonably anticipated losses on outstanding
loans net of recoveries.
2.13 TAX MATTERS
a. Commerce and the Commerce Subsidiary, and each of their predecessors, have
timely filed (or requests for extensions have been timely filed and any such
extensions have been granted and have not expired) all federal, state and
material local (and, if applicable, foreign) tax returns required by applicable
law to be filed by them (including, without limitation, estimated tax returns,
income tax returns, information returns, and withholding and employment tax
returns) and have paid, or where payment is not required to have been made,
have set up an adequate reserve or accrual for the payment of, all taxes
required to be paid in respect of the periods covered by such returns and, as
of the Effective Date, will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or accrual for the payment of,
all taxes for any subsequent periods ending on or prior to the Effective Date.
Neither Commerce nor the
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Commerce Subsidiary will have any material liability for any such taxes in
excess of the amounts so paid or reserves or accruals so established.
b. All federal, state and local (and, if applicable, foreign) tax returns
filed by Commerce are complete and accurate in all material respects. Neither
Commerce nor the Commerce Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge. No deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against Commerce or the Commerce Subsidiary which
have not been settled and paid. There are currently no agreements in effect
with respect to Commerce or the Commerce Subsidiary to extend the period of
limitations for the assessment or collection of any tax. No audit examination
or deficiency or refund litigation with respect to such returns are pending.
2.14 EMPLOYEE BENEFIT PLANS
a. Commerce has Previously Disclosed true and complete copies of all stock
option, employee stock purchase and stock bonus plans, qualified pension or
profit-sharing plans, deferred compensation, bonus or group insurance contracts
and any other incentive, welfare or employee benefit plans or agreements
maintained for the benefit of employees or former employees of Commerce or the
Commerce Subsidiary together with (i) the most recent actuarial and financial
reports prepared with respect to any qualified plans, (ii) the most recent
annual reports filed with any government agency, and (iii) all rulings and
determination letters and any open requests for rulings or letters that pertain
to any qualified plan.
b. Neither Commerce nor the Commerce Subsidiary (or any pension plan
maintained by any of them) has incurred any material liability to the Pension
Benefit Guaranty Corporation or the Internal Revenue Service with respect to
any pension plan qualified under Section 401 of the Code except liabilities to
the Pension Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all
of which have been fully paid. No reportable event under Section 4043(b) of
ERISA has occurred with respect to any such pension plan.
c. Neither Commerce nor the Commerce Subsidiary participates in, or has
incurred any liability under Section 4201 of ERISA for a complete or partial
withdrawal from, a multiemployer plan (as such term is defined in ERISA).
d. A favorable determination letter has been issued by the Internal Revenue
Service with respect to each "employee pension plan" (as defined in Section
3(2) of ERISA) of Commerce which is intended to be qualified under Section 401
of the Code to the effect that such plan is qualified under Section 401 of the
Code and tax exempt under Section 501 of the Code. No such letter has been
revoked or, to Commerce's knowledge, threatened to be revoked and Commerce does
not know of any ground on which such revocation may be based. Neither Commerce
nor the Commerce Subsidiary has a material liability under any such plan that
is not reflected on the consolidated balance sheet included in the Financial
Statements of Commerce as of December 31, 1993 or March 31, 1994.
e. No prohibited transaction (which shall mean any transaction prohibited by
Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975
of the Code, whether by statutory, class or individual exemption) has occurred
with respect to any employee benefit plan maintained by Commerce or the
Commerce Subsidiary which would result in the imposition, directly or
indirectly, of a material excise tax under Section 4975 of the Code.
2.15 CERTAIN CONTRACTS
a. Except as Previously Disclosed, neither Commerce nor any Commerce
Subsidiary is a party to, is bound or affected by, or receives benefits under
(i) any material agreement, arrangement or commitment whether or not made in
the ordinary course of business (other than loans or loan commitments or
certificates of deposit made in the ordinary course of banking business), or
any agreement materially restricting its
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business activities, including, without limitation, agreements or memoranda of
understanding with regulatory authorities, (ii) any agreement, indenture or
other instrument relating to the borrowing of money by Commerce or the Commerce
Subsidiary or the guarantee by Commerce or the Commerce Subsidiary of any such
obligation, which cannot be terminated within less than 30 days after the
Closing Date by Commerce or the Commerce Subsidiary (without payment of any
penalty or cost by Commerce or the Commerce Subsidiary), (iii) any agreement,
arrangement or commitment relating to the employment of a consultant or the
employment, election or retention in office of any present or former director
or officer, which cannot be terminated within less than 30 days after the
Closing Date by Commerce or the Commerce Subsidiary (without payment of any
penalty or cost by Commerce or the Commerce Subsidiary), or (iv) any contract,
agreement or understanding with a labor union, in each case whether written or
oral.
b. Neither Commerce nor the Commerce Subsidiary is in default, which default
would have a material adverse effect on Commerce on a consolidated basis or the
transactions contemplated herein, under any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument whether entered into
in the ordinary course of business or otherwise and whether written or oral,
and there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default.
2.16 LEGAL PROCEEDINGS; REGULATORY APPROVALS
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of Commerce,
threatened (or unasserted but considered by Commerce to be probable of
assertion and which, if asserted, would have at least a reasonable probability
of an unfavorable outcome) against Commerce or the Commerce Subsidiary or
against any asset, interest, or right of Commerce or the Commerce Subsidiary,
or against any officer, director or employee of either of them that in any such
case, if decided adversely, might have a Material Adverse Effect. Except as
Previously Disclosed, there are no actions, suits or proceedings instituted,
pending or, to the knowledge of Commerce and each of the directors and
executive officers of Commerce, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any present or former director
or officer of Commerce or the Commerce Subsidiary that might give rise to a
claim for indemnification, and to the best knowledge of Commerce and each of
its directors and executive officers and each of the directors and executive
officers of the Commerce Subsidiary, there is no reasonable basis for any such
action, suit or proceeding. There are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein, in the Plan of Merger or the Option Agreement. No fact or
condition (including but not limited to compliance with the CRA) relating to
Commerce or the Commerce Subsidiary known to Commerce exists that would prevent
Commerce or BB&T Financial from obtaining all of the federal and state
regulatory approvals contemplated herein.
2.17 COMPLIANCE WITH LAWS
Each of Commerce and the Commerce Subsidiary is in compliance in all material
respects with all statutes and regulations (including, but not limited to, the
CRA and regulations promulgated thereunder, the TILA and regulations
promulgated thereunder and other consumer banking laws) applicable and material
to the conduct of its business (except for any violations not material to the
business, operations or financial condition of Commerce and the Commerce
Subsidiary on a consolidated basis), and neither Commerce nor the Commerce
Subsidiary has received notification that has not elapsed, been withdrawn or
abandoned by any agency or department of federal, state or local government (i)
asserting a violation or possible violation of any such statute or regulation
and which violation would be likely to have a Material Adverse Effect on a
consolidated basis, (ii) threatening to revoke any license, franchise, permit
or government authorization, or (iii) restricting or in any way limiting its
operations. Neither Commerce nor the Commerce Subsidiary is subject to any
regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment, and none of them has received any
communication requesting that they enter into any of the foregoing. Without
limiting the generality of the foregoing, Commerce has timely filed all
currency transaction reports required to be filed and taken all other actions
required under the Currency and
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Foreign Transactions Reporting Act, as amended, codified at 31 U.S.C. (S) 5301
et seq., and its implementing regulations.
2.18 BROKERS AND FINDERS
Neither Commerce nor the Commerce Subsidiary, nor any of their respective
officers, directors or employees has employed any broker, finder or financial
advisor or incurred any liability of Commerce or the Commerce Subsidiary for
any fees or commissions in connection with the transactions contemplated
herein, in the Plan of Merger or in the Option Agreement (except for fees to
accountants and lawyers and Alex. Brown & Sons Incorporated).
2.19 INSURANCE
Commerce and the Commerce Subsidiary each currently maintain insurance in the
amounts and for the coverages Previously Disclosed. Neither Commerce nor the
Commerce Subsidiary has received any notice of a premium increase or
cancellation or a failure to renew with respect to any insurance policy or
bond, and within the last three years, neither Commerce nor the Commerce
Subsidiary has been refused any insurance coverage sought or applied for, and
neither Commerce nor the Commerce Subsidiary has any reason to believe that
existing insurance coverage cannot be renewed as and when the same shall
expire, upon terms and conditions as favorable as those presently in effect,
other than possible increases in premiums or unavailability of coverage that do
not result from any extraordinary loss experience on the part of Commerce or
the Commerce Subsidiary.
2.20 REPURCHASE AGREEMENTS
With respect to all agreements currently outstanding pursuant to which
Commerce or the Commerce Subsidiary has purchased securities subject to an
agreement to resell, Commerce and the Commerce Subsidiary have a valid,
perfected first lien or security interest in the securities or other collateral
securing such agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby. With respect to all agreements currently
outstanding pursuant to which Commerce or the Commerce Subsidiary has sold
securities subject to an agreement to repurchase, Commerce and the Commerce
Subsidiary have not pledged collateral materially in excess of the amount of
the debt secured thereby. Neither Commerce nor the Commerce Subsidiary has
pledged collateral materially in excess of the amount required under any
interest rate swap or other similar agreement currently outstanding.
2.21 DEPOSIT ACCOUNTS
The deposit accounts of Commerce are insured by the Bank Insurance Fund of
the FDIC to the maximum extent permitted by federal law, and Commerce has paid
all premiums and assessments and filed all reports required to have been paid
or filed under the FDIA.
2.22 LOANS
a. With respect to each loan on the books and records of Commerce, including
unfunded portions of outstanding lines of credit and loan commitments: (i)
such loan is a valid loan; (ii) its principal balance as shown on the books and
records of Commerce is true and correct as of the last date shown thereon;
(iii) all purported signatures on and executions of any document in connection
with such loan are genuine; (iv) all related documentation has been signed or
executed by all necessary parties; (v) Commerce has custody of all documents or
microfilm records thereof related to such loan (as such documents relate to the
matters described in clauses (i)-(iv) and (vi)-(vii) hereof); (vi) to the
extent secured, such loan has been secured by valid liens and security
interests which have been perfected; and (vii) such loan is the legal, valid
and binding obligation of the obligor named therein, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
All loans on the books and records of Commerce have been originated and
administered in accordance with the terms
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of the underlying notes related thereto. Neither the terms of such loans, nor
any of the loan documentation, nor the manner in which such loans have been
administered and serviced, violates any federal, state or local law, rule,
regulation or ordinance applicable thereto, including, without limitation,
Regulation O of the Federal Reserve Board, the TILA, Regulation Z of the
Federal Reserve Board, the Equal Credit Opportunity Act, as amended, and state
laws, rules and regulations relating to consumer protection, installment sales
and usury.
b. Commerce has Previously Disclosed all investments and loans, including
loan guarantees, to which Commerce or the Commerce Subsidiary is a party with
any director, executive, officer or 5% shareholder of Commerce or any person,
corporation, or enterprise controlling, controlled by or under common control
with any of the foregoing.
2.23 CERTAIN INFORMATION
When the Proxy Statement is mailed, and at the time of the meeting of
shareholders of Commerce to vote upon the Plan of Merger, the Proxy Statement
and all amendments or supplements thereto, with respect to all information set
forth therein furnished by Commerce relating to Commerce and the Commerce
Subsidiary, (i) shall comply in all material respects with the applicable
provisions of the Securities Laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances in which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF BB&T FINANCIAL
BB&T Financial represents and warrants to Commerce as follows:
3.1 CAPITAL STRUCTURE OF BB&T FINANCIAL
The authorized capital stock of BB&T Financial consists of (i) 4,000,000
shares of preferred stock, par value $2.50 per share, and (ii) 100,000,000
shares of BB&T Financial Common Stock, of which 32,195,746 shares were issued
and outstanding on March 31, 1994. All outstanding shares of BB&T Financial
Common Stock have been duly issued and are validly outstanding, fully paid and
nonassessable. As of the date of this Agreement, BB&T Financial has reserved
6,504,441 shares of BB&T Financial Common Stock for issuance under its benefit
plans and Dividend Reinvestment Plan. Except as set forth herein, there are no
Rights authorized, issued or outstanding with respect to the capital stock of
BB&T Financial. None of the shares of capital stock of BB&T Financial has been
issued in violation of the preemptive rights of any person.
3.2 ORGANIZATION, STANDING AND AUTHORITY OF BB&T FINANCIAL
BB&T Financial is a corporation duly organized, validly existing and in good
standing under the laws of the state of North Carolina, with full corporate
power and authority to carry on its business as now conducted and is duly
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires such qualification and where failure to so qualify would have
a material adverse effect on the financial condition, results of operation, or
business of BB&T Financial on a consolidated basis. BB&T Financial is
registered as a bank holding company under the Bank Holding Company Act.
3.3 AUTHORIZED AND EFFECTIVE AGREEMENT
a. BB&T Financial has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement and
the Option Agreement. The execution and delivery of
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this Reorganization Agreement and the Option Agreement and consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
BB&T Financial. This Reorganization Agreement and the Option Agreement
constitute legal, valid and binding obligations of BB&T Financial, in each such
case enforceable against it in accordance with their respective terms subject
to (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws in effect from time to time relating to or
affecting the enforcement of the rights of creditors of FDIC-insured
institutions or the enforcement of creditors' rights generally, (ii) laws
relating to the safety and soundness of depository institutions and their
holding companies, and (iii) general principles of equity, and except that the
availability of remedies or injunctive relief is within the discretion of the
appropriate court.
b. Neither the execution and delivery of this Reorganization Agreement nor
the Option Agreement, nor consummation of the transactions contemplated hereby
or thereby, nor compliance by BB&T Financial with any of the provisions hereof
or thereof shall (i) conflict with or result in a breach of any provision of
the articles of incorporation or by-laws of BB&T Financial or any BB&T
Financial Subsidiary, (ii) constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result
in the creation of any lien, charge or encumbrance upon any property or asset
of BB&T Financial or any BB&T Financial Subsidiary pursuant to any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation which
would have a material adverse effect on the business, operations or financial
conditions of BB&T Financial and the BB&T Financial Subsidiaries taken as a
whole, or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to BB&T Financial or any BB&T Financial Subsidiary.
3.4 ORGANIZATION, STANDING AND AUTHORITY OF BB&T FINANCIAL SUBSIDIARIES
Each BB&T Financial Subsidiary is a duly organized corporation, validly
existing and in good standing under applicable laws. Each BB&T Financial
Subsidiary (i) has full power and authority to carry on its business as now
conducted and (ii) is duly qualified to do business in the states of the United
States and foreign jurisdictions where its ownership or leasing of property or
the conduct of its business requires such qualification and where failure to so
qualify would have a material adverse effect on the financial condition,
results of operations, business or prospects of BB&T Financial on a
consolidated basis. BB&T Financial-Va will be registered as a bank holding
company under the Bank Holding Company Act and applicable Virginia law on or
prior to the closing.
3.5 SECURITIES DOCUMENTS
BB&T Financial has timely filed all Securities Documents required by the
Securities Laws since December 31, 1988 and such Securities Documents complied
in all material respects with the Securities Laws as in effect at the times of
such filings.
3.6 FINANCIAL STATEMENTS
The Financial Statements of BB&T Financial fairly present or will fairly
present, as the case may be, the consolidated financial position of BB&T
Financial and the BB&T Financial Subsidiaries as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity and changes
in cash flows for the periods then ended in conformity with generally accepted
accounting principles applicable to financial institutions applied on a
consistent basis.
3.7 MATERIAL ADVERSE CHANGE
BB&T Financial has not, on a consolidated basis, suffered any material
adverse change in its business, financial condition, results of operations or
prospects since December 31, 1993.
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3.8 LEGAL PROCEEDINGS; REGULATORY APPROVALS
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of BB&T Financial,
threatened (or unasserted but considered by BB&T Financial to be probable of
assertion and which, if asserted, would have at least a reasonable probability
of an unfavorable outcome) against BB&T Financial or any BB&T Financial
Subsidiary or against any asset, interest or right of BB&T Financial or any
BB&T Financial Subsidiary, or against any officer, director or employee of any
of them that, if decided adversely, might have a material adverse effect on the
financial condition, results of operations, business or prospects of BB&T
Financial on a consolidated basis. To the knowledge of BB&T Financial, there
are no actual or threatened actions, suits or proceedings which present a claim
to restrain or prohibit the transactions contemplated herein or in the Plan of
Merger. No fact or condition (including but not limited to CRA compliance)
relating to BB&T Financial or any BB&T Financial Subsidiary known to BB&T
Financial exists that would prevent BB&T Financial from obtaining all of the
federal and state regulatory approvals contemplated herein.
3.9 OWNERSHIP OF BB&T FINANCIAL SUBSIDIARIES
The outstanding shares of capital stock or other ownership interests of the
BB&T Financial Subsidiaries are validly issued and outstanding, fully paid and
nonassessable, and all such shares are directly or indirectly owned by BB&T
Financial free and clear of all liens, claims and encumbrances or preemptive
rights of any person. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of any BB&T Financial
Subsidiary and there are no agreements, understandings or commitments relating
to the right of BB&T Financial to vote or to dispose of said shares or other
ownership interests.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES
Neither BB&T Financial nor any BB&T Financial Subsidiary has any liability
(contingent or otherwise) that is material to BB&T Financial on a consolidated
basis or that, when combined with all similar liabilities, would be material to
BB&T Financial on a consolidated basis, except as disclosed in the Financial
Statements of BB&T Financial and except for liabilities made in the ordinary
course of its business consistent with past practices since the date of BB&T
Financial's most recent Financial Statements.
3.11 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the consolidated balance sheets
included in the Financial Statements of BB&T Financial is or will be in the
opinion of BB&T Financial's management adequate in all material respects as of
their respective dates under the requirements of generally accepted accounting
principles applicable to banks and bank holding companies to provide for
reasonably anticipated losses on outstanding loans net of recoveries.
3.12 TAX MATTERS
a. BB&T Financial and the BB&T Financial Subsidiaries, and each of their
predecessors, have timely filed all federal, state and local (and, if
applicable, foreign) tax returns required by applicable law to be filed by them
(including, without limitation, estimated tax returns, income tax returns,
information returns, and withholding and employment tax returns) and have paid,
or where payment is not required to have been made, are contesting payment
thereof in good faith, or have set up an adequate reserve or accrual for the
payment of, all taxes required to be paid in respect of the periods covered by
such returns and, as of the Effective Date, will have paid, or where payment is
not required to have been made, will have set up an adequate reserve or accrual
for the payment of, all taxes for any subsequent periods ending on or prior to
the Effective Date which are not being contested in good faith. Neither BB&T
Financial nor any of the BB&T Financial Subsidiaries will to BB&T Financial's
knowledge have any material liability for any such taxes in excess of the
amounts so paid or reserves or accruals so established.
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b. All federal, state and local (and, if applicable, foreign) tax returns
filed by BB&T Financial and the BB&T Financial Subsidiaries are complete and
accurate in all material respects. Neither BB&T Financial nor any of the BB&T
Subsidiaries is delinquent in the payment of any tax, assessment or
governmental charge, and none of them has requested any extension of time
within which to file any tax returns in respect of any fiscal year or portion
thereof which have not since been filed. No deficiencies for any tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against BB&T Financial or any BB&T Financial
Subsidiary which have not been settled and paid. There currently are no
agreements in effect with respect to BB&T Financial or any BB&T Financial
Subsidiary to extend the period of limitations for the assessment or collection
of any tax.
3.13 COMPLIANCE WITH LAWS
Each of BB&T Financial and the BB&T Financial Subsidiaries is in material
compliance with all statutes and regulations (including, but not limited to,
CRA and regulations promulgated thereunder, TILA and regulations promulgated
thereunder and other consumer banking laws) applicable and material to the
conduct of its business (except for any violations not material to the
business, operations or financial condition of BB&T Financial and its
subsidiaries taken as a whole), and neither BB&T Financial nor any BB&T
Financial Subsidiary has received notification that has not elapsed, been
withdrawn or abandoned from any agency or department of federal, state or local
government (i) asserting a violation or possible violation of any such statute
or regulation, and which violations would be likely to have a material adverse
effect on the business, operations or financial condition of BB&T Financial and
the BB&T Financial Subsidiaries taken as a whole, (ii) threatening to revoke
any license, franchise, permit or government authorization, or (iii)
restricting or in any way limiting its operations. Neither BB&T Financial nor
any BB&T Financial Subsidiary is subject to any regulatory or supervisory cease
and desist order, agreement, directive or memorandum of understanding, and none
of them has received any communication requesting that they enter into any of
the foregoing. Without limiting the generality of the foregoing, each BB&T
Financial Subsidiary has timely filed all currency transaction reports required
to be filed and taken all other actions required under the Currency and Foreign
Transactions Reporting Act as amended, codified at 31 U.S.C. (S) 5301 et seq.,
and its implementing regulations.
3.14 CERTAIN INFORMATION
When the Proxy Statement is mailed, and at all times subsequent to such
mailing up to and including the time of the meeting of shareholders of Commerce
to vote on the Merger, the Proxy Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished by BB&T
Financial relating to BB&T Financial, including pro forma information insofar
as it relates to BB&T Financial and entities other than Commerce and the
Commerce Subsidiary, (i) shall comply in all material respects with the
applicable provisions of the Securities Laws, and (ii) shall not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances in which they were made, not misleading.
3.15 EMPLOYEE BENEFIT PLANS
a. Neither BB&T Financial nor any other BB&T Financial Subsidiary (or any
pension plan maintained by any of them) has incurred any material liability to
the Pension Benefit Guaranty Corporation or the Internal Revenue Service with
respect to any pension plan qualified under Section 401 of the Code except
liabilities to the Pension Benefit Guaranty Corporation pursuant to Section
4007 of ERISA, all of which have been fully paid. No reportable event under
Section 4043(b) of ERISA has occurred with respect to any such pension plan.
b. Neither BB&T Financial nor any BB&T Financial Subsidiary participates in,
or has incurred any liability under Section 4201 of ERISA for a complete or
partial withdrawal from, a multiemployer plan (as such term is defined in
ERISA).
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c. A favorable determination letter has been issued by the Internal Revenue
Service with respect to each "employee pension plan" (as defined in Section
3(2) of ERISA) of BB&T Financial or any BB&T Financial Subsidiary to the effect
that such plan is qualified under Section 401 of the Code and tax exempt under
Section 501 of the Code. No such letter has been revoked or, to BB&T
Financial's knowledge, threatened to be revoked and BB&T Financial does not
know of any ground on which such revocation may be based. Neither BB&T
Financial nor any BB&T Financial Subsidiary has a material liability under any
such plan that is not reflected on the consolidated balance sheet included in
the Financial Statements of BB&T Financial as of December 31, 1993.
d. No prohibited transaction (which shall mean any transaction prohibited by
Section 406 of ERISA and not exempt under Section 408 of ERISA or Section 4975
of the Code) has occurred with respect to any employee benefit plan maintained
by BB&T Financial or any BB&T Financial Subsidiary (i) which would result in
the imposition, directly or indirectly, of a material excise tax under Section
4975 of the Code, or (ii) the correction of which would have a material adverse
effect on the business, operations or financial condition of BB&T Financial and
the BB&T Financial Subsidiaries taken as a whole.
ARTICLE IV
COVENANTS
4.1 SHAREHOLDERS' MEETING
Commerce shall submit this Reorganization Agreement and the Plan of Merger to
its shareholders for approval at a special meeting to be held as soon as
practicable, and the Board of Directors of Commerce shall unanimously recommend
that the shareholders vote for such approval, provided, however, that if Alex.
Brown & Sons Incorporated delivers an opinion to the Board of Directors of
Commerce that the transactions contemplated hereby are not fair to the
shareholders of Commerce from a financial point of view as of the date of the
Proxy Statement or any supplement thereto, the Board of Directors shall not be
required to so recommend approval.
4.2 PROXY STATEMENT; REGISTRATION STATEMENT
BB&T Financial and Commerce shall cooperate in the timely preparation and
filing of the Registration Statement with the Commission and the FDIC and BB&T
Financial shall use its best efforts to cause such Registration Statement to be
declared effective under the Securities Act, which Registration Statement, at
the time it becomes effective, and on the Effective Date, shall in all material
respects conform to the requirements of the Securities Act and the general
rules and regulations of the Commission under the Securities Act. The
Registration Statement shall include the form of Proxy Statement for the
meeting of Commerce's shareholders to be held for the purpose of having such
shareholders vote upon approval of this Reorganization Agreement and the Plan
of Merger. Commerce shall use its best efforts to cause the Proxy Statement to
be cleared for mailing to Commerce stockholders by the FDIC, and the Proxy
Statement shall, on the date of mailing and on the Effective Date, conform in
all material respects to the requirements of the Securities Laws and the rules
and regulations of the FDIC thereunder. Commerce shall cause the Proxy
Statement to be mailed to its shareholders. Commerce will furnish to BB&T
Financial the information required to be included in the Registration Statement
with respect to its business and affairs before it is filed with the Commission
and the FDIC and again before any amendments are filed, and shall have the
right to review and consult with BB&T Financial on the form of, and any
characterizations of such information included in, the Registration Statement
prior to the filing with the Commission. BB&T Financial shall take all actions
required to register or obtain exemptions from such registration for the BB&T
Financial Common Stock to be issued in connection with the transactions
contemplated by this Agreement and the Plan of Merger under applicable state
"Blue Sky" securities laws, as appropriate.
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4.3 ADDITIONAL ACTS; APPLICATIONS
a. BB&T Financial shall take all action necessary to organize BB&T Financial-
Va and BB&T-VA and shall cause BB&T Financial-Va and BB&T-VA to take such
actions as may be necessary to effect the Merger.
b. Commerce agrees to approve, execute and deliver any amendment to this
Agreement and the Plan of Merger and any additional plans and agreements
requested by BB&T Financial to modify the structure of, or to substitute
parties to, the transactions contemplated hereby, provided that such
modifications do not adversely affect the economic benefits of such
transactions or otherwise abrogate the covenants and other agreements contained
in this Agreement.
c. As promptly as practicable after the date hereof, BB&T Financial and
Commerce shall submit applications for prior approval of the transactions
contemplated herein to the Federal Reserve Board, the FDIC and the State Board,
and/or any other federal, state or local government agency, department or body
the approval of which is required for consummation of the Merger and the other
transactions contemplated hereby. BB&T Financial promptly shall furnish
Commerce with copies after filing of applications with these or any other
regulatory agencies filed by BB&T Financial or any BB&T Financial Subsidiary.
Commerce and BB&T Financial each represent and warrant to the other that all
information concerning it and its directors, officers and shareholders and
concerning its subsidiaries included (or submitted for inclusion) in any such
application shall be true, correct and complete in all material respects as of
the date presented.
4.4 BEST EFFORTS
BB&T Financial and Commerce shall each use its best efforts in good faith,
and each of them shall cause its subsidiaries to use their best efforts in good
faith, to (i) furnish such information as may be required in connection with
and otherwise cooperate in the preparation and filing of the documents referred
to in Sections 4.2 and 4.3 above or elsewhere herein, and (ii) take or cause to
be taken all action necessary or desirable on its part so as to permit
consummation of the Merger at the earliest possible date, including, without
limitation, (a) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that neither Commerce nor the Commerce Subsidiary
shall agree to make any payments or modifications to agreements in connection
therewith without the prior written consent of BB&T Financial, and (b)
requesting the delivery of appropriate opinions, consents and letters from its
counsel, independent auditors and financial advisors. Neither BB&T Financial
nor Commerce shall take, or cause or to the best of its ability permit to be
taken, any action that would substantially delay or impair the prospects of
completing the Merger pursuant to this Agreement and the Plan of Merger,
provided that nothing herein contained shall preclude BB&T Financial from
exercising its rights under the Option Agreement.
4.5 CERTAIN ACCOUNTING MATTERS
Commerce and BB&T Financial shall consult and cooperate with each other
concerning such accounting and financial matters as may be necessary or
appropriate to facilitate the Merger (taking into account BB&T Financial's
policies, practices and procedures), including without limitation issues
arising in connection with record keeping, loan classification, valuation
adjustments, levels of loan loss reserves and other accounting practices.
4.6 INVESTIGATION AND CONFIDENTIALITY
Commerce will keep BB&T Financial advised of all material developments
relevant to its business and to consummation of the Merger, and BB&T Financial
will advise Commerce of any material adverse change in its financial condition
or operations and all material developments that are likely adversely to affect
consummation of the Merger. BB&T Financial and Commerce each may make or cause
to be made such investigation of the financial and legal condition of the other
as such party reasonably deems necessary or
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advisable in connection with the transactions contemplated herein, provided,
however, that such investigation shall be reasonably related to such
transactions and shall not interfere unnecessarily with normal operations. BB&T
Financial and Commerce agree to furnish the other and the other's advisors with
such financial data and other information with respect to its business and
properties as such other party shall from time to time reasonably request. No
investigation pursuant to this Section 4.6 shall affect or be deemed to modify
any representation or warranty made by, or the conditions to the obligations
hereunder of, either party hereto. Each party hereto shall, and shall cause
each of its directors, officers, attorneys and advisors to, maintain the
confidentiality of all information obtained in such investigation which is not
otherwise publicly disclosed by the other party, said undertaking with respect
to confidentiality to survive any termination of this Agreement pursuant to
Section 6.1 hereof. In the event of the termination of this Agreement, each
party shall return to the furnishing party or, at the request of the furnishing
party, destroy and certify the destruction of all confidential information
previously furnished in connection with the transactions contemplated by this
Agreement.
4.7 PRESS RELEASES
BB&T Financial and Commerce shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement and the
Plan of Merger or the transactions contemplated hereby and thereby, and consult
with each other as to the form and substance of other public disclosures
related thereto, provided, however, that nothing contained herein shall
prohibit either party, following notification to the other party, from making
any disclosure which its counsel deems necessary.
4.8 FORBEARANCES OF COMMERCE
Except with the prior written consent of BB&T Financial, which consent shall
not be withheld on an arbitrary basis or on a basis inconsistent with BB&T
Financial's interests as an acquiror of Commerce, between the date hereof and
the Effective Date, Commerce shall not, and shall cause the Commerce Subsidiary
not to:
(a) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, or
establish or acquire any new subsidiary or cause or permit any subsidiary
to engage in any new activity or expand any existing activities;
(b) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock that would cause the business combination
contemplated hereby not to be accounted for as a pooling of interests, as
determined by BB&T Financial;
(c) issue any shares of its capital stock other than pursuant to the
Option Agreement, the Commerce Stock Option Plans, the Convertible Notes or
the Commerce Dividend Reinvestment and Stock Purchase Plan;
(d) issue, grant or authorize any Rights other than pursuant to the
Option Agreement or effect any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization;
(e) amend its articles of incorporation or by-laws; impose, or suffer the
imposition, on any share of stock held by Commerce in any Commerce
Subsidiary of any material lien, charge or encumbrance or permit any such
lien to exist; or waive or release any material right or cancel or
compromise any material debt or claim other than in the ordinary course of
business;
(f) merge with any other corporation or bank or permit any other
corporation, savings institution or bank to merge into it or consolidate
with any other corporation, savings institution or bank; acquire control
over any other firm, bank, corporation, savings institution or
organization; or liquidate, sell or otherwise dispose of any assets or
acquire any assets, other than in the ordinary course of its business;
(g) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of
its business except where Commerce [or any Commerce Subsidiary] is in good
faith contesting the validity of any of the foregoing;
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(h) increase the rate of compensation of any of its directors, officers
or employees, or pay or agree to pay any bonus to, or provide any other
employee benefit or incentive to, any of its directors, officers or
employees, except in a manner and amount consistent with past practice;
(i) enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock purchase,
stock appreciation right, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related
thereto, in respect of any of its directors, officers or other employees;
provided, however, that this subparagraph shall not prevent renewals of any
of the foregoing consistent with past practice;
(j) solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, Commerce or
any business combination with Commerce other than as contemplated by this
Agreement (except where the failure to furnish such information or
participate in such negotiations or discussions would, on the advice of
counsel, constitute a breach of the fiduciary or legal obligations of
Commerce's Board of Directors to its shareholders); or authorize any
officer, director, agent or affiliate of it to do any of the above; or fail
to notify BB&T Financial immediately if any such inquiries or proposals are
received by, any such information is required from, or any such
negotiations or discussions are sought to be initiated with, Commerce;
(k) enter into (i) any material agreement, arrangement or commitment not
made in the ordinary course of business, including, without limitation,
agreements or memoranda of understanding with regulatory authorities, (ii)
any agreement, indenture or other instrument not made in the ordinary
course of business relating to the borrowing of money by Commerce or the
Commerce Subsidiary or guarantee by Commerce or the Commerce Subsidiary of
any such obligation, (iii) any agreement, arrangement or commitment not
cancellable by Commerce without penalty or cost within 30 days after the
Effective Date relating to the employment or severance of a consultant or
the employment, severance, election or retention in office of any present
or former director, officer or employee (this clause shall not apply to the
normal election of directors by shareholders and the election of officers
by directors not pursuant to a specific agreement, arrangement or
commitment not Previously Disclosed); or (iv) any contract, agreement or
understanding with a labor union;
(l) change its lending, investment or asset liability management policies
in any material respect or materially change the mix (by type of security)
and average maturity of the securities portfolio, except as may be required
by applicable law, regulation, or directives, and except that after
approval of the Plan of Merger by its shareholders Commerce shall cooperate
in good faith with BB&T Financial to adopt policies, practices and
procedures consistent with those utilized by BB&T Financial, effective on
or before the Closing Date;
(m) change its methods of accounting in effect at December 31, 1993,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any
of its methods of reporting income and deductions for federal income tax
purposes from those employed in the preparation of its federal income tax
returns for the year ended December 31, 1993, except as required by changes
in law or regulation; or
(n) agree to do any of the foregoing.
4.9 PLAN OF MERGER; RESERVATION OF SHARES
a. On the Effective Date, the Merger shall be effected in accordance with the
Plan of Merger attached hereto as Annex A. In this connection, BB&T Financial
undertakes and agrees (i) to adopt and to cause BB&T Financial-Va and BB&T-VA
to adopt the Plan of Merger; (ii) to vote the shares of BB&T Financial-Va and
BB&T-VA Common Stock for approval of the Plan of Merger; and (iii) to pay or
cause to be paid when
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due the number of shares of BB&T Financial Common Stock to be distributed
pursuant to Article V of the Plan of Merger and any cash required to be paid
for fractional shares pursuant to Article V, Paragraph 7 of the Plan of Merger.
b. BB&T Financial shall reserve for issuance such number of shares of BB&T
Financial Common Stock as shall be necessary to pay the consideration to be
distributed to Commerce's stockholders as contemplated in Article V, Paragraph
1 of the Plan of Merger. If at any time the aggregate number of shares of BB&T
Financial Common Stock remaining unissued (or in treasury) shall not be
sufficient to effect the Merger, BB&T Financial shall take all appropriate
action to increase the amount of the authorized BB&T Financial Common Stock.
4.10 EMPLOYMENT AGREEMENTS
BB&T Financial shall enter into employment agreements with those Commerce
employees as have been Previously Disclosed on the terms Previously Disclosed.
4.11 CLOSING; ARTICLES OF MERGER
The transactions contemplated by this Agreement and the Plan of Merger shall
be consummated at a closing to be held at the executive offices of BB&T
Financial, or such other place as shall be agreed to by BB&T Financial and
Commerce, on the first business day following satisfaction of the conditions to
consummation of the Merger set forth in Article V hereof, or such later date
within 30 days thereafter as may be specified by BB&T Financial, or such later
date as the parties may otherwise agree. The Merger shall become effective upon
the Effective Date, which shall be the time and date specified in the Articles
of Merger evidencing the Merger, as filed with the State Corporation Commission
of Virginia.
4.12 AFFILIATES
Commerce shall identify those persons who may be deemed to be "affiliates" of
Commerce within the meaning of Rule 145 promulgated by the Commission under the
Securities Act. Commerce shall cause each person so identified to deliver to
BB&T Financial at least 30 days prior to the Effective Date a written agreement
providing that such person will not dispose of BB&T Financial Common Stock
received in the Merger except in compliance with the Securities Act and the
rules and regulations promulgated thereunder and except as consistent with
qualifying the transactions contemplated hereby for pooling of interests
accounting treatment.
4.13 DIRECTORS AND OFFICERS INSURANCE.
a. Following the Effective Date, each director and officer of Commerce who is
currently entitled to indemnification pursuant to Virginia law shall be
indemnified, in accordance with BB&T Financial's bylaw provisions, to the
maximum extent permitted under North Carolina and federal law, if applicable.
b. BB&T Financial agrees to purchase and to keep in force directors' and
officers' liability insurance to provide coverage for actions or omissions by
directors and officers of Commerce for claims made for the period commencing
with and after the Effective Date; provided, however, that such insurance will
be provided only if, and to the extent that, any similarly situated officer or
director of BB&T Financial is insured from time to time.
c. From and after the Effective Date, BB&T Financial agrees to indemnify and
hold harmless each present and former director and officer of Commerce (the
"Indemnified Parties"), against any and all costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any and all
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Date, whether asserted or
claimed prior to, at or after the Effective
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Date, to the fullest extent permitted by applicable law (and also advance
expenses incurred to the fullest extent permitted by applicable law), provided,
however, that BB&T Financial will not indemnify any person against liability or
litigation expense such person may incur on account of activities that were at
the time taken known or believed by such person to be clearly in conflict with
the best interest of BB&T Financial or Commerce or, with respect to any
criminal action or proceeding, activities that the person had reasonable cause
to believe were unlawful.
d. Any Indemnified Party wishing to claim indemnification under Section
4.13(c), upon learning of any such claim, action, suit, proceeding or
investigation, shall within forty-five (45) days upon learning of such claim,
action, suit, proceeding or investigation, notify BB&T Financial thereof, but
the failure to so notify shall not relieve BB&T Financial of any liability it
may have to such Indemnified Party if such failure does not materially
prejudice the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) BB&T Financial shall have the right to assume the defense thereof
and BB&T Financial shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
BB&T Financial elects not to assume such defense, or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between BB&T Financial and the Indemnified Parties, the Indemnified
Parties may retain counsel satisfactory to them, and BB&T Financial shall pay
the reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; provided, however, that BB&T
Financial shall be obligated pursuant to this paragraph (b) to pay for only one
firm of counsel for all Indemnified Parties in any jurisdiction unless the use
of one counsel for such Indemnified Parties would present such counsel with a
conflict of interest, (ii) the Indemnified Parties will cooperate in the
defense of any such matter and (iii) BB&T Financial shall not be liable for any
settlement effected without its prior written consent which shall not be
unreasonably withheld; and provided further that BB&T Financial shall not have
any obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. If such indemnity is not available with respect to any Indemnified Party,
then the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect the relative benefit received by such
Indemnified Party in any transaction which was the subject of, and the relative
fault of such Indemnified Party with respect to, such claim, action, suit,
proceeding or investigation by the Indemnified Party.
4.14 EMPLOYEES AND EMPLOYEE BENEFIT PLANS
a. (i) Upon the Effective Date, each person who is an employee of
Commerce as of such Effective Date (individually an "Employee") shall
automatically become an employee of the Surviving Corporation (as defined
in the Plan of Merger), upon substantially the same terms and conditions of
employment, including compensation and benefits, and comparable
responsibilities that each Employee had on the day before the Effective
Date.
(ii) BB&T Financial will attempt, consistent with achieving the goals
identified in Section 4.17(c), to avoid lay-offs of Commerce employees
following the Effective Date, and to meet efficiency goals for the Surviving
Corporation through attrition and reassignment.
b. Each Employee shall be eligible to receive group hospitalization, medical,
life, disability and other benefits comparable to those provided to the present
employees of BB&T Financial without the imposition of any waiting period or
limitation on pre-existing conditions; provided, however, such benefits shall
not in the aggregate to all Employees as a group be less in amount or value
than those presently provided by Commerce.
c. Commerce shall cause its 401(k) plan to be merged with the 401(k) plans
maintained by BB&T Financial and the BB&T Financial Subsidiaries or be
terminated following the Merger. The parties shall reach agreement as to the
appropriate method of accomplishing this result (either termination or merger)
as soon
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as practicable. If the Commerce plan is terminated, the rights and interests of
the employees of Commerce in such plan shall become fully vested, with each
participating Employee having the right or option either to receive the
benefits to which they are entitled as a result of the termination of the plan
or to have such benefits "rolled" into the 401(k) Plan maintained by BB&T
Financial and the BB&T Financial Subsidiaries for the benefit of their
employees, and on the same basis and applying the same eligibility standards as
would apply to employees of BB&T Financial and the BB&T Financial Subsidiaries.
Following the Merger, the Employees of Commerce shall be entitled to
participate, to the same extent and on the same terms as the employees of BB&T
Financial, in any retirement, pension or similar plans in effect for the
benefit of the employees of BB&T Financial (other than any employee stock
ownership plan established for the benefit of certain of BB&T Financial's
employees) which when considered as a whole for all Employees considered as a
group shall be no less favorable in the aggregate than the benefits currently
provided to the Employees of Commerce. Notwithstanding the foregoing, the
parties shall use their best efforts to work out an arrangement with applicable
law pursuant to which the amount that any Employee is entitled to receive under
the BB&T Financial pension plan shall be offset by the amount such Employee is
entitled to receive under the Commerce Supplemental Retirement Plan ("SRP") so
that the retirement benefits any Employee is entitled to receive after the
Merger shall not exceed the retirement benefits such Employee would be entitled
to receive under the BB&T Financial pension plan or the SRP, whichever is
greater, and such arrangement will not consider employees' contributions to the
SRP made by Commerce in lieu of salary increases for 1994.
d. For purposes of participating in all plans and benefits of BB&T Financial,
such Employees shall receive credit for their period of service to Commerce for
participation and vesting purposes only.
e. To the extent that this Section 4.14 contemplates or requires the taking
of action or forbearance by any subsidiary of BB&T Financial, BB&T Financial
shall cause such subsidiary to take such action or to so forbear.
4.15 FORBEARANCES OF BB&T FINANCIAL
Except with the prior written consent of Commerce, which consent shall not be
arbitrarily or unreasonably withheld, between the date hereof and the Effective
Date, neither BB&T Financial nor any BB&T Financial Subsidiary shall:
a. exercise the Option Agreement other than in accordance with its terms,
or dispose of the shares of Commerce Common Stock issuable upon exercise of
the option rights conferred thereby other than as permitted or contemplated
by the terms thereof;
b. enter into a merger or other business combination transaction with any
other corporation or person in which BB&T Financial would not be the
surviving or continuing entity after the consummation thereof;
c. sell or lease all or substantially all of the assets and business of
BB&T Financial; or
d. declare an extraordinary or special dividend or distribution on its
common stock in an amount equal to more than 10% of BB&T Financial's
stockholders' equity as reflected on the Financial Statements of BB&T
Financial as of the three months ended prior to such payment.
4.16 MEMBERSHIP ON THE BOARD OF DIRECTORS
a. Upon consummation of the Merger, all of the members of the Board of
Directors of Commerce will become directors of the Surviving Corporation.
b. Upon consummation of the Merger, BB&T Financial shall cause seven of the
present members of the Board of Directors of Commerce, to be named by the Chief
Executive Officer of Commerce, and three other persons to become members of the
Board of Directors of BB&T Financial-Va. J. Allan Lindauer will become the
Chairman of the Board of BB&T Financial-Va.
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c. Upon consummation of the Merger, BB&T Financial shall cause three members
of the Board of Directors of Commerce, designated by the Board of Directors of
Commerce immediately prior to the Merger, to become members of the Board of
Directors of BB&T Financial.
4.17 OPERATION OF COMMERCE
a. Unless the Board of Directors of BB&T Financial-Va votes otherwise, the
Surviving Corporation in the Merger will be named Commerce Bank for not less
than three years after the Effective Date. Unless the Board of Directors of
BB&T Financial-Va votes otherwise, the principal executive office of BB&T
Financial-Va will be located in the Hampton Roads area of Virginia.
b. BB&T Financial will make a reasonable effort to locate facilities and
expand employment opportunities in Commerce's current market area when doing
so would not impose an economic or operational burden on BB&T Financial.
c. The Board of Directors of the Surviving Corporation will cause the
Surviving Corporation after the Effective Date to reduce its non-interest
expenses by at least 20% from the level of non-interest expenses as reported
for the year ended December 31, 1993 in Commerce's Financial Statements within
three years from the Closing Date.
d. Commerce may make charitable and civic contributions, consistent with its
philosophy in making charitable or civic contributions, in the communities
served by Commerce in amounts of at least $500,000 over a period of five years
from the Closing Date.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS PRECEDENT--BB&T FINANCIAL AND COMMERCE
The respective obligations of BB&T Financial and Commerce to effect the
transactions contemplated by this Agreement shall be subject to satisfaction
or waiver of the following conditions at or prior to the Effective Date:
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Reorganization Agreement and the Option Agreement
and consummation of the transactions contemplated hereby and thereby shall
have been duly and validly taken, including without limitation the approval
of the shareholders of Commerce;
(b) The Registration Statement (including any post-effective amendments
thereto) shall be effective under the Securities Act, and BB&T Financial
and Commerce shall have received all state securities or "Blue Sky" permits
or other authorizations, or confirmations as to the availability of an
exemption from registration requirements as may be necessary and no
proceedings shall be pending or to the knowledge of BB&T Financial
threatened by the Commission or any state "Blue Sky" securities
administration to suspend the effectiveness of such Registration Statement;
and the BB&T Financial Common Stock to be issued as contemplated in the
Plan of Merger shall have either been registered or be subject to exemption
from registration under applicable state securities laws;
(c) Neither BB&T Financial, any BB&T Financial Subsidiary, Commerce nor
the Commerce Subsidiary shall be subject to any order, decree or injunction
of a court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated by this Reorganization
Agreement; and
(d) Commerce and BB&T Financial shall have received an opinion of BB&T
Financial's counsel or tax advisor in form and substance satisfactory to
Commerce and BB&T Financial substantially to the effect that the Merger
will constitute one or more reorganizations under Section 368 of the Code
and
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that the shareholders of Commerce will not recognize any gain or loss to
the extent that such shareholders exchange shares of Commerce Common Stock
for shares of BB&T Financial Common Stock.
5.2 CONDITIONS PRECEDENT -- COMMERCE
The obligations of Commerce to effect the transactions contemplated by this
Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Date unless waived by Commerce
pursuant to Section 6.4 hereof:
(a) The representations and warranties of BB&T Financial set forth in
Article III hereof shall be true and correct in all material respects as of
the date of this Agreement and as of the Effective Date as though made on and
as of the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by Commerce (which consent may not be unreasonably withheld);
(b) BB&T Financial shall have in all material respects performed all
material obligations and complied with all material covenants required by this
Agreement;
(c) BB&T Financial shall have delivered to Commerce a certificate, dated the
Effective Date and signed by its Chairman or President, to the effect that the
conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c), 5.2(a), 5.2(c) and
5.2(f), to the extent applicable to BB&T Financial, have been satisfied and
that there are no actions, suits, claims, governmental investigations or
procedures instituted, pending or, to the best of his knowledge, threatened
that reasonably may be expected to have a material adverse effect on BB&T
Financial or that present a claim to restrain or prohibit the transactions
contemplated herein or in the Plan of Merger;
(d) Commerce shall have received such opinions of the General Counsel to
BB&T Financial as to matters of North Carolina law, and other counsel as to
matters of federal law, as it shall reasonably request;
(e) All approvals of the transactions contemplated herein from the
Federal Reserve Board, the FDIC, the State Board and any other state or
federal government agency, department or body, the approval of which is
required for the consummation of the Merger, shall have been received and
all waiting periods with respect to such approvals shall have expired; and
(f) Commerce shall not have reasonably determined in good faith that
there has been a material adverse change in the condition, operations or
prospects of BB&T Financial since December 31, 1993, provided that if the
impact of SFAS 115 is less than 15% of total equity on the most recent
month end balance sheet date prior to the Closing Date, such impact shall
be excluded in determining whether a material adverse change has occurred,
but if such impact is 15% or more of total equity, such impact may be taken
into account in determining whether a material adverse change has occurred.
5.3 CONDITIONS PRECEDENT--BB&T FINANCIAL
The obligations of BB&T Financial to effect the transactions contemplated by
this Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Date, unless waived by BB&T Financial
pursuant to Section 6.4 hereof:
(a) The representations and warranties of Commerce set forth in Article
II hereof shall be true and correct in all material respects as of the date
of this Agreement and as of the Effective Date as though made on and as of
the Effective Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in
writing by BB&T Financial (which consent may not be unreasonably withheld);
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(b) The parties hereto shall have received all regulatory approvals
required in connection with the transactions contemplated by this
Reorganization Agreement, all notice periods and waiting periods required
after the granting of any such approvals shall have passed, and all such
approvals shall be in effect; provided, however, that no such approval
shall have imposed any condition or requirement which, in the reasonable
opinion of the Board of Directors of BB&T Financial, would so materially
adversely affect the business or economic benefits of the transactions
contemplated by this Agreement as to render consummation of such
transactions inadvisable or unduly burdensome;
(c) Commerce shall have in all material respects performed all material
obligations and complied with all material covenants required by this
Agreement;
(d) Commerce shall have delivered to BB&T Financial a certificate, dated
the Effective Date and signed by its Chairman or President, to the effect
that the conditions set forth in Sections 5.1(a), 5.1(b), 5.3(a), 5.3(b)
and 5.3(c), to the extent applicable to Commerce, have been satisfied and
that there are no actions, suits, claims, governmental investigations or
procedures instituted, pending or, to the best of his knowledge, threatened
that reasonably may be expected to have a Material Adverse Effect on
Commerce or that present a claim to restrain or prohibit the transactions
contemplated herein or in the Plan of Merger;
(e) BB&T Financial shall have received such opinions of counsel as it
shall reasonably request;
(f) BB&T Financial shall not have reasonably determined in good faith
that there has been a material adverse change in the condition, operations
or prospects of Commerce since December 31, 1993, provided that if the
impact of SFAS 115 is less than 15% of total equity on the most recent
month end balance sheet date prior to the Closing Date, such impact shall
be excluded in determining whether a material adverse change has occurred,
but if such impact is 15% or more of total equity, such impact may be taken
into account in determining whether a material adverse change has occurred.
(g) BB&T Financial shall have received the written agreements from
affiliates as specified in Section 4.12 hereof; and
(h) BB&T Financial shall have determined that the transactions
contemplated herein qualify for accounting treatment as a pooling of
interests.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
6.1 TERMINATION
This Agreement may be terminated:
(a) at any time on or prior to the Effective Date, by the mutual consent
in writing of the parties hereto;
(b) at any time on or prior to the Effective Date, by BB&T Financial in
writing if Commerce has, or by Commerce in writing if BB&T Financial has,
in any material respect, breached (i) any covenant or undertaking contained
herein, in the Plan of Merger, in the Option Agreement, or (ii) any
representation or warranty contained herein, which breach has been
materially adverse, and, in the case of (i) or (ii), 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
Effective Date;
(c) on the Effective Date, by either party hereto in writing, if any of
the conditions precedent to the obligations of such party to consummate the
transactions contemplated hereby have not been satisfied or fulfilled;
(d) at any time, by either party hereto in writing, if any of the
applications for prior approval referred to in Section 4.3 hereof are
denied, and the time period for appeals and requests for reconsideration
has run;
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(e) at any time, by either party hereto in writing, if the shareholders
of Commerce do not approve the transactions contemplated herein;
(f) by either party hereto in writing, if the Effective Date has not
occurred by the close of business on June 30, 1995;
(g) at any time prior to August 24, 1994, by BB&T Financial in writing,
if BB&T Financial determines in its sole good faith judgment that the
financial condition, business or prospects of Commerce are materially
adversely different from what was reasonably expected by BB&T Financial
after the performance of its due diligence prior to the execution of this
Agreement; provided that BB&T Financial shall inform Commerce upon such
termination as to the reasons for BB&T Financial's determination; and,
provided further, that this Section 6.1(h) shall not limit in any way the
due diligence investigation of Commerce which BB&T Financial may perform or
otherwise affect any other rights which BB&T Financial has after the date
hereof and after August 24, 1994, under the terms of this Agreement;
(h) at any time prior to August 24, 1994, by Commerce in writing, if
Commerce determines in its sole good faith judgment that the financial
condition, business or prospects of BB&T Financial (as such condition,
business or prospects may affect the market price of BB&T Financial Common
Stock) are materially different from what was reasonably expected by
Commerce after the performance of its due diligence prior to the execution
of this Agreement; provided that Commerce shall inform BB&T Financial upon
such determination as to the reasons for Commerce's determination; and
provided, further, that this Section 6.1(i) shall not limit in any way the
due diligence investigation of BB&T Financial which Commerce may perform or
otherwise affect any other rights which Commerce has after the date hereof
and after August 24, 1994, under the terms of this Agreement; and
(i) at any time, by either party hereto in writing, if such party
determines in good faith that any condition precedent to such party's
obligations to consummate the Merger is or would be impossible to satisfy,
provided that the terminating party has given the other party notice with
respect thereto at least ten days prior to such termination and has given
the other party a reasonable opportunity to discuss the matter with a view
to achieving a mutually acceptable resolution.
6.2 EFFECT OF TERMINATION
In the event this Agreement or the Plan of Merger is terminated pursuant to
Section 6.1 hereof, both this Agreement and the Plan of Merger shall become
void and have no effect, except that (i) the provisions hereof relating to
confidentiality and expenses set forth in Sections 4.6 and 7.1, respectively,
shall survive any such termination and (ii) a termination pursuant to Section
6.1(b) hereof shall not relieve the breaching party from liability for an
uncured breach of the covenant or agreement giving rise to such termination.
6.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Agreement or the Plan
of Merger or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Date other than
covenants that by their terms are to be performed after the Effective Date,
provided that no such representations, warranties or covenants shall be deemed
to be terminated or extinguished so as to deprive BB&T Financial or Commerce
(or any director, officer or controlling person thereof) of any defense at law
or in equity which otherwise would be available against the claims of any
person, including, without limitation, any shareholder or former shareholder of
either BB&T Financial or Commerce, the aforesaid representations, warranties
and covenants being material inducements to consummation by BB&T Financial and
Commerce of the transactions contemplated herein.
6.4 WAIVER
Except with respect to any required regulatory approval, each party hereto by
written instrument signed by an executive officer of such party, may at any
time (whether before or after approval of the Agreement
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and the Plan of Merger by the shareholders of Commerce) extend the time for the
performance of any of the obligations or other acts of the other party hereto
and may waive (i) any inaccuracies of the other party in the representations or
warranties contained in this Agreement, the Plan of Merger or any document
delivered pursuant hereto or thereto, (ii) compliance with any of the
covenants, undertakings or agreements of the other party, or satisfaction of
any of the conditions precedent to its obligations, contained herein or in the
Plan of Merger, or (iii) the performance by the other party of any of its
obligations set out herein or therein; provided that no such waiver or
amendment or supplement pursuant to Section 6.5 hereof executed after approval
of this Agreement and the Plan of Merger by the shareholders of Commerce shall
reduce either the number of shares of BB&T Financial Common Stock into which
each share of Commerce Common Stock shall be converted in the Merger or the
payment terms for fractional interests.
6.5 AMENDMENT OR SUPPLEMENT
This Agreement and the Plan of Merger may be amended or supplemented at any
time by mutual agreement of BB&T Financial and Commerce subject to the proviso
to Section 6.4 hereof. Any such amendment or supplement must be in writing and
approved by their respective boards of directors.
ARTICLE VII
MISCELLANEOUS
7.1 EXPENSES
Each party hereto shall bear and pay all costs and expenses incurred by it in
connection with the transactions contemplated by this Reorganization Agreement,
including fees and expenses of its own financial consultants, accountants and
counsel, except that BB&T Financial and Commerce shall each bear and pay 50
percent for the cost of printing the Proxy Statement. Notwithstanding the
foregoing, BB&T Financial shall reimburse Commerce for all reasonable out-of-
pocket expenses incurred by Commerce in connection with the transactions
contemplated by this Agreement if this Agreement is terminated; provided,
however, that BB&T Financial's obligation to reimburse Commerce for such
expenses shall not apply if Commerce materially breaches any provision of this
Agreement, the Plan of Merger or the Option Agreement.
7.2 ENTIRE AGREEMENT
This Agreement and the Option Agreement contain the entire agreement between
the parties with respect to the transactions contemplated hereunder and
thereunder and supersedes all prior arrangements or understandings with respect
thereto, written or oral, other than documents referred to herein or therein.
The terms and conditions of this Agreement and the Option Agreement shall inure
to the benefit of and be binding upon the parties hereto and thereto and their
respective successors. Nothing in this Agreement or the Option Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities.
7.3 NO ASSIGNMENT
Neither of the parties hereto may assign any of its rights or obligations
under this Reorganization Agreement to any other person.
7.4 NOTICES
All notices or other communications which are required or permitted hereunder
shall be in writing and sufficient if delivered personally or sent by overnight
express or by registered or certified mail, postage prepaid, addressed as
follows:
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If to Commerce:
Commerce Bank
5101 Cleveland Street
Virginia Beach, VA 23462
Attention: G. Robert Aston, Jr.
With a required copy to:
Mays & Valentine
1111 East Main Street
Richmond, VA 23208-1122
Attention: George P. Whitley
If to BB&T Financial:
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: Scott E. Reed
With a required copy to:
Arnold & Porter
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: Barbara E. Mathews
7.5 CAPTIONS
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of this Agreement.
7.6 COUNTERPARTS
This Reorganization 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.
7.7 GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina applicable to
agreements made and entirely to be performed within such jurisdiction except to
the extent federal law may be applicable.
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In Witness Whereof, the parties hereto, intending to be legally bound hereby,
have caused this Reorganization Agreement to be executed in counterparts by
their duly authorized officers and their corporate seal to be hereunto affixed
and attested by their officers thereunto duly authorized, all as of the day and
year first above written.
Attest BB&T FINANCIAL CORPORATION
/s/ Jerone C. Herring By: /s/ John A. Allison IV
_____________________________________ _________________________________
(SEAL)
Attest COMMERCE BANK
/s/ Brenda P. Harper By: /s/ G. Robert Aston, Jr.
_____________________________________ _________________________________
(SEAL)
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<PAGE>
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment No. 1, dated August 25, 1994, is made to the Agreement and
Plan of Reorganization ("Reorganization Agreement"), dated as of June 24, 1994,
between COMMERCE BANK ("Commerce"), a bank chartered under the laws of the
Commonwealth of Virginia, having its home office at 5101 Cleveland Street,
Virginia Beach, Virginia 23462, and BB&T FINANCIAL CORPORATION ("BB&T
Financial"), a North Carolina corporation having its home office at 223 West
Nash Street, Wilson, North Carolina 27893.
WITNESSETH
WHEREAS, the parties hereto previously have entered into the Reorganization
Agreement;
WHEREAS, the parties hereto desire to amend the Reorganization Agreement to
effect an amendment to the Plan of Merger attached as Annex A to the
Reorganization Agreement to provide that BB&T-VA will be a direct subsidiary of
BB&T Financial prior to the Effective Date of the Merger, and that immediately
after the Effective Date of the Merger, the Surviving Corporation will be a
wholly owned subsidiary of BB&T Financial-Va;
NOW, THEREFORE, in consideration of the premises and of the respective
agreements herein contained and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
1. Definitions. Unless otherwise specified herein, capitalized terms used
herein and defined in the Reorganization Agreement or the Plan of Merger shall
have the same meanings herein as set forth therein.
2. Amendment of Plan of Merger.
a. The third recital of the Plan of Merger is amended to read in its entirety
as follows:
WHEREAS, BB&T-VA is a newly formed wholly owned subsidiary of BB&T
Financial; and
b. The following recital is inserted in its entirety between the third and
fourth recitals of the Plan of Merger:
WHEREAS, after the Effective Date (as hereinafter defined), the Surviving
Corporation (as hereinafter defined) shall be a wholly owned subsidiary of
BB&T Financial Corporation of Virginia, a to be formed Virginia corporation
which will be a wholly owned subsidiary of BB&T Financial; and
3. Savings Clause. In all other respects the Reorganization Agreement and
Plan of Merger shall remain in full force and effect.
4. Counterparts. This Amendment may be executed in any number of
counterparts, which taken together shall constitute one and the same document.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have caused this Amendment to be executed by their duly authorized officers and
their corporate seal to be hereunto affixed and attested by their officers
thereunder duly authorized, all as of the day and year first above written.
Attest BB&T FINANCIAL CORPORATION
/s/ Jerone C. Herring By: /s/ John A. Allison IV
_____________________________________ ______________________________
(SEAL)
Attest COMMERCE BANK
/s/ Brenda P. Harper By: /s/ G. Robert Aston, Jr.
_____________________________________ ______________________________
(SEAL)
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<PAGE>
APPENDIX II
ANNEX A
PLAN OF MERGER OF
COMMERCE BANK WITH AND INTO
BRANCH BANKING AND TRUST COMPANY
OF VIRGINIA ("BB&T-VA")
Plan of Merger ("Plan of Merger") dated as of June 24, 1994 by and between
Commerce Bank ("Commerce"), a Virginia bank having its principal office at 5101
Cleveland Street, Virginia Beach, Virginia 23462, BB&T FINANCIAL CORPORATION
("BB&T Financial"), a North Carolina corporation having its principal office at
223 West Nash Street, Wilson, North Carolina 27893 and Branch Banking and Trust
Company of Virginia ("BB&T-VA"), a Virginia bank having its principal office at
5101 Cleveland Street, Virginia Beach, Virginia 23462.
WITNESSETH
Whereas, Commerce is a bank chartered under the laws of the Commonwealth of
Virginia, the authorized capital stock of which consists of 5,000,000 shares of
common stock, par value $2.50 per share ("Commerce Common Stock"), of which, on
the date hereof, 2,725,163 shares are issued and outstanding; and 1,000,000
shares of preferred stock, $5.00 par value per share, of which no shares are
issued or outstanding; and
Whereas, BB&T Financial is a bank holding company incorporated under the laws
of the state of North Carolina, the authorized capital stock of which consists
of 100,000,000 shares of common stock, par value $2.50 per share ("BB&T
Financial Common Stock"), 32,195,746 of which were issued and outstanding at
March 31, 1994, and 4,000,000 shares of preferred stock, par value $2.50 per
share, none of which are issued or outstanding; and
Whereas, BB&T-VA is a newly formed wholly owned subsidiary of BB&T Financial
Corporation of Virginia, a Virginia corporation and wholly owned subsidiary of
BB&T Financial;
Whereas, the respective Boards of Directors of Commerce and BB&T Financial
deem the merger of BB&T-VA with and into Commerce, under and pursuant to the
terms and conditions herein set forth or referred to, desirable and in the best
interests of the respective corporations and their respective shareholders, and
the respective Boards of Directors of Commerce and BB&T Financial have adopted
resolutions approving this Plan of Merger and, in the case of BB&T Financial
and Commerce, an Agreement and Plan of Reorganization dated as of June 24, 1994
("Reorganization Agreement"); and
Whereas, the Board of Directors of Commerce has directed that this Plan of
Merger and the Reorganization Agreement be submitted to its shareholders for
approval;
Now, Therefore, in consideration of the premises and of the mutual agreements
herein contained, the parties hereto do hereby agree that the Plan of Merger
shall be as follows:
ARTICLE I
MERGER AND NAME OF SURVIVING CORPORATION
Subject to the terms and conditions of this Plan of Merger, on the Effective
Date (as hereinafter defined), BB&T-VA shall be merged with and into Commerce
pursuant to the provisions of, and with the effect provided in, Article 12 of
the Virginia Stock Corporation Act ("VASCA") (said transaction being
hereinafter
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<PAGE>
referred to as the "Merger"). On the Effective Date, the separate existence of
BB&T-VA shall cease and Commerce, as the surviving corporation, shall continue
unaffected and unimpaired by the Merger (Commerce as existing on and after the
Effective Date being hereinafter sometimes referred to as the "Surviving
Corporation"). The name of the Surviving Corporation shall remain "Commerce
Bank."
ARTICLE II
ARTICLES OF INCORPORATION AND BY-LAWS
The Articles of Incorporation and the By-laws of Commerce in effect
immediately prior to the Effective Date shall be the Articles of Incorporation
and the By-laws of the Surviving Corporation, in each case until amended in
accordance with applicable law.
ARTICLE III
BOARD OF DIRECTORS
On the Effective Date, the Board of Directors of the Surviving Corporation
shall consist of the following persons:
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
ARTICLE IV
CAPITAL
Each share of capital stock of BB&T-VA issued and outstanding immediately
prior to the Effective Date shall, on the Effective Date, continue to be
issued and outstanding, and shall be an identical outstanding share of the
Surviving Corporation.
ARTICLE V
CONVERSION AND EXCHANGE OF COMMERCE COMMON STOCK;
FRACTIONAL SHARE INTERESTS
1. On the Effective Date, except as provided in paragraphs 3, 6 and 7 of
this Article, each share of Commerce Common Stock outstanding immediately
prior to the Effective Date shall by virtue of the Merger be converted into
and exchanged for 1.305 shares of BB&T Financial Common Stock (the "Exchange
Ratio").
In the event that BB&T Financial shall have a record date between June 24,
1994 and the Effective Date for a special distribution to stockholders, a
stock split, stock dividend or similar change in capitalization, an equitable
and appropriate adjustment shall be made to the Exchange Ratio to reflect the
effect of such distribution or change.
2. The "BB&T Financial Average Closing Price," as used herein, shall refer
to the average of the reported closing price of BB&T Financial Common Stock on
the Nasdaq/National Market System on the ten trading days ("Computation Days")
ending on the tenth business day prior to the Effective Date.
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<PAGE>
3. On the Effective Date, all shares of Commerce Common Stock owned
beneficially by Commerce or any subsidiary of Commerce other than in a
fiduciary capacity or in connection with a debt previously contracted and all
shares of Commerce Common Stock owned by BB&T Financial or owned beneficially
by any subsidiary of BB&T Financial other than in a fiduciary capacity or in
connection with a debt previously contracted shall be cancelled and no cash,
stock or other property shall be delivered in exchange therefor.
4. On and after the Effective Date, each holder of a certificate or
certificates theretofore representing outstanding shares of Commerce Common
Stock (any such certificate being hereinafter referred to as a "Certificate")
may surrender the same to BB&T Financial or its agent for cancellation and each
such holder shall be entitled upon such surrender to receive in exchange
therefor certificate(s) representing the number of whole shares of BB&T
Financial Common Stock to which such holder is entitled as provided herein and
a check in an amount equal to the amount of cash, without interest, to which
such holder is entitled for any fraction of share under paragraph 7 of this
Article. Until so surrendered, each Certificate shall be deemed for all
purposes to evidence ownership of the number of shares of BB&T Financial Common
Stock into which the shares represented by such Certificates have been changed
or converted as aforesaid. No dividend or other distribution payable with
respect to the shares of BB&T Financial Common Stock shall be paid to an
entitled former shareholder of Commerce until such shareholder surrenders his
Certificate or Certificates representing Commerce Common Stock for exchange as
provided in this paragraph 4. Certificates surrendered for exchange by any
person constituting an "affiliate" of Commerce for purposes of Rule 145(c)
under the Securities Act of 1933, as amended, shall not be exchanged for
certificates representing whole shares of BB&T Financial Common Stock until
BB&T Financial has received from such person the written agreement contemplated
by Section 4.12 of the Reorganization Agreement.
5. Upon the Effective Date, the stock transfer books of Commerce shall be
closed and no transfer of Commerce Common Stock by such holder shall thereafter
be made or recognized.
6. In the event that prior to the Effective Date the outstanding shares of
Commerce Common Stock shall have been increased, decreased, or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock
split, or other like change in capitalization, all without BB&T Financial
receiving consideration therefor, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of BB&T Financial
Common Stock to be thereafter delivered pursuant to this Plan of Merger and the
Reorganization Agreement.
7. Notwithstanding any other provision hereof, each holder of shares of
Commerce Common Stock who would otherwise have been entitled to receive a
fraction of a share of BB&T Financial Common Stock shall receive, in lieu
thereof, cash in an amount equal to such fractional part of a share of BB&T
Financial Common Stock multiplied by the BB&T Financial Average Closing Price.
No such holder shall be entitled to dividends, voting rights or any other
shareholder right in respect of any fractional share. All fractional share
interests of each holder shall be aggregated, and no such holder shall receive
a cash payment equal to, or greater than, the BB&T Financial Average Closing
Price.
8. Any other provision in this Plan of Merger or the Reorganization Agreement
notwithstanding, no party hereto or agent thereof shall be liable to a holder
of Commerce Common Stock for any amount paid or property delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat, or similar law.
9. On the Effective Date, BB&T Financial and the Surviving Corporation shall,
by Supplemental Indenture, assume all of the obligations of Commerce under the
outstanding 10% Convertible Subordinated Capital Notes Due 2002 ("Capital
Notes"), issued by Commerce pursuant to the Indenture dated as of September 13,
1990, between Commerce and NationsBank of Virginia, N.A., as Trustee
("Indenture"), and take all action necessary to provide for the issuance of
BB&T Financial Common Stock upon conversion of
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the Capital Notes, so that, on and after the Effective Date, each holder of a
Capital Note shall have the right, during the period such Capital Note is
convertible, to convert such Capital Note only into shares of BB&T Financial
Common Stock at a conversion rate of 1.305 shares of BB&T Financial Common
Stock for each share of Commerce Common Stock into which such Capital Notes
might have been converted immediately prior to the Effective Date, subject to
payment of cash in lieu of fractional shares and to further adjustment in
accordance with Article 12 of the Indenture.
10. On the Effective Date, Commerce's obligations under its 1985 Stock Option
Plan and its 1993 Incentive Stock Plan (together, "Stock Option Plans") shall
be assumed by BB&T Financial and each stock option outstanding ("Commerce
Options") under Commerce's Stock Option Plans (except as provided in Paragraph
7 of this Article) shall be converted and exchanged, without any action on the
part of the holders thereof, into options to acquire, upon payment of the
adjusted exercise price (which shall equal the exercise price per share for the
Commerce Options immediately prior to the Merger, divided by the Exchange
Ratio), the number of shares of BB&T Financial Common Stock ("BB&T Option") the
option holder would have received pursuant to the Merger if he or she had
exercised his or her Commerce options immediately prior thereto; provided,
however, that in respect of any stock option which is an "incentive stock
option" within the meaning of Section 422A of the Internal Revenue Code of
1954, as amended ("Code"), the conversion hereinabove provided for shall comply
with the requirements of Section 425(a) of the Code, including the requirement
that such converted options shall not give to the holder thereof any benefits
additional to those which such holder had prior to such conversion under the
option as originally granted.
ARTICLE VI
EFFECTIVE DATE OF THE MERGER
Articles of Merger evidencing the transactions contemplated herein shall be
delivered for filing to the State Corporation Commission of Virginia as
provided in Section 13.1-720 of Article 12 of the VASCA. The Merger shall be
effective at the time and on the date specified in such Articles of Merger
(such date and time being herein referred to as the "Effective Date").
ARTICLE VII
FURTHER ASSURANCES
If at any time the Surviving Corporation shall consider or be advised that
any further assignments, conveyances or assurances are necessary or desirable
to vest, perfect or confirm in the Surviving Corporation title to any property
or rights of Commerce, or otherwise carry out the provisions hereof, the proper
officers and directors of Commerce, as of the Effective Date, and thereafter
the officers of the Surviving Corporation, acting on behalf of Commerce, shall
execute and deliver any and all property or assignments, conveyances and
assurances, and do all things necessary or desirable to vest, perfect or
confirm title to such property or rights in the Surviving Corporation and
otherwise carry out the provisions hereof.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of BB&T Financial, BB&T-VA and Commerce to effect the Merger
as herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Reorganization Agreement.
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ARTICLE IX
ABANDONMENT AND TERMINATION
Anything contained in this Plan of Merger to the contrary notwithstanding,
and notwithstanding adoption hereof by the shareholders of Commerce, this Plan
of Merger may be terminated and the Merger abandoned as provided in the
Reorganization Agreement.
ARTICLE X
MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time by mutual
agreement of BB&T Financial, BB&T-VA and Commerce. Any such amendment or
supplement must be in writing and approved by their respective Boards of
Directors and shall be subject to the proviso in Section 6.5 of the
Reorganization Agreement.
2. Any notice or other communication required or permitted under this Plan of
Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia applicable to agreements made and
entirely to Commonwealth be performed in such jurisdiction, except to the
extent federal law may be applicable.
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APPENDIX III
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED
HEREIN.
OPTION AGREEMENT
This Agreement dated as of June 24, 1994, between BB&T Financial Corporation,
a North Carolina corporation ("BB&T Financial"), and Commerce Bank, a bank
chartered under the laws of the Commonwealth of Virginia ("Commerce").
WITNESSETH:
Whereas, the Boards of Directors of BB&T Financial and Commerce have approved
an Agreement and Plan of Reorganization (the "Reorganization Agreement"), dated
as of June 24, 1994 between BB&T Financial and Commerce, providing for the
merger of Commerce with and into an indirect subsidiary of BB&T Financial (the
"Merger"), which Reorganization Agreement has been executed by the parties
immediately prior to this Agreement;
Whereas, as a condition to BB&T Financial's entry into the Reorganization
Agreement and in consideration of such entry, Commerce has agreed to grant to
BB&T Financial the option set forth herein;
Now, Therefore, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions. Capitalized terms defined in the Reorganization Agreement and
used herein shall have the same meanings as in the Reorganization Agreement.
2. Grant of Option. Commerce hereby grants to BB&T Financial an option (the
"Option") to purchase up to 540,000 shares of authorized but unissued shares of
Commerce Common Stock at a price of $31.50 per share (the "Exercise Price")
payable in cash as provided in Section 4 hereof; provided, however, that such
number of shares shall be reduced if and to the extent necessary so that the
number of shares for which this Option is exercisable shall not exceed 19.9% of
the issued and outstanding Commerce Common Stock, before giving effect to the
exercise of the Option. The number of shares of Commerce Common Stock that may
be received upon the exercise of the Option are subject to adjustment as set
forth herein.
3. Exercise of Option. (a) Subject to compliance with applicable law and
regulation, BB&T Financial 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.
(b) Commerce shall notify BB&T Financial promptly in writing of the
occurrence of any transaction, offer or event giving rise to a Purchase Event.
If more than one of the transactions, offers or events giving rise to a
Purchase Event is undertaken or effected by the same person or occurs at the
same time, then all such transactions, offers and events shall give rise only
to one Purchase Event, which Purchase Event shall be deemed continuing for all
purposes hereof until all such transactions are terminated or abandoned by such
person and all such events have ceased or ended.
(c) In the event BB&T Financial wishes to exercise the Option, it shall send
to Commerce a written notice (an "Exercise Notice," the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares BB&T Financial will purchase, pursuant to such exercise, and (ii) a
place and date not earlier than three business days nor later than 20 business
days from the Notice Date for the closing of such purchase with respect to such
exercise (the "Option Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such purchase, BB&T Financial, and/or if required by applicable law,
Commerce, shall promptly file the required notice or
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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 the last required notification period has
expired or been terminated or such approvals have been obtained and any
requisite waiting periods shall have passed.
(d) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of:
(i) the Effective Date of the Merger;
(ii) the date on which the Reorganization Agreement is terminated, other
than a termination based upon, following or in connection with either (A) a
material breach by Commerce of a Specified Covenant (as hereinafter
defined) or (B) the failure of Commerce to obtain shareholder approval of
the transactions contemplated by the Reorganization Agreement by the vote
required under applicable law, in the case that either (A) or (B) follow
the occurrence of a Purchase Event; or
(iii) 18 months after the Reorganization Agreement is terminated based
upon a material breach by Commerce of a Specified Covenant or the failure
of Commerce to obtain shareholder approval of the transactions contemplated
by the Reorganization Agreement by the vote required under applicable law,
in either case following the occurrence of a Purchase Event.
(e) Notwithstanding the foregoing, if BB&T Financial provides Commerce with
an Exercise Notice relating to all or part of such Option, and Commerce tenders
performance of its obligations hereunder on the Option Closing Date specified
herein but BB&T Financial fails to tender performance of its obligations
hereunder on such Option Closing Date, then the Option shall expire and
terminate effective at 5:00 p.m., Eastern time on such Option Closing Date.
(f)(i) As used herein, "Purchase Event" shall mean when:
(A) Commerce shall have entered into an agreement with a person (other
than BB&T Financial or its affiliates) to: (a) acquire, merge or
consolidate with, or enter into any similar transaction with Commerce, (b)
purchase, lease or otherwise acquire all or substantially all of the assets
of Commerce, or (c) purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction)
securities representing more than 10 percent of the voting power of
Commerce or any of its subsidiaries; or
(B) any person shall have acquired beneficial ownership of more than 10
percent of the outstanding shares of Commerce Common Stock; or any person
shall have merged, consolidated with or consummated a similar transaction
with Commerce or any person shall have purchased, leased or otherwise
acquired all or substantially all of Commerce's assets; or
(C) a bona fide proposal is made by any person (other than BB&T Financial
or its affiliates) by public announcement or written communication that is
or becomes the subject of public disclosure, or in an application to any
federal or state regulatory authority, to (a) acquire, merge or consolidate
with, or enter into any similar transaction with Commerce, (b) purchase,
lease or otherwise acquire all or substantially all the of the assets of
Commerce, or (c) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange, tender or exchange offer or any similar
transaction) securities representing more than 25 percent of the voting
power of Commerce;
(ii) A "Specified Covenant" shall mean any of Commerce's covenants or
agreements provided in the Reorganization Agreement.
(iii) The term "person" shall have the meaning specified in Section
3(a)(9), and "beneficial ownership" shall have the meaning specified under
Section 13(d)(3), of the Exchange Act.
4. Payment and Delivery of Certificates. (a) At the closing referred to in
Section 3 hereof, BB&T Financial shall pay to Commerce the aggregate purchase
price for the shares purchased pursuant to the exercise of the Option in
immediately available funds by a wire transfer to a financial institution
designated by Commerce.
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(b) At any closing relating to an exercise of the Option, simultaneously with
the delivery of cash by BB&T Financial as provided in subsection (a) with
respect to the Option, Commerce shall deliver to BB&T Financial a certificate
or certificates representing the number of shares purchased by BB&T Financial,
and BB&T Financial shall deliver to Commerce a letter agreeing that BB&T
Financial will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
5. Representations. Commerce hereby represents and warrants to, and covenants
with, BB&T Financial as follows:
(a) Commerce has taken all necessary corporate action to authorize and
reserve for issuance the full number of shares of Commerce Common Stock
issuable upon exercise of the Option, and shall continue to reserve such
shares until this Agreement is terminated as provided herein.
(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
Commerce Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like, the number of
shares subject to the Option and its purchase price per share shall be adjusted
appropriately so that the economic value of the Option is unaltered. In the
event that any shares of Common Stock of Commerce are issued after the date of
this Agreement other than in a transaction described in the first sentence of
this Section 6 or pursuant to the exercise of the Option, the number of shares
subject to the Option shall be adjusted so that, immediately after such
issuance, the number of shares (together with the number of shares previously
issued under the Option) equals 19.9 percent (subject to reduction as provided
in Section 2 hereof) of the sum of (a) the then-outstanding shares of Commerce
Common Stock plus (b) the number of shares subject to the Option after the
adjustment provided in this sentence. Nothing contained in this Section 6 shall
be deemed to authorize Commerce to breach any provision of the Reorganization
Agreement or the Plan of Merger.
7. 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 Commerce Common Stock provided in Section
2 hereof (as adjusted pursuant to Section 6 hereof), it is the express
intention of Commerce to allow the holder to acquire such lesser number of
shares as may be permissible, without any amendment or modification hereof.
8. 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
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 Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors. Nothing in
this 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
Agreement, except as expressly provided herein.
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(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement to any other person, without the
express written consent of the other party, except that BB&T Financial may
assign in whole or in part the Option and other benefits and obligations
hereunder without limitation to any of its wholly owned subsidiaries and
BB&T Financial may assign in whole or in part the Option and other benefits
and obligations hereunder without limitation if a Purchase Event has
occurred and BB&T Financial shall have delivered to Commerce a copy of a
letter from the staff of the Commission, or an opinion of counsel, in form
and substance reasonably satisfactory to Commerce, to the effect that such
assignment will not violate the requirements of the Securities Act;
provided that prior to any such assignment, BB&T Financial shall give
written notice of the proposed assignment to Commerce, and within 24 hours
of receipt of such notice of a bona fide proposed assignment, Commerce may
purchase the Option at a price and on other terms at least as favorable to
BB&T Financial as that set forth in the notice of assignment.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered
personally or sent by Federal Express, Express Mail, another service which
provides overnight delivery, telegram or telex or other facsimile
transmission addressed as follows:
If to Commerce:
Commerce Bank
5101 Cleveland Street
Virginia Beach, VA 23462
Attention: G. Robert Aston, Jr.
With a required copy to:
Mays & Valentine
1111 East Main Street
Richmond, VA 23208-1122
Attention: George P. Whitley
If to BB&T:
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Attention: Scott E. Reed
Facsimile: (919) 399-4418
With a required copy to:
Arnold & Porter
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: Barbara E. Mathews
Facsimile: (213) 243-4153
Any notice hereunder shall be deemed delivered when received at the
address of such party set forth above (or to such other address as such
party hereto shall advise the other in writing).
(e) Counterparts. This 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.
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(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by
Commerce and that this Agreement may be enforced by BB&T Financial through
injunctive or other equitable relief.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia without regard to
principles of conflicts of laws thereof.
In Witness Whereof, each of the parties hereto has executed this Agreement as
of the day and year first written above.
BB&T FINANCIAL CORPORATION
By: /s/ John A. Allison IV
____________________________
Title: Chairman and Chief Executive Officer
_____________________________________
COMMERCE BANK
By: /s/ G. Robert Aston, Jr.
___________________________
Title: President and CEO
_____________________________________
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APPENDIX IV
[ALEX. BROWN LETTERHEAD]
NOVEMBER 9, 1994
The Board of Directors
Commerce Bank
5101 Cleveland Street
Virginia Beach, Virginia 23462
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, of the consideration to be received by the holders of the common stock,
par value $2.50 per share (the "Shares"), of Commerce Bank (the "Company")
pursuant to an Agreement and Plan of Reorganization and a related Plan of
Merger (collectively, the "Acquisition Agreement"), and other related
documents, dated as of June 24, 1994, entered into by and between the Company
and BB&T Financial Corporation ("BB&T"), providing for the merger of the
Company with and into Branch Banking & Trust Company of Virginia, a wholly
owned subsidiary of BB&T Financial Corporation of Virginia (the "Merger"). The
Acquisition Agreement provides, among other things, for each share of the
Company's Shares to be converted in the Merger into 1.305 (the "Exchange
Ratio") shares of BB&T Common Stock.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors of
the Company in connection with the transactions described above and will
receive a fee for our services which is contingent upon the consummation of the
transaction contemplated by the Agreement. Alex. Brown & Sons has, from time to
time, provided financial advice to the Company, and has most recently acted as
financial advisor to the Company in connection with the Preferred Stock
Purchase Agreement with BB&T dated April 21, 1994. Alex. Brown & Sons
Incorporated regularly publishes research reports regarding the financial
services industry and the businesses and securities of publicly owned companies
in that industry.
In connection with this opinion, we have reviewed certain publicly available
financial information concerning the Company and BB&T and certain internal
financial analyses and other information furnished to us by the Company and
BB&T. We have also held discussions with members of the senior management of
the Company and BB&T regarding the business and prospects of their respective
financial institutions. In addition, we have (i) reviewed the reported price
and trading activity for the Shares and BB&T Common Stock, (ii) compared
certain financial and stock market information for the Company and BB&T,
respectively, with similar information for certain comparable companies whose
securities are publicly traded, (iii) reviewed the Agreement and related
documents, (iv) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (v) reviewed the
potential pro forma impact of the Merger on BB&T's financial condition,
operating results and per share figures and (vi) performed such other studies
and analyses and considered such other factors as we deemed appropriate.
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We have not independently verified the information above and for purposes of
this opinion have assumed the accuracy, completeness and fairness thereof. With
respect to information relating to the prospects of the Company and BB&T, we
have assumed that such information reflects the best currently available
estimates and judgments of the respective managements of the Company and BB&T
as to the likely future financial performance of the Company and BB&T. In
addition, we have not made an independent evaluation or appraisal of the assets
or liabilities of the Company or BB&T, nor have we been furnished with any such
evaluation or appraisal. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio pursuant to the Acquisition Agreement
is fair, from a financial point of view, to the holders of Shares.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Donald W. Delson
_________________________________
Donald W. Delson
Managing Director
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
A. The Registrant is incorporated under the laws of North Carolina. Sections
55-8-50 through 55-8-58 of the General Statutes of North Carolina provide for
indemnification of directors, officers, employees and agents of a North Carolina
corporation. The following is a summary of these provisions:
1. Subject to certain exceptions, a corporation may indemnify an
individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if (i) he conducted himself in good faith;
(ii) he reasonably believed (a) in the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests and (b) in all
other cases, that his conduct was at least not opposed to its best interests;
and (iii) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful. Moreover, unless limited by its articles of
incorporation, a corporation must indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any proceeding in
which he was a party because he is or was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding. Expenses
incurred by a director in defending a proceeding may be paid by the corporation
in advance of the final disposition of such proceeding as authorized by the
board of directors in the specific case or as authorized or required under any
provision in the articles of incorporation or bylaws or by any applicable
resolution or contract upon receipt of an undertaking by or on behalf of a
director to repay such amount unless it shall ultimately be determined that he
is entitled to be so indemnified by the corporation against such expenses. A
director may also apply for court-ordered indemnification under certain
circumstances.
2. Unless a corporation's articles of incorporation provide otherwise, (i)
an officer of a corporation is entitled to mandatory indemnification and is
entitled to apply for court-ordered indemnification to the same extent as a
director; (ii) the corporation may indemnify or advance expenses to an officer,
employee, or agent of a corporation to the same extent as to a director; and
(iii) a corporation may also indemnify or advance expenses to an officer,
employee, or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
3. In addition and separate and apart from the indemnification rights
discussed above, a corporation may, in its articles of incorporation or bylaws,
or by contract or resolution, indemnify or agree to indemnify any one of its
directors, officers, employees or agents against liability and expenses in any
proceeding (including without limitation a proceeding brought by or on behalf of
the corporation itself) arising out of their status as such or their activities
in any of the foregoing capacities; provided, however, that a corporation may
not indemnify or agree to indemnify a person against liability or expenses he
may incur on account of his activities which were at the time taken known or
believed by him to be clearly in conflict with the best interests of the
corporation. A corporation may likewise and to the same extent indemnify or
agree to indemnify any person who, at the request of the corporation, is or was
serving as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise or as a trustee or administrator under an employee benefit plan. Any
such provision for indemnification may also include provisions for recovery from
the corporation of reasonable costs, expenses and attorneys' fees in connection
with the enforcement of rights to indemnification and may further include
provisions establishing reasonable procedures for determining and enforcing the
rights granted therein.
B. The Registrant's Articles of Incorporation provide for the indemnification
of directors to the fullest extent authorized by North Carolina law as it exists
or may hereafter be amended. A director shall not be personally liable for any
monetary damages relating to a breach of duty as a director to the Registrant,
its stockholders or otherwise.
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C. Article VII of the Registrant's Bylaws provides for indemnification of
Registrant's directors, officers, employees or agents against certain expenses,
including attorneys' fees, and payments made in satisfaction of judgments, money
decrees, fines and penalties for which they may become liable in such and other
fiduciary capacities, exclusive of indemnification for certain activities
involving criminal misconduct or clearly in conflict with the best interest of
the Registrant.
D. The Registrant has purchased liability insurance for its directors and
certain of its officers covering certain liabilities which may be incurred by
such directors and officers of the Registrant in connection with the performance
of their duties.
The indemnification provisions in the Registrant's Articles of Incorporation
and Bylaws may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the Securities
Act of 1933, as amended ("Securities Act").
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
The following are filed as exhibits to this Registration Statement:
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Reorganization dated June 24, 1994 by and
between Commerce Bank and the Registrant. (Included as Appendix I to
Proxy Statement/Prospectus filed herewith.)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
August 25, 1994 by and between Commerce Bank and the Registrant.
(Included as part of Appendix I to Proxy Statement/Prospectus filed
herewith.)
2.3 Plan of Merger dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix II to Proxy Statement/Prospectus
filed herewith.)
2.4 Option Agreement dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix III to Proxy
Statement/Prospectus filed herewith.)
*2.5 Preferred Stock Purchase Agreement dated April 21, 1994 by and between
Commerce Bank and Registrant.
4.1 Specimen stock certificate for the Registrant's common stock, $2.50
par value (incorporated by reference herein from the identified
exhibit to Registrant's registration statement on Form S-14 (File No.
2-68274) as filed and declared effective on August 5, 1980).
4.2 Excerpts from Registrant's Bylaws (Article II, Sections 8 and 9)
relating to rights of holders of Registrant's common stock
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-8 (File No. 2-91779) as
filed and declared effective on July 10, 1984).
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4.3 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's 8 3/4% Convertible Subordinated Debentures
due 2003, including the form of Registrant's Debentures appended
hereto (incorporated by reference herein from the identified exhibit
to Registrant's registration statement on Form S-3 (File No. 2-96007)
as filed and declared effective on March 7, 1985).
4.4 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's Floating Rate Subordinated Notes due 1997,
including the form of Registrant's Notes appended thereto
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-3 (File No. 33-1965) as
filed and declared effective on December 12, 1985).
5.1 Opinion of Jerone C. Herring, Esquire, Vice President and Secretary
to the Registrant, regarding the legality of the securities to be
registered hereby.
*8.1 Opinion of KPMG Peat Marwick LLP, Tax Advisors to the Registrant,
regarding certain federal and Virginia income tax consequences of
the Acquisition.
23.1 Consent of KPMG Peat Marwick LLP dated November 7, 1994 (BB&T).
*23.2 Consent of KPMG Peat Marwick LLP with regard to the opinion set forth
in Exhibit 8.1 hereto.
23.3 Consent of Ernst & Young LLP dated November 4, 1994 (Commerce).
23.4 Consent of Coopers & Lybrand dated November 8, 1994 (Commerce).
23.5 Consent of Jerone C. Herring, Esquire, Vice President and Secretary
of the Registrant, included as part of Exhibit 5.1 hereto.
23.6 Consent of Alex. Brown & Sons Incorporated dated November 9, 1994.
23.7 Consent of Donald G. Jones and Company, P.A. dated November 7, 1994
(BB&T).
23.8 Consent of Arthur Andersen LLP dated November 7, 1994 (SNC).
23.9 Consent of KPMG Peat Marwick LLP dated November 7, 1994 (SNC).
*24.1 Powers of Attorney from certain signatory directors and officers of
BB&T Financial Corporation.
99.1 Form of Notice of Special Meeting to stockholders of Commerce Bank
(Included as a part of the Proxy Statement/Prospectus filed
herewith).
99.2 Form of Proxy solicited by Board of Directors of Commerce Bank.
99.3 Opinion of Alex. Brown & Sons Incorporated (Included as Appendix IV
to the Proxy Statement/Prospectus filed herewith).
99.4 Annual Report on Form F-2 for Commerce Bank for the Year Ended
December 31, 1993.
*99.5 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
March 31, 1994.
*99.6 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
June 30, 1994.
*99.7 Current Report on Form F-3 for Commerce Bank dated July 5, 1994.
-3-
<PAGE>
*99.8 Proxy Statement for Commerce Bank for 1994 Annual Meeting of
Stockholders.
*99.9 Amendment to Form F-2 dated August 30, 1994.
- ------------------
* Previously Filed.
ITEM 22. UNDERTAKINGS
a. ITEM 512 OF REGULATION S-K
The undersigned Registrant hereby undertakes:
(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;
(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;
(2) That, for the purpose of determining any liability under the
Securities Act, 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 the 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.
(4) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement 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.
(5) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through 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
issuer 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.
-4-
<PAGE>
(6) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (6) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, 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.
(7) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions set forth in response to Item 20
hereof, 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 Act 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 of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
b. ITEM 22(b) OF FORM S-4
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. ITEM 22(c) OF FORM S-4
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.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilson and State of North
Carolina, on November 8, 1994.
BB&T FINANCIAL CORPORATION
By: /s/ Jerone C. Herring
------------------------------------
Jerone C. Herring, Secretary
Pursuant to the requirements of the Securities Act, the Registration
Statement has been signed by the following persons in the capacities indicated
on November 8, 1994.
Name Capacity
- ---- --------
John A. Allison IV Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)
Scott E. Reed Treasurer (Principal Financial and Accounting
Officer)
Joseph B. Alala, Jr. Director
W. Watson Barnes Director
Paul B. Barringer Director
Robert L. Brady Director
Raymond S. Caughman Director
W. G. Clark III Director
Jesse W. Corbett, Jr. Director
W. R. Cuthbertson, Jr. Director
Fred H. Deaton, Jr. Director
Albert J. Dooley, Sr. Director
Joe L. Dudley, Sr. Director
Tom D. Efird Director
O. William Fenn, Jr. Director
-6-
<PAGE>
James E. Heins Director
Raymond A. Jones, Jr. Director
Kelly S. King Director
J. Ernest Lathem, M.D. Director
James H. Maynard Director
A. Winniett Peters Director
Richard L. Player, Jr. Director
Larry J. Waggoner Director
Henry G. Williamson, Jr. Director
William B. Young, M.D. Director
By: /s/ Jerone C. Herring
----------------------------------------------
Jerone C. Herring, Attorney in Fact
-7-
<PAGE>
Exhibit
No. Description
- ------- -----------
2.1 Agreement and Plan of Reorganization dated June 24, 1994 by and
between Commerce Bank and the Registrant. (Included as Appendix I to
Proxy Statement/Prospectus filed herewith.)
2.2 Amendment No. 1 to Agreement and Plan of Reorganization dated
August 25, 1994 by and between Commerce Bank and the Registrant.
(Included as part of Appendix I to Proxy Statement/Prospectus filed
herewith.)
2.3 Plan of Merger dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix II to Proxy Statement/Prospectus
filed herewith.)
2.4 Option Agreement dated June 24, 1994 by and between Commerce Bank and
the Registrant. (Included as Appendix III to Proxy
Statement/Prospectus filed herewith.)
*2.5 Preferred Stock Purchase Agreement dated April 21, 1994 by and between
Commerce Bank and Registrant.
4.1 Specimen stock certificate for the Registrant's common stock, $2.50
par value (incorporated by reference herein from the identified
exhibit to Registrant's registration statement on Form S-14 (File No.
2-68274) as filed and declared effective on August 5, 1980).
4.2 Excerpts from Registrant's Bylaws (Article II, Sections 8 and 9)
relating to rights of holders of Registrant's common stock
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-8 (File No. 2-91779) as
filed and declared effective on July 10, 1984).
<PAGE>
4.3 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's 8 3/4% Convertible Subordinated Debentures
due 2003, including the form of Registrant's Debentures appended
hereto (incorporated by reference herein from the identified exhibit
to Registrant's registration statement on Form S-3 (File No. 2-96007)
as filed and declared effective on March 7, 1985).
4.4 Form of Registrant's Indenture with Bankers Trust Company, Trustee,
relating to Registrant's Floating Rate Subordinated Notes due 1997,
including the form of Registrant's Notes appended thereto
(incorporated by reference herein from the identified exhibit to the
Registrant's registration statement on Form S-3 (File No. 33-1965) as
filed and declared effective on December 12, 1985).
5.1 Opinion of Jerone C. Herring, Esquire, Vice President and Secretary
to the Registrant, regarding the legality of the securities to be
registered hereby.
*8.1 Opinion of KPMG Peat Marwick LLP, Tax Advisors to the Registrant,
regarding certain federal and Virginia income tax consequences of the
Acquisition.
23.1 Consent of KPMG Peat Marwick LLP dated November 7, 1994 (BB&T).
*23.2 Consent of KPMG Peat Marwick LLP with regard to the opinion set forth
in Exhibit 8.1 hereto.
23.3 Consent of Ernst & Young LLP dated November 4, 1994 (Commerce).
23.4 Consent of Coopers & Lybrand dated November 8, 1994 (Commerce).
23.5 Consent of Jerone C. Herring, Esquire, Vice President and Secretary
of the Registrant, included as part of Exhibit 5.1 hereto.
23.6 Consent of Alex. Brown & Sons Incorporated dated November 9, 1994.
23.7 Consent of Donald G. Jones and Company, P.A. dated November 7, 1994
(BB&T).
23.8 Consent of Arthur Andersen LLP dated November 7, 1994 (SNC).
23.9 Consent of KPMG Peat Marwick LLP dated November 7, 1994 (SNC)
*24.1 Powers of Attorney from certain signatory directors and officers of
BB&T Financial Corporation.
99.1 Form of Notice of Special Meeting to stockholders of Commerce Bank
(Included as a part of the Proxy Statement/Prospectus filed
herewith).
99.2 Form of Proxy solicited by Board of Directors of Commerce Bank.
99.3 Opinion of Alex. Brown & Sons Incorporated (Included as Appendix IV
to the Proxy Statement/Prospectus filed herewith).
99.4 Annual Report on Form F-2 for Commerce Bank for the Year Ended
December 31, 1993.
*99.5 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
March 31, 1994.
*99.6 Quarterly Report on Form F-4 for Commerce Bank for the Quarter Ended
June 30, 1994.
*99.7 Current Report on Form F-3 for Commerce Bank dated July 5, 1994.
<PAGE>
Exhibit 5.1
November 7, 1994
Board of Directors
BB&T Financial Corporation
223 West Nash Street
Wilson, North Carolina 27893
Gentlemen:
This opinion is issued in connection with the Registration Statement of
BB&T Financial Corporation ("BB&T Financial") on Form S-4 ("Registration
Statement") filed with the Securities and Exchange Commission on September 1,
1994, relating to the registration of 4,517,862 shares of common stock, par
value $2.50 per share, of BB&T Financial ("BB&T Financial Common Stock"). The
BB&T Financial Common Stock will be issued in connection with the merger
("Merger") of Branch Banking and Trust Company of Virginia ("BB&T-VA"), a wholly
owned subsidiary of BB&T Financial, with and into Commerce Bank, Virginia Beach,
Virginia ("Commerce"), in accordance with an Agreement and Plan of
Reorganization, dated as of June 24, 1994 and amended as of August 25, 1994,
between BB&T Financial and Commerce and a related Plan of Merger, dated as of
June 24, 1994, between BB&T Financial, BB&T-VA and Commerce.
I have examined, among other things, the Articles of Incorporation and
By-laws of BB&T Financial, the Registration Statement, the Agreement and Plan of
Reorganization and the Plan of Merger, and I am familiar with the proceedings
taken by BB&T Financial relating to the Merger. I also have examined such
records, certificates and other documents as I have considered necessary or
appropriate for the purposes of this opinion.
Based on the foregoing, I am of the opinion that, when the Registration
Statement becomes effective in accordance with applicable law, the shares of
BB&T Financial Common Stock to be issued in connection with the Merger, when
issued pursuant to and in accordance with the terms of the Agreement and Plan of
Reorganization and the Plan of Merger, will be validly issued, fully paid and
nonassessable.
<PAGE>
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the caption "Opinions"
in the Proxy Statement/Prospectus included in Part I of the Registration
Statement.
Very truly yours,
/s/ Jerone C. Herring
-----------------------------
Jerone C. Herring
Vice President and Secretary
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
BB&T Financial Corporation
We consent to the use of our report dated January 19, 1994, except as to note 2
which is as of June 30, 1994, included in BB&T Financial Corporation's Current
Report on Form 8-K dated August 31, 1994, which restates portions of the
Company's Annual Report on Form 10-K for the year ended December 31, 1993 to
give effect to the acquisition of L.S.B. Bancshares, Inc. ("L.S.B.") in 1994
which has been accounted for under the pooling-of-interests method, incorporated
by reference in the Form S-4 Registration Statement and to the reference to our
firm under the heading "Experts" in the related Proxy Statement/Prospectus
related to the acquisition of Commerce Bank.
We also consent to the use of our report dated January 19, 1994 included in BB&T
Financial Corporation's Annual Report on Form 10-K for the year ended
December 31, 1993, incorporated by reference in the Form S-4 Registration
Statement. Such financial statements were restated subsequent to the Company's
Annual Report on Form 10-K in the Company's Current Report on Form 8-K dated
August 31, 1994 to give effect to the LSB acquisition occurring in 1994 and
accounted for under the pooling-of-interests method.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Raleigh, North Carolina
November 7, 1994
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption of "Experts" in
Amendment 1 to the Registration Statement (Form S-4) and related Prospectus of
BB&T Financial Corporation for the registration of 4,517,862 shares of its
common stock and to the incorporation by reference therein of our report dated
January 21, 1994, with respect to the 1993 financial statements and schedule of
Commerce Bank included in its Annual Report (Form F-2) for the year ended
December 31, 1993, filed with the Securities and Exchange Commission as Exhibit
99.4 to this Registration Statement.
/s/ Ernst & Young LLP
Richmond, Virginia
November 4, 1994
<PAGE>
Exhibit 23.4
Consent of Independent Accountants
----------------------------------
We consent to the incorporation by reference in the registration statement of
BB&T Financial Corporation on Form S-4 of our report dated January 15, 1993 on
our audits of the financial statements of Commerce Bank as of December 31, 1992
and 1991 and for each of the two years in the period ended December 31, 1992,
which report is incorporated by reference in the Commerce Bank Form F-2 Annual
Report for the year ended December 31, 1993, which Form F-2 is incorporated by
reference in this Form S-4. We also consent to the reference to our firm under
the caption "Experts."
Norfolk, Virginia /s/ COOPERS & LYBRAND L.L.P.
November 8, 1994
<PAGE>
Exhibit 23.6
CONSENT OF FINANCIAL ADVISOR TO COMMERCE BANK
As financial advisor to Commerce Bank, we hereby consent to the
incorporation in this registration statement of our Fairness Opinion and to all
references to our Firm included in this registration statement.
ALEX. BROWN & SONS INCORPORATED
By: /s/ Donald W. Delson
----------------------------
Donald W. Delson
Managing Director
Baltimore, Maryland
November 9, 1994
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report included herein and incorporated
herein by reference, and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus.
/s/ DONALD G. JONES AND COMPANY, P.A.
-----------------------------------------
DONALD G. JONES AND COMPANY, P.A.
Columbia, South Carolina
November 7, 1994
<PAGE>
Exhibit 23.8
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 28, 1994,
covering the consolidated financial statements of Southern National Corporation
for the year ended December 31, 1993, included in BB&T Financial's Current
Report on Form 8-K dated November 7, 1994, and to all references to our firm
included in this registration statement.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
November 7, 1994.
<PAGE>
Exhibit 23.9
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Southern National Corporation
We consent to the incorporation by reference of our report dated August 14,
1992, with respect to the consolidated statements of financial condition of The
First Savings Bank, FSB and subsidiaries as of June 30, 1992 and 1991, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the two-year period ended June 30, 1992, which
report appears in the Form 8-K of BB&T Financial Corporation dated November 7,
1994.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Greenville, South Carolina
November 7, 1994
<PAGE>
COMMERCE BANK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert W. Berry, Jr., Andrew S. Fine, Ernest
F. Hardee and W. Ashton Lewis, or any of them, the attorney or attorneys and
proxy or proxies of the undersigned, with full power of substitution, to attend
the Special Meeting of Shareholders of Commerce Bank, Virginia Beach, Virginia
("Commerce") to be held December 8, 1994, at 9:00 a.m., at Ramada Oceanfront
Towers, Virginia Beach, Virginia, and at any adjournment thereof, and to vote
all shares of stock of Commerce that the undersigned shall be entitled to vote
at such meeting. Said proxies are instructed to vote on the matter set forth in
the proxy statement as specified below.
1. To approve an Agreement and Plan of Reorganization, dated as of June 24,
1994 and amended as of August 25, 1994, and a related Plan of Merger,
dated as of June 24, 1994, providing for the merger of Branch Banking and
Trust Company of Virginia, a to be formed Virginia chartered bank and
wholly-owned subsidiary of BB&T Financial Corporation ("BB&T Financial"),
with and into Commerce and, in connection therewith, the conversion of
each outstanding share of common stock of Commerce into the right to
receive 1.305 shares of common stock of BB&T Financial as described in
the Proxy Statement/Prospectus of Commerce and BB&T Financial, dated
November 9, 1994.
FOR [_] AGAINST [_] ABSTAIN [_]
(HAS SAME EFFECT AS AGAINST)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
THIS PROXY WHEN PROPERLY SIGNED AND DATED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL
NUMBER 1 AS SPECIFIED ABOVE.
Dated: ______________, 1994
_________________________________
_________________________________
Please sign exactly as name
appears on stock certificate.
When signing as attorney,
executor, administrator, trustee
or guarantor, please give full
title. If more than one trustee,
all should sign. This proxy may
be revoked any time prior to its
exercise.
<PAGE>
Exhibit 99.4
[LOGO OF COMMERCE BANK APPEARS HERE]
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
5 Year
(Dollars in thousands, except per share amounts) Compound
Growth
Year Ended December 31, 1993 1992 1991 1990 1989 Rate
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Results of Operations:
Interest income $ 47,247 $ 44,939 $ 41,027 $ 35,273 $ 28,644 17.04%
Interest expense 20,983 22,414 24,458 21,925 16,987 12.32
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 26,264 22,525 16,569 13,348 11,657 21.85
Provision for loan losses 2,825 4,225 2,925 2,695 715 32.57
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 23,439 18,300 13,644 10,653 10,942 20.87
Noninterest income 9,248 7,112 4,860 3,475 2,861 35.10
Securities gains 1,407 1,098 900 11 -- n/m
Noninterest expense(1) 23,706 19,091 15,584 13,475 11,448 19.49
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,388 7,419 3,820 664 2,355 49.09
Income taxes 3,837 2,477 1,221 117 668 67.05
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 6,551 $ 4,942 $ 2,599 $ 547 $ 1,687 42.50%
=============================================================================================================================
Per Share Data:
Net income:
Primary $ 2.38 $ 2.05 $ 1.36 $ .29 $ .86 32.17%
Fully diluted 2.28 1.97 1.35 .29 .86 31.04
Book value 16.22 14.90 13.63 12.79 13.07 6.88
Cash dividends declared .51 .26 .05 -- -- n/m
=============================================================================================================================
Daily Averages:
Assets $ 656,528 $571,461 $443,927 $347,634 $269,712 24.80%
Earning assets 606,714 526,600 406,751 318,480 247,086 25.28
Loans, net of unearned income 347,585 314,338 293,190 250,719 197,567 15.81
Investment securities 243,039 190,922 98,556 57,981 39,988 61.72
Deposits 604,608 529,560 410,756 319,620 245,430 25.20
Long-term debt 6,650 5,649 5,685 2,376 76 n/m
Shareholders' equity 40,783 31,577 22,309 21,156 19,595 19.46
Primary shares outstanding 2,748 2,412 1,913 1,945 1,969 7.91
Fully diluted shares outstanding 3,013 2,679 2,176 1,945 1,969 9.92
=============================================================================================================================
At Period End:
Assets $ 689,630 $644,849 $478,659 $405,437 $303,251 22.65%
Earning assets 638,864 590,494 437,149 368,856 276,801 23.31
Loans, net of unearned income 378,258 326,265 302,900 280,231 214,428 15.38
Investment securities 247,175 238,680 123,727 71,937 47,872 52.61
Deposits 634,141 597,984 445,175 374,366 278,067 22.91
Long-term debt 6,828 5,626 5,671 5,697 711 n/m
Shareholders' equity 43,589 37,413 23,770 21,105 20,549 20.24
Allowance for loan losses 6,527 5,671 3,717 3,387 2,228 29.04
Nonperforming assets 3,998 6,189 5,851 2,266 2,341 29.26
=============================================================================================================================
Financial Ratios:
Return on average assets 1.00% .86% .59% .16% .63% 14.42%
Return on average shareholders' equity 16.06 15.65 11.65 2.59 8.61 19.28
Net interest margin 4.33 4.28 4.07 4.19 4.72 n/m
Net overhead ratio(2) 2.23 2.27 2.64 3.14 3.48 n/m
=============================================================================================================================
</TABLE>
n/m - not meaningful
(1) 1993 included a special non-recurring, noncash adjustment of $910,000 for
the write down of an intangible asset
(2) 1993 excludes item 1 above
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position of
Commerce Bank ("Commerce") for the years 1991 through 1993. This review should
be read in conjunction with Commerce's audited financial statements,
accompanying footnotes and supplemental financial data.
Summary of Financial Results
Commerce earned a record $6.55 million in 1993, an increase of 33%, or
$1.61 million over 1992, which resulted in a five year compound growth rate
of 43%. Primary net income per share grew to $2.38 from $2.05 in 1992,
representing a 16% increase on a larger number of average shares outstanding.
Fully diluted earnings per share were $2.28 for 1993 compared with $1.97 in
1992. The following summarizes performance highlights for 1993, which are
discussed more fully in the following sections.
. The continued superior performance of Commerce's retail branch network
contributed to record total assets of $689.6 million at December 31,
1993, while year-end loans grew 16% over 1992.
. Net interest income increased 17% to $26.3 million for 1993 due to a 15%,
or $80.1 million growth in average earning assets and increased interest
rate spreads.
. Noninterest income, exclusive of securities gains, increased 30% to $9.25
million for 1993, reflecting management's emphasis on growing fee-based
revenues and opportunities from customer relationship values. While all
categories experienced strong growth, mortgage brokerage income
contributed the most to the increase and was fueled by refinancing
activity and an improved residential real estate market.
. Securities gains were $1.41 million for 1993 compared with $1.10 million
for 1992.
. Noninterest expense for 1993 included a non-recurring adjustment of
$910,000 for the write-down of an intangible asset associated with the
purchase of several branches in 1990. Excluding this adjustment,
noninterest expense increased 19% or $3.71 million for 1993. Commerce's
net overhead ratio (noninterest expense less noninterest income excluding
security gains divided by average earning assets) fell to 2.23% in 1993
from 2.27% and 2.64% for 1992 and 1991, respectively. Commerce's
efficiency ratio (noninterest expense divided by net operating revenue,
exclusive of securities gains) remained at 64% for both 1993 and 1992,
compared with 73% for 1991.
. Asset quality remained high during 1993 with nonperforming assets as a
percentage of total assets declining to .58% from .96% at the end of
1992. As a result, Commerce reduced its provision for loan losses 33%, or
$1.4 million from $4.23 million for 1992 to $2.83 million for 1993,
contributing to 1993 earnings. The allowance for loan losses was $6.53
million or 1.73% of period end loans for 1993.
. The growing value of Commerce's franchise was reflected in profitability
measures as the return on average assets increased to 1.00% for 1993 from
.86% for 1992, while the return on average shareholders' equity increased
to 16.06% from 15.65% for 1992.
[BAR GRAPH OF NET INCOME APPEARS HERE]
[BAR GRAPH OF RETURN ON AVERAGE ASSETS APPEARS HERE]
[BAR GRAPH OF RETURN ON AVERAGE SHAREHOLDERS EQUITY APPEARS HERE]
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table presents an analysis of return on average assets
and equity for the three years ended December 31, 1993.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
As a percent of average
earning assets:
Net interest income 4.33% 4.28% 4.07%
Provision for loan losses (.47) (.80) (.72)
Noninterest income 1.52 1.35 1.20
Noninterest expense (3.90) (3.63) (3.83)
Securities gains .23 .21 .22
Provision for income taxes (.63) (.47) (.30)
- ---------------------------------------------------------------------
Return on average
earning assets 1.08% .94% .64%
Multiplied by
Average earning assets to
average total assets 92.41 92.15 91.63
- ---------------------------------------------------------------------
Return on average assets 1.00% .86% .59%
multiplied by
Ratio of average assets to
average equity 16.06 18.20 19.75
- ---------------------------------------------------------------------
Return on average
shareholders' equity 16.06% 15.65% 11.65%
=====================================================================
</TABLE>
Significant items affecting the change in primary earnings per share
for the three years ended December 31, 1993 are summarized in the following
table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
1993/ 1992/ 1991/
1992 1991 1990
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Primary earnings per
share for 1992, 1991 and
1990, respectively $ 2.05 $ 1.36 $ .29
Increase (decrease)
attributable to:
Net interest income 1.36 2.47 1.68
Provision for loan losses .51 (.54) (.12)
Noninterest income .78 .93 .72
Securities gains .11 .08 .47
Noninterest expense (1.68) (1.45) (1.10)
Provision for income taxes (.49) (.52) (.58)
Average shares outstanding (.26) (.28) --
- ---------------------------------------------------------------------
Net increase .33 .69 1.07
- ---------------------------------------------------------------------
Primary earnings per
share for 1993, 1992
and 1991, respectively $ 2.38 $ 2.05 $ 1.36
=====================================================================
</TABLE>
ACQUISITION OF THRIFT DEPOSITS
During 1992 and 1991, Commerce completed two transactions with the
Resolution Trust Corporation in which it acquired approximately $117.9 million
in thrift deposits. These transactions have allowed Commerce to increase its
asset size and core deposit base and to improve its liquidity without a
commensurate increase in bank premises and other expenditures through the
utilization of its existing branch office system.
Commerce acquired $65.1 million in core deposits from the Resolution Trust
Corporation (RTC), as receiver of the failed Trustbank, F.S.B. on March 20, 1992
and received $65.1 million in cash. On July 12, 1991, Commerce acquired $52.8
million in core deposits and received $52.0 million in cash from the RTC, as
receiver of the failed Atlantic Permanent Savings Bank, F.S.B. See Financial
Statement Note 16 for additional information related to these transactions.
Three Years Ended December 31, 1993
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, Commerce's principal component of earnings,
represents the difference between income on earning assets and the cost of funds
supporting those assets. A number of factors interact to affect net interest
income including the mix and volume of earning assets and interest bearing
liabilities, movement in market interest rates, levels of noninterest bearing
liabilities available to support earning assets and the level of nonperforming
assets. Net interest income is fundamentally driven by management's ability to
generate income through asset/liability management strategies and measures the
efficiency of the use of earning assets and their underlying funding sources.
Net interest income was $26.3 million in 1993, up 17% over 1992, which followed
a 36% increase for 1992 over 1991. The increase in net interest income during
1993 was due to a 15% growth in average earning assets and a higher net interest
margin that reflected a wider net interest spread. Net interest margin rose to
4.33% in 1993 compared with 4.28% and 4.07% for 1992 and 1991, respectively.
Commerce's net interest spread (the difference between the yield on earning
assets and the cost of interest bearing liabilities) was 3.77% for 1993, a 7
basis point improvement over the 3.70% reported in 1992. This compares with the
36 basis point increase in net interest spread between 1991 and 1992. The
improvement in net interest spread in 1993 and 1992 reflected Commerce's
liability-sensitive position during a declining rate environment.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Average earning assets during 1993 increased $80.1 million or 15% and
$119.8 million or 29% during 1992. Because deposit growth and funds from the
1992 stock offering exceeded loan growth, investment securities were used as a
deployment of excess liquidity. Consequently, the increase in average earnings
assets was principally in investment securities, which increased $52.1 million
or 27% to $243.0 million for 1993 compared with a 94%, or $92.4 million increase
between 1992 and 1991. Average loans increased $33.2 million during 1993 or 11%,
reflecting improvement in the Hampton Roads economy. While the yield on average
earning assets declined 74 basis points between 1993 and 1992, the cost of
interest bearing liabilities dropped 81 basis points, both reflecting the lower
interest rate environment. Average interest bearing deposits increased 12% and
29% over the preceding year for 1993 and 1992. In addition to a lower interest
rate environment, Commerce's funding structure has improved due to a favorable
change in its deposit mix to lower cost core deposits.
The following table presents Commerce's average balances, interest earned
or paid and the related yields and rates on major categories of its earning
assets and interest bearing liabilities for the periods indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Average Balance Income/Expense Yield/Rate
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans, net of unearned
income & deferred
fees(1)(2) $347,585 $314,338 $293,190 $ 30,861 $ 30,175 $ 31,725 8.88% 9.60% 10.82%
Investment securities(2) 243,039 190,922 98,556 15,689 13,689 8,275 6.46 7.17 8.40
Temporary investments 16,090 21,340 15,005 697 1,075 1,027 4.33 5.04 6.84
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 606,714 526,600 406,751 47,247 44,939 41,027 7.79 8.53 10.09
Allowance for loan losses (6,442) (4,628) (3,383)
Nonearning assets 56,256 49,489 40,559
- --------------------------------------------------------------
Total assets $656,528 $571,461 $443,927
==============================================================
Liabilities &
Shareholders' Equity:
Interest bearing deposits $514,909 $458,023 $355,139 $ 20,322 $ 21,845 $ 23,796 3.95% 4.77% 6.70%
Long-term debt 6,650 5,649 5,685 635 550 568 9.55 9.74 9.99
Short-term borrowings 864 495 1,415 26 19 94 3.01 3.84 6.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 522,423 464,167 362,239 20,983 22,414 24,458 4.02 4.83 6.75
Noninterest bearing
liabilities 93,322 75,717 59,379
Shareholders' equity 40,783 31,577 22,319
- --------------------------------------------------------------
Total liabilities
& equity $656,528 $571,461 $443,937
==============================================================
Net interest income $ 26,264 $ 22,525 $ 16,569
Net interest spread 3.77% 3.70% 3.34%
Net interest margin 4.33% 4.28% 4.07%
</TABLE>
(1) Includes nonaccrual loans, and income on such loans is recognized on a cash
basis.
(2) Interest and yields are presented on a book basis, as tax-equivalent
adjustments are not significant.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table presents the components of changes in net interest
income by volume and rate. The changes for each category of income and expense
are divided between the portion of change attributable to the variances in
average levels and yields or rates for that category, with the amount of change
that cannot be separated being allocated to each variance proportionately.
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
From 1993 to 1992 From 1992 to 1991
Increase (Decrease) Increase (Decrease)
Due to Changes In:(1) Due to Changes In:(1)
- ----------------------------------------------------------------------------------------------------------------------
Rate Volume Total Rate Volume Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans, net of unearned income &
deferred fees $ (2,364) $ 3,050 $ 686 $ (3,736) $ 2,186 $ (1,550)
Investment securities (1,457) 3,457 2,000 (1,365) 6,779 5,414
Temporary investments (138) (240) (378) (314) 362 48
- ----------------------------------------------------------------------------------------------------------------------
Total interest income (3,959) 6,267 2,308 (5,415) 9,327 3,912
- ----------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits (4,035) 2,512 (1,523) (7,846) 5,895 (1,951)
Short-term borrowings (5) 12 7 (30) (45) (75)
Long-term debt (11) 96 85 (14) (4) (18)
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense (4,051) 2,620 (1,431) (7,890) 5,846 (2,044)
- ----------------------------------------------------------------------------------------------------------------------
Net interest income $ 92 $ 3,647 $ 3,739 $ 2,475 $ 3,481 $ 5,956
======================================================================================================================
</TABLE>
Noninterest Income
The following table contains an analysis of Commerce's noninterest income
for each of the last three years:
(Dollars in thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Increase
-----------------------------------------
1993 over 1992 1992 over 1991
Year Ended December 31, 1993 1992 1991 Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 3,428 $ 3,006 $ 2,341 $ 422 14% $ 665 28%
Mortgage brokerage income 2,895 1,838 950 1,057 58 888 93
Credit card merchant fees 907 679 586 228 34 93 16
Trust income 633 508 390 125 25 118 30
Other income 1,385 1,081 593 304 28 488 82
- ----------------------------------------------------------------------------------------------------------------------
9,248 7,112 4,860 2,136 30 2,252 46
Securities gains 1,407 1,098 900 309 28 198 22
- ----------------------------------------------------------------------------------------------------------------------
Total noninterest income $10,655 $ 8,210 $ 5,760 $ 2,445 30% $ 2,450 43%
======================================================================================================================
</TABLE>
Expanding noninterest income is a means of increasing return on average
assets and return on average equity without incremental strains on capital and
is indicative of customer relationship value. Noninterest income, exclusive of
securities gains, increased $2.14 million in 1993 to $9.25 million, a 30%
increase over 1992. This followed a 46%, or $2.25 million increase in 1992 over
1991. Noninterest income as a percent of total operating revenues has continued
to increase each year for the three years ending December 31, 1993.
Service charges on deposit accounts, the largest source of noninterest
income, continued its growth in 1993, increasing $422,000, or 14%, over 1992.
This compares with an increase of 28%, or $665,000 in 1992 over 1991. This
increase was due to account and activity growth along with the implementation of
various fee changes to help offset the escalating cost of deposit insurance
premiums. Noninterest income growth was strongest in mortgage brokerage income
which increased to $2.90 million, a 58% increase over 1992, as declining home
mortgage rates and market share gains resulted in significantly greater
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
loan origination volume. This follows a $888,000 or 93% increase when comparing
1992 with 1991. Market share gains have resulted from the exit and closure of
many thrifts in Commerce's market, which have historically been the main
providers of mortgage products. Refinancing origination fees were a major
contributor to income growth for 1992 and 1993 and in anticipation of a
declining market for this portion of Commerce's mortgage banking operation,
management began to focus on first loan originations during 1992. Management
views the mortgage brokerage operation as a natural extension of the branch
office network and its growth, which should enhance the growth of first
origination volume. Trust income continued to perform well with an increase of
$125,000, or 25% over 1992, due to a larger volume of assets under management
and increased account activity. Other income rose to $1.39 million, a 28% or
$304,000 increase over 1992 compared with a $488,000 or 82% increase for 1992
over 1991. Management's emphasis to grow fee-based revenue sources through
customer relationships and a higher volume of fee-based customer services
contributed to the increase. Additionally, Commerce became an originator of
government guaranteed small business administration loans during 1992, which
accounted for $323,000 of the 1992 increase over 1991.
Gains from the sales of securities were $1.41 million in 1993 compared
with $1.10 million and $900,000 for 1992 and 1991, respectively. Please see
"Investment Securities" for further discussion.
Commerce continues to place emphasis on developing sources of noninterest
income and expects continued growth in 1994.
Noninterest Expense
Total noninterest expense for 1993 was $23.7 million and included a
special nonrecurring, noncash adjustment of $910,000 for the write-down of an
intangible asset (see Financial Statement Note 9). Excluding the adjustment,
total noninterest expense was $22.8 million representing a $3.71 million or 19%
increase over 1992. This follows an increase of 23%, or $3.51 million, between
1992 and 1991. The increase in noninterest expense is primarily due to the
incremental cost of growth in the branch franchise and related cost of servicing
a larger customer base along with higher deposit insurance premiums.
Salaries and benefits expense grew $1.80 million, or 20%, during 1993 when
compared with 1992. Comparatively, the increase between 1992 and 1991 was $1.52
million or 21%. The higher expense reflects regular merit increases, an increase
in the number of employees needed to service growth in the customer base and
higher incentive compensation costs through productivity initiatives. The number
of full-time-equivalent employees was 327 at December 31, 1993, compared with
284 and 258 for 1992 and 1991, respectively.
Occupancy expense increased 8% between 1993 and 1992 due to scheduled rent
increases and increased space for branch locations and operations. This compares
with a $200,000 or 10% increase between 1991 and 1992. Furniture and equipment
expense increased $229,000 during 1993 and $201,000 during 1992 representing a
16% increase for both periods as a result of expenses associated with
maintenance and depreciation charges from equipment upgrades. FDIC insurance
premiums increased 21%, or $227,000 during 1993 and 40%, or $315,000 during 1992
due to deposit growth. Other expense increased 24%, or $1.28 million, exclusive
of the intangible write-down when comparing 1993 with 1992. This follows a 31%,
or $1.27 million increase between 1992 and 1991. In addition to expense
associated with growth in customer service activity, the 1993 increase reflects
expense associated with special marketing campaigns and loan
[NET INTEREST INCOME GRAPH APPEARS HERE]
[NET INTEREST MARGIN GRAPH APPEARS HERE]
[NET OVERHEAD RATIO GRAPH APPEARS HERE]
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
related expense. The increase in other expense during 1992 was attributable to
expense associated with foreclosed property, increased legal cost relating to
loan agreements and a higher level of contributions. The increase in 1992
contributions over 1991 was primarily due to a $150,000 contribution to
establish the Commerce Bank Foundation. See Financial Statements Note 13 for
further information on the components of other expenses.
Commerce continues to implement various programs aimed at improving
customer service and reducing delivery cost. During 1993, many costs saving
measures from the employee suggestion program were initiated. Additionally,
during 1992 Commerce implemented "Rhonda," a 24-hour help line that provides
account balance information.
Commerce's net overhead ratio is a measure of its ability to manage and
control costs. As this ratio decreases, more of the net interest income
earned flows through to net income. The net overhead ratio for 1993, 1992,
and 1991 was 2.23%, 2.27% and 2.64%, respectively.
The following table contains an analysis of Commerce's noninterest
expense for each of the last three years:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Increase
(Dollars in thousands) 1993 over 1992 1992 over 1991
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991 Amount Percent Amount Percent
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and benefits $10,721 $ 8,926 $ 7,403 $ 1,795 20% $ 1,523 21%
Occupancy of bank premises 2,443 2,268 2,068 175 8 200 10
Furniture and equipment 1,691 1,462 1,261 229 16 201 16
FDIC insurance premiums 1,329 1,102 787 227 21 315 40
Intangibles amortization 1,214 381 328 833 219 53 16
Other expense 6,308 4,952 3,737 1,356 27 1,215 33
- --------------------------------------------------------------------------------------------------------------
Total noninterest expense $23,706 $19,091 $15,584 $ 4,615 24% $ 3,507 23%
==============================================================================================================
</TABLE>
Provision for Income Taxes
Commerce implemented Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," ("SFAS 109") as of January 1, 1993. The
cumulative effect of this accounting change had no material effect on
Commerce's financial statements. Financial Statement Note 14 provides a
further discussion of the implementation of SFAS 109 and a reconciliation
between the amount of income tax expense computed using the federal statutory
income tax rate and Commerce's actual income tax expense. Also included in
Note 14 is information regarding the principal items giving rise to deferred
taxes for the three years ended December 31, 1993. The provision for income
taxes in 1993 was $3.84 million, compared with $2.48 million in 1992 and
$1.22 million in 1991 corresponding to increased earnings.
ASSET QUALITY
Credit Risk Management
Credit risk is the possibility that a loss may occur from the failure
of another party to perform according to the terms of an agreement. It
encompasses both the prospect of nonpayment and delay of payment. Commerce
employs extensive procedures and policies to enhance management of credit risk.
These procedures include review and evaluation of loans on an ongoing basis and
result in the classification of asset quality.
The loan portfolio is managed under a specifically defined credit process.
This process includes formulation of portfolio management strategy, guidelines
for underwriting standards and risk assessment, procedures for ongoing
identification and management of credit deterioration, and regular portfolio
reviews to verify loss exposure and compliance with bank policies. Commerce's
loan administration department provides an independent assessment of credit
ratings and asset quality. Appraisals on collateral for significant loans are
reviewed by an outside independent source. Loans that are classified other than
satisfactory are classified to indicate a
[TOTAL OPERATION REVENUE GRAPH APPEARS HERE]
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
progressively less satisfactory condition of the borrower or industry. As loans
become classified, heightened management attention is devoted to protect the
bank's position and reduce loss exposure.
Management meets continuously to review asset quality trends and to
discuss loan policy issues. Potential losses are identified during this
review and reserves are established accordingly. A major element of credit
risk management is the diversification of risk. Commerce's objective is to
maintain a diverse loan portfolio to minimize the impact of any single event
or set of occurrences. Concentration parameters are based on individual risk
factors and policy constraints for customers, collateral and products.
The majority of asset quality problems the banking industry experienced
during the past economic recession generally were concentrated in loans
collateralized by commercial real estate values, which historically have
represented a relatively small portion of Commerce's portfolio. Loans
collaterized by real estate are generally made with original loan to value
ratios not greater than 80%. The impact of changes in market values of
collateral are considered in establishment of an adequate reserve for loan
losses. Although there are no major concentrations of credit to any particular
industry, the economic trends of Hampton Roads are significantly influenced
by the military presence, tourism, port activity and the housing industry. In
addition, Commerce is a community bank conducting its lending activities
within the communities of Hampton Roads. As a result, Commerce and its
borrowers may be vulnerable to the consequences of change in that economy.
Allowance/Provision for Loan Losses
Commerce, in conjunction with its lending activities, maintains an
allowance for loan losses, which is available to absorb potential losses
inherent in the loan portfolio. The allowance for loan losses is increased by
both charges to earnings in the form of provision for loan losses and recoveries
of prior loan charge-offs, and decreased by loans charged-off. The provision for
loan losses is based on factors which, in management's opinion, warrant current
recognition in providing an adequate allowance. The provision for loan losses
was $2.83 million, $4.23 million and $2.93 million for 1993, 1992, and 1991,
respectively. On December 31, 1993, 1992, and 1991, the allowance for loan
losses was respectively, $6.53 million, $5.67 million and $3.72 million, which
represented 1.73%, 1.74% and 1.21% of period end loans. Improved asset quality
as reflected in reduced levels of problem assets and net charge-offs (see
following discussions) allowed Commerce to reduce the 1993 provision for loan
losses to a more normal level, while still providing for loan growth and
conservative asset quality ratios. As a result, the 1993 provision for loan
losses was reduced by 33%, or $1.40 million when compared to 1992. The larger
provisions recorded in 1992 and 1991 reflected a conservative approach to asset
quality during the economic slowdown. Excluding unforeseen events, management
anticipates that the provision for loan losses in 1994 will decline below the
1993 levels further enhancing 1994 earnings.
The nature and process by which management determines the appropriate
allowance for loan losses requires the exercise of considerable judgement.
Management considers the allowance for loan losses to be a reasonable
estimate of potential loss exposure in the loan portfolio on December 31,
1993; however, subjective factors and factors beyond the control of Commerce
could impact this estimate on an on-going basis.
Net Charge-Offs
Charge-offs are generally viewed as lagging indicators of credit quality
since, in most cases, the reserve action for the loss took place in a prior
period. Net charge-offs were $1.97 million, $2.27 million and $2.60 million,
respectively for 1993, 1992 and 1991, and net charge-offs to average loans were
.57%, .71% and .88%, respectively. The reduction in net charge-offs reflects the
further strengthening of asset quality.
Commercial loan net charge-offs were $86,000, $88,100 and $2.02 million
for 1993, 1992, and 1991, respectively. The declining 1993 and 1992 amounts
reflect improved asset quality while the 1991 amount included a $1.1 million
write-off to one borrower. Consumer installment net charge-offs were $1.01
million, $906,000 and $435,000, respectively, for 1993, 1992 and 1991,
reflecting corrective action from increased bankruptcies during the past
economic recession.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table summarizes activity in the allowance for loan
losses for the past five years:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 5,671 $ 3,717 $ 3,387 $ 2,228 $ 1,824
Provision charged to earnings 2,825 4,225 2,925 2,695 715
Charge-offs:
Commercial and other 243 1,041 2,079 1,041 197
Real estate 840 516 153 65 142
Consumer installment 1,226 1,112 534 496 11
- ---------------------------------------------------------------------------------------------------------------
Total charge-offs 2,309 2,669 2,766 1,602 350
- ---------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial and other 157 160 62 29 9
Real estate 15 32 10 -- --
Consumer installment 168 206 99 37 30
- ---------------------------------------------------------------------------------------------------------------
Total recoveries 340 398 171 66 39
- ---------------------------------------------------------------------------------------------------------------
Net charge-offs 1,969 2,271 2,595 1,536 311
- ---------------------------------------------------------------------------------------------------------------
Balance at end of year $ 6,527 $ 5,671 $ 3,717 $ 3,387 $ 2,228
===============================================================================================================
Allowance for loan losses to period-end loans 1.73% 1.74% 1.21% 1.20% 1.02%
Net charge-offs to average loans .57 .72 .88 .61 .16
Allowance for loan losses to nonperforming loans 7.11X 11.57X 1.72X 2.60X .99X
Allowance for loan losses to nonperforming assets 1.63 .92 .64 1.50 .95
===============================================================================================================
</TABLE>
The following table sets forth an allocation of the allowance for loan
losses according to the categories of loans indicated. In making the
allocation, consideration was given to such factors as management's
evaluation of risk in each category, current economic conditions and
charge-off experience. The following allocation does not indicate the
unavailability of any portion of the allowance for loan losses to absorb
losses in any category.
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 December 31, 1992 December 31, 1991 December 31, 1990
-------------------------------------------------------------------------------------------------
Percentage of Percentage of Percentage of Percentage of
Loans in Each Loans in Each Loans in Each Loans in Each
Allowance Category to Allowance Category to Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 1,223 44% $ 800 40% $ 1,200 38% $ 2,390 41%
Consumer 1,654 27 1,471 29 1,334 34 550 21
Real estate mortgage 900 23 808 25 400 23 153 26
Real estate construction
& development 150 5 200 5 193 4 30 10
Tax-exempt -- 1 -- 1 -- 1 -- 2
Unallocated 2,600 2,392 590 264
- --------------------------------------------------------------------------------------------------------------------------------
Total 6,527 100% 5,671 100% $ 3,717 100% 3,387 100%
================================================================================================================================
<CAPTION>
December 31, 1989
-------------------
Percentage of
Loans in Each
Allowance Category to
Amount Total Loans
- -------------------------------------------------
<S> <C> <C>
Commercial $ 1,249 44%
Consumer 595 21
Real estate mortgage 48 24
Real estate construction
& development 30 9
Tax-exempt -- 2
Unallocated 306
- -------------------------------------------------
Total 2,228 100%
=================================================
</TABLE>
Nonperforming Assets
Total nonperforming assets, which consist of nonaccrual loans and
foreclosed property, were $4.00 million at year end 1993, declining from
$6.20 million and $5.85 million at December 31, 1992 and 1991, respectively.
Nonperforming assets to period-end assets declined to .58%, .96% and 1.22% at
December 31, 1993, 1992 and 1991, respectively. The higher level of
nonperforming assets during 1992 and 1991 when compared with 1993 were
attributable to an increase in foreclosed property resulting from recessionary
economic pressures.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Foreclosed property includes assets that have been acquired in
satisfaction of debt or have been substantively repossessed from an accounting
perspective (insubstance foreclosures). Commerce had $3.08 million of foreclosed
property at December 31, 1993, compared with $5.70 million and $3.69 million for
December 31, 1992 and 1991, respectively. Loans, excluding consumer, generally
are placed on nonaccrual status when the collection of principal or interest is
90 days or more past due, or earlier if collection is uncertain based upon an
evaluation of the value of the collateral and the financial strength of the
borrower. Income recognized on consumer loans is generally discontinued after a
delinquent status period of 120 days, unless conditions warrant otherwise.
Nonaccrual loans were $918,000 at the end of 1993, compared with $490,000 and
$2.16 million at December 31, 1992 and 1991, respectively. The growth in
nonaccrual loans between 1993 and 1992 was primarily concentrated in loans
collateralized by real estate. Nonaccrual loans declined significantly from 1991
to 1992 as a result of increased monitoring and transfers to insubstance
foreclosures. The amount of loans past due 90 days or more that were not
classified as nonaccrual declined to $404,000 at December 31, 1993, from $1.40
million and $1.69 million at December 31, 1992 and 1991, respectively. There
were no material commitments to lend additional funds to customers whose loans
were classified as nonperforming on December 31, 1993.
The table below shows the level of nonperforming assets and related
information over the last five years.
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------
December 31, 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 918 $ 490 $2,159 $1,303 $2,256
Foreclosed property 3,080 5,699 3,692 963 85
- -----------------------------------------------------------------------------------------------------------
Total nonperforming assets $3,998 $6,189 $5,851 $2,266 $2,341
Loans past due 90 days and still accruing interest $ 404 $1,395 $1,685 $1,256 $1,708
Nonperforming assets to period end loans 1.06% 1.89% 1.90% .80% 1.08%
Nonperforming assets to period end assets .58 .96 1.22 .56 .77
===========================================================================================================
</TABLE>
Interest income would have increased $86,000, $267,000 and $389,000 for
1993, 1992 and 1991, respectively, if interest had been accrued on average
outstanding nonperforming loans.
Management closely reviews the composition of nonperforming assets and
related collateral values. Nonperforming assets vary widely with respect to
their quality, loss exposure and cash generating capacity. Although the level
of nonperforming assets may be related to charge-offs, it does not correlate
directly to losses on such assets. Commerce's diversification of risk is
illustrated in the table below which shows the dollar balance and number of
nonperforming assets by dollar amount at December 31, 1993. The table also
provides an analysis of nonperforming assets by collateral composition. At
December 31, 1993, 98%, or $3.92 million, of Commerce's nonperforming assets
were collateralized by real estate.
<TABLE>
<CAPTION>
Analysis of Nonperforming Assets
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------
December 31,1993 December 31, 1992
Number of Number of
Balance Items Percent Balance Items Percent
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$500,000 and over $ 863 1 22% $ 863 1 14%
$250,000 to $500,000 1,561 5 39 1,653 5 27
$200,000 to $250,000 -- -- -- 200 1 3
$100,000 to $200,000 661 5 17 1,622 12 26
$50,000 to $100,000 697 9 17 1,250 17 20
$50,000 and under 216 22 5 601 54 10
- -------------------------------------------------------------------------------------------------------
Total $3,998 42 100% $ 6,189 90 100%
=======================================================================================================
</TABLE>
[GRAPH OF NET CHARGE-OFFS TO ALLOWANCE FOR LOAN LOSSES APPEARS HERE]
<PAGE>
[LOGO OF C0MMERCE BANK APPEARS HERE]
<TABLE>
<CAPTION>
Nonperforming assets by collateral composition:
- ----------------------------------------------------------------------------------------------
(Dollars in thousands) December 31,1993 December 31, 1992
Number of Number of
Balance Items Percent Balance Items Percent
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real property:
Single family
residential $1,621 11 41% $2,453 24 40%
Multi-family residential -- -- -- 200 3 3
Commercial property 280 1 7 652 5 10
Land 2,022 14 50 2,656 16 43
- ----------------------------------------------------------------------------------------------
3,923 26 98 5,961 48 96
Automobile,
equipment & other 75 16 2 288 42 4
- ----------------------------------------------------------------------------------------------
$3,998 42 100% $6,189 90 100%
==============================================================================================
</TABLE>
In addition to classifying loans as nonperforming, Commerce also
maintains a watch list of those loans that are deemed to be potential problem
loans. Such loans are viewed as potential problem loans due to possible
credit problems of the borrowers that cause management to have doubts as to
the ability of such borrowers to comply with current repayment terms. Those
loans are subject to constant management attention and their classification
is reviewed on a regular basis.
FINANCIAL CONDITION
Summary
A financial institution's primary sources of revenue are generated by
its earning assets, while its major expenses are produced by the funding of
those assets with interest bearing liabilities. Effective management of these
sources and uses of funds is essential in attaining a financial institution's
maximum profitability while maintaining a minimum amount of risk.
In 1993, average earning assets grew to $606.7 million, a 15% increase
over 1992 following a 29% increase in 1992 over 1991. The performance of
Commerce's branch office network accounted for the increase. In 1993, average
loans increased 11% over 1992, which compares with an increase of 8% in average
loans during 1992 over 1991. The investment portfolio grew on average by 27% in
1993, following a 94% rise in 1992.
Average deposits, the primary source of funds supporting earning assets,
increased 14%, or $75.0 million, over 1992, following a 29% or $118.8 million
increase in 1992 over 1991. Thrift deposit acquisition activity accounted for
approximately 43% and 75% of the deposit growth in 1992 and 1991, respectively.
Loans
Commerce's primary market focus is on making commercial and mortgage
loans to small and medium-sized businesses, professional groups and
individuals in addition to offering a full range of consumer and other retail
loans in its market. Commerce maintains a policy not to originate or purchase
loans classified by regulators as highly leveraged transactions or loans to
foreign entities or individuals. Commerce generally does not make loans outside
its market area unless the borrower has an established relationship with
Commerce and conducts its principal business operations in the Hampton Roads
market.
Loans, net of unearned income and deferred fees, were $378.3 million at
December 31, 1993, representing a 16% increase over 1992 year end. This
followed a 10% increase in year end net loans in 1992 over 1991. Average
loans during 1993 increased 11%, to $347.6 million with a yield of 8.88%.
During 1993, Commerce launched a highly visible loan promotion, which
offered nine-minute loan approvals and payment of closing costs on certain
consumer loans. Additionally, a major marketing campaign that highlighted
Commerce's loyalty to
[BAR GRAPH OF AVERAGE EARNING ASSETS APPEARS HERE]
[PIE CHART OF PERIOD END LOANS APPEARS HERE]
[BAR GRAPH OF TOTAL LOANS APPEARS HERE]
<PAGE>
[LOGO OF COMMERCE BANK APPEARS BANK]
customers and commitment to community was conducted. The growth in 1993 loans is
attributed to these campaigns, focus on customer service and general improvement
in the local economy. Management anticipates that the Hampton Roads local
economy will continue to improve during 1994, which is expected to stimulate
loan growth as consumer and business activity improves.
The following table sets forth Commerce's loan portfolio composition
for the five years ended December 31, 1993. (net of unearned income).
<TABLE>
<CAPTION>
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 165,421 44% $ 129,416 40% $ 114,765 38% $ 114,309 41% $ 95,147 44%
Consumer 101,008 27 93,864 29 101,751 34 58,700 21 45,768 21
Real estate mortgage 88,294 23 81,847 25 71,027 23 73,964 26 51,167 24
Real estate construction
& development 17,074 5 14,921 5 11,169 4 28,997 10 18,312 9
Tax-exempt 6,461 1 6,217 1 4,188 1 4,261 2 4,034 2
- --------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned
income and deferred fees $ 378,258 100% $ 326,265 100% $ 302,900 100% $ 280,231 100% $ 214,428 100%
================================================================================================================================
</TABLE>
The following table sets forth the maturity distribution and interest
sensitivity of the loan portfolio at December 31, 1993. Maturities are based
upon contractually scheduled principal repayments. The timing of actual
principal repayments is expected to vary from scheduled repayments due to the
renewal of certain loans at their maturity and prepayment patterns.
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------
December 31, 1993
- --------------------------------------------------------
<S> <C>
Fixed-rate loans with a remaining
maturity of:
Three months or less $ 24,294
Over three months through 12 months 34,091
Over one year through five years 150,585
Over five years 42,610
- --------------------------------------------------------
Total fixed-rate loans 251,580
Floating-rate loans with a repricing
frequency of:
Quarterly or more frequently 107,701
Annually or more frequently, but less
frequently than quarterly 11,087
Every five years or more frequently, but
less frequently than annually 6,972
- --------------------------------------------------------
Total floating-rate loans 125,760
Nonaccrual loans 918
- --------------------------------------------------------
Total $378,258
========================================================
</TABLE>
The commercial loan portfolio increased 28%, or $36 million, at
December 31, 1993 from December 31, 1992. Approximately 44% of Commerce's
loan portfolio at December 31, 1993 was composed of commercial loans.
Commercial loans include loans made primarily to service, retail, wholesale
and manufacturing businesses for a variety of purposes, including revolving
lines of credit, working capital loans, equipment financing loans and
letters of credit. Although Commerce typically looks to the borrower's cash
flow as the principal source of repayment of such loans, many of the loans
within this category are collateralized by equipment, accounts receivable and
other forms of collateral. In addition, Commerce had $105.9 million and $79.9
million in commercial loans at December 31, 1993 and 1992, respectively, that
were collateralized in part by nonresidential real estate properties.
Commerce's commercial loans generally bear a floating rate of interest tied
to the prime rate subject to ceilings and floors. Depending on the type of
collateral and the strength of the borrower, the maximum loan-to-value ratio
applied to these loans varies.
Real estate mortgage loans of $88.3 million represented 23% of
Commerce's total loan portfolio at December 31, 1993 and were 8% above the
1992 levels. The Hampton Roads economy experienced growth during 1993 in
planned residential building permits. Commerce's residential mortgage loans
are typically collateralized by single-family residences located in its
market area.
These loans generally have a term of 15 to 30 years and bear a floating
rate of interest. In addition, growth in one-to-four family residential loans
carry reduced capital funding under regulatory risk-based capital guidelines,
which in turn has improved Commerce's risk-weighted asset structure. The
majority of the fixed-rate residential mortgage loans originated are sold in the
secondary mortgage market. Commerce's commercial and multi-family mortgage loans
are made with a variety of maturity and floating interest rate structures.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Commerce's real estate construction portfolio amounted to $17.1 million,
or 5%, of Commerce's total loan portfolio at December 31, 1993. The vast
majority of these loans relate to nonspeculative residential real estate
construction loans upon which Commerce expects to make the permanent loan for
the borrower or has obtained a permanent loan take-out commitment from another
lender. Speculative lending represents construction lending in which the end
user/owner is not identified at the time of the borrowing. Generally, Commerce
does not make speculative residential or commercial real estate construction
loans and does so only for customers with whom it has had a long-standing
relationship and who have demonstrated success in the residential or commercial
construction industry. Commerce's construction loans generally bear a floating
rate of interest and mature in one year or less. Construction loan underwriting
standards generally limit the loan amount to 80% of the completed value of the
project.
Consumer loans increased 8%, or $7.14 million during 1993 when compared
with December 31, 1992. New car loans exceeded 30% growth levels when comparing
1993 with 1992 in the Hampton Roads economy. Commerce remains optimistic that
the economic recovery will be sustainable in 1994 and that the level of consumer
buying activity will continue to increase resulting in increased loan demand. In
order to position for this opportunity, management created a consumer loan
division during 1993 to facilitate consumer lending. Management views growth in
consumer loans as a method of managing credit risk through diversification while
enhancing interest margins with higher yields. The increase in the consumer loan
portfolio reflected increased customer focus through the consumer lending
function, loan promotions and general economic improvements, which were
partially offset by increased prepayments and maturities within the portfolio.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," which is effective for
fiscal years beginning after December 15, 1994 with earlier application
permitted. See Financial Statement Note 5 for further discussion.
Investment Securities
The investment securities portfolio plays a primary role in the management
of interest rate sensitivity of Commerce and generates substantial interest
income. In addition, the portfolio serves as a source of liquidity and is used
as needed to meet collateral requirements. The decision to purchase securities
is based upon an assessment of economic conditions, Commerce's liquidity
position and the interest rate environment. These conditions are subject to
unexpected changes and, as a result, repositioning of the portfolio may be
appropriate. Investment securities were $247.2 million at December 31, 1993
compared with $238.7 million a year earlier, and at December 31, 1993,
approximate market value exceeded book value by $4.42 million. In an effort to
stimulate the economy, the Federal Reserve significantly lowered interest rates
during 1991 and early 1992 and the yield curve spread between short and long-
term rates increased through 1993. As a result, management anticipated that high
coupon callable securities would be called and that mortgage backed securities
would experience high prepayments. Investment securities with these risk
characteristics were sold resulting in $1.10 million and $900,000, respectively,
for 1992 and 1991. Proceeds were reinvested into short- to intermediate-term
U.S. Treasury and government agency securities.
Because deposit growth exceeded loan growth in 1993, 1992 and 1991,
securities were used as a deployment of excess liquidity. Consequently, 1993
average investment securities increased 27%, or $52.1 million over the 1992
average of $190.9 million. This followed a 94% increase over the $98.6 million
averaged in 1991. Average investment securities represented 40%, 36%, and 24% of
total average earning assets for the three years ended December 31, 1993,
respectively. The objective of the investment portfolio is to complement
Commerce's asset/liability position while offering a balanced rate of return
with attention to liquidity needs for funding future loan growth. As a result,
the growth of the investment securities portfolio was blended between fixed and
variable-rate short to intermediate-term U.S. Treasury and government agency
securities. These securities are liquid assets that carry little or no credit
risk and should have a favorable impact on interest rate sensitivity and margin.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities," (SFAS No. 115) which requires investments in equity
securities that have readily determinable fair values and all investments in
debt securities to be divided into three separate categories: held-to-maturity,
trading, and available-for-sale. In effect, this Statement expands the use of
fair value accounting for securities that fall within its scope but retains the
use of amortized cost methods for securities that a bank has the ability and
interest to hold to maturity. In this regard, the "held-to-maturity" category is
very restrictive with respect to sales or transfers. In anticipation of adoption
of SFAS No. 115, the investment portfolio was repositioned during 1993, which
resulted in securities gains of $1.41 million. Commerce plans to adopt the
Statement as required during the first quarter of 1994. Financial Statement Note
4 provides further information concerning the adoption of SFAS 115 and the
composition of Commerce's investment portfolio.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table presents the mix of the investment securities
portfolio along with the weighted average maturities and yields at December
31, 1993.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Average
Par Amortized Market Average Maturity
(Dollars in thousands) Value Cost Value Yield (1) In Years (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 15,000 $ 15,020 $ 15,203 6.50%
One to Five years 58,942 58,090 60,517 6.30
Five to Ten years 7,000 7,093 7,350 6.62
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury 80,942 80,203 83,070 6.37 2.61
- -------------------------------------------------------------------------------------------------------------------------------
Federal Agencies:
Within one year 1,050 1,020 1,042 7.34
One to Five years 39,150 39,127 39,778 5.61
Five to Ten years 29,400 28,920 29,135 5.76
- -------------------------------------------------------------------------------------------------------------------------------
Total Federal Agencies 69,600 69,067 69,955 5.70 4.69
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Obligations of
Federal Agencies:
Within one year 41,448 41,315 41,822 6.86
One to Five years 42,915 42,834 42,863 6.01
Five to Ten years 4,400 4,376 4,473 6.66
After Ten years 5,122 5,039 5,039 5.76
- -------------------------------------------------------------------------------------------------------------------------------
Total Mortgage-backed Obligations of
Federal Agencies: 93,885 93,564 94,197 6.42 2.63
- -------------------------------------------------------------------------------------------------------------------------------
Tax-Exempt State and Municipals:
Five to Ten years 700 701 728 4.94
After Ten years 300 300 300 4.80
- -------------------------------------------------------------------------------------------------------------------------------
Total Tax-Exempt State and Municipals 1,000 1,001 1,028 4.90 9.67
- -------------------------------------------------------------------------------------------------------------------------------
Other Securities:
Within one year 500 500 512 8.63
One to Five years 675 700 700 6.25
Five to Ten years 2,000 1,976 1,967 6.49
After Ten years 164 164 167 7.00
- -------------------------------------------------------------------------------------------------------------------------------
Total Other Securities 3,339 3,340 3,346 6.78 7.08
- -------------------------------------------------------------------------------------------------------------------------------
Total Portfolio $ 248,766 $ 247,175 $ 251,596 6.20% 3.29
===============================================================================================================================
</TABLE>
(1) Presented on a book basis, as tax equivalent adjustments are not
significant.
(2) The maturity distribution of mortgage-backed obligations of federal agencies
is based on estimated average maturity in years. The remaining maturity
information is in years based on contractual maturity. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Temporary Investments
Temporary investments were $13.4 million at December 31, 1993 and
consisted of interest earning deposits with other banks in the amount of $1.0
million and mortgages held for sale of $12.4 million. Temporary investments
are used for daily cash management purposes, management of short-term
interest rate opportunities and interest rate risk and, as a result, daily
balances vary. The average balance of temporary investments during 1993 was
$16.1 million and represented 3% of total earning assets. See Financial
Statement Note 3 for further information.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Deposits and Borrowed Funds
Management's plan to enhance the funding structure of Commerce and to
improve its liquidity position benefitted from 1993, 1992 and 1991 deposit
trends. These trends reflect sustained emphasis on the growth of core deposit
relationships due to their relatively low cost and reasonably stable nature.
Sustained deposit growth is necessary to support growth in earning assets and
also represents the foundation on which additional business relationships are
based.
The following table sets forth a summary of Commerce's various deposit
categories and their respective cost rates for the past three years.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average Balance Cost Rate Interest Expense
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1993 1992 1991 1993 1992 1991 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing
demand $ 62,497 $ 57,087 $ 36,814 2.48% 3.40% 4.86% $ 1,553 $ 1,940 $ 1,789
Money market savings 236,502 207,172 103,469 3.50 4.24 5.87 8,278 8,792 6,078
Regular savings 27,084 17,831 11,409 2.83 3.63 5.22 766 647 595
Certificates: Less than
$100,000 161,285 151,282 147,973 5.07 5.90 7.57 8,173 8,925 11,207
Greater than $100,000 27,541 24,651 55,474 5.64 6.25 7.44 1,552 1,541 4,127
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing 514,909 458,023 355,139 3.95 4.77 6.70 $ 20,322 $ 21,845 23,796
Noninterest bearing 89,699 71,537 55,617
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 604,608 $ 529,560 $ 410,756 3.36% 4.13% 5.79%
====================================================================================================================================
</TABLE>
Total deposits averaged $604.6 million during 1993, representing a 15%
or $75.0 million increase over 1992. This followed a $118.8 million or 29%
increase in average deposits in 1992 over 1991. Total deposits at December
31, 1993 were $634.1 million, representing a $36.2 million, or 6% increase
over $598.0 million for 1992. The growth in average deposits was attributable
to a combination of the acquisition of thrift deposits from the RTC and
market share gains in existing branch locations. Several factors contributed
to the increase in market share including the growth and convenience of
branch office locations and a shift in consumer preference as a result of
consolidation in the banking industry and closure of thrifts.
During 1993 and 1992, average deposits, exclusive of certificates of
deposit greater than $100,000, comprised 95% of total average deposits,
compared with 86% for 1991. During 1993, average certificates of deposits
greater than $100,000 were $27.5 million or 5% of total average deposits. The
maturity of both non-core, large-denomination deposits during 1992 and a $15
million brokered certificate of deposit at the end of 1991 contributed to the
56% reduction in average certificates of deposit greater than $100,000, from
$55.4 million during 1991 to $24.7 million during 1992.
[PIE CHART PERIOD END DEPOSITS APPEARS HERE]
The following table presents information on the maturities of
certificates of deposit greater than $100,000 at the dates indicated:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
At December 31, 1993 At December 31, 1992
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed-rate:
Three months or less $ 13,586 35% $ 5,546 23%
Over three through twelve months 9,892 26 6,597 28
Over one year through five years 14,447 38 10,587 45
Over five years 536 1 898 4
- -------------------------------------------------------------------------------------------------------------------------
Total $ 38,461 100% $ 23,628 100%
=========================================================================================================================
</TABLE>
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Average money market savings accounts increased 14%, or $29.3 million
during 1993 compared with a $103.7 million increase during 1992 and represented
39% of total average deposits for 1993 and 1992 compared with 25% for 1991.
Management's emphasis to balance asset interest rate sensitivity with a stable
and diversified deposit base led to the design of variable rate deposit products
indexed to the New York Prime Rate. The acceptance of these products accounted
for the increase in average money market savings. In addition, consumer
preference has shifted to more liquid products as a result of the lower interest
rate environment.
Certificates of deposit less than $100,000 averaged $161.3 million
during 1993 compared with $151.3 million during 1992, and $148.0 million
during 1991. Certificates maturing in one year or less, represented 45% of
the $164.1 million outstanding at December 31, 1993.
Regular savings average balances grew 52%, or $9.25 million and 56%, or
$6.4 million, during 1993 and 1992, respectively, with consumer accounts
representing the majority of the growth. This compares with a 36% growth rate
between 1991 and 1990 average balances.
Average noninterest bearing deposit accounts grew to $89.7 million in
1993, up 25% over 1992 average levels. This followed an increase of 29% in
average noninterest bearing deposit accounts between 1992 and 1991. The
increase during 1991 was the result of a special deposit promotion campaign.
Commerce's average noninterest bearing demand deposits as a percent of
average earning assets increased to 14.8% for 1993 from 13.5% for 1992.
The average rate paid on interest bearing deposits was 3.95% for 1993,
compared with 4.77% for 1992 and 6.70% for 1991. The 82 basis point decrease
between 1993 and 1992 was due to the declining rate environment and favorable
changes in the mix of Commerce's deposit base. Additionally, management's
discipline to obtain favorable pricing during periods of high liquidity while
maintaining competitive market rates reduced overall funding cost.
Short-term borrowings were $1.40 million at December 31, 1993 and
consisted of federal funds purchased. Average short-term borrowings, which
consisted of federal funds purchased and securities sold under repurchase
agreements, were $864,000 during 1993 compared with $495,000 for 1992. These
borrowings are an accessible source of modestly priced funds that are used in
the management of daily cash needs and interest rate risk opportunities.
Financial Statement Note 10 provides further information on Commerce's short-
term borrowings.
Long-term debt was $6.83 million at December 31, 1993 and consisted of
$5.00 million, 10% convertible subordinated capital notes and $1.83 million
in capital lease obligations. Financial Statement Note 11 provides additional
information on Commerce's long-term debt.
Capital Resources
Management reviews Commerce's capital position continuously to ensure
compliance with regulatory capital adequacy requirements and to ensure that
sufficient funds are available for operating needs. These objectives have
been integrated with Commerce's risk management policies to achieve overall
financial goals more effectively while minimizing the cost of capital.
Management believes that a strong capital position is necessary to take
advantage of attractive growth and investment opportunities to enhance
shareholders' returns. Commerce continues to work toward these goals through
careful balance sheet positioning, improved internal capital generation and, as
conditions warrant, capital placements.
Shareholders' equity was $43.6 million at December 31, 1993, a 17%
increase over shareholders' equity of $37.4 million at year end 1992. In May
1992, Commerce issued 625,000 shares of common stock through an underwritten
public offering. Net proceeds from the offering were $9 million.
[GRAPH TOTAL DEPOSITS APPEARS HERE]
[GRAPH PERIOD END SHAREHOLDERS' EQUITY APPEARS HERE]
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Commerce is subject to regulatory risk-based capital guidelines that
measure capital relative to risk-weighted assets and off-balance-sheet
financial instruments. Commerce's risk-based capital position reflects the
increase in qualifying capital as a result of the 1992 stock offering and
increased earnings. Commerce exceeded the required minimums of Tier 1 and
total capital of 4.0% and 8.0% at December 31, 1993. The leverage ratio is
defined as Tier 1 capital divided by average total assets less intangible
assets and has a regulatory minimum of 3%, with most institutions required to
maintain a ratio of at least 4.0% to 5.0% depending upon risk profiles and
other factors. Commerce has not been advised of a minimum leverage ratio
above the minimum of 3.0%. Commerce's Tier 1 leverage ratio was 6.49% at
December 31, 1993.
The following table provides information on the risk-based capital
position of Commerce:
<TABLE>
<CAPTION>
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I Capital:
Shareholder's equity $ 43,589 $ 37,413 $ 23,770
Less: intangible assets (1,024) (2,238) (2,245)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier I 42,565 35,175 21,525
- ------------------------------------------------------------------------------------------------------------------------------------
Tier II Capital:
Qualifying allowance for loan losses(1) 5,460 4,736 3,717
Mandatory convertible debt instruments 4,995 5,000 5,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Tier II 10,455 9,736 8,717
- ------------------------------------------------------------------------------------------------------------------------------------
Total Risk Based Capital $ 53,020 $ 44,911 $ 30,242
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 689,630 $ 644,849 $ 478,659
Total risk weighted assets 436,800 377,886 333,787
Risk weighted assets to total assets 63.34% 58.60% 69.73%
Risk based capital ratios:
Tier I 9.74% 9.31% 6.45%
Total 12.14% 11.88% 9.06%
Tier I Leverage Ratio 6.49% 6.18% 4.87%
===================================================================================================================================
</TABLE>
(1) Limited to 1.25% of risk weighted assets
Common Stock and Dividends
Effective February 18, 1992, Commerce's common stock began trading on
the over the counter market (OTC) and was quoted on the NASDAQ (National
Association of Securities Dealers Automated Quotations) Regional Market
System under the symbol "CBVA." Price and volume information are given in
local major newspapers. Commerce's stock began trading on the NASDAQ National
Market on April 5, 1993, which will offer increased visibility, efficiency
and liquidity of the national market. Commerce's market makers are Wheat
First Securities, Inc., Scott and Stringfellow Investment Corporation, Alex
Brown and Sons, Inc. and Herzog, Heine, Geduld, Inc. The bank's convertible
subordinated capital notes are not listed. Prior to February 18, 1992,
Commerce's common stock was not listed on an exchange.
During 1993, Commerce implemented a Dividend Reinvestment and Stock
Purchase Plan. Under the plan, common shareholders of record may reinvest
quarterly common stock dividends in shares of common stock at prices 5% below
current average market prices, without payment of service charges or
brokerage commissions. Optional cash purchases of common stock may be made by
common shareholders at the current average market price. Optional cash
payments may not be less than $100 per payment and the total of all stock
payments may not exceed $5,000 in any calendar quarter. During 1993, 15,453
shares were issued under the Plan.
Prior to 1991, Commerce maintained a policy of retaining all earnings
to help support capital and other expenditures incurred in connection with
the development of its franchise. Based on Commerce's operating results and
other factors, the Board of Directors adopted a policy to pay quarterly cash
dividends beginning with the fourth quarter of 1991. Commerce paid $.05 per
share in dividends in 1991 and increased the quarterly rate during the third
quarter of 1992 to $.08 per share for a total of $.26 per share in 1992.
Total dividends declared in 1992 amounted to $596,000, compared with $83,000
in 1991. Based on Commerce's 1993 earnings performance and future outlook,
the Board of Directors increased the quarterly cash dividend during each
quarter of 1993 resulting in a current annual rate of $.60.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
Cash dividends declared increased from $.26 per share for 1992 to $.51 per share
for 1993, representing a 96% increase. Total cash dividends declared in 1993
were $1.30 million. Additionally, a 5% stock dividend was declared during the
fourth quarter of 1993 and 1992.
The following table provides stock performance information.
<TABLE>
<CAPTION>
Common Stock Performance and Related Information
- ------------------------------------------------------------------
December 31, 1993
- ------------------------------------------------------------------
<S> <C>
Price/earnings ratio 10.53X
Price/book ratio 1.48X
Book value $16.22
Cash dividends declared
per share $ .51
Dividend yield 2.50%
Dividend payout percentage 19.80%
Number of shareholders 1,811
52 week range $25.50 - $19.13
==================================================================
</TABLE>
Based on actual sales as reported by NASDAQ, the high and low sale
prices of Common Stock during 1993 and 1992 are set forth with other selected
quarterly financial data on page 41.
ASSET/LIABILITY MANAGEMENT
Liquidity Management
A key goal of asset/liability management is to maintain an adequate degree
of liquidity without impairing long-term earnings. Liquidity represents
Commerce's ability to provide adequate funding sources for loan growth or
deposit withdrawals, as well as unforeseen transactional requirements affecting
the asset and liability structure of the balance sheet. Asset management
policies guide the proportion of liquid assets to total assets, while liability
management policies emphasize the stability, diversification and accessibility
of funding sources. Liquidity risk represents the possibility that adequate
funding sources are not available due to mismatches in cash inflows and
outflows.
Commerce's Statement of Cash Flows provides information about the cash
provided and used by Commerce in its operating, investing and financing
activities. The retention of earnings provides a source of liquidity for
Commerce. The assumption of thrift deposits and growth in deposits from growth
in Commerce's office network have also provided a source of liquidity. In
addition to unrestricted cash balances, other sources of liquidity include
temporary investments, maturities of investment securities and loans, loan sales
and repayments and borrowings. Commerce experienced a relatively high degree of
liquidity during 1993, 1992 and 1991, through deposit growth in relation to
modest loan demand, increased earnings retention and repositioning of the
investment securities portfolio.
The liquidity ratio is one measure of a bank's ability to meet its
current obligations and is defined as the percentage of liquid assets (i.e.,
cash and due from banks, unpledged investment securities with maturities of
less than one year and Federal Fund s sold) to deposits. At year end 1993,
1992 and 1991, Commerce's liquidity ratio was 41%, 48% and 31%, respectively.
Interest Rate Sensitivity Management
Monitoring and managing interest rate risk is a significant objective
of asset/liability management. Interest rate risk represents the earnings
variation that would occur under a specific change in interest rates.
Management's goal is to position the structure of the balance sheet to
benefit from actual and anticipated interest rate changes while creating an
acceptable balance between soundness, profitability and liquidity. The proper
matching of assets and liabilities is fundamental to the stability of net
interest yields. Commerce attempts to fund assets with liability instruments
of similar maturity and interest rate sensitivity in order to reduce interest
rate risk. In addition, pricing policies are designed to facilitate the
matching concept, whereby an asset's yield is viewed in the context of the
cost of the underlying liability. Commerce has experienced significant growth
in variable rate deposits that are a percentage of, and fluctuate with, prime
lending rates. The growth of these products is expected to further enhance
management of interest rate sensitivity.
Management reviews the impact on earnings due to actual and forecasted
movements in interest rates on a monthly basis. This review is formulated
into policies and strategies to favorably position Commerce against interest
rate volatility.
Interest rate risk at a given point in time is represented by the
interest rate sensitivity position (GAP). The cumulative gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. The GAP presented at any point in time is one measure of the risk
inherent in the existing balance sheet structure as it relates to potential
changes in net interest income. GAP alone, does not accurately measure the
magnitude of changes in net interest income since changes in interest rates do
not affect all categories of assets and liabilities equally or simultaneously.
The distribution in interest rate sensitivity is based on a combination of
maturities, call provisions, repricing frequencies, and prepayment patterns.
Variable rate assets are distributed based on the repricing frequency of the
instrument. Variable rate liabilities, consisting of various money market
savings instruments indexed to the New York Prime Rate, are distributed based on
their index with the remainder being distributed to the non-sensitive column.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
The following table presents Commerce's interest sensitive position at
December 31, 1993. This is a one-day position which is continually changing
and is not necessarily indicative of Commerce's position at any other time.
<TABLE>
<CAPTION>
Total Beyond
1 to 91 to 181 to within 1 to 3 to 5 years or
(In thousands) 90 days 180 days 365 days 1 year 3 years 5 years insensitive Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans - net $191,019 $ 17,410 $ 29,630 $ 238,059 $ 81,384 $ 34,177 $ 24,638 $ 378,258
Investment securities 34,518 25,459 29,406 89,383 112,831 37,874 7,087 247,175
Temporary investments 12,431 -- -- 12,431 1,000 -- -- 13,431
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 237,968 42,869 59,036 339,873 195,215 72,051 31,725 638,864
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets -- -- -- -- -- -- 50,766 50,766
Total Assets $ 237,968 $ 42,869 $ 59,036 $ 339,873 $195,215 $ 72,051 $ 82,491 $ 689,630
====================================================================================================================================
Interest bearing liabilities:
Savings and interest bearing
demand accounts $ 1,029 $ 1,029 $ 2,059 $ 4,117 $ 8,133 $ 8,641 $ 79,719 $ 100,610
Money market savings 187,434 1,033 2,067 190,534 4,135 4,135 28,947 227,751
Certificates of deposit greater
than $100,000 13,682 4,821 5,085 23,587 6,967 7,371 536 38,461
Certificates of deposit less
than $100,000 39,741 29,284 34,051 103,076 35,925 21,788 3,333 164,122
Other borrowings 1,418 19 40 1,477 5,577 71 1,102 8,227
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 243,304 36,186 43,302 322,791 60,737 42,006 113,637 539,172
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing
liabilities and equity -- -- -- -- -- -- 150,458 150,458
Total Liabilities and Equity $ 243,304 $ 36,186 $ 43,302 $ 322,791 $ 60,737 $ 42,006 $ 264,096 689,630
====================================================================================================================================
Interest rate sensitivity $ (5,336) $ 6,683 $ 15,734 $ 17,082 $134,478 $ 30,045 $ (181,605) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ (5,336) $ 1,348 $ 17,082 $ 17,082 $151,560 $181,605 -- --
====================================================================================================================================
</TABLE>
The asset sensitivity of the cumulative one year GAP position was 2.7%
of total earning assets at December 31, 1993.
Effects of Inflation and Changing Prices
The financial statements and related financial data presented 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 changes in the
relative purchasing power of money, over time, due to inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the general levels of inflation. Interest rates do not
necessarily move in the same magnitude as the prices of goods and services.
Another impact of inflation is on noninterest expenses, which tend to rise
during periods of general inflation. The values of real estate collateralizing
Commerce's loans and foreclosed property could be affected by inflation or
changing prices due to market conditions.
Management believes the most significant impact on financial results is
Commerce's ability to react to changes in interest rates. As discussed
previously, management attempts to maintain a favorable position between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
COMMERCE BANK FINANCIAL HIGHLIGHTS
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Results of operations:
Interest income $ 11,888 $ 11,957 $ 11,864 $ 11,538 $ 11,643 $ 11,591 $ 11,358 $ 10,347
Interest expense 5,167 5,192 5,299 5,325 5,460 5,658 5,885 5,411
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 6,721 6,765 6,565 6,213 6,183 5,933 5,473 4,936
Provision for loan losses 600 700 725 800 900 1,500 825 1,000
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan
losses 6,121 6,065 5,840 5,413 5,283 4,433 4,648 3,936
Noninterest income 2,346 2,625 2,190 2,087 2,266 1,749 1,624 1,473
Securities gains 53 1,268 -- 86 128 588 -- 382
Noninterest expense 5,995 6,831 5,542 5,338 5,510 4,713 4,588 4,280
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2,525 3,127 2,488 2,248 2,167 2,057 1,684 1,511
Provision for income taxes 834 1,415 840 748 727 687 562 501
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,691 $ 1,712 $ 1,648 $ 1,500 $ 1,440 $ 1,370 $ 1,122 $ 1,010
==================================================================================================================================
Per Share Data:
Net income :
Primary $ .61 $ .62 $ .60 $ .55 $ .53 $ .51 $ .49 $ .50
Fully diluted .58 .60 .57 .53 .51 .49 .47 .48
Book value at period end 16.22 16.48 15.91 15.37 14.90 15.12 14.62 14.16
Cash dividends .15 .14 .12 .10 .08 .08 .05 .05
Common stock price: (1)
High 25.50 25.50 24.75 24.50 21.50 17.50 19.50 19.00
Low 23.00 22.75 21.00 19.12 17.00 15.75 15.75 13.50
Close 24.00 23.75 24.25 24.50 21.00 17.00 15.75 19.00
==================================================================================================================================
Average Balance Sheet Data
Assets:
Loans, net of unearned
income $369,323 $354,239 $339,361 $326,879 $319,527 $318,235 $313,020 $306,472
Investment securities 245,039 240,369 246,729 239,994 237,631 221,533 179,948 123,727
Temporary investments 12,356 20,941 16,409 14,625 19,163 19,852 30,436 15,950
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 626,718 615,549 602,499 581,498 576,321 559,620 523,404 446,149
Allowance for loan losses (6,844) (6,713) (6,313) (5,885) (5,535) (4,732) (4,334) (3,901)
Other assets 58,637 56,375 55,984 53,975 53,864 49,764 48,739 45,534
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $678,511 $665,211 $652,170 $629,588 $624,650 $604,652 $567,809 $487,782
==================================================================================================================================
Liabilities and Shareholders'
Equity:
Interest bearing deposits $529,081 $516,719 $511,875 $501,638 $496,694 $484,096 $458,847 $391,744
Short-term borrowings 1,337 818 859 429 509 529 551 388
Long-term borrowings 6,837 6,856 6,878 6,018 5,632 5,643 5,655 5,666
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 537,255 524,393 519,612 508,085 502,835 490,268 465,053 397,798
Noninterest bearing liabilities 98,291 99,022 92,636 83,117 84,760 78,629 74,034 65,314
Equity 42,965 41,796 39,922 38,386 37,055 35,755 28,722 24,670
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $678,511 $665,211 $652,170 $629,588 $624,650 $604,652 $567,809 $487,782
==================================================================================================================================
Financial Ratios:
Return on average assets .99 1.02% 1.01% .97% .92% .90% .79% .83%
Return on average equity 15.61 16.25 16.56 15.85 15.46 15.24 15.71 16.47
Net interest margin 4.28 4.36 4.37 4.33 4.27 4.22 4.21 4.45
==================================================================================================================================
</TABLE>
(1) As reported by NASDAQ
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
BALANCE SHEET
<TABLE>
<CAPTION>
(In thousands, except common stock data)
- -----------------------------------------------------------------------------------------------
December 31, 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (Note 2) $ 25,800 $ 28,232
Temporary investments (Note 3) 13,431 25,548
Investment securities:
(Market Value: 1993 - $251,596, 1992 - $242,323) (Note 4) 247,175 238,680
Loans: (Notes 5 & 7)
Commercial 165,409 129,565
Consumer 102,611 97,572
Real estate mortgage 88,850 82,199
Real estate construction & development 17,074 14,921
Tax-exempt 6,477 6,217
Less: Unearned income and deferred fees (2,163) (4,209)
- -----------------------------------------------------------------------------------------------
Loans, net of unearned income and deferred fees 378,258 326,265
Less: Allowance for loan losses (Note 6) (6,527) (5,671)
- -----------------------------------------------------------------------------------------------
Loans, net 371,731 320,594
Bank premises and equipment, net (Note 8) 18,384 15,459
Foreclosed property 3,080 5,808
Other assets (Notes 9 & 14) 10,029 10,528
- -----------------------------------------------------------------------------------------------
Total assets $ 689,630 $ 644,849
===============================================================================================
Liabilities
Deposits:
Noninterest bearing demand $ 103,197 $ 94,229
Interest bearing demand 72,221 62,962
Money market savings 227,751 248,001
Regular savings 28,389 19,794
Certificates of deposit less than $100,000 164,122 149,370
Certificates of deposit greater than $100,000 38,461 23,628
- -----------------------------------------------------------------------------------------------
Total deposits 634,141 597,984
Short-term borrowings (Note 10) 1,400 563
Long-term debt (Note 11) 6,828 5,626
Other liabilities 3,672 3,263
- -----------------------------------------------------------------------------------------------
Total liabilities 646,041 607,436
- -----------------------------------------------------------------------------------------------
Contingent Liabilities (Notes 8, 17 & 18)
Shareholders' Equity (Notes 12)
Common stock, $2.50 par value: 5,000,000 shares authorized:
2,686,792 shares in 1993 and 2,511,327 shares in 1992
issued and outstanding 6,717 6,278
Capital surplus 29,062 25,460
Retained earnings 7,810 5,705
Unrealized loss on marketable equity securities -- (30)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 43,589 37,413
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 689,630 $ 644,849
===============================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
STATEMENT OF INCOME
<TABLE>
<CAPTION>
(In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans, including fees:
Taxable $ 30,370 $ 29,780 $ 31,391
Tax-exempt 491 395 334
Temporary investments:
Interest bearing deposits in other financial institutions 60 115 246
Federal funds sold 261 526 577
Mortgages held for sale 376 434 204
Investment securities:
Taxable 15,649 13,608 8,178
Tax-exempt 40 81 97
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income 47,247 44,939 41,027
Interest Expense
Deposits 20,322 21,845 23,796
Short-term borrowings 26 19 94
Long-term debt 635 550 568
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense 20,983 22,414 24,458
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 26,264 22,525 16,569
Provision for loan losses (Note 6) 2,825 4,225 2,925
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After
Provision For Loan Losses 23,439 18,300 13,644
Noninterest Income
Service charges on deposit accounts 3,428 3,006 2,341
Mortgage brokerage income 2,895 1,838 950
Credit card merchant fees 907 679 586
Securities gains 1,407 1,098 900
Trust income 633 508 390
Other income 1,385 1,081 593
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 10,655 8,210 5,760
Noninterest Expense
Salaries and benefits 10,721 8,926 7,403
Occupancy of bank premises 2,443 2,268 2,068
Furniture and equipment 1,691 1,462 1,261
Other expense (Notes 9 & 13) 8,851 6,435 4,852
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 23,706 19,091 15,584
Income Before Income Taxes 10,388 7,419 3,820
Provision for income taxes (Note 14) 3,837 2,477 1,221
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income $ 6,551 $ 4,942 $ 2,599
=================================================================================================================================
Net Income Per Share (Note 15)
Primary $ 2.38 $ 2.05 $ 1.36
Fully diluted 2.28 1.97 1.35
Weighted Average Shares Outstanding
Primary 2,748 2,413 1,913
Fully diluted 3,013 2,676 2,176
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 6,551 $ 4,942 $ 2,599
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for loan losses 2,825 4,225 2,925
Depreciation and amortization of premises and equipment 1,655 1,479 1,318
Net amortization of premiums and accretion of discounts (747) 429 98
Amortization of intangible assets (Note 9) 1,214 381 328
(Gain) loss on sale of property and equipment (80) -- 2
Gain on sale of investment securities (1,407) (1,098) (900)
(Increase) decrease in deferred income tax benefits (452) (648) 294
Increase in interest receivable (137) (705) (1,221)
(Decrease) increase in interest payable 211 (1,100) (342)
(Decrease) increase in other liabilities 63 (60) 622
Decrease (increase) in other assets 2,602 580 (545)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 12,298 8,425 5,178
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from maturities, calls and prepayments of securities 32,024 31,722 12,590
Proceeds from sales of securities 51,433 35,853 42,585
Purchases of securities (89,799) (181,889) (106,157)
Net (increase) decrease in temporary investments 12,118 (7,271) 9,520
Purchases of premises and equipment (3,215) (1,720) (867)
Net sale (repurchase) of loan participations (615) 1,224 (2,947)
Net increase in loans (53,347) (36,383) (27,755)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (51,401) (158,464) (73,031)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increases in deposit accounts 36,157 87,673 17,975
Net cash received from acquired deposits -- 65,087 51,995
Proceeds from issuance of common stock 892 9,327 143
Net increase (decrease) in short-term borrowings 837 22 (726)
Principal payments on capital lease obligation (83) (45) (26)
Cash dividends paid (1,132) (487) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 36,671 161,577 69,361
- ---------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and due from banks (2,432) 11,538 1,508
Cash and due from banks at beginning of year 28,232 16,694 15,186
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 25,800 $ 28,232 $ 16,694
- ---------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 20,772 $ 22,701 $ 24,675
Income taxes 3,837 3,114 1,054
Noncash financing and investing activities:
Transfer of loans to foreclosed property -- 2,007 2,730
Capital lease obligation 1,285 -- --
=================================================================================================================================
</TABLE>
Cash and equivalents are defined as cash and noninterest bearing accounts due
from banks. The accompanying notes are an integral part of the financial
statements.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized
Loss On
Common Stock Marketable
---------------- Capital Retained Equity
(In thousands) Shares Amount Surplus Earnings Securities Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 1,650 $ 4,126 $ 14,749 $ 2,236 $ (6) $ 21,105
Net income for 1991 -- -- -- 2,599 -- 2,599
Proceeds from issuance of common stock 12 29 114 -- -- 143
5% stock dividend 83 206 825 (1,031) -- --
Cash dividends declared ($.05 per share) -- -- -- (83) -- (83)
Change in valuation allowance for marketable
equity securities -- -- -- -- 6 6
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 1,745 $ 4,361 $ 15,688 $ 3,721 -- $ 23,770
Net income for 1992 -- -- -- 4,942 -- 4,942
Proceeds from issuance of common stock 646 1,617 7,710 -- -- 9,327
5% stock dividend 120 300 2,062 (2,362) -- --
Cash dividends declared ($.26 per share) -- -- -- (596) -- (596)
Change in valuation allowance for marketable
equity securities -- -- -- -- (30) (30)
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 2,511 $ 6,278 $ 25,460 $ 5,705 $ (30) $ 37,413
Net income for 1993 -- -- -- 6,551 -- 6,551
Proceeds from issuance of common stock 49 121 771 -- -- 892
5% stock dividend 127 318 2,831 (3,149) --
Cash dividends declared ($.51 per share) -- -- -- (1,297) -- (1,297)
Change in valuation allowance for marketable
equity securities -- -- -- -- 30 30
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 2,687 $ 6,717 $ 29,062 $ 7,810 $ -- $ 43,589
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Accounting Policies
The accounting and reporting policies of Commerce Bank ("Commerce")
conform to generally accepted accounting principles and general practices within
the financial services industry. The following is a summary of the more
significant policies.
Temporary Investments
Temporary investments are carried at the lower of aggregate cost or
market value.
Investment Securities
Marketable debt securities are stated at cost adjusted for discount
accreted and premium amortized based on management's intention to hold these
assets on a long-term basis and Commerce's ability to hold them to maturity or
the foreseeable future. In making this determination, management considers
significant known liquidity requirements and capital planning; however,
investment securities may be sold as part of prudent asset/liability management.
Marketable equity securities are carried at the lower of aggregate cost or
market value, and unrealized losses are reflected as a reduction of
shareholders' equity in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 12. Gains and losses on the sale of securities are
determined by the specific identification method and are classified as
securities gains or losses in the accompanying statement of income. As described
in Note 4, Commerce will adopt SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" beginning in 1994.
Loans
Loans are carried at the principal amount outstanding, net of unearned
income and deferred loan fees, net of costs. Interest on loans and amortization
of unearned income, deferred fees and origination costs are computed by methods
which generally result in level rates of return on principal amounts
outstanding.
Commerce discontinues the accrual of interest on loans based on
delinquency status, an evaluation of the related collateral and the financial
strength of the borrower. Loans generally are placed in nonaccrual status when
the collection of principal or interest is 90 days or more past due, or earlier
if collection is uncertain based upon an evaluation of the net realizable value
of the collateral and the financial strength of the borrower. Income recognized
on consumer loans is generally discontinued after a delinquent status period of
120 days, unless conditions warrant otherwise. Management may elect to continue
the accrual of interest if the loan is well collateralized and in the process of
collection. Income is recognized on the cash basis for nonaccrual loans unless
there is doubt as to collectibility of principal, in which case interest
payments are applied to reduce principal. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. When loans are placed on nonaccural, uncollected
interest credited to income in the current year is reversed and uncollected
interest accrued in prior years is charged to the allowance for loan losses.
As described in Note 6, Commerce will be required to adopt SFAS No.
114, "Accounting by Creditors for Impairment of a Loan" beginning in 1995.
Allowance for Loan Losses
The allowance for loan losses is established by management based on an
evaluation of the potential loss exposure in the loan portfolio. The level of
the allowance for loan losses is based upon the quality of the loan portfolio as
determined by management after a detailed specific review of problem loans,
consideration of current and historical loan loss experience, diversification as
to the type of loans in the portfolio, the amount of collateralized and
uncollateralized loans, banking industry standards and averages, and general
economic conditions. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowance for
loan losses and additional write-downs in the valuation of real estate owned may
be necessary based on changes in economic conditions.
Bank Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization charges are computed by the
straight-line method. Premises and equipment are depreciated over the estimated
useful lives of the assets, except for leasehold improvements which are
amortized over the terms of the respective leases or the estimated useful lives
of the improvements, whichever is shorter. Generally, estimated lives of the
principal items of premise and equipment are buildings and improvements--15 to
40 years, furniture, fixtures and equipment--3 to 20 years, and capital leases
over lease terms. The costs of major renovations are capitalized, while the
costs of ordinary maintenance and repairs are expensed as incurred. Gains and
losses on dispositions are reflected in operations.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Foreclosed Property
Foreclosed property consists of properties acquired through foreclosure,
acceptance in lieu of foreclosure, or insubstance foreclosures. In-substance
foreclosures are properties in which the borrower has little or no equity in the
collateral, where repayment of the loan is expected only from the operation or
sale of the collateral, and the borrower either effectively abandons control of
the property or the borrower has retained control of the property but his
ability to rebuild equity based on current financial conditions is considered
doubtful. These properties are carried at the lower of cost or estimated fair
value. Losses from the acquisition of property in full or partial satisfaction
of debt are charged against the allowance for loan losses at transfer from loans
into foreclosed property. Estimated fair value is reviewed periodically by
management on a specific property basis, and an allowance for loss is
established for any declines in value. Net operating expenses are charged to
noninterest expense.
Income Taxes
Effective January 1, 1993, Commerce changed its method of accounting
for income taxes from the deferred method under Accounting Principles Board
Opinion No. 11 to the liability method required by SFAS No. 109, "Accounting for
Income Taxes" (see Note 14 "Income Taxes"). For years prior to 1993, Commerce
deferred the past tax effects of timing differences between financial reporting
and taxable income. Under the asset and liability method, deferred tax assets
and liabilities are determined based on differences between the financial
statement carrying amounts and the tax basis of existing assets and liabilities
(i.e., temporary differences) and are measured at the enacted rates that will be
in effect when these differences reverse. As permitted under SFAS No. 109, prior
years' financial statements have not been restated.
The adoption of SFAS 109 did not have a material effect on Commerce's
financial position or results of operations for 1993.
Earnings Per Share
Primary earnings per share are calculated on the basis of the weighted
average number of shares outstanding during the year after giving retroactive
effect to the 5% stock dividends declared in 1993, 1992 and 1991. Dilutive stock
options have been converted to common stock equivalents for the calculation of
weighted average shares outstanding based upon the average market price of
Commerce's common stock. Fully diluted earnings per share assumes the conversion
of outstanding convertible subordinated capital notes and elimination of
interest paid thereon, after tax effect, and the exercise of dilutive stock
options, as of the beginning of each year. The dilutive effect of outstanding
options and convertible subordinated debt is computed using the greater of the
closing price or the average market price of Commerce's common stock.
Trust Assets and Income
Assets held in an agency or fiduciary capacity are not assets of
Commerce and are not included in the accompanying financial statements. Trust
service income is recognized on the accrual basis.
Other
Certain reclassifications have been made to amounts previously reported
in 1992 and 1991 to conform with the 1993 presentation.
Note 2 -- Restrictions on Cash
and Due from Banks
Commerce is required to maintain average reserve balances on
transactional deposit accounts with the Federal Reserve Bank under Regulation
D. The daily average amounts of these reserve balances for the years ended
December 31, 1993 and 1992 were $4.9 million and $4.6 million, respectively.
On December 31, 1993 and 1992, these reserve balances were $5.2 million and
$5.4 million, respectively.
Note 3 -- Temporary Investments
Temporary investments consist of the following:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------
<S> <C> <C>
Federal funds sold $ -- $ 7,000
Interest earning
deposits with other banks 1,000 500
Securities purchased
under resale agreements -- 5,000
Mortgages held for sale 12,431 13,048
- ----------------------------------------------------------
$13,431 $25,548
==========================================================
</TABLE>
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Note 4 -- Investment Securities
The amortized cost and approximate market value at December 31, 1993
and 1992 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury $ 80,203 $ 2,867 $ -- $ 83,070
U.S. Government agencies & corporations 69,067 1,145 (257) 69,955
Mortgage-backed securities of
U.S. Government agencies 93,564 1,211 (578) 94,197
State and municipal 1,001 28 (1) 1,028
Other securities 3,340 15 (9) 3,346
- ------------------------------------------------------------------------------------------------------------------------------
$ 247,175 $ 5,266 $ (845) $ 251,596
==============================================================================================================================
1992
U.S. Treasury $ 74,355 $ 1,872 $ (164) $ 76,063
U.S. Government agencies & corporations 88,079 1,705 (661) 89,123
Mortgage-backed securities of
U.S. Government agencies 65,700 1,232 (519) 66,413
State and municipal 849 32 -- 881
Other securities 9,697 146 -- 9,843
- ------------------------------------------------------------------------------------------------------------------------------
$ 238,680 $ 4,987 $ (1,344) $ 242,323
==============================================================================================================================
</TABLE>
The amortized cost and approximate market value of investment securities
at December 31, 1993, by contractual maturity, are show below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
Approximate
Amortized Market
(in thousands) Cost Value
- ----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 16,540 $ 16,755
Due after one year through
five years 97,917 100,993
Due after five years
through ten years 38,690 39,185
Due after ten years 464 466
Mortgage-backed
securities 93,564 94,197
- ----------------------------------------------------------------------
Total investment
securities $ 247,175 $ 251,596
======================================================================
</TABLE>
During 1993, Commerce purchased $89.8 million in investment securities
and had sales of $51.4 million that resulted in gains of $1.42 million and
losses of $20,000. During 1992, Commerce purchased $181.9 million in
investment securities and had sales of $35.8 million that resulted in gains
of $1.1 million and losses of $20,000. Securities with carrying values of
approximately $18.6 million and $13.5 million on December 31, 1993 and 1992,
respectively, were pledged to provide collateral for public deposits and for
other purposes required or permitted by law.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," which
requires investments in equity securities that have readily determinable fair
values and all investments in debt securities to be divided into three separate
categories: held-to-maturity, trading, and available-for-sale. The new standard
will be effective for 1994 reporting. Retroactive application is prohibited.
Under SFAS No. 115, securities are classified as held-to-maturity when
management has the ability and intent to hold them to maturity, and are
stated at cost adjusted for discount accreted and premium amortized. Trading
securities that are bought and held principally for the purpose of selling
them in the near term are reported at fair value, with unrealized gains and
losses included in earnings. Commerce does not anticipate establishment of a
trading account upon adoption of SFAS 115 or any effect on the results of
operations. Available-for-sale securities that management intends to hold
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
for an indefinite period of time but not necessarily to maturity, are reported
at fair value, with unrealized gains and losses, net of deferred tax, included
as a separate component of shareholders' equity.
SFAS 115 is effective for fiscal years beginning after December 15,
1993. Commerce plans to adopt the standard as required during the first
quarter of 1994 and anticipates classification of the investment portfolio at
January 1, 1994 as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Carrying Approximate
(In thousands) Value Market Value
- ---------------------------------------------------------------------
<S> <C> <C>
Held-to-maturity $ 29,068 $ 30,192
Available-for-sale 218,107 221,404
- ---------------------------------------------------------------------
$ 247,175 $ 251,596
=====================================================================
</TABLE>
Note 5 -- Loans, Net of Unearned Interest and Deferred Fees
Excluding loans in nonaccrual status, loans net of unearned interest
and deferred fees on December 31, 1993 and 1992, with fixed and floating
rates of interest were $377.3 million and $325.8 million, respectively. Loans
on which the accrual of interest has been discontinued amounted to $918,000
and $490,000 on December 31, 1993 and 1992, respectively. Interest income
would have increased $86,000 and $267,000 for 1993 and 1992, respectively, if
interest had been accrued on average outstanding nonperforming loans. There
were no material commitments to lend additional funds to customers whose
loans were classified as nonperforming on December 31, 1993.
In May 1993, the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," which is effective
for fiscal years beginning after December 15, 1994 with earlier application
permitted. SFAS No. 114 requires that loans within its scope be measured on
either the present value of expected cash flows discounted at the loan's
effective interest rate or, if more practical, at the loan's observable
market price or the fair value of the collateral when the loan is collateral
dependent. SFAS No. 114 amends SFAS No. 5, "Accounting for Contingencies," to
clarify that a creditor should evaluate the collectibility of both
contractual interest and contractual principal of all receivables in
assessing the need for a loss accrual. The statement also amends SFAS No. 15,
"Accounting by Debtors and Creditors of Troubled Debt Restructuring," to
require a creditor to measure all restructured loans from troubled debt
restructurings that involve a modification of terms in accordance with this
statement.
Commerce is currently evaluating the impact of the new statement and
anticipates adoption during the first quarter of 1995, without restatement of
prior years. Commerce, however, does not believe the adoption of SFAS 114
will have a material adverse effect on its financial condition or results of
operations.
Note 6 -- Allowance for Loan Losses
A summary of the transactions in the allowance for loan losses follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------
December 31, 1993 1992 1991
- ------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning
of year $5,671 $3,717 $3,387
Provision charged
to earnings 2,825 4,225 2,925
Losses charged
to allowance (2,309) (2,669) (2,766)
Recoveries of amounts
charged-off 340 398 171
- ------------------------------------------------------------------
Net charge-offs (1,969) (2,271) (2,595)
- ------------------------------------------------------------------
Balance at end of year $6,527 $5,671 $3,717
==================================================================
</TABLE>
Note 7 -- Related Party Transactions
During 1993 and 1992, certain executive officers and directors of
Commerce, including their immediate families and companies with which they
are associated, were loan customers of Commerce. Total loans outstanding to
these persons on December 31, 1993, and 1992 amounted to $20.3 million and
$15.9 million, respectively. During 1991 an internally classified loan to a
former director was resolved by a charge to the allowance for loan losses in
the amount of $1.1 million.
In the ordinary course of its business, Commerce has engaged in certain
transactions with certain of its directors and/or corporations and other
entities in which they are significantly interested. Commerce has engaged
legal services and has purchased equipment from directors. Except for the
lease agreement described in the next paragraph, no transactions amounted to
more than $60,000 for any one interested director for the three years ended
December 31, 1993. Also, during 1993, on behalf of Commerce, a director
provided appraisal services to customers of Commerce, which management used
in credit decisions. Customers reimburse Commerce for these services and the
director does not participate further on these credit transactions.
Commerce leases office space from an entity in which a director of
Commerce holds approximately a 33% interest. Lease expense for this location
was $246,000, $224,000, and $213,000 for 1993, 1992 and 1991, respectively.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Note 8 -- Bank Premises and Equipment
Included in the accompanying balance sheets are the following
components of premises and equipment:
<TABLE>
<CAPTION>
(In thousands)
- ---------------------------------------------------------------------
December 31, 1993 1992
- ---------------------------------------------------------------------
<S> <C> <C>
Land $ 3,194 $ 2,423
Building and improvements 6,722 5,837
Furniture, fixtures and
equipment 11,216 10,154
Leasehold improvements 2,283 1,887
Capital leases: Building 1,455 728
- ---------------------------------------------------------------------
24,870 21,029
Less: Accumulated
depreciation and
amortization (7,915) (6,367)
- ---------------------------------------------------------------------
16,955 14,662
Construction in progress 1,429 797
- ---------------------------------------------------------------------
Total premises and
equipment $ 18,384 $ 15,459
=====================================================================
</TABLE>
Commerce has entered into lease agreements for premises and equipment
which contain renewal options and escalation clauses. These leases provide
that Commerce pay taxes, maintenance, insurance and other operating expenses
applicable to the leased property. The future minimum lease payments under
noncancellable operating leases and capital leases with remaining terms in
excess of one year on December 31, 1993, are as follows:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------
Operating Capital
Leases Leases
- ----------------------------------------------------------------------
<S> <C> <C>
1994 $ 1,415 $ 228
1995 1,415 667
1996 1,205 141
1997 491 141
1998 296 141
Thereafter 2,731 1,977
- ----------------------------------------------------------------------
Total minimum lease
payments $ 7,553 $ 3,295
-------
Imputed interest (1,462)
Present value of net
minimum lease payments
(included in long-term debt) $ 1,833
======================================================================
</TABLE>
Total lease expense for buildings and equipment was $1.3 million in
1993, $1.3 million in 1992, and $1.2 million in 1991.
Note 9 -- Intangible Assets
As of December 31, 1993, Commerce had unamortized intangible assets of
$1.0 million. This included the excess of cost over the fair value of net
tangible and identified intangible assets of acquired branches and deposit
based intangibles. During the third quarter of 1993 Commerce recorded a
special nonrecurring, noncash adjustment of $910,000 for the writedown of an
intangible asset of deposits acquired on September 15, 1990. The adjustment
better aligns management's estimate of the asset's value, given changes in
market and economic conditions. The remaining intangible asset is amortized
over a weighted average life of six years.
Note 10 -- Short-Term Borrowings
Short-term borrowings consist of federal funds purchased in the amount of
$1.4 million on December 31, 1993, and securities sold under agreement to
repurchase in the amount of $563,000 on December 31, 1992. These borrowings
generally mature within 1 to 21 days or are due upon demand. The following
amounts and rates applied during 1993 and 1992:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(Dollars in thousands) 1993 1992
- --------------------------------------------------------------------
<S> <C> <C>
Amount outstanding on
December 31, $ 1,400 $ 563
Rate of interest on
December 31, 3.06% 2.50%
Highest amount outstanding
during the year $ 12,175 $ 563
Average amount outstanding
during the year $ 864 $ 411
Average rate of interest paid 3.01% 3.72%
====================================================================
</TABLE>
Securities with carrying values of approximately $994,000 on December
31, 1992, were pledged as collateral for securities under agreements to
repurchase. On December 31, 1993, Commerce had unused federal funds lines of
credit of $18.6 million.
Note 11 -- Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
- -----------------------------------------------------------------------
December 31, 1993 1992
- -----------------------------------------------------------------------
<S> <C> <C>
10% Convertible subordinated
capital notes due 2002 $ 4,995 $ 5,000
Obligations under capital
leases (6% -9.25%) 1,833 626
- -----------------------------------------------------------------------
Total $ 6,828 $ 5,626
=======================================================================
</TABLE>
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
The subordinated capital notes were issued by Commerce under terms of
an indenture dated September 1, 1990, and are convertible into Commerce's
common stock on or before August 31, 2002, unless previously redeemed at a
conversion price of $19.00 per share, subject to adjustment in certain
events. The notes are redeemable, in whole or in part, at Commerce's option
subject to regulatory approval, beginning September 1, 1995 at 105% of the
principal amount plus accrued and unpaid interest, and at reducing premiums
thereafter. The notes bear interest at 10% per annum with interest payable
quarterly. The notes are subordinated to the claims of depositors and certain
other creditors of Commerce, and are considered equity contract notes, which
are included in Tier 2 risk-based capital for bank regulatory purposes.
Note 12 -- Shareholders' Equity and Stock Option Plan
Commerce is authorized to issue 5 million shares of common stock, par
value $2.50 per share. A summary of shares of common stock reserved for
issuance as of December 31, 1993 follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Shares Reserved
- -------------------------------------------------------------------------
<S> <C>
Subordinated capital notes
(See Note 11) 262,895
Dividend Reinvestment and
Stock Purchase Plan 234,547
1985 and 1993 Stock Option
and Incentive Stock Plan 367,137
- -------------------------------------------------------------------------
Total 864,579
=========================================================================
</TABLE>
Commerce is authorized to issue 1 million shares of preferred stock,
par value $5.00 per share. At December 31, 1993, no shares of preferred stock
were issued. The rights of common shareholders are subordinated to the rights
of preferred shareholders.
Commerce issued 625,000 additional shares of common stock during May,
1992, through an underwritten offering resulting in net proceeds of $9.0
million. During 1993, $5,000 of convertible subordinated capital notes were
converted to 250 shares of common stock. Prior to 1993, no amounts were
converted.
Under Commerce's Dividend Reinvestment and Stock Purchase Plan, common
shareholders of record may reinvest quarterly common stock dividends in
shares of common stock at prices 5% below current average market prices,
without payment of service charges or brokerage commissions. Optional cash
purchases of common stock may be made by common shareholders at the current
average market price. Optional cash payments may not be less than $100 per
payment and the total of all such payments may not exceed $5,000 in any
calendar quarter.
The 1985 Stock Option Plan provides for the granting of incentive stock
options and nonqualified options to key management employees of Commerce. The
option price is the fair market value of the stock at the date of grant. All
options shall expire not more than 10 years from the date of grant, if not
previously exercised.
In 1993, the Board of Directors adopted and the shareholders approved
the 1993 Incentive Stock Plan which provides for the granting of awards in
the form of stock options, stock appreciation rights and restricted stock to
key management employees of Commerce. The option price is the fair market
value of the stock at the date of grant. No options are exercisable until at
least six months after grant or after ten years from grant.
All stock option amounts have been adjusted to reflect stock dividends and
stock splits since the inception of the plan. Federal income tax effects
relating to exercised shares are credited to capital surplus. A summary of
activity in the 1985 Stock Option Plan and 1993 Incentive Stock Plan follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Year ended December 31, 1993 1992 1991
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding
at January 1 227,131 234,131 251,025
Options granted 62,918 72,319 --
Options exercised (20,007) (7,000) --
Options canceled/
expired -- (72,319) (16,894)
- ---------------------------------------------------------------------
Options outstanding
at December 31 270,042 227,131 234,131
Options available
for grant at
December 31 97,095 2,516 2,516
- ---------------------------------------------------------------------
Total reserved shares 367,137 229,647 236,647
- ---------------------------------------------------------------------
Options exercisable
at December 31 202,672 221,269 226,585
- ---------------------------------------------------------------------
Option prices per share:
Granted $ 24.00 $ 18.00 --
Exercised $ 9.41/ $ 10.37/ --
12.34 12.96
Canceled -- $ 12.96 --
Outstanding $ 9.41/$ 9.88/ $ 14.69/
22.86 17.41 17.41
=====================================================================
</TABLE>
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
In 1993, 1992 and 1991, Commerce declared 5% stock dividends which were
recorded at fair market value with cash being paid in lieu of fractional shares.
In 1993, 1992, and 1991, Commerce declared $.51, $.26 and $.05 per share in cash
dividends, respectively. Total cash dividends declared in 1993, 1992 and 1991
were $1.30 million, $596,000, and $83,000, respectively.
State law imposes restrictions on the ability of all banks chartered
under Virginia law to pay dividends. Among other requirements that must be
satisfied, a Virginia bank must maintain a surplus fund amounting to 20% of
its capital stock, and no dividends may be paid that would reduce the surplus
fund below this mandatory amount. On December 31, 1993, Commerce had a
surplus fund in excess of Virginia law. Commerce is also required to maintain
minimum amounts of capital to total risk-weighted assets, as defined by the
banking regulators. At December 31, 1993, Commerce was required to have
minimum Tier 1 and total capital ratios of 4.00% and 8.00%, respectively.
Commerce's actual ratios at that date were 9.74% and 12.14%, respectively.
Commerce's Tier 1 leverage ratio at December 31, 1993, was 6.49%.
Note 13 -- Other Expenses
The components of other expenses are as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------
December 31, 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising and marketing $ 957 $ 556 $ 309
Directors' fees 256 209 189
Stationery and supplies 662 531 477
Credit card merchant 710 526 448
Telephone, postage and
courier 813 695 606
FDIC and other insurance 1,666 1,347 1,036
State franchise tax and
assessments 231 143 136
Professional fees 396 299 234
Dues and subscriptions 119 76 62
Travel, education and
meetings 110 91 60
Outside processing 346 258 218
Intangibles amortization 1,214 381 328
Automatic teller machine 153 159 125
Contributions 158 203 48
Loan 478 212 189
Foreclosed property 195 231 45
Miscellaneous 387 518 342
- --------------------------------------------------------------------------------
Total other expenses $ 8,851 $ 6,435 $ 4,852
================================================================================
</TABLE>
Note 14 -- Income Taxes
As discussed in Note 1, Commerce adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," for 1993.
Applying the provisions of SFAS No. 109 had no material effect on Commerce's
financial statements. Prior years' financial statements were not restated,
therefore, the amounts shown for fiscal years 1992 and 1991 were determined
in accordance with the provisions of the Accounting Principles Board Opinion
No. 11.
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Commerce's deferred tax liabilities and assets at December 31,
1993 are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 921
Other 67
- ----------------------------------------------------------------------------
Total deferred tax liabilities 988
- ----------------------------------------------------------------------------
Deferred tax assets:
Loan loss 1,945
Deferred compensation 228
Loan origination fees 232
Other 3
- ----------------------------------------------------------------------------
Total deferred tax assets 2,408
- ----------------------------------------------------------------------------
Net deferred tax assets $ 1,420
============================================================================
The provision for income taxes is summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------
December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes current $ 4,298 $ 3,189 $ 1,168
Deferred (461) (712) 53
- ----------------------------------------------------------------------------
Provision for income taxes $ 3,837 $ 2,477 $ 1,221
============================================================================
</TABLE>
The components of the provision for deferred income taxes for the
years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(In thousands) 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred (benefit):
Provision for loan losses $ (375) $ (705) $ (112)
Loan origination fees and costs (20) (7) 56
Depreciation 44 12 129
Deferred compensation (53) (33) (23)
Other (57) 21 3
- ----------------------------------------------------------------------------
Provision for deferred
income taxes $ (461) $ (712) $ 53
============================================================================
</TABLE>
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Commerce's income tax returns through 1991 have been examined or are no
longer subject to examination by the Internal Revenue Service. In addition to
federal income taxes, Commerce incurred Virginia bank franchise taxes of
$149,000 in 1993, $83,000 in 1992, and $77,000 in 1991. This tax is imposed upon
banks in Virginia in lieu of income and personal property taxes. Commerce remits
80% of the tax to the Virginia municipalities in which it does business and the
remaining 20% to the State.
The applicable federal income tax effect of investment security gains was
$481,000 in 1993, $374,000 in 1992, and $306,000 in 1991.
Differences between the provision for income taxes at the statutory rate
and that shown in the statement of income are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------
December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at
statutory rate $ 3,553 $ 2,522 $ 1,299
Increase (reduction)
in taxes resulting
from:
Tax-exempt interest (196) (146) (127)
Goodwill 363 88 40
Other 117 13 9
- ----------------------------------------------------------------------------
Provision for income
taxes $ 3,837 $ 2,477 $ 1,221
============================================================================
</TABLE>
Note 15 -- Earnings Per Share
Earnings per share were determined as follows:
<TABLE>
<CAPTION>
(In thousands, except per share)
- ----------------------------------------------------------------------------
Year ended December 31, 1993 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Primary
Average common
shares outstanding 2,660 2,351 1,913
Dilutive common
stock options
assumed exercised 88 62 *
- ----------------------------------------------------------------------------
Average primary
shares outstanding 2,748 2,413 1,913
- ----------------------------------------------------------------------------
Net Income $ 6,551 $ 4,942 $ 2,599
Per Share Amount $ 2.38 $ 2.05 $ 1.36
- ----------------------------------------------------------------------------
Fully Diluted
Average common
shares outstanding 2,660 2,351 1,913
Dilutive common
stock options 90 62 --
Dilutive convertible
subordinated capital
notes assumed
converted 263 263 263
- ----------------------------------------------------------------------------
Average fully diluted
shares outstanding 3,013 2,676 2,176
- ----------------------------------------------------------------------------
Net Income $ 6,551 $ 4,942 $ 2,599
Add interest on
convertible
subordinated
capital notes,
after taxes 324 336 336
- ----------------------------------------------------------------------------
Adjusted net income $ 6,875 $ 5,278 $ 2,935
- ----------------------------------------------------------------------------
Per share amount $ 2.28 $ 1.97 $ 1.35
============================================================================
</TABLE>
* Anti-dilutive, therefore not considered in the calculation.
Note 16 -- Acquisitions of Deposits
Commerce acquired deposits from the Resolution Trust Corporation, as
receiver of the failed Trustbank, F.S.B., and Atlantic Permanent Savings Bank,
F.S.B., on March 20, 1992 and July 12, 1991, respectively. These acquisitions
were accounted for as purchases. The results of operations related to these
transactions are included in the financial statements since the date of such
acquisitions.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
The following table summarizes the acquisitions:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(In thousands) 1992 1991
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash received $ 65,087 $ 51,995
Loans -- net 239 646
Other assets 622 330
Bank premises and
equipment -- --
Deposits (65,136) (52,834)
Other liabilities (812) (137)
============================================================================
</TABLE>
Note 17 -- Contingent Liabilities
Commerce is subject to claims and lawsuits which arise primarily in the
ordinary course of business. Based on information presently available and advice
received from legal counsel representing Commerce in connection with such claims
and lawsuits, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits will not have a material adverse
effect on the financial position of Commerce.
Note 18 -- Financial Instruments with Off-Balance Sheet Risk
In the normal course of business, in order to meet the financing needs of
its customers, Commerce is a party to financial instruments with off-balance
sheet risk. These include commitments to extend credit and standby letters of
credit. These instruments involve, to various degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statement of
financial position. Management conducts regular reviews of these instruments on
an individual customer basis, and the results are considered in assessing the
adequacy of Commerce's allowance for loan losses. Management does not anticipate
any material losses as a result of these transactions.
Commerce's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. Commerce uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Commerce evaluates each customer's credit-
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by Commerce upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies, but may include accounts
receivable, inventory, property, plant, and equipment, income-producing
properties and balances left on deposit.
Standby letters of credit are conditional commitments issued by Commerce
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
The following table indicates the amount of off-balance sheet
transactions:
<TABLE>
<CAPTION>
(In thousands)
- ----------------------------------------------------------------------------
December 31, 1993 1992
- ----------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $61,644 $41,355
Standby letters of credit and
financial guarantees $ 5,223 $ 3,908
============================================================================
</TABLE>
Note 19 -- Risk Factors
Commerce's operations are affected by various risk factors, including
interest rate risk, credit risk and risk from geographic concentration of
lending activities. Management attempts to manage interest rate risk through
various asset/liability management techniques designed to match maturities of
assets and liabilities. Loan policies and administration are designed to provide
a well diversified loan portfolio and assurance that loans will only be granted
to credit-worthy borrowers. Commerce considers the allowance for loan losses of
$6.53 million to be a reasonable estimate of potential loss exposure in the loan
portfolio on December 31, 1993; however, subjective factors and factors beyond
the control of Commerce could impact this estimate on an on-going basis. In
addition, Commerce is a community bank and, as such, is mandated by the
Community Reinvestment Act and other regulations to conduct most of its lending
activities within the Hampton Roads, Virginia market. As a result, Commerce and
its borrowers may be vulnerable to the consequences of change in the local
economy.
Note 20 -- Retirement Plan
Commerce has a 401(K) Retirement, Thrift and Profit Sharing Plan. The Plan
is a defined contribution plan covering all employees who have completed at
least 1,000 hours of service during the twelve-month period beginning
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
on the first day of employment. It is subject to the provisions of the Employee
Retirement Income Security Act of 1974. Commerce contributes an amount equal to
at least 50% of participant's payroll savings contribution up to 6% of a
participant's annual compensation. Additionally, a profit sharing contribution
may be made at the discretion of the Board of Directors. Each participant is
required to contribute at least 1% of their compensation but may contribute up
to the lesser of 15% of their compensation or $8,994. Bank contributions were
$304,000, $232,000, and $118,000 for 1993, 1992 and 1991, respectively.
Note 21 - Disclosures about Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires Commerce to disclose estimated fair value for each class of financial
instrument. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These valuations,
where applicable, do not reflect any premium or discount that could result from
offering for sale at one time Commerce's entire holdings of a particular
financial instrument. In addition, no market exists for a significant portion of
Commerce's financial instruments. Fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgement, and changes in assumptions could significantly affect the
estimates.
Fair value estimates are based 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. SFAS 107 specifically excludes certain items that do not
meet the definition of a financial instrument. These items include such things
as Commerce's mortgage brokerage operation that contributes net fee income
annually, the trust department, deferred tax assets, property, plant, and
equipment and goodwill. In addition, the tax ramifications related to the
realization of the unrealized gains and losses may have a significant effect on
fair value and have not been considered in the estimates. Accordingly, the fair
value information presented does not purport to represent any underlying "market
value" of Commerce taken as a whole.
The following methods and assumptions were used to estimate the fair value
of Commerce's financial instruments.
Cash and Due from Banks
Cash and due from banks consist of currency and coin, cash items in
process of collection and demand account balances, and their carrying amounts
approximate fair value.
Temporary Investments
Temporary investments consist of interest bearing deposits with other
banks, and mortgages held for sale, and their carrying amounts approximate fair
value.
Investment Securities
Fair value for investment securities are based on quoted market prices
where available. Otherwise, fair values are based on bid quotations received
from independent securities dealers or are estimated utilizing independent
pricing services based on available market data. In addition, fair values are
calculated based on the value of one unit without regard to any premium or
discount that may result from concentrations of ownership of a financial
instrument, possible tax ramifications or estimated transactions costs. See Note
4 for related fair value information.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, real estate,
installment and tax-exempt. Each loan category is further segmented into fixed
and adjustable rate interest terms and by performing and nonperforming
categories.
The fair values of performing loans (loans that are on accrual status) are
calculated by discounting estimated cash flows using estimated market rates that
reflect the credit and interest rate risk and prepayments inherent in the loan.
For nonperforming loans and certain loans where the credit quality of the
borrower has deteriorated significantly, fair values are estimated by
discounting expected cash flows at a rate commensurate with the risk associated
with the estimated cash flows, or recent appraisals of the underlying
collateral.
Deposit Liabilities
The recorded amounts of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, by definition approximate fair value.
The fair value of deposits with contractual maturities is based on the
discounted value of expected cash flows. The discount rates used are those
currently offered for deposits with similar remaining maturities.
Short-term Borrowings
Short-term borrowings consist of securities sold under agreement to
repurchase and represent overnight transactions, and the carrying values
approximate fair value.
<PAGE>
[LOGO OF COMMERCE BANK APPEARS HERE]
NOTES TO FINANCIAL STATEMENTS
Long-term Debt
The fair value of the capital notes is calculated by discounting the
contractual cash flows using an incremental rate of borrowing that would be
currently available to Commerce for new debt of similar remaining maturity and
terms.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of standby letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties which approximates carrying
value.
The fair value of financial instruments not presented in other portions of
the footnotes follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
At December 31, 1993
-------------------------------
Carrying Estimated
(In thousands) Amount Fair Value
- ----------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 25,800 $ 25,800
Temporary investments 13,431 13,431
Loans 378,258 380,499
Deposit liabilities 634,141 639,456
Short-term borrowings 1,400 1,400
Long-term debt 6,828 7,677
============================================================================
</TABLE>
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
EDGAR Version Typeset Version
- ------------- ---------------
EX99_4A]2 NET INCOME BAR GRAPH - (Dollars in Millions)
PLOT POINTS - 1989 -- 1.7
1990 -- .5
1991 -- 2.6
1992 -- 4.9
1993 -- 6.6
EX99_4A]2 RETURN ON AVERAGE ASSETS BAR GRAPH
PLOT POINTS - 1989 -- .63%
1990 -- .16%
1991 -- .59%
1992 -- .86%
1993 -- 1.00%
EX99_4A]2 RETURN ON AVERAGE SHAREHOLDER'S EQUITY BAR GRAPH
PLOT POINTS - 1989 -- 8.61%
1990 -- 2.59%
1991 -- 11.65%
1992 -- 15.65%
1993 -- 16.06%
EX99_4A]6 NET INTEREST INCOME BAR GRAPH (DOLLARS IN MILLIONS)
X-AXIS COMPARES THE YEARS 1989 - 1993
EACH YEAR SHOWS: 1) INTERET INCOME
2) NET INTEREST INCOME
3) INTEREST EXPENSE
PLOT POINTS -
1989 - INTEREST INCOME -- 28.6
- NET INTEREST INCOME -- 11.7
- INTEREST EXPENSE -- 17.0
1990 - INTEREST INCOME -- 35.3
- NET INTEREST INCOME -- 13.4
- INTEREST EXPENSE -- 21.9
1991 - INTEREST INCOME -- 41.0
- NET INTEREST INCOME -- 16.6
- INTEREST EXPENSE -- 24.5
1992 - INTEREST INCOME -- 44.9
- NET INTEREST INCOME -- 22.5
- INTEREST EXPENSE -- 22.4
1993 - INTEREST INCOME -- 47.3
- NET INTEREST INCOME -- 26.3
- INTEREST EXPENSE -- 21.0
EX99_4A]6 BAR GRAPH - NET INTEREST MARGIN
X-AXIS COMPARES THE YEARS 1989 - 1993
EACH YEAR SHOWS: 1) YIELD ON EARNING ASSETS
2) NET INTEREST MARGIN
3) RATE ON INTEREST BEARING
LIABILITY
PLOT POINTS -
1989 - YIELD ON EARNING ASSETS -- 11.59%
- NET INTEREST MARGIN -- 4.72%
- RATE ON INTEREST BEARING LIABILITY -- 8.17%
1990 - YIELD ON EARNING ASSETS -- 11.08%
- NET INTEREST MARGIN -- 4.19%
- RATE ON INTEREST BEARING LIABILITY -- 7.87%
1991 - YIELD ON EARNING ASSETS -- 10.09%
- NET INTEREST MARGIN -- 4.07%
- RATE ON INTEREST BEARING LIABILITY -- 6.75%
1992 - YIELD ON EARNING ASSETS -- 8.53%
- NET INTEREST MARGIN -- 4.28%
- RATE ON INTEREST BEARING LIABILITY -- 4.83%
1993 - YIELD ON EARNING ASSETS -- 7.79%
- NET INTEREST MARGIN -- 4.33%
- RATE ON INTEREST BEARING LIABILITY -- 4.02%
EX99_4A]6 BAR GRAPH - NET OVERHEAD RATIO
PLOT POINTS - 1989 -- 3.48%
1990 -- 3.14%
1991 -- 2.64%
1992 -- 2.27%
1993 -- 2.23%
EX99_4A]7 BAR GRAPH - TOTAL OPERATING REVENUE (DOLLARS IN
MILLIONS) X-AXIS COMPARES THE YEARS 1989 - 1993
EACH YEAR SHOWS: 1) TOTAL OPERATING REVENUE
2) NET INTEREST INCOME
3) NON INTEREST INCOME AND
SECURITIES GAINS
PLOT POINTS -
1989 - TOTAL OPERATING REVENUE-- 14.5
- NET INTEREST INCOME -- 11.7
- NONINTEREST INCOME AND SECURITIES GAINS -- 2.9
1990 - TOTAL OPERATING REVENUE-- 16.8
- NET INTEREST INCOME -- 13.4
- NONINTEREST INCOME AND SECURITIES GAINS -- 3.5
1991 - TOTAL OPERATING REVENUE-- 22.3
- NET INTEREST INCOME -- 16.6
- NONINTEREST INCOME AND SECURITIES GAINS -- 5.8
1992 - TOTAL OPERATING REVENUE-- 30.7
- NET INTEREST INCOME -- 22.5
- NONINTEREST INCOME AND SECURITIES GAINS -- 8.2
1993 - TOTAL OPERATING REVENUE-- 36.9
- NET INTEREST INCOME -- 26.3
- NONINTEREST INCOME AND SECURITIES GAINS --10.7
EX99_4A]10 BAR GRAPH -- NET CHARGE-OFFS TO ALLOWANCE FOR
LOAN LOSSES (DOLLARS IN MILLIONS)
X-AXIS COMPARES THE YEARS 1989-1993
EACH YEAR SHOWS: 1) NET CHARGE-OFFS
2) END OF YEAR ALLOWANCE FOR
LOAN LOSSES
PLOT POINTS -
1989 -- NET CHARGE-OFFS -- .3
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 2.2
1990 -- NET CHARGE-OFFS -- 1.5
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 3.4
1991 -- NET CHARGE-OFFS -- 2.6
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 3.7
1992 -- NET CHARGE-OFFS -- 2.3
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 5.7
1993 -- NET CHARGE-OFFS -- 2.0
END OF YEAR ALLOWANCE FOR LOAN LOSSES -- 6.5
EX99_4A]11 BAR GRAPH -- AVERAGE EARNING ASSETS (DOLLARS
IN MILLIONS)
X-AXIS COMPARES THE YEARS 1989-1993
EACH YEAR SHOWS: 1) TEMPORARY INVESTMENTS
2) INVESTMENT SECURITIES
3) LOANS NET OF UNEARNED
INCOME & DEFERRED FEES
1989 - TEMPORARY INVESTMENTS -- 9.5
- INVESTMENT SECURITIES -- 40.0
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 197.6
- TOTAL AVERAGE EARNING ASSETS
FOR 1989 -- 247.1
1990 - TEMPORARY INVESTMENTS -- 7.8
- INVESTMENT SECURITIES -- 60.0
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 250.7
- TOTAL AVERAGE EARNING ASSETS
FOR 1990 -- 318.5
1991 - TEMPORARY INVESTMENTS -- 15.0
- INVESTMENT SECURITIES -- 98.6
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 293.2
- TOTAL AVERAGE EARNING ASSETS
FOR 1991 -- 406.8
1992 - TEMPORARY INVESTMENTS -- 21.4
- INVESTMENT SECURITIES -- 190.9
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 314.3
- TOTAL AVERAGE EARNING ASSETS
FOR 1992 -- 526.6
1993 - TEMPORARY INVESTMENTS -- 16.1
- INVESTMENT SECURITIES -- 243.0
- LOANS NET OF UNEARNED INCOME &
DEFERRED FEES -- 347.6
- TOTAL AVERAGE EARNING ASSETS
FOR 1993 -- 606.7
EX99_4A]11 PIE CHART -- PERIOD END LOANS
CONSUMER INSTALLMENTS -- 27%
REAL ESTATE MORTGAGE -- 23%
REAL ESTATE CONSTRUCTION AND DEVELOPMENT -- 5%
TAX EXEMPT -- 2%
COMMERCIAL AND ALL OTHER -- 44%
EX99_4A]11 BAR GRAPH -- TOTAL LOANS (DOLLARS IN MILLIONS)
PLOT POINTS -
1989 -- 214.4
1990 -- 280.2
1991 -- 302.9
1992 -- 326.3
1993 -- 378.3
EX99_4A]15 PIE CHART - PERIOD END DEPOSITS
MONEY MARKET SAVINGS -- 36%
CERTIFICATES OF DEPOSIT LESS THAN $100,000 -- 27%
CERTIFICATES OF DEPOSIT MORE THAN $100,000 -- 6%
REGULAR SAVINGS -- 4%
NONINTEREST BEARING DEMAND -- 16%
INTEREST BEARING DEMAND -- 11%
EX99_4A]16 BAR GRAPH - TOTAL DEPOSITS (DOLLARS IN MILLIONS)
PLOT POINTS -
1989 -- 278.1
1990 -- 374.4
1991 -- 445.2
1992 -- 598
1993 -- 634.1
EX99_4A]16 BAR GRAPH - PERIOD END SHAREHOLDERS' EQUITY (DOLLARS
IN MILLIONS)
PLOT POINTS -
1989 -- 20.6
1990 -- 21.1
1991 -- 23.8
1992 -- 37.4
1993 -- 43.6
